Channeling Motivation

We ebb and flow through different productive energies. Sometimes we know exactly what we need to do. So we go into heads-down mode and grind. If this overlaps with the concept of “flow”, even better. It’s a great place to be. Even though the work might frustrating, the focus keeps you from an existential crisis. There’s plenty of time for that after you get the trophy.

Sometimes we find ourselves in a meta-funk. Maybe we are burnt out or have a personal difficulty that derails our routine. If the issue is acute (ie your health or loved one’s health), I hope there is enough merciful slack in the system to help you get back on track. In the case of burn-out, that slack may just take the form of rest, re-focus, or simply some time to wander.

Each of these states requires its own forms of guidance or remedies. But there is another increasingly visible state I’m seeing (perhaps too well if you catch my drift):

Restless and motivated but directionless.

Moontower is not some niche, actionable industry newsletter, so if you are subbing to a weekly “musing” there’s a good chance you have some “wander” energy in you. Perhaps there are too many appealing possibilities but none of them says “drop everything”. Or perhaps you need to see a menu of actions that can provide a first step.

Here’s a couple reads that might help.

  • Paul Millerd’s Reinvent: Action Challenge Examples (slideshow)

    You know my feeling that introspection is overrated. I’m guilty of living in my head too much, so I’m not throwing stones. In fact, that’s why I criticize it. To get unstuck you must act. Action begets information and that’s what you need. Paul put together an awesome deck of challenges and experiments to channel that motivation and help you get the information you need.

  • The Art and Science of Getting to the Very Top of Crowded Creator Markets (Reddit thread)

    There are no shortcuts but the encouraging takeaway is the recipe is simple not easy. That’s a recipe you are familiar with if you have ever done anything satisfying. It’s also a reminder: there’s nobody stopping you but you. It’s one of those hard truths that excuse-makers like to recruit their intellect against. Your time is too short to waste your brain making those excuses because you have enough time to prove the excuses wrong. I know. It’s a paradox. You’ll get over it. Even if it’s only because you must.

Finally, you should check out my buddy Khe’s 10K Summit. You probably see stuff like this all the time and gloss over it but Khe has the superpower of constantly over-delivering. And it shows in the caliber of people who he attracts (James Clear will be speaking for example).

There’s nobody I plug more because everyone who listens to me that they should check him out comes back and gives me rep. So I’m actually doing a judo selfish move.

Here’s the sign-up link -→ $10k Summit on Oct 6th-8th

Oh, yea one more thing. There’s no charge.

Assorted Real Estate Thoughts

An assortment of real estate things

  • An in-the-flesh example of growth vs value in real estate

    While traveling this summer we bought a house. It was a quick (that’s how I spell “impulsive”) decision. We weren’t even shopping for RE but it was one of the rare moments where Yinh and I took a look at something and arrived at the same conclusion telepathically. The home has some interesting optionality to us but the first checkbox was thinking about our downside. So we asked our local friend, who found the listing, to handicap the worst-case rent we could get for it. Feeling satisfied, we shot our shot and lifted the house.

    Turns out we underestimated the rent we could get for it by more than 40%. Within 3 days of listing it, we had 4 offers through our asking price, all guaranteed by an insurance company, a re-locating employer, or an upfront check for the whole lease term. Feeding frenzy.

    Now, the interesting part. The house is half the price of the house we rent in CA and fetches more rent than we pay here!

    What’s going on?

    This is a growth vs value thing. The house we bought is in an area where there are lots of new build permits. Supply is currently constrained because of immediate inflows of residents overwhelming capacity. But this place is nothing like the NIMBY Bay Area where home prices rightly have capital appreciation baked in. Meanwhile, where we bought has cap rates priced for carry.

    In other words, nothing to see here…markets make sense.

  • Why US Housing Prices Aren’t As Crazy As You Think (A Wealth Of Common Sense)

    This brief post by Ben Carlson provides an international perspective. It suggests that the recent surge in real estate prices is hardly a bubble and [gulp] it might even be early innings.

    This may surprise you, but compared with other developed nations, US home prices are merely playing catch-up. This is even more true when we adjust for inflation and disposable income.

    It wasn’t discussed in the post but another point suggesting RE has lagged, is US stocks have massively outperformed international markets since the GFC. This can be reassuring for those of you looking to rebalance out of stock [or crypto] gains into RE.

  • A reminder that RE is a very direct bet on interest rates

    This is from an account I like and follow (as opposed to a ‘hate-follow’) @sidprabhu:

    The median home price in 2007 was ~$250k with 30y mtg at 6.5%. Assume 0 down that’s $1,580/mo. With 30y mtg at 3%, $1,580 gets you a $375k house, which is the current median price. (thread)

    I want to add another insight from @ByrneHobart paywalled letter highlighting the bond-like quality of real estate:

    The higher the price/rent ratio for a home, the higher its duration is as a financial asset, so the rates-sensitivity of big city real estate offsets a lower expected rent.

