Moontower #172

This is going to be a short issue. I meant to publish it on Thanksgiving and punt on the Sunday letter but I didn’t spend any time in front of a laptop this week.

Instead, I’ll share a file I have been adding to in my private notes for years. It used to be nothing more than a list of quotes but it’s morphed into something of a compass and manual.

I won’t say anything else about it. You can explore it if you like. If you find something useful, take it. If you find stuff you hate, ignore it or tell me. The beliefs are survivors of my internal tournament of ideas but I’m happy to enter your criticism into the coliseum.

Have at it…

Moontower Affirmations and North Stars


Money Angle

You’ll probably get sucked into some online shopping tomorrow. Here are some finance book recs from a great writer who happens to write about investing for the WSJ.

A few other lists of recommendations:

  • The Investing Pro’s Library (Moontower)In over 20 years of option market-making, trading, and portfolio management I’ve been fortunate to meet many talented risk-takers. I took the opportunity to ask some of them what the most influential books or papers they have read in their careers.

    I asked a cohort of 25 investors. They are CIO’s, PMs, and independent investors whose livelihood depend on the bets they take. Half of the respondents have had an options focus and more than 80% would be classified as quantitative…

  • For Investing Beginners (Moontower)My 25-year-old cousin is interested in going into the investing world and asked me where to start. He has taken some business courses in college so I was able to presume some very basic knowledge.

Finally, I’ve sent this list of 8 books to 2 separate friends who have middle and high-school-aged kids who wanted to learn about investing, personal finance, business in general, and economic rationale:

Investing

The Four Pillars of Investing by William Bernstein

Just Keep Buying by Nick Maggiulli

The Most Important Thing by Howard Marks

Investing with a personal finance slant

The Psychology of Money by Morgan Housel

I Will Teach You To Be Rich by Ramit Sethi

Economics and Business

The Invisible Heart: An Economic Romance by Russ Roberts
(I took notes on this novel)

The Rebel Allocator by Jake Taylor
(I took notes on this novel)

And because investing is a super low-signal endeavor, you need some protection from the sales machine:

Fooled by Randomness by Nassim Taleb

If you are a seasoned pro, many of these titles will make you groan. That’s because you are already “cursed with knowledge”. These books are highly approachable and can quickly elevate a total novice’s understanding. The 2 novels are an original and effective way to communicate economic and business contexts by turning the discourse into a conversation instead of a lecture.

If they finished these, I’d recommend Joel Greenblatt’s Little Blue Book That Beats The Market. Not because of the strategy specifics but as a tangible example of process while introducing important business metrics in a usable context.


Last Call

  • I’m Pretty Sure I Broke Linkedin: Satire makes for an excellent IQ test (10 min read)Jack Raines has been raising hell over at LinkedIn. This post is hilarious. But Jack’s writing about the culture of LinkedIn is even better than the satire. It’s a perfect-pitch articulation of his observations in the wild that is the LinkedIn timeline. Jane Goodall would be proud.
  • Jason Zweig On Writing (11 min read)I mentioned WSJ writer Jason Zweig above. He’s a masterful writer masquerading as a financial columnist. He wrote a 3-part series on the craft of writing. This post captured my favorite takeaways.

     


From My Actual Life

I stayed north of San Diego this past week where my sister’s family, my mom, my dad and my family all convened for vacation. We went to Sea World, hung around the pool, saw a theater performance of the Grinch, and hit up the Air & Space Museum in Balboa Park (there was a fantastic exhibit on Galileo…inspiring and a reminder that the breadth of what is going on inside people’s minds is incomprehensible).

The only negative was the underwhelming Korean barbecue we ate on Thanksgiving Day instead of cooking. News flash: Escondido isn’t Flushing, Queens. All in all the trip still delivered — it wasn’t about the excursions.

It was watching reruns of PasswordPlus and SupermarketSweep with my sis (and being shocked at how young some of the contestants were despite their appearance. Seriously, that Cheers meme is a thing. People looked so much older way back when).

It was chatting with my brother-in-law about both his career and personal business while sitting on the balcony. So many decisions that have nothing to do with a spreadsheet. Decisions that would be hard to discuss unless you could match the vulnerability of, well, a brother.

It was listening to my parents, who have been divorced since I was in high school, talk to each other as different people but also the same people.

It was trying to find myself in their stories. How much of them is in me? How much did I keep? How much did I unlearn? Physically speaking, how do I think about my future health when I see their struggles today? I’ve talked about some of my interventions this year. Seeing them is a reminder not to parabolically discount the future. It’s here before you know it.

When I brought my dad back to his apartment I noticed this picture.

My dad has green/blue eyes. With my parents in the same room, I tried to determine some of my blood lineage (both their presence was helpful — I have a bit of a reliable witness issue to navigate and I don’t get these chances often). Long story short, I thought I was like 98% Egyptian but the working theory is more like 80% Egyptian, with the rest mostly Greek plus a sliver of French. Seriously, anything to make me more of a mut feels like a congenital health win. As far as I can see from the community I grew up around, Egypt isn’t exactly Blue Zone.

Overall, Thanksgiving was a welcome slowing of time. I’m grateful for the time we get. You don’t know what tomorrow’s got. You should live like there’s no tomorrow. Except for that if you do that and tomorrow comes, you’ll wish you lived like you knew it all along.

In the Olympics of unsatisfying paradoxes, this ranks right up there with “I guess I’ll sell half the position”.

Stay groovy.

Moontower #171

I didn’t mince words last week:

There’s way too much obsession with investments as a way to get rich in the first place. It’s misallocated attention. It’s misplaced energy…Don’t obsess about investing beyond the point of diminishing returns.

Yes, you should absolutely learn about:

  • compounding
  • saving
  • fees
  • taxes
  • diversification
  • implementing or getting help to construct a portfolio with simple rules

Now stop and go home.

I was forceful about this because the exceptions to this are rare enough that caveats shouldn’t minimize the message.

I also recognize that “real talk” like this can feel like I’m putting a lid on your habitat without the courtesy of breathing holes. That’s why I added an emphasis on your human capital in preference to financial capital:

If you want to go big or go home, it’s best to do so on your skills or personal edge.

This brings me to a recommendation that will inspire, educate, and entertain:

David Senra’s Founders Podcast.

It’s some of the best content I’ve discovered in a long time. The premise is simple. David reads biographies and tells you about them.

It’s hard to explain how well done this is. David’s enthusiasm, tone, synthesis, and identification of a few common themes throughout these stories are immensely satisfying. The stories are inspiring even when they deserve admonition.

The narratives remind us that the exertion of our will on the world is murky but ultimately pursuit is a mother’s hand pulling a 7-year-old through the crowded sidewalks of life’s confusion. Yes, it takes time. It takes bumping into pedestrians’ butts. You often don’t know what direction you’re headed in. But eventually, there’s daylight. You are growing. You will get taller to weave through the crowd yourself.

The podcasts are empowering without any pep talks. The subtext binding them all together is enterprise. The primacy of action. The undisputed sense that the world is malleable and you can bend it.

Getting Started with Founders

With nearly 300 episodes, there’s something for everyone. I’ve listened to these:

#207: Claude Hopkins, Scientific Advertising

#189: David Ogilvy, The Unpublished David Ogilvy

#111: David Geffen, The Operator: David Geffen Builds, Buys, and Sells The New Hollywood

#66: Henry Kaiser, Builder in the Modern American West

#21: John Carmack & John Romero, Masters of Doom: How Two Guys Created An Empire And Transformed Pop Culture

My favorite so far — inspiration straight into my veins:

#18: Yvon Chouinard, Let My People Go Surfing: The Education of a Reluctant Businessman

#245: Rick Rubin, In The Studio

…and these episodes were worth heavy note-taking:

  • David Senra On Invest Like The Best (Moontower notes)

    This episode is not on Founders but instead is Patrick O’Shaughnessey interviewing host David Senra. I listened to it 3x. It was this interview that got me into listening to Founders and my favorite podcast episode this year.

    There’s more.

    I asked my 4th grader to listen with me and take notes (he’s learning note-taking in school this year). I’ve never asked him to listen to an interview before but I wish someone might have asked me to listen to a discussion like this when I was at such an impressionable age. In my link, I include his notes too! It was fascinating to see what bits stood out to him. (Since the episode is 90 minutes, we broke it up into 3 sessions of 30 minutes over 2 weeks).

    [One of the reasons the episode might have been especially fun for him is we just finished watching The Men Who Made America series on the History Channel and Senra discusses many of the “captains of industry” or “robber barons” featured on the TV series.]

    My notes discuss some of the common Founders themes that stand out to both Senra and I.

  • #93: Ed Thorp, A Man For All Markets (Moontower notes)

    An oft-repeated theme on Founders is that the subjects are deeply flawed, often miserable. You are warned to not glorify them but instead extract their deep but narrow wisdom, instead of copying their lives. This episode is special because Ed Thorp is the one person, Senra uses as his own personal blueprint.

    And I agree. Thorp in his entirety (or at least what we can know from his public action and writing) is an admirable and impressive individual.

    I immediately purchased Thorp’s book and I’m reading it to Zak at night before bed. Thorp’s life is a movie.

I’ve recommended Founders to several friends and the reaction has been universal — “where has this podcast been hiding?” If it gives you half as much joy as I’ve gotten from it it’ll be worth it.


Ok, so recapping.

  1. Don’t spend any more time than you need to on investments.

    They are numbers that go up and down and nobody can prove than know anything. From Why I Share Online And The Decision To Leave Trading:

    An aside that is gonna trigger some set of people: I could hand over all my professional dashboards and tools, and it wouldn’t make a difference. You won’t get the same results. Experience, discipline, and creativity are not something you can take from another. And they are foundational to a discretionary strategy. Think about this from a game-theoretic point of view. If I could codify (I tried and couldn’t) what I did, then it would be easy to prove the edge. The strategy would then be automated and be oversubscribed or its owners would never sell it to an investor. The fact that it’s discretionary and cannot be proven except by its eventual outcomes means an investor must always worry that I’m full of shit.

