A theme running through recent posts has been about preparing for post HS life, or really helping your kids think about the future. The arguments, with a few substitutions, apply to all of us as well. See:
We’re going to continue the theme today. Maybe get a bit spicier even idk.
I tweeted this:
I gave a talk to this group last fall. They probably think I’m an imbecile. “Do you even lift” NJ accent when I get excited prolly not helping the cause either.
[They justifiably should have preferred to hear Giuseppe Paleologo give a talk based on his essay Buy Side Quant Job Advice or his book which I covered in Notes On Advanced Portfolio Management]
But if you read I’ve Spent My Whole Life Competing With People Like You, then you know my position — success is more about endurance than IQ. Edison’s 99% perspiration, 1% inspiration thing.
This is simple enough to be usefully true but admittedly incomplete. I’ll start with some excerpts from Henry Oliver’s piece How to raise a (happy) genius where he examines the childhood of the brilliant Geoffrey Hinton to fill in key gaps.
1) he had an exceptional childhood and he worked in a field where ideas aren’t so hard to find, because the subject is new. What ties these two theories together is autonomy: Hinton was free to explore as a child, an undergraduate, and an academic at CIFAR, so that when the opportunity at Google came, he was ready to exploit.
2) A study of Chinese adolescents found that those with high academic achievement and parents who gave them supportive autonomy (parents who were not controlling) were at lower risk of developing depression. Other studies have found that a combination of care and autonomy lowers depression risks. And the pressure to be a perfectionist might bad for your mental health, a neurosis which gets worse as you age: excessive parental expectations correlate with higher levels of anxiety. This is consistent with the other findings that what damages children is not high standards, but being too controlling. Exceptional educations do not mean we have to choose between brilliance and happiness. The key is autonomy.
3) Unoriginal prodigies: This matters today because few child prodigies end up being highly creative or original. Mastering a domain is one thing: changing it, quite another. Psychologist Ellen Winner summarised the research findings like this:
Personality and will are crucial factors in becoming an innovator or revolutionizer of a domain. Creators have a desire to shake things up. They are restless, rebellious, and dissatisfied with the status quo. They are courageous and independent. They are able to manage multiple related projects at the same time, engaging in what Gruber calls a “network of enterprise”. For these two reasons, we should never expect a prodigy to go on to become a creator. The ones who do make this transition are the exception, not the rule
As Adam Grant said, “practice makes perfect, but it doesn’t make new.” That’s a good thing, of course: we all benefit from having superb minds in unoriginal jobs. The very best doctors, engineers, lawyers are essential to the way society functions. But there is room to invoke more originality in the best minds.
And originality is the result of autonomy. Exceptional educations should emphasise freedom. If we can enable more autonomy, we can have high accomplishment and happiness.
This may sound theoretical but that tweet I posted led to a couple telling interactions with some traders. You might interpret them cynically but I think it’s more adaptive to see them as words of caution from reliable sources.
It’s food for thought on the subjects of achievement, autonomy, conformity, and safety/risk.
We’ll start with this reply:
Agustin knows quite a bit about recruiting exceptional college students from his days at Jane Street:
In the past few months I’ve had several conversations with 20-somethings inside these prop trading firms. What I find interesting is
a) how introspective and mature the people who reach out have been about their futures. At that age I lived life 6 inches in front of my face. If my mind wandered too far ahead in time I wouldn’t treat its contents seriously.
b) there is a nebulous sense of alienation I pick up from what I hear. Almost across the board there’s a “the work is interesting and challenging, but…”. And the but is just, I don’t know, shapeless post-economic void.
I’m sure none of them could have conceived the money they’d be making by age 24. Part of me is jealous — a mid-life crisis at quarter-life is mercy if you zoom out. I think I’d rather deal with that without concerns over my A1C and aging parents eating up my background processes.
And to be clear, I don’t hear any complaining. The kids are too self-aware, too gracious to ever invite sympathy. But I’m old enough to see what’s happening — they’ve been sold an empty box and now realize it’s their job to furnish it. The bachelor mansion in the movie Boiler Room is a cliché and a metaphor. (Btw, the 22-year-old Roblox streamers with their fast cars and sparse Miami houses that my kids watch are this generation’s JT Marlin hustlers…I can’t wait until they’re 40 and we find out if they age like Ribisi’s character or Affleck’s)
I’ll close with a text-based convo I had with one of these traders (all anonymized ofc).
Them: Hey Kris, I’m currently a trader ~1 year in at [redacted top tier prop firm]. Would love to chat sometime briefly just to get your thoughts about the current state of the trading industry and where you think it’s gonna evolve. Mainly just trying to compile options/advice from people experienced in the field before forming any strong opinions myself.
The trend mainly seems to be that the game is getting more and more competitive, and consolidating to just a few big players surviving in the near future.
Me: I don’t have fully formed views on that but my general heuristic is your intuition is correct and a continuation of the decades-long consolidation trend. But consolidation has a countervailing force — it makes the opportunity cost of niche/unscalable opportunities more expensive for incumbents because the cost of labor is mechanically higher (consolidation = increased profit per head).