    The quote refers to the fact that while covid decimated rents in big cities, the home prices fared comparatively well. Because city cap rates are already low they are priced like high P/E growth stocks. They have high duration (ie driven by values much further out in the future) so the immediate earnings (the “rent” in the RE context) have less impact on the price than if they were value stocks which are more sensitive to the cash flow.

  • If RE prices are high but the payment is the same should we care?

    Let’s turn to @sidprabhu again. The emphasis is for the geek readers who thirst option references any way they can get ‘em:

    Some will say what’s the problem? The payment is the same. Who cares what the price is? That ignores the fact that high home prices transfer wealth intergenerationally and can decrease mobility for buyers…

    Mortgages can be prepaid. Savings can be redirected to paying down high mortgage rates early creating a risk fee rate of return. It’s much better to buy a low priced house with a high rate because you can prepay. High prices benefit sellers…Perhaps more importantly, if home prices do go down it effectively traps buyers in their home. If rates go up they lose on their home value but locking in the mark to market gain on their mortgage is very difficult…

    Want to move cities for a better job in a recession? You owe the bank the negative equity or risk damaging your credit by walking away. (thread)

    Sid’s tweets made me reconsider one of my prior takes that I called “Minimum Tick Size Frustration”:

    Real estate prices that are high are mostly annoying because they force you to put a lot of eggs in one basket. This can be true even if the prices are high but cheap (a house on Carbon Beach for $3mm is cheap even if the price is “high”). If you are worth $1.5mm and own a house worth $1mm it’s hard to diversify. Your home is 2/3 of your assets. Many homeowners are even more concentrated than that. The high price might not be a problem from an affordability point of view but it’s a problem from a risk or portfolio point of view. So when you live in a high cost of living area, the minimum acceptable house forces you to concentrate wealth more than you’d like to.

    Here’s another way to look at it. Imagine if the lowest-priced stock in the world was $50,000 a share and there’s no way to buy fractional shares. We don’t need to make a statement about whether the stock is cheap or expensive (that depends on its earnings and how many shares outstanding there are) to be frustrated that the price is high even if it’s not “expensive”. We would just be frustrated that creating a diversified portfolio would be difficult if the minimum purchase prices were so high.

    Sid’s tweets make me change my opinion that high real estate prices are “mostly annoying”. They have much worse multi-order effects, unfortunately.

  • Since the GFC, builders were slow to get their mojo back…see the replies.

Moontower #117

Well hello friends.

It’s been 2 months. Last you heard from me, I was hanging out in the DFW area. We continued on to the Dominican Republic and then NYC/NJ before getting back to the Bay Area for the start of school. Thanks for the patience. We are all awash in “content” so I figure nobody missed me that much especially since I was still tweeting promiscuously.

After 10 weeks on the road, I was craving the warm embrace of a routine. Before I could ease back into a schedule I needed to indulge my organizational OCD otherwise known as “procrastination”. So to transition back into a weekly cadence I’ll briefly talk about this housekeeping before talking about what will change about the Moontower letter and what will stay the same.

Health

I aggressively shed the few extra pounds I put on this summer. Mostly through diet but I got back to lifting 2x/week and walking more (taking kids to and from school by foot helps there). I also got a physical/bloodwork. I was told to lower my blood pressure and blood sugar. Luckily, the Rx for both is the same — treat your body like you only get one. Feed it actual food, move it, and rest it.

Intellectual Inputs

You’d think that I did a lot of reading on my travels. You’d be wrong. I did what I couldn’t the prior summer — I hung out with family, old friends, and new friends I’ve met because electrons are amazing. But I want to get back to reading more. I don’t even mean books necessarily. Articles and blog posts are a step up from where I’ve been. I seriously starved myself of intellectual stimulation this summer. I opened my laptop maybe once a week and mostly used the Notion app on my phone to queue my reading list. I started working through it this week. Here’s a look at my queue system in case you are a serial killer too.

Filing system for reading

For better or worse, filing posts I want to read makes me feel less overwhelmed. Posts that are long or technical require different energy than the “<8 min read” and my Notion dashboard is a useful triage. And it’s fine to discard something you thought you might want to read and later lost the will or need. To get reading times I use the ReadingTime Chrome extension (link).

The “Week of 9/7/2021” is a dropdown where I file the articles I read this week. At the start of the next week, I’ll move that file to the “Weekly Reading Archive”. Sometimes, I’ll read something and want to refer back to it but I didn’t anticipate ever wanting to refer back to it but I might remember roughly when I read it (ie “during Thanksgiving last year”, or “when I was in LA”). This gives me a chance of recovering it even if I can’t remember distinguishing features of the post to feed a search engine.