    Do you see the paradox?

    If the edge is provable, it doesn’t exist for you. So the only hope of finding edge is in your judgment of a discretionary strategy. This is not a worthy use of your time because your confidence can never be high enough a priori to bet an amount that was commensurate with moving the needle. You’re flirting around the edges of a low SNR problem. Unless this is fun, assassinate the FOMO right now by directing your Superman “rationality” eye beam at the paradox, and move on to the next obstacle holding you back from worthy pursuits.

  2. Gather energy

    Check out Founders.

    Check out Bill Gurley’s Runnin’ Down A Dream: How To Succeed and Thrive in a Career You Love speech that inspired Founders. (YouTube)

    That speech also inspired hedge fund manager Alix Pasquet’s presentation:

    Learning for Analysts and Future Portfolio Managers (2 hour video)

    Despite the investing-focused title of the speech, its central theme is broader:

    Learning Is behavioral change!

    The video is long but I found it worthwhile. The notes will let you judge for yourself.

    • Moontower notes (9 min read)

    • Frederik Gieschen’s notes (7 min read)

    • Presentation slides (download)

  3. Strike

    This old post includes links to light your fire.

    • Get Unstuck and Move (10 min read)


Money Angle

A question I posed last week:

I suspect, despite positive track records in return space, their total dollar p/l is very negative. Sometimes the simplest benchmark is useful — what are your net dollar profits? There are fund managers that have probably made more from fees than their investors have made in p/l.

Anyone know the money-weighted returns of ARKK or crypto investors?

My buddy Aneet has a strong clue to this in this post:

  • ETFs are the new stocks — mind the creation/redemption gap (4 min read)

Performance-chasing flows are a nail in their own coffin. If everyone is bulled up on an idea, the price must reflect a fat premium that sellers command to do the out-of-consensus thing. The article focuses on flows, but flows are downstream of sentiment.

You’d be wise to think about what the sentiment is before you buy any shiny investment.

I’ve discussed this before in Staring Out The Window.


Last Call

Rounding out the personal growth theme this week:

The Art of Fermenting Great Ideas (paywalled)
by Nat Eliason

Nat’s post is paywalled but it’s a banger that uses fermentation as a fitting metaphor for the process of idea generation. You can’t force it, but you create the conditions for it. Some bits with my occasional commentary.

  • If you want all of the ideas that pop into your brain to be clever responses to that person who was WRONG on Twitter today, then, by all means, scroll Twitter all day. If you want all your mental RAM to go towards fearing for your life over this year’s new armageddon myth, go for it. But if you want to come up with useful brain farts that move your life forward, you will have to stop feeding your mailroom dog shit. Garbage in, garbage out.
  • Removal is only the first step, though. You must replace it with the fresh juicy jalapeños you want your brain to be fermenting.

    You’re probably assuming I’m going to say “read great books” or “read old stuff” here, but no, that’s not the answer. That helps shift your thinking in a more interesting direction. But it doesn’t necessarily help generate great ideas.

    The most important food to constantly feed your brain is the problems you want it to be solving. These problems do not need to be grand like “solving world hunger.” Maybe one of your problems right now is what to get people for Christmas. You have to define clearly what those problems are and then constantly remind your brain to think about them. You need to be sending all-caps memos down to the mailroom fifty times a day saying COME UP WITH GIFT IDEAS!!! Otherwise, the mailroom is thinking about whether you’d rather fight 100 duck-sized horses or 1 horse-sized duck.

    [This works for getting better at anything including relationships]

  • Output time is creating the space and boredom for those inputs to ferment into something interesting. Staring at a blank page of your journal, opening a document to start writing, going for a (no headphones) walk with a notebook, working out without music, or sitting in the sauna. However you create bored, quiet space for your brain to finally get some processing room to spit ideas out; you must create that space if you want the ideas to form.

    The ways we fail at this are obvious. We never give ourselves output time because we’re terrified of silence and boredom. We need a podcast while working out. We need music while working. We keep social media up in another tab. We have notifications on our phones. We let ourselves be interrupted.

    If your first response to boredom is to seek out another input to sate the longing for stimulation, then your brain never has to make shit up to entertain you. The idea muscles will atrophy and never produce anything of worth. But if you can respond to boredom by leaning into it, keeping the blank page open, and seeing what pops out, the muscle gets stronger over time.

    [Maybe shower thoughts are shower thoughts because there are no other times when we would have such thoughts. Corollary: A good use of money is to buy time so you can be idle and have more ideas.]

  • We all want our problems to be solved quickly, and we want to neatly move through a checklist of tasks to retain the illusion of control over our lives, but great ideas don’t seem to work like that. Sometimes you need to be exceedingly patient with them.

    You can’t always have all the time in the world, but when you have the space to noodle on something, take it. I’ll narrow down what I’m going to write about in this newsletter by Monday or Tuesday of the week before, then spend the rest of the week seeing what ideas pop up about the various topic ideas. By Monday, I’ll typically have the skeleton of a post fully flushed out in one of them. If I waited until Monday to start jotting ideas down, it would be much harder, and the post would certainly be much worse.

    So give the great ideas time to pop up. Even if you know you have weeks or months to figure something out, start priming your brain with those questions now so it has time to process them.

    [This is exactly what I do. I keep several ideas brewing top-of-mind at the same time]

  • Recipe:
    1. Find the best ingredients possible to ferment into great ideas, and aggressively prune everything you don’t want your brain to process.
    2. Give your brain the boredom and output time it needs to figure out what to do with that information. Don’t keep opening the jar and packing more into it.
    3. Finally, be patient with the process. The more you can reduce the amount of information you’re taking in, and the more boredom you can give your brain to work, the better your results will be.


From My Actual Life

One of the blogs I guest posted on asked for a headshot. I got tired of using this one:

So I went to my wife Yinh. “I need help. I need like a headshot for the internet crap I do”.

Like a prepper before a Cat 5 storm, her day had arrived. “I got you. Come to my office”. Yinh’s IG story game is A+. Whenever I meet a friend or colleague of hers they always feel like they know me because her stories are prolific, but they are clever and well done (you can follow her. It’s a locked account but she accepts the requests and she knows I’m sharing it here today).

Sometimes when technology shapes us we snatch a victory. In this case, her commitment to the IG story has sharpened her photography eye over the years. So when I went to her office she posed me in different settings, lighting, and a couple of costume changes. I have no eye for design or aesthetics. I know what I like but struggle to map that to creation, whether it’s photography, decor, or even Powerpoint. I have yet even more appreciation for those skills today, as she made me look as good as I can possibly look.

After an hour and hundreds of photos (with an iPhone too), we narrowed to these 3:

Tell me you wouldn’t fork over all your life savings for a Moontower Coin or invest in my blood transfusion start-up.

(I have been told I look like Ross from Friends my whole adult life. An older lady asked me for an autograph on a subway platform in Brooklyn about 15 years ago even.)

Happy Thanksgiving and stay groovy fam!

The Podcast I Listen To With My 9-Year-Old

I didn’t mince words last week:

There’s way too much obsession with investments as a way to get rich in the first place. It’s misallocated attention. It’s misplaced energy…Don’t obsess about investing beyond the point of diminishing returns.

Yes, you should absolutely learn about:

  • compounding
  • saving
  • fees
  • taxes
  • diversification
  • implementing or getting help to construct a portfolio with simple rules

Now stop and go home.

I was forceful about this because the exceptions to this are rare enough that caveats shouldn’t minimize the message.

I also recognize that “real talk” like this can feel like I’m putting a lid on your habitat without the courtesy of breathing holes. That’s why I added an emphasis on your human capital in preference to financial capital:

If you want to go big or go home, it’s best to do so on your skills or personal edge.

This brings me to a recommendation that will inspire, educate, and entertain:

David Senra’s Founders Podcast.

It’s some of the best content I’ve discovered in a long time. The premise is simple. David reads biographies and tells you about them.

It’s hard to explain how well done this is. David’s enthusiasm, tone, synthesis, and identification of a few common themes throughout these stories are immensely satisfying. The stories are inspiring even when they deserve admonition.

The narratives remind us that the exertion of our will on the world is murky but ultimately pursuit is a mother’s hand pulling a 7-year-old through the crowded sidewalks of life’s confusion. Yes, it takes time. It takes bumping into pedestrians’ butts. You often don’t know what direction you’re headed in. But eventually, there’s daylight. You are growing. You will get taller to weave through the crowd yourself.

The podcasts are empowering without any pep talks. The subtext binding them all together is enterprise. The primacy of action. The undisputed sense that the world is malleable and you can bend it.

Getting Started with Founders

With nearly 300 episodes, there’s something for everyone. I’ve listened to these:

#207: Claude Hopkins, Scientific Advertising

#189: David Ogilvy, The Unpublished David Ogilvy

#111: David Geffen, The Operator: David Geffen Builds, Buys, and Sells The New Hollywood

#66: Henry Kaiser, Builder in the Modern American West

#21: John Carmack & John Romero, Masters of Doom: How Two Guys Created An Empire And Transformed Pop Culture

My favorite so far — inspiration straight into my veins:

#18: Yvon Chouinard, Let My People Go Surfing: The Education of a Reluctant Businessman

#245: Rick Rubin, In The Studio

…and these episodes were worth heavy note-taking:

  • David Senra On Invest Like The Best (Moontower notes)

    This episode is not on Founders but instead is Patrick O’Shaughnessey interviewing host David Senra. I listened to it 3x. It was this interview that got me into listening to Founders and my favorite podcast episode this year.

    There’s more.