It’s an ecology — there’s always scraps for a niche player to find. And with SaaS/cloud compute the rebels are more easily armed. Occasionally one of them might emerge from a niche to be a disruptor [redacted] itself being an example!
Anyway, that’s my 20,000 ft take.
Them: I hear ya. Thanks for your take! I also find it interesting that each of the big players kind of has their own “style” and philosophies. I don’t really have a strong opinion about whether one is “better” than the other but it’s interesting to compare. I think some firms have tried abstract away finance or trading concepts away, and have tried to hyper-specialize employees to be specialists rather than generalists. [Redacted firms] still seem to adopt a more generalist mindset.
Me: Yep, I refer to this as lineages and it’s important for job seekers to understand them. Also, some place metamorphosize — [redacted] has a few times based on the lineage of who ran options. Btw, that’s a keen insight for someone your age!
Them: Yea I think I personally take an interest just cause I find it fun, but I think another evolution is just that there’s a lot more communication between traders at different firms, mainly I’d say as a function of the individuals hired just being from way more correlated backgrounds. You get a lot of people who went to the same math camps, same schools that are hired to most of the major firms nowadays, leading to just a lot more communication I’d say.
Me: The same schools thing was always somewhat true although i think they recruit from fewer schools now. But the math camp thing is new. When i got hired, recruiting was less loaded on specific STEM skills.
Them: [redacted firms] are the best at “metamorphizing” it seems like, in terms of just being able to adapt to different games quickly and effectively. [redacted] is a good case study. When [redacted] joined it morphed.
Me: Yea, and before [redacted] it was more in the mold of the [redacted] lineage. My understanding is that [redacted] is becoming more focused on [strategies]
Them: Agree, that seems to be the general trend from what I’ve observed at least, just a function of the game being more competitive I guess. [redacted] is also becoming more [style]. I also feel like firms care more about “Value over replacement” in specialists rather than having everyone be well-rounded.
[The kid sees past the things they tell you in your bonus meeting. When your manager says your expected bonus is X% of your p/l they leave out the part about the cap being (1+y)% of your Wall Street peer’s average pay. Your short call is your boss’s put strike on the price of your seat. That strike can be massaged by new terms to make you feel that it’s not actually adjusted, but as I’ve emphasized in the past — there’s contracts and there’s power.]
Me: Exactly…dangerous for employees because it’s commodification. It’s the “the system makes the money”. This is actually highly blatant thinking if you watch how labor moves around. Although you’re in a business with unlimited p/l upside, for all intents and purposes you are short a call on your pay struck at some premium above replacement.
And this is true no matter how important you think you become unless you are a true equity partner. The sum of “disappointment under the curve” of people’s expectations is staggering.
Them: Right, this seems optimal from an employer perspective but not that from the employee. Building a bunch of system players where you have some EV machine that doesn’t rely on one person to function.
It seems like the only way to truly justify your EV contribution is to build something out completely uncorrelated and from scratch.
Me: A big lesson I learned from finance is that the payoff to being a bit more talented is minuscule compared to the payoff to having a bit more nerve to be entrepreneurial. By sheer numbers it’s rare for the founders or even bosses to be as “smart” as the staff — but they took the risk to be owners and nothing is more discontinuous than that decision.
Still, you can make a great living being an employee. It’s no knock on in it.
Them: So you have some survivorship bias from the ppl in charge who were willing to take the risk I guess. Yea it depends a lot on someone’s utility function I guess. You could probably think of being a system employee as some high sharpe lower EV trade whereas gunning to be some PM or partner requires you to take more risk. Higher risk higher reward. Depends on the person maybe.
Me: There’s so much survivorship bias — taking a risk is no guarantee of anything ofc but it depends how you want to measure the utils — is it purely dollars or “thymos”? Sometimes you want to see what you’re actually capable of and when you want to see that you rarely want to have a short call on it if you are gonna actually mean it.
Them: It’s a similar concept to your article – “If you’re making money everyday you’re not maximizing”
Me: Yea, I hadn’t thought of it that way
Them: The downside to taking these risks isn’t complete ruin I’d wager too. If you have a solid rep and a few years of exp somewhere reputable. Even if you try something out and fail your “down” case probably has some fallback, so you’re probably freerolling, trying out a few risky ventures.
Me: Exactly — you derisk the distance of how far you can full (ie you try to raise the strike as much as you can of your “human capital put” and then you go out and get long risk)
Trading firms are amazing places to learn and develop skills, decision-making and specific knowledge. But you don’t want to overlearn lessons that serve them more than you.
I’ll end with this thought that coincides with the fortunate times most of the readers here were born into at least in America:
You can’t take the funny money that exists to mean more than it does. It’s an artifact of time and place. If you let it deflate or pump up your ego, that’s on you. You’ve lost control. The market is never more than a mistress. Her validation is capricious.
Nobody can go deep enough to hold the flashlight for you as you search for bedrock..no matter what your parents told you when they dropped you off at math camp.
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