Other sources of media

I just have a simple list by media type (ie movie, YouTube clip, etc). For audio sources, I use PlayerFM to queue podcasts and Spotify to explore music. My public Spotify lists are indexed for you here.

Courses

Separately, a college bud recently needed to re-arrange an equation for a financial model he was working on. He put it on our group chat that has several electrical engineers and physics folks with advanced degrees. Crickets. I stuck it into an online math solver after taking a crack at it and failing. The solver reminded me that there’s a general formula for a quadratic equation that starts with:

-b ± √ stuff

Oh, the cobwebs. Use it or lose it.

Anyway, that feeling prompted this tweet that led to a treasure trove.

Twitter avatar for @KrisAbdelmessihKris @KrisAbdelmessih

Please reply with your favorite free online algebra, calculus, stats courses please. 🧮

I rummaged through the responses and came up with this shortlist if interested:

And of course, Khan Academy was a frequent recommendation.

The Future Of Moontower Weekly Musings

  • You may have noticed Moontower has migrated from Mailchimp to Substack. Mailchimp’s free tier caps at 2k subs and there are now over 2,100 of you. Meanwhile, Substack is always free. And so easy a caveman can do it, lucky for me.
  • I moved the archive (in a painful copy/paste process) to my WordPress site MoontowerMeta.

After >2 years of following a steady format, I’m modifying the letter. How will Moontower be different?

  • It will be much shorter
  • It will be more focused on sharing links I found interesting
  • It will only have 2 sections. The main section is where you will find recommendations and Money Angle is where you will find more finance-focused links.

What will not change?

  • Sunday is the day. Every week.
  • It will remain personal. A lot of reader outreach came from the philosophical and productivity-geared posts. The From My Actual Life section also created an easy relationship with you. So even though the Money Angle drives the subs, this outlet where we try to figure out life together I think becomes the familiar friend. It means a lot to me but removing the weekly prompts reduces the mental overhead of the letter.

This brings me to the reason for modifying the letter — to reduce the hours I spend on it. I want to tackle a list of writing projects and posts that require more effort. I’m just re-allocating time from the letter to the longer posts (which I will of course share in the letter as they get published). When I started Moontower, it was intended to be just links, but your encouragement let me wade into writing. Both the finance and life writing found appreciative audiences once I hit “send” on Sunday. I’m just leaning into that, so 117 letters later, Moontower is coming full circle and going back to mostly links.

Ok, this is already much too long so we will punt on Money Angle this week and just share a few recs/tweets from the past couple of months.

Recs

  • Motivational books…I compiled the results here.

  • Investing in future productivity

    The 8-year-old has been using typingclub.com to speed up. He noticed I peck like a chicken and shamed me into practicing. Jeff introduced me to an even slicker software — keybr.com. Painful but it will be worthwhile. (Yinh, meanwhile, is a ringer and organized a wpm contest at her old firm on her last day and torched everyone. She’s close to 100 wpm. Annualize that.)

  • Fun
    • I saw Ford vs Ferrari for the first time this summer and it immediately became one of my favorite movies. I watched it 4x in a week which reminded me of my early 20s when I first got a DVD player and watched LebowskiZoolanderBoiler Room and Any Given Sunday until I just about wore the discs out.
    • I went to Bottlerock for the first time ever. It was like a food and wine festival with music. It was well-done and comfortable. Nicest port-o-potties I’ve ever seen. And no lines! We went general admission and used car service to go back and forth each of the 3 days (even Best Westerns were about $1500/n for double occupancy). I’d go back to Bottlerock but maybe book accommodations a year in advance.

      Favorite new-to-me discoveries: The Black PumasJoywave, and Cage The Elephant (who are on binge repeat mode in the house now. I made a playlist of the set they played if you wanna partake).

    • I was looking for literal moontowers when I was in Texas this summer so let it be clear that I’m totally biased when I say you need to listen to the audiobook for Greenlights.

    Thanks for reading!

The Most Important Solutions Are Simple Just Not Easy

Here’s an exercise.
Watch this 4 minute vid which shows how people solve their problems AND how corps study you to serve you solutions.  It’s also amusing. The late HBS prof Clayton Christensen reveals some surprising facts about the habits of people who buy McD’s milkshakes.

The Job Of A Milkshake (YouTube)

Then…

This post shows why you don’t need a manufactured solution. You don’t need a “milkshake”.

Decomplication (Link)
Nat Eliason

My takeaways:

We all know the concept of simple but not easy. It’s the truth to everything worth having. Good relationships, good health, good output. You can’t fool yourself and there’s no shortcuts to these things.

It’s easy to forget that because we want to forget that. It’s inconvenient. So we tie ourselves in confusing webs of apps, CBD and expensive mattresses to figure out how to do something babies just do: sleep. And that’s just one example.

We succumb to:

The Law of Artificial Complexity: As the number of people experiencing a problem increases, so will the artificial complexity of the solution.