    I asked my 4th grader to listen with me and take notes (he’s learning note-taking in school this year). I’ve never asked him to listen to an interview before but I wish someone might have asked me to listen to a discussion like this when I was at such an impressionable age. In my link, I include his notes too! It was fascinating to see what bits stood out to him. (Since the episode is 90 minutes, we broke it up into 3 sessions of 30 minutes over 2 weeks).

    [One of the reasons the episode might have been especially fun for him is we just finished watching The Men Who Made America series on the History Channel and Senra discusses many of the “captains of industry” or “robber barons” featured on the TV series.]

    My notes discuss some of the common Founders themes that stand out to both Senra and I.

  • #93: Ed Thorp, A Man For All Markets (Moontower notes)

    An oft-repeated theme on Founders is that the subjects are deeply flawed, often miserable. You are warned to not glorify them but instead extract their deep but narrow wisdom, instead of copying their lives. This episode is special because Ed Thorp is the one person, Senra uses as his own personal blueprint.

    And I agree. Thorp in his entirety (or at least what we can know from his public action and writing) is an admirable and impressive individual.

    I immediately purchased Thorp’s book and I’m reading it to Zak at night before bed. Thorp’s life is a movie.

I’ve recommended Founders to several friends and the reaction has been universal — “where has this podcast been hiding?” If it gives you half as much joy as I’ve gotten from it it’ll be worth it.


Ok, so recapping.

  1. Don’t spend any more time than you need to on investments.

    They are numbers that go up and down and nobody can prove than know anything. From Why I Share Online And The Decision To Leave Trading:

    An aside that is gonna trigger some set of people: I could hand over all my professional dashboards and tools, and it wouldn’t make a difference. You won’t get the same results. Experience, discipline, and creativity are not something you can take from another. And they are foundational to a discretionary strategy. Think about this from a game-theoretic point of view. If I could codify (I tried and couldn’t) what I did, then it would be easy to prove the edge. The strategy would then be automated and be oversubscribed or its owners would never sell it to an investor. The fact that it’s discretionary and cannot be proven except by its eventual outcomes means an investor must always worry that I’m full of shit.

    Do you see the paradox?

    If the edge is provable, it doesn’t exist for you. So the only hope of finding edge is in your judgment of a discretionary strategy. This is not a worthy use of your time because your confidence can never be high enough a priori to bet an amount that was commensurate with moving the needle. You’re flirting around the edges of a low SNR problem. Unless this is fun, assassinate the FOMO right now by directing your Superman “rationality” eye beam at the paradox, and move on to the next obstacle holding you back from worthy pursuits.

  2. Gather energy

    Check out Founders.

    Check out Bill Gurley’s Runnin’ Down A Dream: How To Succeed and Thrive in a Career You Love speech that inspired Founders. (YouTube)

    That speech also inspired hedge fund manager Alix Pasquet’s presentation:

    Learning for Analysts and Future Portfolio Managers (2 hour video)

    Despite the investing-focused title of the speech, its central theme is broader:

    Learning Is behavioral change!

    The video is long but I found it worthwhile. The notes will let you judge for yourself.

    • Moontower notes (9 min read)

    • Frederik Gieschen’s notes (7 min read)

    • Presentation slides (download)

  3. Strike

    This old post includes links to light your fire.

    • Get Unstuck and Move (10 min read)

Notes from Kai Wu on Flirting With Models

From Flirting With Models host Corey Hoffstein:

My guest in this episode is Kai Wu, CEO and founder of Sparkline Capital. Kai is a pioneer in the measurement of intangible value.  Using machine learning, he tackles unstructured data sources like patent filings, earnings transcripts, LinkedIn network connections, and GitHub code repositories to try to measure value across the four key pillars of Brand, Intellectual Property, Network, and Human Capital.

We discuss why intangibles are important, how they differ from the traditional factor zoo, the opportunities and risks of unstructured data, and how even big data can have small data problems within it.

Finally, we discuss Kai’s most recent applications of his research to the world of crypto.

Link: https://podcasts.apple.com/us/podcast/kai-wu-mining-unstructured-data-for-the-intangible-s5e6/id1402620531?i=1000568607975

A word on my notes:

These are just interesting bits that stood out to me, not a comprehensive summary. Kai and Corey pick over many nuanced questions related to unstructured data, meta-problems in data analysis, distinctions between Kai’s “4 pillars”, and techniques. I encourage you to listen to the whole episode to appreciate the depth that both of them are able to bring to the discussion. Kai has thought about these problems deeply and Corey, despite being an outsider, asks extremely poignant questions reflecting his own deep appreciation for the pitfalls of number-crunching.


Challenge of Machine Learning In Investing:

To take advantage of machine learning truly requires rather large investments, alternative data and the infrastructure required to support it can be very expensive. And even worse is that you know, the prohibitive item here really is getting the right people to run it. Machine learning is complicated and has many pitfalls. And it’s also a relatively new field so that the pool of experienced folks is pretty small.

I actually wrote a paper in May 2019, called machine learning in the Investment Management age. And so in this paper, I outlined three ways to apply machine learning to the industry:

  1. Use of machine learning to transform unstructured data into the investment process
  2. Data mining. And this is the idea of taking hundreds if not 1000s of features or signals and allocate capital across them deciding which ones you want to invest in and what you want to ignore.
  3. Risk models.
  • In the quant world, we’ve seen the most effort applied to the second use case, in other words, trying to figure out how to allocate capital across these 1000s of futures. And this has had actually significant success, but mostly at higher frequencies. For capacity reasons, most capital is managed on lower frequencies. So of course it doesn’t matter as much for the average investor. And then the problem is at the lower frequencies, we have sort of like a small data problem. For example,  every decade there are 10 annual filings, and these are often serially correlated. So the true dimensionality is actually quite a bit smaller.
  • I think we haven’t seen as much innovation on the risk model front. This is an underappreciated dimension. Quants use risk factor models such as Barra and US equities. Barra works by identifying industry factors like “tech” and “consumer discretionary”and a few dozen style factors, value growth, etc. The Barra model has been largely unchanged since becoming the industry standard several decades ago. And I think the biggest weakness of the model was actually its reliance on the GICs industry classifications. These are binary definitions, there’s like 11 different sectors. So firms like Tesla can’t be both tech and auto. They’re also very static. So if a company like Amazon starts investing in a new business like AWS, that doesn’t kind of get incorporated into the risk model. We’ve actually shown that natural language processing models can be used to create superior text-based industry definitions that can capture part of the greater richness and nuance of the business landscape. So in this framework, for example, Tesla will be considered similar to both GM and Ford, then also to Apple.
  • The final area which I think has the most room, which has yet been kind of fully realized, but has the most potential is this idea of unstructured data. The best way to define unstructured data is by opposition to structured data. Structured Data is the information you find in Excel spreadsheets and SQL databases. Its price volume, and financial ratios like P E ratios. Unstructured data, on the other hand, is everything else. It’s text, images, audio, video, anything else any visuals, information, and unstructured data is 80% of outstanding data, and it’s growing exponentially. It’s doubling every one to two years. Importantly, it’s also being created faster than it can be structured meaning that 80% of the data is underestimate because as we move forward through time, it’s only set to increase. And of course, it’s not just quantity, right unstructured data can also contain a lot of valuable information about companies. At Sparkline, we look at like LinkedIn to measure human capital. We look at Glassdoor to measure culture patterns for innovation, Twitter, for brand. And for the most part, investors are not using this data at least in a systematic way.  We’ve seen some unstructured data be adopted, such as news sentiment, become popular but I think it’s really only scratching the surface on what this dataset can offer.

“Value is not dead, it just needs to be reformed”

The father of value investing Ben Graham wrote Security Analysis in the 1930s. The world was very different. The big companies were railroads and industrial firms. Buying stocks below book value was a reliable way to make money. Fast forward to today. We have Google and Apple which don’t use tangible capital to generate earnings. They rely on intangibles. We have these four pillars at Sparkline:

  1. intellectual property
  2. brand
  3. human capital
  4. network effects

These are the pillars most firms rely on today. Our research has shown that intangible capital has grown from basically 0% to 60 to 80% of the capital stock of the S&P 500. Meanwhile, the efficacy of traditional value metrics like trailing earnings or book value has declined. So Baruch Lev and Fong Gu in their excellent book, The End of Accounting show that the R squared of using book value and earnings to explain market caps across nationality used to be 90% in 1950, and it’s fallen to around 50% in 2010 and this was 10 years ago. So I’m not the first person to argue that value investors need to incorporate intangible assets into their assessment of corporate value. But as far as I can tell, we are the first firm to use machine learning and unstructured data to measure this value. For example, we use live data to track the flow of human capital from company to company or Twitter to measure the brand perception of firms. These datasets require using machine learning to take the unstructured data and form them into factors which we can then use to trade like each of these four pillars. So basically, we have two big insights at the firm.

  1. The economy is becoming increasingly intangible, but investors and accountants are failing to adapt.
  2. Unstructured data is exploding and it contains valuable insights on the intangible economy that can be unlocked using machine learning.

By combining these two insights, we hope to help investors access the opportunities in these undervalued intangible assets.

The state of research around intangible assets

There are a dozen or so researchers who have written about how to incorporate intangibles into measures of book value. While they each have slightly different approaches, the common theme is that they all rely on accounting data to measure intangible assets. To be more specific, they focus on two particular line items in the accounting statements.

  1. R&D
  2. SG&A (selling, general, administrative expenses.  SG&A is kind of a catch-all idea that captures many things including sales and marketing expenses.)