We need to remember: 

The Law of Decomplication: The more people that are experiencing a problem, the simpler the solution should be.

So strip the problems back down to their essence.

      • Losing weight: People without access to food get very skinny. If I eat less, I will lose weight.
      • Networking: Famous people tend to hang out with other famous people, or people as accomplished in tangential fields. If I want to get to know someone I respect, then I should do something that puts me on a level where I could be friends with them.
      • Productivity: The goal of productivity is to get more done, and the biggest reason you don’t get things done is that you’re doing other things. If I remove the ability to do other things, I’ll do the thing I’m trying to be productive on.
      • Sleep: Removed from modern society, sleep is not a problem. If I can create a sleep environment as if I wasn’t in modernity, I should sleep fine

Bits From DFW

We’ve been up to a lot of fun stuff in Texas. Some of it will make for good discussion when I’m ready but in the meantime, I’ll just mention a few DFW places that we have enjoyed in the past couple of weeks.

  • FC Dallas MLS games

    We went 2x. For less than $40 you get amazing seats. The overall environment is fun and positive. I have never been to an MLS game before and while I know nothing about soccer, I and everyone we went with found the fan experience to be outstanding.
     
  • Burger’s Lake (Fort Worth area)

    We went here 2x as well (the friends we are staying with have been hosting 2 to 4 families from our NYC/CA crews the entire time we’ve been here, so we repeat activities as the revolving door requires). It’s a lake with high diving boards, water slides, a trapeze swing, and attractions catering to younger kids. Bring your own picnic or use the camping grills to make burgers. You will need to sneak booze in. On weekends they check your cooler, but we got away with it during the week. Your welcome for the tip.
     
  • The Stockyards (Fort Worth area)

    Also did this 2x. Step back into the history of cattle-ranching. There’s plenty of activities for kids and rows of old saloons and restaurants for the grown-ups. And if you want something less rustic, the newish Hotel Drover is a great spot to grab a ranch water (I make this drink all the time, but didn’t realize Texans have a name for it). It also looks like a fun spot for a weekend getaway with a nice pool and access to the stockyards. Time your visit to see the daily longhorn cattle drive up the main drag. 
     
  • Deep Ellum (Dallas)

    This is an area of Dallas that reminded me a bit of Wynwood in Miami. Cool restaurants and shops (Jack White’s baseball brand Warstic is headquartered here). Plus lots of locals flexing their muscle cars (my kids are totally obsessed with cars right now especially Challengers with kits such as Demons, Super Bees, and Hellcats. Hellcats come with 2 keys, a black and a red one. The black one is the regular one. The red ones unleash the beastly Hellcat engine. These cars are built for drag racing. If Fast and Furious movies didn’t have cringey sex scenes, I’d take the boys to see F9). If you visit and dig tequila/mezcal you need to go to the Ruins. I tweeted about it. 
     
  • Bar hopping in Dallas

    Grab a cocktail at the Mitchell, see the decor in the Adolphus Hotel, and end at the Thompson Hotel. There you can see some prettiness and pretty people at Catbird before grabbing dinner at Monarch or sushi at Kessaku. The sushi was outstanding by any coastal city standard but pricey. Sake choices were underwhelming, but the view is a consolation prize. Finally, end the night, at a ridiculously good mezcal bar hidden in a bridal store. In a strip mall. The empanadas and cocktails are lit at this tiny spot started by two bros from Mexico City. It’s called La Viuda Negra. It was better than the movie we saw of the same name last night in IMAX. 

Moontower #115

Friends,

Last week I shared The “R” Word.

The post was about trying to reframe a career in a sustainable way. In a way that aligns with how our idiosyncratic energies work. Aligned with the types of people we want to be around.

The largest payoff to this isn’t immediately obvious. It relieves the pressure to build a nest egg with an overengineered margin of error. Instead of relying on assumptions of things that are out of your control like returns and inflation you choose to rely on your human capital.

The key is that you will still be excited to employ your ability and the returns that come from being a willing perma-learner. You won’t have a strong desire to stop working since you chose a stroll that forgives you for meandering instead of a sprint. A sprint taxes you not just physically, but mentally, by making you think there’s only one way to win. Racing is insidiously expensive because it directs your gaze to a finish line. A bizarre approach to life, since tomorrow is never guaranteed.

The post led to many responses (it’s the most reactions I’ve gotten from a post, especially as a percentage of total views). Many of you are thinking deeply about the same topic. I’ve had a few young people respond. I am impressed at how deliberate they are about their long-term strategy. I was never that mature. Unsurprisingly, most of the responses came from finance/trading folks of similar age as me. Many extremely financially successful or downright rich. Some of them have been sick of their profession for years but in the absence of a roadmap can’t pry themselves away from stacking more chips.

I keep thinking about this. I keep coming back to a half-baked thought but I’ll blurt it out and you can finish it in your own oven. It could be a wasteful or irresponsible thought. Or it can unlock more thoughts and break inertia. I take zero responsibility, blame, or credit for what you do with it.

You will never walk away from money without a reason. But money is not fungible with risk. Actually it’s a risk-absorber. For many, the feeling of a life well-lived requires risk. If you accumulated more money than you need, you have sterilized a lot of risk. And you’ve sterilized the feeling of being alive. There are many types of risky pursuits. Some are fun but not meaningful. Some are meaningful but not fun. And everything in between.

Before making any changes to your life think about:

  • The size of risk you need to feel engaged
  • The nature of the risk you need (where is it on the fun/meaningful spectrum?)  

With the answers to these questions, you will know whether you just need a new hobby…or if you need “a man to come through the door with a gun”.

Finally, I’ll point you to 2 terrific related posts that have lingered for me.

  • The Path (5 min read)
    Chris Wong

    Excerpt with my emphasis:

    For me, The Path started when I began my career in finance in 2002. Actually, I’ve probably been on The Path even longer, since middle school. Get good grades, get on the honors track, do extracurriculars. Get into a good college. Get a good job. Get promoted. Get a better job. Get promoted. Get a better job. Get promoted.By the time I turned thirty, I had begun to question The Path.

    The real reasons were that the money was good and The Path was a siren’s call to a life of comfort. The money to me was security and optionality. But I wasn’t using the optionality to do anything and because I had already stopped spending money on things I didn’t enjoy, I had a degree of financial security. Why be inauthentic to myself in order to pursue goals that didn’t interest me? In finance, the answer to the interview question “Why do you want this job?” is a dirty open secret. You are not allowed to say money. Even though that is everyone’s real answer. You must make up an answer to prove that you are not a masochistic psychopath. I couldn’t lie anymore. The only reason to stay in this job was money, but to me cash was the applause of Performance Art and I would rather put on my own show in an empty theater.

  • Speculation: A Game You Can’t Win (More To That)
    Lawrence Yeo

    Risk aversion is the idea that a loss of X hurts more than the joy of winning X. That means the profession of investing has an emotional volatility drain that wears us down. This short post will similarly resonate with traders. If you are not a trader and it resonates, I’d suggest you are misallocating your time.

    Excerpt from Lawrence’s post:

    …financial freedom isn’t about money, it’s about attention. The less you have to think about money, the more free you actually are. Speculation is the antithesis of that statement.

    Read the whole post here.


The Money Angle

I’ve talked about compensation deals in the past.

For example, one of the tweets in this thread:

Anyone that has ever worked in derivs or at a mm knows what a beast comp negotiation can be. There’s a trader on both sides of the table. Both sides are pricing calls and puts, netting risks, and trying to find structures that work for both sides’ risk preferences.

In On #Voltwit Melees I wrote:

If you really want to examine incentives, think about the PMs at the fund. The non-equity owners want maximum vol since their downside is just losing their job, but their upside is a percent of their performance. Their equity-owning counterparts want the assets to stick. Notice how the non-equity-owning PM has the same incentive as the LP, not the GP.

Comp structures, just like fee structures, are about shifting incentives to create alignment. But there’s a lot of haggling under the hood that looks an awful lot like options trading. When you negotiate comp, do you ever wonder who the patsy is? Or do you think you are in the ballpark of fair value AFTER considering all the levers/scenarios?

Recently, a friend reached out for advice about a specific type of situation. I see a concern that is worth sharing more widely. A bit of background first:

The friend is a senior employee. They are not too concerned about the downside of the new opportunity they are looking at (meaning if they just earned their salary and no bonus they could tolerate that outcome…salaries tend to be a small percentage of total comp for senior employees). The friend is really interested in the opportunity for the upside so, in trader parlance, the friend wants maximum call exposure and doesn’t value the put (ie a minimum guaranteed bonus) much. I have found that employers can be flexible on these structures. If you are risk-averse they are willing to give higher minimum bonuses but take your upside. Of course, on the trading or fund management side, employees are usually in it for the big payoff so do not choose this option, especially if they have savings and can survive on their salary alone if needed.

The major points to be aware of:

  • This friend wants max upside and is not concerned about the downside of the opportunity they are considering. In fact, the friend would be taking a substantial paycut for the shot to have large exposure to the new gig’s success.
  • The nature of the gig is the friend would be launching a fund that had an AUM fee but no performance fee (it’s not a hedge fund) and the fund would be closer to systematic than discretionary.
  • The friend is focused on how to ensure they are aligned with the employer in the case that the venture succeeds.

That’s going to be tricky. Can you anticipate my warning?

Here’s what I told my friend:

You are willing to accept a large carrot on the back end to take risk on the front end. The prospective employer agrees in principle to that arrangement. If possible, the gold standard of alignment will be tying your stock awards to a trail of your efforts in the building of the new product.