The idea is that R&D and SG&A are expensed rather than capitalized. For example, if I were to spend $10 million dollars building a factory to manufacture a new drug that I developed, that capex is capitalized, that goes on my balance sheet. On the other hand, $10 million of R&D to develop the drug that will then be manufactured is considered a cost that comes out of the income. This inconsistency means that investments in intangible capital are considered not an asset but an expense. So led by Baruch Lev who we mentioned just a second ago, a lot of different researchers have now decided to treat intangible investments the same way they do tangible investments, in other words, to build balance sheet assets for intellectual property and brand.

If you take price-to-book plus capitalized r&d you end up with this slightly more comprehensive version of a value factor. This adds somewhere between one to four points of excess returns each year to performance. And the problem though, for us, is that value still in a deep drawdown notwithstanding. So, while these are very sensible adjustments, they’re not a panacea. I think the limitations are twofold.

  1. There is a pretty weak relationship between the input costs and then the output value for any intangible investments. The goal of accounting is to capture historic costs, but the exposed value of intangible investment is very uncertain. The $10 million we spent on this new cancer drug could be worth a billion dollars or could be worth zero to market, this new drug could go viral or flop. So that’s the first problem.
  2. Accounting statements basically ignore the other two intangible pillars. All CEOs claim that their people are their greatest assets, but the only disclosure they put into the 10-Ks is headcount, which of course makes no distinction between the quality of employees or what functions they’re hired to do. And then finally, network effects. So when all is said and done, this means that we are forced to go beyond accounting data. And we believe that by using unstructured data, we can actually measure the output as opposed to the inputs of the R&D investment and the quality of human capital and network effects and brand. And this allows us to transcend some of these limitations.

Corey asks a brilliant question addressing the predator/prey dynamic of competitive markets

Corey: As more and more firms adopt NLP tools to rapidly trade news releases and earnings transcripts. How do you outrun the adversarial issue where CEOs may now get coached against using specific words and phrases or coach to use specific words and phrases?

Kai’s answer confirms just how much of an arms-race market communication can be!

I love this question. Look, investing is like poker. It’s a game theoretic endeavor. One of my favorite papers is actually called How To Talk When A Machine Is Listening. And it has a really interesting finding. So there’s this dictionary called the Loughran and McDonald dictionary. It consists of a bunch of lists of words. Like positive and negative keywords. And the key is that it’s adapted to the finance industry. It was created by two finance professors solely for this focus on trying to classify financial jargon. It was published in 2011 and quickly became widely used in natural language processing. The paper How To Talk When A Machine Is Listening found that companies started to avoid using the negative Loughran and McDonald words in their 10-Ks and 10-Qs after this dictionary was published. So yeah, this is a very real thing. As investors watch and try make sense of unstructured data and deceit in general,  CEOs will try to manipulate the narrative to their advantage.

How Kai’s team zeros in on actions not words to defend against CEOs that learn the right things to say

The way we deal with this is we define three buckets of data with varying levels of susceptibility to such a manipulation.

  1. Company communications. So this is your 10k earnings calls, press releases, and anything coming directly from the mouthpiece of the company.
  2. Third-party information. Media blogs, sell-side research, and company reviews (ie Glassdoor)
  3. Ground truth. So I would classify human capital and passions in this category. A good example is to go back to our culture thing. We wrote a paper called Measuring Culture where we started off by showing the famous slide about how Enron its leaders went to jail for fraud. They proudly displayed the values of integrity on their office lobby. Most CEOs invariably just love talking about how great their culture is, but this is no correlation with the true culture of a company. So to get around this problem, we don’t look at the CEO interviews. Instead, we look to the opinion ranking of all employees. These are the opinions that on a day-to-day basis constitute the culture of a firm. Again, we use Glassdoor. The website allows individual employees or former employees to review their employers. We find this data is a much more reliable source in particular. We find that it’s not the quantity of the story that matters, but the information contained in the freeform text associated with each of these reviews. It gives us interesting clues about the facets of each company’s culture. A similar example would be that all CEOs just love talking about how they’re embracing innovation and digital transformation. But talk is cheap. So instead, we look at job postings and LinkedIn to see if companies are truly hiring talent in these areas. It’s easy to say you’re investing in innovation, but do you actually go out and spend the extra money to hire top graduates from  Carnegie Mellon computer vision PhDs? Is it actually going to be the case that your employees have skill sets such as TensorFlow and PyTorch on the resume? Are you really investing in AI?

Because crypto’s value is entirely intangible it’s fertile ground for Sparkine’s methods

Porting our model into crypto was actually pretty seamless. Brand new human capital matters just as much for Web3 as Web2 organizations. So we were really able to just apply the framework wholesale with no modifications. The big difference in crypto is the data sources are different. But because Web3 is being built in the open, in many ways, crypto is actually an even more attractive area to apply this framework. So we focused on three different data sets.

  1. Blockchain data. By definition, we can see the history of a blockchain all the way back through time it is publicly available is immutable. This allows us to form metrics for the adoption of a protocol. For example, we can calculate the number of daily active users or the dollar volume of transactions over any kind of arbitrary time period. And this, of course, maps back to our pillar of network effects.
  2. GitHub. The really cool thing about crypto is that it’s all built on open-source principles, which of course is key for us. We see the source code of 1000s of crypto projects today, as well as yesterday and each point back in time to inception. So this allows us to form metrics for human capital and intellectual property. So for example, we can see the number of repo changes as a proxy for iteration over a period of time or we can look at the growth of the developer community over the years.
  3. Social media data. While social media is of course important for all firms, it is especially important for Web3, which are digitally native and involve the coordination of online communities across the globe. We can look at datasets such as Twitter, Reddit, Telegram, and Discord, to track the growth of these online communities and brands. So now with these measures of fundamental value in place, we then compare them to the price you pay.

I think what makes us confident in this strategy and gets us all excited about it is this is an inefficient frontier asset class, and very few other investors, if any, are approaching it with systematic valuations. So it just stands to reason that there might be some alpha here.

Does the 4 pillars of intangibles approach apply to assets that might never spit off a cash flow?

You’re right that in general, the token economics are a bit different from that of equities… Many of these projects are using tokens as a method of financing their growth, but they want to avoid technically calling them equity securities from like a regulatory standpoint but it doesn’t diminish the actual value in these tokens. Let’s take the example Ethereum.Eth is a utility token. It is required if you want to use the Ethereum network. Therefore, the value of Eth is a function of the demand for the Ethereum network. This logic applies to any other token, whether it’s a video game, a decentralized exchange or a blockchain. The value of tokens will be a function of demand for the underlying project. So our framework attempts to establish what is the fundamental attraction of these underlying projects. So in this way, we’re actually much more similar to venture capitalists. We think about these projects as early stage startups. They may not have monetized their projects or their users or whatever yet, but if we have a lot of users, we have a robust development community and a strong brand, it certainly does bode well for their ability to flourish ultimately, which of course, would somehow filter down to the token investors profiting.

[Kris: This response sparked a thought for me. A casino requires its chips to be able to play. But the chips themselves never increase in value even though they provide utility in the form of “access to entertainment and gambling”. And for poker pros, the chips are literally an on-ramp to their professional “business”. And still the chips do not increase in value. The analogy is weak since the casino can always produce more chips but it’s just a reminder that the value of a “token” is not just a function of its user base, but its supply, the incentive to increase its supply, and the alternatives. If a user can just cash out because there’s a quality competing casino or blockchain it acts as a limitation on any token’s value]

Identifying the 4 pillars in crypto

  1. Brand

    Dogecoin, which is a joke, has its main value on its brand. A lot of people think it’s funny, they like it. It’s kind of fun to play with. So its primary pillar is brand.

  2. IP

    On the infrastructure side, you have things like Filecoin for decentralized storage.

  3. Network Effects

    Decentralized exchanges. Similar to how the NYSE and CME derive value from the fact that you have many buyers and sellers who want to aggregate liquidity on their platform. Same thing for uniswap and sushi.

So yeah, very much the same concept here. What we’re trying to look for, same as with equities, are firms where you have a bit of everything. What we’ve discovered is that simply having one pillar is generally insufficient for success. I always give the example Wozniak & Jobs. You have technology and IP, but you really need marketing as well. So what we’re looking for is crypto organizations, stocks, whatever, asset class doesn’t matter, is strength on all of the advantages, or as you know, as much as possible.

Leave It Better Than You Found It

Last week I wrote about the social club idea I launched with local friends:

I Swear It’s Not Old School

The spirit of this project is to unlock serendipity and growth from the informal yet material bonds that glue a community together.

It’s an instance of a more abstract idea — not all of our values can be measured and of course not all of the things we measure have value.

Check this out:

Fairness is overrated and bragging is underrated (6 min read)

This post resonates not so much because I was interested in co-living (although with my in-laws moving in next door we are in the process of cutting a hole in the fence so the kids can go back and forth!) but I like experiments in motivation. Experiments in appealing to the multitudes within us and the needs that get neglected because they are more squishy than conventional legible desires.

Suppose you live in a house with strangers. It’s typical to designate responsibility with a chore wheel. But what if we re-framed the responsibility as a “brag sheet”? This article provides some experimental models for motivating any group that shares common goals. While it admits that these experiments do not make sense at scale it wonders how many examples abound that lazily accept the large-scale solution.

  • How big can a network become before its governance needs to change?
  • At small scale do we borrow too much from large-scale architecture forgetting that the trade-offs that exist at a large scale may not apply at the smaller one?
  • Choosing a “brag sheet” over a chore wheel may be an example of low-hanging fruit that applies to everything from co-living to motivating our children.

At some scale, overbearing rules might be necessary to impose order. But it would be nice if we could adhere to a simple maxim: leave it better than you found it.

That’s my attitude to the internet. Thanks for helping me.

Moontower #170

This was a brutal week in the investing world. The fraud at FTX was one of the largest overnight destructions of wealth in financial history. It impacts holders of crypto assets, the employees building projects in decentralized finance, equities, and traditional VC firms (Sequoia allegedly wrote down a $200mm investment to zero).

Excerpting from kyla scanlon:

And with FTX and SBF, it’s worse than other times in crypto. It’s so much worse. They posed themselves as these people that were trying to make the world better. There’s a difference between crypto going down because no one believes in it and crypto going down because it’s systematically being rugged…Many innocent people got wrapped into this because they saw Tom Brady or they saw Sam’s face on a telephone pole – and it was supposed to be safe.

In a calibrating industry, it’s easy to find holes to exploit, which is what FTX did perfectly. They saw opportunity, the VCs saw that they saw an opportunity, and people that wanted to be in crypto believed all of them. And of course, it’s like – well why *wouldn’t* you believe them. And that’s the hardest part.

While I agree with everything she says in the post, I want to address what’s unsaid.

There’s way too much obsession with investments as a way to get rich in the first place. It’s misallocated attention. It’s misplaced energy. I feel like the collective benefit of saying this is so diffuse that nobody has the incentive to tell you the truth. Just like Big Food or Big Ag will never commission a study on “intermittent fasting”. No single entity profits from the absence of eating 3 American-sized meals a day.

Same with investing. Who gains from telling people that much of the brain cycles we spend on investing are a waste of time? Maybe advisors with white-glove fees and Vanguard. Vanguard is a quasi-mutual company (investors are owners of the asset manager in a sense). Bogle undercut an industry to tell you what others wouldn’t. There are worse people to be aligned with.

We need a bit of real talk. I’m sorry if you feel like I should have told you sooner (although, I did). At first glance, this talk might sound discouraging. But take a second glance. This should liberate you. This will give you back countless hours of your time that you can use to row towards your goal with strength. Without distraction. And with less reliance on fate.

[This is an edited version of an off-the-cuff thread I wrote when I was too lazy to get out of bed yesterday]

Unless you are already rich, the proposition of earning 6% per year (insert your favorite ERP) with a 20% standard deviation and a fat left tail is not going to lead to the durable wealth you want. At least not on the timeline you want. This is discouraging and fairly obvious if you look at the proposition for what it is (some people might think you earn 10% per year in equities or harbor some other delusions about the proposition. It’s 2022, you’re entitled to “use Your own illusions” — sorry it’s the 30-year anniversary).

But we’re Americans. We are all entitled to do better than average, right? 🤨

So we snuggle up to crypto, privates, self-storage, or whatever makes you feel special. Unfortunately, investing done well, shouldn’t feel comfortable. Truly fat risk premiums feel like caffeine before bed. They make you anxious and insomniac. You should be afraid of feeling warm and righteous. This is the fundamental nature of beating point spreads.

Don’t you think that adjusted for risk (even simply by a street-smart “this sounds too good to be true” instincts) that the propositions of these shiny investments are similar to what you are presented in public markets? That’s actually your best-case scenario, where you avoid stepping on landmines.

Think about it.

There are super rich, savvy people staffing professionals in their family offices with tentacles everywhere bidding on everything. It’s very unlikely to find something special unless it’s your literal full-time job. And even when you do find something compelling in your part-time research, there should be a lower bound to your skepticism that inhibits you from sizing the exposure in a way that would make you rich quickly anyway.

If you put on your ‘equilibrium thinking’ cap you realize that it’s contradictory to think you can get rich quickly, in a prudent way, investing as a part-timer. Someone needs to hold underperformance bags. Unless this is your craft, you should expect to be a baggie if you push. The very conceit that you can find and pull out a meaningful number of diamonds from a coal pile picked over 24/7 by well-capitalized professionals is illogical.

Said simply: If you do not devote your life to the competitive task of investing, you cannot get rich quickly. You might by accident but hope is not a strategy. (Anyone know the money-weighted returns of ARKK or crypto investors? I suspect, despite positive track records in return space, their total dollar p/l is very negative. Sometimes the simplest benchmark is useful — what are your net dollar profits? There are fund managers that have probably made more from fees than their investors have made in p/l.)

And devoting your life to investing is not a guarantee either. It’s a low signal-to-noise endeavor. The best you can often hope for is a “chip and a chair”.

Nothing Good Happens After Midnight

You know exactly what that expression means.

The markets version of this is:

Don’t obsess about investing beyond the point of diminishing returns.

Yes, you should absolutely learn about:

  • compounding
  • saving
  • fees
  • taxes
  • diversification
  • implementing or getting help to construct a portfolio with simple rules

Now stop and go home. It’s that last double-shot Irish-car bomb at last call that causes the morning headache (or coyote morning 😬)

If you want to get rich without being reckless, Naval Ravikant has a valid formula:

  • specific knowledge
  • leverage
  • accountability (own your risks)

[I would actually edit this. My version:

  • do work nobody wants to do because it’s hard or otherwise unattractive
  • leverage
  • scarcity

I’d like to say “accountability” but looking at the new American dream of private gains/socialized losses and all types of bureaucratic capture I need to annoyingly quote Taleb:

Courage cannot be faked; the warrior bore the risk of his deserved glory in the service of his countryman. The ‘primacy of the risk-taker’ has been a feature of nearly all human civilization. When we reward leaders who did not bear commensurate risks we undermine virtue. Society frays as the truly virtuous/courageous bristles as they watch.]

A thought for the time

For the innocents and believers who made careers in crypto and made it their specific knowledge, I’m sad and sorry. I have a closet of FTX swag because I have a friend there and felt terrible watching this week.

I do believe it was a good bet to go into that world (although not to denominate your whole net worth in it… specific knowledge and the numeraire you take its yield in are different) and would have considered it myself. A career in crypto was a reasonable bet because the human capital is fungible with other careers, thus lowering its opportunity cost.

In addition, crypto as a small investment allocation was reasonable. But as an investment, like all investments, sizing is everything.

If you want to go big or go home, it’s best to do so on your skills or personal edge. Not on arms-length allocations to something that is big, accessible by mouse, and widely known about. The risk/reward once it had achieved mass awareness couldn’t be too out of line with other investable assets despite what all the promotors tell you.

And, critically, before you can allow yourself to get excited, remember that any sensible sizing rules neuter the returns to effort. That means you’ll always be disappointed in how much you won when you were right. In chapter 2 of Laws Of Trading Agustin Lebron explains — good trades make you wish you traded bigger, bad trades make you wish you traded less or none.

The very act of trading subscribes you to remorse. In hindsight, you always regret your sizing.

A parting message

Focus on your human capital to get rich. Your human capital > financial capital, it just doesn’t show up on a spreadsheet. In my own life, I don’t even say “investing”. I think of growing assets as “savings plus”. I’m just trying to maximize the chance of meeting my future liabilities.

I’ll rely on myself to get rich (not that anything that vague would motivate me, but you know me by now).

More on these themes from the Moontower Money Wiki:


Money Angle

My buddy Market Sentiment has a great newsletter that tackles a different evergreen market concept each week and contextualizes it with data. He recently created a useful series where he interviews other investment writers about their own frameworks for thinking about investing.

I was honored to be asked. It was also a great excuse to consolidate my own thinking about what people should emphasize. It turned out to be a fair amount of work to put together because the questions were thoughtful. The questions were sent in a document giving me the space to take my time so I could reciprocate with thoughtful answers and links.

Enjoy:

  • Interview: Decision-making for investors with Kris Abdelmessih (Part 1)
  • Interview: Decision-making for investors with Kris Abdelmessih (Part 2)

This week I edited the index of all my writing so specific categories could be linked to separately.

For example:

The Risk And Math Of Returns

or

Gaming and Education

Finally, there was an interesting discussion on Twitter about SBF’s sizing:

Kelly Criterion Resources


Last Call

Last week I wrote about the social club idea I launched with local friends:

I Swear It’s Not Old School

The spirit of this project is to unlock serendipity and growth from the informal yet material bonds that glue a community together.

It’s an instance of a more abstract idea — not all of our values can be measured and of course not all of the things we measure have value.

Check this out:

Fairness is overrated and bragging is underrated (6 min read)

This post resonates not so much because I was interested in co-living (although with my in-laws moving in next door we are in the process of cutting a hole in the fence so the kids can go back and forth!) but I like experiments in motivation. Experiments in appealing to the multitudes within us and the needs that get neglected because they are more squishy than conventional legible desires.

Suppose you live in a house with strangers. It’s typical to designate responsibility with a chore wheel. But what if we re-framed the responsibility as a “brag sheet”? This article provides some experimental models for motivating any group that shares common goals. While it admits that these experiments do not make sense at scale it wonders how many examples abound that lazily accept the large-scale solution.

  • How big can a network become before its governance needs to change?
  • At small scale do we borrow too much from large-scale architecture forgetting that the trade-offs that exist at a large scale may not apply at the smaller one?
  • Choosing a “brag sheet” over a chore wheel may be an example of low-hanging fruit that applies to everything from co-living to motivating our children.

At some scale, overbearing rules might be necessary to impose order. But it would be nice if we could adhere to a simple maxim: leave it better than you found it.

That’s my attitude to the internet. Thanks for helping me.

Stay groovy!

The Investing Version Of “Nothing Good Happens After Midnight”

This was a brutal week in the investing world. The fraud at FTX was one of the largest overnight destructions of wealth in financial history. It impacts holders of crypto assets, the employees building projects in decentralized finance, equities, and traditional VC firms (Sequoia allegedly wrote down a $200mm investment to zero).

Excerpting from kyla scanlon:

And with FTX and SBF, it’s worse than other times in crypto. It’s so much worse. They posed themselves as these people that were trying to make the world better. There’s a difference between crypto going down because no one believes in it and crypto going down because it’s systematically being rugged…Many innocent people got wrapped into this because they saw Tom Brady or they saw Sam’s face on a telephone pole – and it was supposed to be safe.