The correct appearance of the trail is that it should look overly generous to you in the event that it “hits”. Remember, you took a paycut and a risk upfront. The real-time value of that trail cannot simply be weighed against your real-time efforts since the trail is a lagging indicator of your work.

You are being very clear that your situation allows you to take a risk but it’s critical that you get paid off if things work out. There is always a form of “credit risk” when structuring a deal like this in the sense that at many winning positive scenarios, on a forward-looking basis, it will always look like the right play for the employer to cut you. You are addressing this ahead of time, and want the employer to assure against the incentives it will have AFTER you have borne the bulk of the risk.

What safeguards are in place to “remember how this deal was supposed to work”?

At every review, owners can exercise the option to screw you. Insuring against that is pretty difficult. A big difference between startups and fund management is that early startup employees own true equity. This reality is harshest when things go well. I suspect some market-making firms (they are not funds but the analogy holds) could have paid every employee millions of dollars last year and still had record profits. But they didn’t. People were paid well but found out they had zero delta to the upside at some threshold.

I’m sympathetic to their employer as well. If you paid everyone what they “deserved” many would have quit having hit their FU number. And if you don’t, sure some might rage-quit, but there’s not some other employer willing to pay them more based on some outlier year. Most likely, the owners will admit to themselves, that ownership has its privileges and they are the risk-takers. An unhappy employee is free to start their own business. In fact, that’s who entrepreneurs often are…people with chips on their shoulders.

Ownership is the only true call option. Not shadow equity, where you are promised a percentage of the p/l. That’s not a stake that you can cash out to partners.

If you are in the game for upside, be careful about who writes your checks.

(Option traders know the warning well. Bonus season, despite its moniker, rarely feels like bonus-y fun. Reviews are mostly endurance tests in which you restrain yourself from flipping a desk as you read a disappointing number off a page, several times until it finally registers that it’s what was indeed intended, all the while a superior gaslights you about how good a job you did. The canyon between words and actions so wide, you might even look around to see if there’s someone else in the room. But no. They are actually talking to you.

Market-making firms are generally run by ruthless Ayn Rand worshippers. Whether they converge to this mindset as a post-hoc rationalization for their role in doing “god’s work” or start with it likely varies. I suspect it takes a certain type of person to get to the top of that profession. That person will be good at rationalizing and see wealth as evidence of being right. It’s all quite convenient.)


Last Call

My friend Matt has been developing an app. He’s looking for testers. I’m going to do it. Here’s the pitch, if you are interested please sign up!

Years ago, I fell into the habit of letting work encroach too much on my personal goals – being a great dad, friend, husband; pursuing hobbies; staying in shape.

So I tried to achieve balance by working with coaches, and immersing myself in relevant content. What emerged was Whee.li – a system and app to help me intentionally apply a growth mindset across all the dimensions of my life. I have used and refined Whee.li for years with great results.

It’s time to share it more broadly …

Through July 10, I’m accepting applications for individuals interested in testing Whee.li. The application is quick, and the beta program will start in August or September. The commitment is five weeks, fifteen minutes per week.

If you are interested, please apply at www.whee.li. If you know people who would be enthusiastic testers, I encourage you to spread the word.

Thanks for your support!


From my actual life 

Earlier this week we went to Disneyworld in Florida. A few observations and tips:
  • We stayed at the Yacht Club. It’s considered one of the mid-tier Disney properties but we thought it was plenty nice. We chose it because it has the best pool. It didn’t disappoint. There’s a great water slide that starts in the crow’s nest of a pirate ship and takes you down to a 4′ deep pool. It’s fun for adults and kids probably as young as 3 or 4 (if they can’t swim you can catch them at the bottom). The staff coordinates activities for kids in the pool, there’s water volleyball, a lazy river, a whirpool with a strong current that’s fun to try to swim against, and many pools with sandy bottoms! Toddlers and younger children will especially love the kiddie pool/beach section.
  • The Magic Kingdom is still not doing fireworks or outdoor shows which is strange (Yinh was up late one night though and did see a practice fireworks show after midnight). The park is crowded and nobody is masking so I presume operations will go back to normal soon. Except the new idea of mobile ordering. More than half the concession and food options have no lines because mobile ordering is mandatory at those spots. I suspect that trend is staying. Between using the app in the park, mobile ordering, and taking pictures make sure you have enough phone battery. Oh yea, I discovered a frozen dessert called a Dole Whip. For $5 it’s the best deal in the park (although I recommend the vanilla soft-serve that you can find at the same stands. Perfection.).
  • The best rides in the Animal Kingdom are the Expedition Everest rollercoaster (the Yeti theme and surprises are awesome) and the Avatar: Flight of Passage ride. I thought that ride was exceptional and in the running for best ride overall. If the line wasn’t so long, I’d have gone again.
  • My favorite park of the 3 we visited was Hollywood Studios. The Star Wars section is called Galaxy’s Edge and is an unbelievable re-creation of places from the movies. The attention to detail hurt my brain. Total devotion to quality. The kids especially loved the Millenium Falcon ride called Smuggler’s Run. It’s interactive as everyone plays the role of either pilot, gunner, or engineer. But the show-stealer is the 18-minute experience called Rise of The Resistance. You must reserve one of the limited spots and the ride is very popular. I’ll pass along the tips we learned to ensure we’d get in. Call customer service on the Disney app to link the app accounts for all the adults in your party. This process took about 2 hours the night before (mostly just sitting on hold). Then have everyone in your party ready to snipe the “virtual queue” on the app when they start accepting people (just like trying to snipe concert tickets when they go on sale). 5 of us sniped at the same time, anticipating as the clock turned from 6:59 to 7:00 am.