In a calibrating industry, it’s easy to find holes to exploit, which is what FTX did perfectly. They saw opportunity, the VCs saw that they saw an opportunity, and people that wanted to be in crypto believed all of them. And of course, it’s like – well why *wouldn’t* you believe them. And that’s the hardest part.

While I agree with everything she says in the post, I want to address what’s unsaid.

There’s way too much obsession with investments as a way to get rich in the first place. It’s misallocated attention. It’s misplaced energy. I feel like the collective benefit of saying this is so diffuse that nobody has the incentive to tell you the truth. Just like Big Food or Big Ag will never commission a study on “intermittent fasting”. No single entity profits from the absence of eating 3 American-sized meals a day.

Same with investing. Who gains from telling people that much of the brain cycles we spend on investing are a waste of time? Maybe advisors with white-glove fees and Vanguard. Vanguard is a quasi-mutual company (investors are owners of the asset manager in a sense). Bogle undercut an industry to tell you what others wouldn’t. There are worse people to be aligned with.

We need a bit of real talk. I’m sorry if you feel like I should have told you sooner (although, I did). At first glance, this talk might sound discouraging. But take a second glance. This should liberate you. This will give you back countless hours of your time that you can use to row towards your goal with strength. Without distraction. And with less reliance on fate.

[This is an edited version of an off-the-cuff thread I wrote when I was too lazy to get out of bed yesterday]

Unless you are already rich, the proposition of earning 6% per year (insert your favorite ERP) with a 20% standard deviation and a fat left tail is not going to lead to the durable wealth you want. At least not on the timeline you want. This is discouraging and fairly obvious if you look at the proposition for what it is (some people might think you earn 10% per year in equities or harbor some other delusions about the proposition. It’s 2022, you’re entitled to “use Your own illusions” — sorry it’s the 30-year anniversary).

But we’re Americans. We are all entitled to do better than average, right? 🤨

So we snuggle up to crypto, privates, self-storage, or whatever makes you feel special. Unfortunately, investing done well, shouldn’t feel comfortable. Truly fat risk premiums feel like caffeine before bed. They make you anxious and insomniac. You should be afraid of feeling warm and righteous. This is the fundamental nature of beating point spreads.

Don’t you think that adjusted for risk (even simply by a street-smart “this sounds too good to be true” instincts) that the propositions of these shiny investments are similar to what you are presented in public markets? That’s actually your best-case scenario, where you avoid stepping on landmines.

Think about it.

There are super rich, savvy people staffing professionals in their family offices with tentacles everywhere bidding on everything. It’s very unlikely to find something special unless it’s your literal full-time job. And even when you do find something compelling in your part-time research, there should be a lower bound to your skepticism that inhibits you from sizing the exposure in a way that would make you rich quickly anyway.

If you put on your ‘equilibrium thinking’ cap you realize that it’s contradictory to think you can get rich quickly, in a prudent way, investing as a part-timer. Someone needs to hold underperformance bags. Unless this is your craft, you should expect to be a baggie if you push. The very conceit that you can find and pull out a meaningful number of diamonds from a coal pile picked over 24/7 by well-capitalized professionals is illogical.

Said simply: If you do not devote your life to the competitive task of investing, you cannot get rich quickly. You might by accident but hope is not a strategy. (Anyone know the money-weighted returns of ARKK or crypto investors? I suspect, despite positive track records in return space, their total dollar p/l is very negative. Sometimes the simplest benchmark is useful — what are your net dollar profits? There are fund managers that have probably made more from fees than their investors have made in p/l.)

And devoting your life to investing is not a guarantee either. It’s a low signal-to-noise endeavor. The best you can often hope for is a “chip and a chair”.

Nothing Good Happens After Midnight

You know exactly what that expression means.

The markets version of this is:

Don’t obsess about investing beyond the point of diminishing returns.

Yes, you should absolutely learn about:

  • compounding
  • saving
  • fees
  • taxes
  • diversification
  • implementing or getting help to construct a portfolio with simple rules

Now stop and go home. It’s that last double-shot Irish-car bomb at last call that causes the morning headache (or coyote morning 😬)

If you want to get rich without being reckless, Naval Ravikant has a valid formula:

  • specific knowledge
  • leverage
  • accountability (own your risks)

[I would actually edit this. My version:

  • do work nobody wants to do because it’s hard or otherwise unattractive
  • leverage
  • scarcity

I’d like to say “accountability” but looking at the new American dream of private gains/socialized losses and all types of bureaucratic capture I need to annoyingly quote Taleb:

Courage cannot be faked; the warrior bore the risk of his deserved glory in the service of his countryman. The ‘primacy of the risk-taker’ has been a feature of nearly all human civilization. When we reward leaders who did not bear commensurate risks we undermine virtue. Society frays as the truly virtuous/courageous bristles as they watch.]

A thought for the time

For the innocents and believers who made careers in crypto and made it their specific knowledge, I’m sad and sorry. I have a closet of FTX swag because I have a friend there and felt terrible watching this week.

I do believe it was a good bet to go into that world (although not to denominate your whole net worth in it… specific knowledge and the numeraire you take its yield in are different) and would have considered it myself. A career in crypto was a reasonable bet because the human capital is fungible with other careers, thus lowering its opportunity cost.

In addition, crypto as a small investment allocation was reasonable. But as an investment, like all investments, sizing is everything.

If you want to go big or go home, it’s best to do so on your skills or personal edge. Not on arms-length allocations to something that is big, accessible by mouse, and widely known about. The risk/reward once it had achieved mass awareness couldn’t be too out of line with other investable assets despite what all the promotors tell you.

And, critically, before you can allow yourself to get excited, remember that any sensible sizing rules neuter the returns to effort. That means you’ll always be disappointed in how much you won when you were right. In chapter 2 of Laws Of Trading Agustin Lebron explains — good trades make you wish you traded bigger, bad trades make you wish you traded less or none.

The very act of trading subscribes you to remorse. In hindsight, you always regret your sizing.

A parting message

Focus on your human capital to get rich. Your human capital > financial capital, it just doesn’t show up on a spreadsheet. In my own life, I don’t even say “investing”. I think of growing assets as “savings plus”. I’m just trying to maximize the chance of meeting my future liabilities.

I’ll rely on myself to get rich (not that anything that vague would motivate me, but you know me by now).

More on these themes from the Moontower Money Wiki:

Repetition Economics

In Repetition Economics: The Story of the Hunter, the Mammoth, and The Wolves, Matt Hollerbach writes:

Human decision-making is quite a complicated problem. One of the leading frameworks for how people make decisions is called Prospect Theory. It was was developed by Daniel Kahneman and Amos Tversky (K&T) in the 1970’s and 80’s. Kahneman and Tversky were not economists, but psychologists. They developed their theories by giving test subjects “games” and evaluating their answers for consistency. Through these games, they determined people value losses and gains differently.  Losses “hurt” more than gains, and therefore, when people view situations involving risk, they are likely to make decisions that don’t conform with the expectations. 

Kahneman and Tversky state this behavior is because people are risk averse in terms of negative outcomes. They then take that idea and expand it to identify that people misjudge probabilities, especially at the extremes. Essentially they treat a 2% chance more like a 10% chance, and they treat a 98% chance like a 90% chance (example only).

But where K&T conclude that people are irrationally biased, Hollerbach finds that the subjects’ choices seem to maximize the geometric return instead of the arithmetic return. Yet, how are they landing on such a strategy if they aren’t doing an explicit computation? What if people’s intuition for such gambles is more rational than the cognitive bias literature suggests?

The post shows how relatively recent findings in “ergodicity economics” challenge the notion of loss aversion presented in behavioral science literature. Instead, in ergodicity, or as Hollerbach prefers “repetition economics”:

Humans evolved a “gut reaction” to match probabilities based on the geometric average, not the arithmetic average because life is about repetition.  This is why the test subjects often got these problems “wrong”, and why economists believe we have behavioral biases.

Humans understand that decisions are not “one-offs”.

We are careful about things we do repeatedly.

  1. How much can you win and how often?
  2. How much can you lose and how often?
  3. How many times will the game repeat?

We might explicitly consider 1 and 2…but we have a native sense for #3.

If you play “Russian Roulette” with 1/100 odds once, you will probably win. Play the game every day, you have almost no chance of surviving the year. Estimate your chances of getting into a wreck when running a yellow light. They are really low. You might get through the light before it changes to red. There is a slight delay before the perpendicular red light turns green. And nobody is able to start accelerating right away when the light turns green. The “expected downside” is really low versus a benefit of getting to your destination sooner. So why don’t we do it more often?

It’s because we know we are going to be faced with these types of decisions 1000’s of times in our life. Each time you try and push a yellow light, you’re very likely going to be just fine. But try and run it 10,000 times, and you’re guaranteed to get into a very nasty accident.

It’s the future repetition that keeps us from risking the yellow light.

I’m a fan of the ergodicity argument and Hollerbach’s suspicion that what economists are labeling irrational, is quite rational if the subjects are defaulting to a system 1 mode of sensing that the choices they are confronted with are repeated games.

But humans are notorious for discounting the future. We prefer clear immediate benefits, like a juicy steak today, over speculative benefits tomorrow, such as “no heart disease” or “no gout”. We struggle to save money. We procrastinate. We permit lifestyle creep in insidious ways:

  • Amazon Prime lures you in with free shipping but you end up buying more
  • You tell yourself you’ll take an Uber this “one time” instead of the subway
  • You start Doordashing. And forget how to cook.

Repetition and habits are powerful. You shouldn’t let your impulses initiate them. You should be deliberate about what you allow to recur. The people you spend the most time with will shape your thoughts. Don’t leave this to chance.

If you start taking vitamins, do you have a plan for determining if they are “working”? Or have you signed up for a perpetual liability with an unclear benefit? You can’t solve that Sunday crossword without the ginko biloba. Right? You are now gripped by a health version of Pascal’s wager.

Subscription business models are the darlings of the investment world. Recurring cash flow that forgets to opt-out. Your neglect is their LTV.

If we thought about our decisions as repeated games, then “no” should be a stronger default.

I’ll close with a section from Gary Basin’s Action Echoes:

Rather than seeing this temptation as a one-off event, view it as repeating over and over into the future. Imagine the decision you make this next time also deciding how you act in similar future situations. Your actions echo into the future. Every “bad” move has consequences later in the game. Sure, you can sometimes find ways to dig yourself out of a hole. But it’s helpful to realize that every move you make contributes to your eventual position

Reframing a decision as a bundle of future repeated actions gives a more accurate view. The goal is not to entirely avoid urges but to reframe them in a way that best accounts for their consequences. Any single temptation is not unique! The actions you take now will establish patterns that determine your future.

Taleb Lessons

Nassim Taleb is a famous author who consolidated and communicated many useful ideas. His books are worth reading but you’ll need to endure his admonishing tone.

These ideas are from an interview about his book Antifragile:

  • “The general principle of antifragility, it is much better to do things you cannot explain than explain things you cannot do.” – Nassim Taleb

  • In opaque systems where cause and effect are difficult to associate, trial and error will yield the greatest outcomes. The trial and error is defined by defined cost or downside and the ‘option’ to keep what works. “We have the option, not the obligation to keep the result, which allows us to retain the upper bound and be unaffected by adverse outcomes”. We do not understand how to create great cuisine from chemical formulas but thru trial and error our culinary repertoire evolves. In the world of research, another complex system, we rely on the methodical practice of trial and error as a strategy. By doing this we are not only capable of discovering cures before even understanding how they work, but we can proceed in many directions at once informed by the discovery of the most recent node.

  • Systems that exhibit an asymmetry between gains and losses for a given level of stimulus are described as having a ‘convexity bias’. In math, this is curvature, in financial options it is known as gamma, and in physics, it is the second derivative or acceleration. Antifragile represents a class of phenomena that possess the ‘convexity bias’ property and therefore benefit from disorder or stressors. Fragile phenomenona  hate disorder. A cup of coffee will not tolerate much disorder before spilling or breaking. In an antifragile system, we maximize the result via optionality and the value of the optionality increases with the volatility in the system since the upside expands while the downside remains fixed. Recognizing whether the system you are operating in is fragile or antifragile should guide your approach to maximizing results and/or minimizing risk.

    1. Convexity can often be attained much more cheaply than knowledge. For example, lowering your cost per trial allows you to stay in a game longer which can maximize your chance to be exposed to a convex outcome. Starting 5 low cost businesses will expose you to much greater upside than becoming even a highly paid hourly worker like a dentist. The option to shed the businesses that fail and double down on the businesses that thrive derives its value from your worst case being a zero but unlimited upside. Likewise, a person with a highly marketable resume can derive more value from the fact that they can always ‘fall back’ on a job while they pursue a more speculative endeavor. The resume is valuable not because of the outcome of the job it maps to but because it has lowered the opportunity cost of taking a chance elsewhere.

    2. A complex system favors a “1/N” strategy…ie equal weighted small bets to benefit from ‘fat tails’ of outcome distributions. Venture capital model. Minimize cost per trial, maximize trials. The final outcome is accretive but any single bet is unpredictable.

    3. Maximize serial optionality. Stay flexible and avoid a “long highway with no exits”. 5 consecutive 1-year options are more valuable than a single 5-year option (a baseball player’s career is fragile because of injury risk…they will take a haircut to receive a 5-year guaranteed contract).

    4. Tinkering > fundamental/theoretical research for generating breakthroughs. The less linear the domain the more this is true.

These ideas are from an interview about his book Skin In The Game:

The concept of Skin In The Game (SITG) mirrors evolution in nature.

  • SITG as a filtering tool not just to remark on one-sided incentive/disincentive but its central attribute of symmetry is desirable to conserve on a collective level because:
    • When an agent’s outcomes are not appropriately aligned with their risks, we throw a wrench into the gears of evolution since we fail to weed out poor behavior. Systems learn at the collective level not the level of the individual. They learn from a repeated game of interactions.
      •  A restaurant faced with intense competition will likely be much better than a monopolistic food stand in a theme park or cafeteria in a school.
      • Why can we create 2 line highways without a divider when it is so simple for any individual driver to simply turn the wheel into oncoming traffic. Bad drivers have their licenses suspended and also kill themselves. Drivers have SITG
      • The selection pressures of SITG apply to tradespeople, engineers, and ‘hard’ scientists but we do not enjoy the benefit of this filter in fields where signal-to-noise is low. This allows for a higher degree of bs and opportunity to profit disproportionately if the system without the filter achieves large scale or influence (politicians, bureaucrats, too big to fail bankers, and tenured soft-science academics being his favorite targets). “The incentive is to be published on the right topic in the right journals, with well sounding arguments, under easily some contrived empiricism, in order to beat the metrics.” When architects judge architects the building aesthetics decline.

  • The prescription is less scale and more decentralization. The more micro the more apparent the skill (or lack of). Artisans eat what they kill and incentives are properly aligned with satisfying their clients. The more scale we introduce the more layers of principal-agent problems emerge.

  • Courage cannot be faked; the warrior bore the risk of his deserved glory in the service of his countryman. The ‘primacy of the risk-taker’ has been a feature of nearly all human civilization. When we reward leaders who did not bear commensurate risks we undermine virtue. Society frays as the truly virtuous/courageous bristles as they watch.

  • Don’t pick the Hollywood version of a surgeon. [Kris: This is reminiscent of Berkson’s Paradox which says the correlation of 2 related properties can flip when the “range is restricted”. For example, being good at basketball and being tall are correlated. But when you narrow the range to the NBA, then it becomes clear that all else equal a shorter player likely has more skill than a taller player because for them to have made it to the “restricted range” or universe of the NBA they had to overcome their height disadvantage]

David Senra on Invest Like The Best

Patrick O’Shaughnessey interviewed David Senra, the host of the outstanding Founders Podcast. I love David’s passion and storytelling. This interview was the best one I listened to this year. I listened to it several times and it was the first time I asked my son (now 9) to listen to an interview with me. It felt like one of those chats that could inspire an impressionable mind.

They discuss the premise, motivation, and lessons from David’s podcast. The premise of Founders is David studies famous entrepreneurs, scientists, artists or really any creatives that made a large impact and distills pitfalls and lessons from their stories. It doesn’t sound novel, except David’s personality and enthusiasm make you feel like you are hanging out listening to a friend tell a crazy about another friend (except that last “friend” is a historical figure)

The following notes are what stood out to me.

My son Zak also took notes (we made this an exercise because in 4th grade this year he’s learning to take notes). It was fascinating to discover where he wanted to pause the interview to jot something down that stood out to him. One of the reasons the episode might have been especially fun for him is we just finished watching The Men Who Made America series on the History Channel and Senra discusses many of the “captains of industry” or “robber barons” featured on the TV series.

Link: https://www.joincolossus.com/episodes/85503387/senra-passion-pain?tab=transcript


Books as mentors

Senra came from a challenged family. He wasn’t only the first male to graduate HS, he was the first to not go to jail! When he studied Warren Buffet, he recalled that Buffet said, “One of the best things ever happened to me is I picked the right heroes.” I think that is extremely important. So that is the role that books play for me.  I don’t have access to these people, I didn’t have mentors. I didn’t have anybody.

Senra’s career is the embodiment of what I described as The Engine Model

  • There are four passions in my life, entrepreneurship, reading history and podcasts, so Founders sits in the middle of that.

  • People say “Founders is podcast, Founders is business.” Yeah, but it’s an obsession first. It’s an obsession disguised as a podcast in a business.

  • The reason I’m so obsessed with just studying people that got to the top of their profession is because one third of your life is going to be spent working. Half of your conscious life, half of the time you’re not asleep, is going to be spent working. For a certain personality type, to not excel at that, to not be really good at that means that life is not going to be an enjoyable experience for me. If I had to guess, which comes up a lot, I think there’s some kind of deep-rooted fight against a sense of inferiority that is underneath it.

  • It’s interesting, this comes up a lot, there’s a line in the Francis Ford Coppola biography that I read, because I really love reading biographies of filmmakers, that’s the closest analogy to what I’m trying to do at podcasting. I read their words and I’m like, “That’s how I think about podcasting. That’s fascinating.” And there’s a line in the Francis Ford Coppola biography where, embedded in the story of the son is the story of the father. And his dad was this guy, he wanted to be a musician. He never made it, was super bitter. So he raised Francis Ford Coppola and they would just talk shit, his dad would just talk about anybody that was successful. And Francis is like, “Well, I don’t want to be the person criticizing the successful person, I want to be the successful person.”

  • And I think a lot of that came from how we started the conversation, some people have to say, “Hey, I want to be like that guy.” Other people have, “I don’t want to be like that guy.” And those are equally powerful motivators.

[This reminds me of Ambition As An Anxiety Disorder]

Originality and ego

  • To be an investor, to be an entrepreneur, it doesn’t work if you can’t trust your own judgment. So what kind of person who’s willing to take that risk? I know a ton of entrepreneurs that could even make more money, if they went to go work for Google or something like that. They’d rather make less money in their own business, than work for somebody else. But there is something bizarre that I don’t think you can explain. All you can do is notice it in other people, and then seek those people out like, “Oh, I’m not weird. There’s a ton of people just like me.”

  • But Edwin Land said that there’s no such thing as group originality or group creativity. He goes, “I do believe wholeheartedly in the individual capacity for greatness.” And he says, “Originality are attributes of a single mind, not a group.”