    Finally, if you want a chance to grab a drink in the Cantina bar make a reservation. They book 2 to 3 months out. We didn’t know about this. Next time.

  • I learned that when my kids are scared on rides they keep repeating with utter calm and monotone “I hate everything about this”. Then when it’s over they claim it was their favorite. Psychopaths.

Today, we are in the Dallas area for the next few weeks crashing with close friends. We lived near each other in NYC and amazingly in the Bay Area as well. Now they are making a full-court press to have us move to TX. I don’t know, it’s pretty hot here. They are targeting my vanity and weakness for frivolous beverages. Never a bad strategy to be honest.

Disneyworld Tips

Earlier this week we went to Disneyworld in Florida. A few observations and tips:
  • We stayed at the Yacht Club. It’s considered one of the mid-tier Disney properties but we thought it was plenty nice. We chose it because it has the best pool. It didn’t disappoint. There’s a great water slide that starts in the crow’s nest of a pirate ship and takes you down to a 4′ deep pool. It’s fun for adults and kids probably as young as 3 or 4 (if they can’t swim you can catch them at the bottom). The staff coordinates activities for kids in the pool, there’s water volleyball, a lazy river, a whirpool with a strong current that’s fun to try to swim against, and many pools with sandy bottoms! Toddlers and younger children will especially love the kiddie pool/beach section.
  • The Magic Kingdom is still not doing fireworks or outdoor shows which is strange (Yinh was up late one night though and did see a practice fireworks show after midnight). The park is crowded and nobody is masking so I presume operations will go back to normal soon. Except the new idea of mobile ordering. More than half the concession and food options have no lines because mobile ordering is mandatory at those spots. I suspect that trend is staying. Between using the app in the park, mobile ordering, and taking pictures make sure you have enough phone battery. Oh yea, I discovered a frozen dessert called a Dole Whip. For $5 it’s the best deal in the park (although I recommend the vanilla soft-serve that you can find at the same stands. Perfection.).
  • The best rides in the Animal Kingdom are the Expedition Everest rollercoaster (the Yeti theme and surprises are awesome) and the Avatar: Flight of Passage ride. I thought that ride was exceptional and in the running for best ride overall. If the line wasn’t so long, I’d have gone again.
  • My favorite park of the 3 we visited was Hollywood Studios. The Star Wars section is called Galaxy’s Edge and is an unbelievable re-creation of places from the movies. The attention to detail hurt my brain. Total devotion to quality. The kids especially loved the Millenium Falcon ride called Smuggler’s Run. It’s interactive as everyone plays the role of either pilot, gunner, or engineer. But the show-stealer is the 18-minute experience called Rise of The Resistance. You must reserve one of the limited spots and the ride is very popular. I’ll pass along the tips we learned to ensure we’d get in. Call customer service on the Disney app to link the app accounts for all the adults in your party. This process took about 2 hours the night before (mostly just sitting on hold). Then have everyone in your party ready to snipe the “virtual queue” on the app when they start accepting people (just like trying to snipe concert tickets when they go on sale). 5 of us sniped at the same time, anticipating as the clock turned from 6:59 to 7:00 am.

    Finally, if you want a chance to grab a drink in the Cantina bar make a reservation. They book 2 to 3 months out. We didn’t know about this. Next time.

  • I learned that when my kids are scared on rides they keep repeating with utter calm and monotone “I hate everything about this”. Then when it’s over they claim it was their favorite. Psychopaths.

Today, we are in the Dallas area for the next few weeks crashing with close friends. We lived near each other in NYC and amazingly in the Bay Area as well. Now they are making a full-court press to have us move to TX. I don’t know, it’s pretty hot here. They are targeting my vanity and weakness for frivolous beverages. Never a bad strategy to be honest.

Getting Less Screwed On Compensation

I’ve talked about compensation deals in the past.

For example, one of the tweets in this thread:

Anyone that has ever worked in derivs or at a mm knows what a beast comp negotiation can be. There’s a trader on both sides of the table. Both sides are pricing calls and puts, netting risks, and trying to find structures that work for both sides’ risk preferences.