  • I actually don’t think that you build a great company without a giant ego. I don’t think that exists. Sam Walton has a good idea about that. He’s like, “Listen, your ego should use to drive you, but you should not be on public display.” And he’s like, “I hire people at Walmart with big egos, that know how to hide it, because there is some weird thing where it drives you.”

Confusing people liking the work for liking you

We talked a little bit about ego before we started recording, where it’s very prone to let your ego get the best of you. People admire you because the work. What happens is, you usually isolate yourself. You’ll work really hard. You’ll do a lot of work. That work draws the attention of other people because it adds value to their life. And then suddenly, over time, you confuse us. It’s like, “Oh, they don’t like the work. They like me. And then I could just show up without having to do the work and everything will be fine.”

[Reminds me of the Asimov line: Past glories are poor feeding]

On constant learning

The reason I say that Jordan’s biography changed my life is this idea of practice. How many people want to get to the NBA? A ton, millions. How many get? 400 maybe. How many people get to the Dream Team in Barcelona in ’92, which might be the greatest basketball team of all time? 15 people. A subset of a subset of a subset. Michael’s tired. He’d been playing nonstop, back-to-back. He’s like, “Man, I really want to take some time off. I don’t want to spend my summer for the Olympics, but I’m going to go.” He goes, “I want to see their practice habits. We’re all the best of the best, what am I doing that’s different than what they’re doing?” What happened was he goes, he watched the way they practiced compared to the way he practiced. The main theme of Jordan’s book is I believe in practice. I would rather miss a game than miss practice. That’s insane. He said something that gives me chills to this day. He goes, “I watched their practice habits,” and he goes, “they’re deceiving themself about what the game requires.”

Obsession and endurance

“If anything is worth doing, it’s worth doing to excess” – Edwin Land, Inventor

  • On my phone, my lock screen, is a picture of Ernest Shackleton, the famous polar explorer, who looks like hell. He’s got a huge beard covered in ice. He looks like he’s about to die. And his family motto was, “By endurance, we conquer.” Which is why I told you earlier, I’m only interested in people who do things for a long time. Because at every single step, these people are presented with opportunities to quit and they don’t. So he’s like, I don’t have to be the smartest. I don’t have to be the best. I don’t have to be the talented. This is what I believe in myself. I don’t have to be the best. I don’t have be the smartest. I don’t to be the most talented…if you do something for three or four or five hours every day that most people don’t do, you’re going to develop a value for other people in the world, and that’s all a business is. The best description of a business I ever heard came from Richard Branson. He’s like, “All businesses, it’s an idea or service that make somebody else’s life better. If you make other people’s life better, you’ll capture that value in return.”
  • I’m not a fan of moderation. I’m attracted to extremes. What do you want your life experience to be? Do you want to be exceptional? Do you want to push the boundaries of your capabilities? Do you want to walk around in a fog butting up against your potential but never actually realizing it? Then knock yourself out. Be moderate. I’m not interested in that. (Zak loved this!)

Understanding what you want — the soul of a business

I read this great book called Masters of Doom, which is obviously about the video game Doom. There’s John Romero and John Carmack, and John Carmack said something in what causes the rift of their partnership. He’s like, “Romero wants an empire. I just want to make great games.”

Senra relates to Carmack:

Founders is like a handmade product. And I was like, thank you because that’s what I think about. It’s a handmade product at scale because of the miracle of podcasting. I can do everything myself. I don’t have anybody helping me…role of the founder is the guardian of the company’s soul. There’s a cult around In-N-Out because the expression of the founder’s soul is manifest in the product. People have In-N-Out tattoos. Who are your entrepreneurial heroes? Everybody copies somebody, dude. You’re a human. I always have a maxim by saying in my podcast that the mind is a powerful place. What you feed it affects you in a powerful way.

The culture of a company as a reflection of the founder

The quote that comes to mind when I think of the founder as the guardian of the company’s soul is actually a quote about Steve Jobs. It’s in one of the books I read about him and he says he made and remade Apple in his own image. Apple is Steve Jobs with 10,000 lives. That gives me goosebumps because that’s exactly what a founder should be doing. It’s impossible to build a company, to spend all your life energy on it, and not have it imbibed with your personality, with your ethics. Everything that you think about your business and your life is going to seep into it. The good and the bad parts.

Patrick: It reminds me of a conversation I had with Tony Xu who started DoorDash. Tony’s a very mild-mannered, very humble, almost quiet person, which is why this quote from him stands out in my memory so strongly, which is I asked him something about culture.  How do you think about constructing the culture of a company? His answer is basically, “I think a culture of a company should be like 80 or 90% just the personality of the founder. That’s it. It should be the extreme characteristics of the personality of the founder. Because if you try to make it generic, nothing stands out and there’s no progress and inertia dominates.

Process as art (and marketing)

Patrick: It sounds like a common theme in all these stories, is process as art by revealing the process behind the product, because they’re so obsessed with that. That is a common marketing story. Do you see that over and over?

There’s no such thing as a business that is boring. Listen, it’s boring to you because you do it every day. If you explain to the customer the process, they’ll find it interesting. If there’s any part of your product that seems banal or ordinary to you, I promise you, no one is thinking about your business as much as you. The favorite business of mine in the world, you think about it less than probably five minutes a week. Nobody is thinking about it. You have shit in your brain that is interesting to customers, and then you could package that up and use that as marketing to get more customers.

The most recurring theme in Founders stories

  • We may or may not have talked about the most important, and that’s the best maxim in the history of entrepreneurship was said by the founder of Four Seasons, that “excellence is the capacity to take pain.”…Anybody that’s ever done anything difficult, whether it’s a company, anything, knows the euphoria and terror. It’s the entrepreneurial emotional rollercoaster. The reason that I think it’s so important to talk about is because it is supposed to be hard. There’s not a book you’re going to pick up where the guy or woman’s like, “Hey, I had this idea. I started it. Everything went great,” and the end of the book. It doesn’t happen.
  • James Dyson. It’s hard to find, but if you can get a copy, order it. He says, “Listen, it’s easy for me to celebrate my doggedness now. I made $300 million last year, but I’d be lying to you if there wasn’t times where I went inside my house, had my wife look at me in the face like I’m a failure and I’d cry myself to sleep, and I got up and did it again anyways.” [Dyson made over 5,000 prototypes in 14 years before landing on the bagless vacuum that made him a household name]

Because excellence is the capacity to take pain:

  • I apply this to like, “I don’t really feel like working out right now. I don’t feel like doing cardio.” I don’t give a shit, David, how you feel. How you feel is irrelevant. That’s an idea I got from Henry Ford. You read his autobiography, he goes, “I feel sorry for these soft and flabby men that can only do great work when they feel like it.” Essentially, Henry Ford is saying “fuck your feelings.” Henry Ford’s point was a business exists to serve other people. There are going to be days when you get out of bed and you cannot wait to get to work, and that’s great. There are going to be days when you don’t want to go to work, and that is irrelevant because the business is not about you. The business does not exist for your pleasure. The business exists to serve other people. [Kris: this is why you should probably care about the customers]

The kindest thing anyone has ever done for David

The kindest thing anybody’s ever done for me happened a few decades before I was born. My grandfather on my dad’s side was living in Cuba. He was just 38 years old. He had a wife and a newborn baby when the Cuban Revolution happened and Castro took power. He didn’t understand the language, had no money and no education, and yet took the gigantic risk … and the complete correct choice at that time in his life … to flee Cuba to go to America, to give his family a better chance and a better opportunity. That one decision changed the entire trajectory of my life. None of my interests that I happen to be naturally born into, the passions that chose me, that I did not choose, would make a lick of difference if I grew up in Castro’s Cuba as opposed to America. As somebody that studies dead people for a living, it really resonates how our decisions not only affect our loved ones now and our family now and our friends now, but they reverberate through the generations. If you think about it not in the context of what’s going to happen in your life this year or next year, but how the decisions you’re making will affect people that aren’t even born yet, you’ll make your decisions differently.


My 9-year-old Son’s Takeaways

  • David only had books as a kid. NOTHING ELSE
  • David’s extended family is all EVIL
  • “Many people can run a company but not many can create one”
  • In every one of Rockefeller’s biographies, J. Gould always pops up.
  • Jordan joined the Dream Team just to see how other countries practice.
  • ” I’m not a fan of moderation. I’m attracted to extremes. What do you want your life experience to be? Do you want to be exceptional? Do you want to push the boundaries of your capabilities? Do you want to walk around in a fog butting up against your potential but never actually realizing it? Then knock yourself out. Be moderate. I’m not interested in that.”
  • “Nobody can think clearer than Steve Jobs”
  •  “Hey, those are good ideas. Human nature doesn’t change. Let’s use them.”
  • David reads his highlights 5 times.
  • What I like about podcasting is it is completely permissionless.
  • Dyson:  “Listen, it’s easy for me to celebrate my doggedness now. I made $300 million last year, but I’d be lying to you if there wasn’t times where I went inside my house, had my wife look at me in the face like I’m a failure and I’d cry myself to sleep, and I got up and did it again anyways.” Excellence is the capacity to take pain. I apply this to like, “I don’t really feel like working out right now. I don’t feel like doing cardio.” I don’t give a shit, David, how you feel. How you feel is irrelevant. That’s an idea I got from Henry Ford. You read his autobiography, he goes, “I feel sorry for these soft and flabby men that can only do great work when they feel like it.” Essentially, Henry Ford is saying “fuck your feelings.” Henry Ford’s point was a business exists to serve other people. There are going to be days when you get out of bed and you cannot wait to get to work, and that’s great. There are going to be days when you don’t want to go to work, and that is irrelevant because the business is not about you. The business does not exist for your pleasure. The business exists to serve other people.
  • In every episode, Patrick asks “what is the kindest thing anyone has ever done for you?” [I told Zak that fact, I guess he thought it was worth writing down]