In On #Voltwit Melees I wrote:

If you really want to examine incentives, think about the PMs at the fund. The non-equity owners want maximum vol since their downside is just losing their job, but their upside is a percent of their performance. Their equity-owning counterparts want the assets to stick. Notice how the non-equity-owning PM has the same incentive as the LP, not the GP.

Comp structures, just like fee structures, are about shifting incentives to create alignment. But there’s a lot of haggling under the hood that looks an awful lot like options trading. When you negotiate comp, do you ever wonder who the patsy is? Or do you think you are in the ballpark of fair value AFTER considering all the levers/scenarios?

Recently, a friend reached out for advice about a specific type of situation. I see a concern that is worth sharing more widely. A bit of background first:

The friend is a senior employee. They are not too concerned about the downside of the new opportunity they are looking at (meaning if they just earned their salary and no bonus they could tolerate that outcome…salaries tend to be a small percentage of total comp for senior employees). The friend is really interested in the opportunity for the upside so, in trader parlance, the friend wants maximum call exposure and doesn’t value the put (ie a minimum guaranteed bonus) much. I have found that employers can be flexible on these structures. If you are risk-averse they are willing to give higher minimum bonuses but take your upside. Of course, on the trading or fund management side, employees are usually in it for the big payoff so do not choose this option, especially if they have savings and can survive on their salary alone if needed.

The major points to be aware of:

  • This friend wants max upside and is not concerned about the downside of the opportunity they are considering. In fact, the friend would be taking a substantial paycut for the shot to have large exposure to the new gig’s success.
  • The nature of the gig is the friend would be launching a fund that had an AUM fee but no performance fee (it’s not a hedge fund) and the fund would be closer to systematic than discretionary.
  • The friend is focused on how to ensure they are aligned with the employer in the case that the venture succeeds.

That’s going to be tricky. Can you anticipate my warning?

Here’s what I told my friend:

You are willing to accept a large carrot on the back end to take risk on the front end. The prospective employer agrees in principle to that arrangement. If possible, the gold standard of alignment will be tying your stock awards to a trail of your efforts in the building of the new product.

The correct appearance of the trail is that it should look overly generous to you in the event that it “hits”. Remember, you took a paycut and a risk upfront. The real-time value of that trail cannot simply be weighed against your real-time efforts since the trail is a lagging indicator of your work.

You are being very clear that your situation allows you to take a risk but it’s critical that you get paid off if things work out. There is always a form of “credit risk” when structuring a deal like this in the sense that at many winning positive scenarios, on a forward-looking basis, it will always look like the right play for the employer to cut you. You are addressing this ahead of time, and want the employer to assure against the incentives it will have AFTER you have borne the bulk of the risk.

What safeguards are in place to “remember how this deal was supposed to work”?

At every review, owners can exercise the option to screw you. Insuring against that is pretty difficult. A big difference between startups and fund management is that early startup employees own true equity. This reality is harshest when things go well. I suspect some market-making firms (they are not funds but the analogy holds) could have paid every employee millions of dollars last year and still had record profits. But they didn’t. People were paid well but found out they had zero delta to the upside at some threshold.

I’m sympathetic to their employer as well. If you paid everyone what they “deserved” many would have quit having hit their FU number. And if you don’t, sure some might rage-quit, but there’s not some other employer willing to pay them more based on some outlier year. Most likely, the owners will admit to themselves, that ownership has its privileges and they are the risk-takers. An unhappy employee is free to start their own business. In fact, that’s who entrepreneurs often are…people with chips on their shoulders.

Ownership is the only true call option. Not shadow equity, where you are promised a percentage of the p/l. That’s not a stake that you can cash out to partners.

If you are in the game for upside, be careful about who writes your checks.

(Option traders know the warning well. Bonus season, despite its moniker, rarely feels like bonus-y fun. Reviews are mostly endurance tests in which you restrain yourself from flipping a desk as you read a disappointing number off a page, several times until it finally registers that it’s what was indeed intended, all the while a superior gaslights you about how good a job you did. The canyon between words and actions so wide, you might even look around to see if there’s someone else in the room. But no. They are actually talking to you.

Market-making firms are generally run by ruthless Ayn Rand worshippers. Whether they converge to this mindset as a post-hoc rationalization for their role in doing “god’s work” or start with it likely varies. I suspect it takes a certain type of person to get to the top of that profession. That person will be good at rationalizing and see wealth as evidence of being right. It’s all quite convenient.)

Follow Up To “The R Word”

Last week I shared The “R” Word.

The post was about trying to reframe a career in a sustainable way. In a way that aligns with how our idiosyncratic energies work. Aligned with the types of people we want to be around.

The largest payoff to this isn’t immediately obvious. It relieves the pressure to build a nest egg with an overengineered margin of error. Instead of relying on assumptions of things that are out of your control like returns and inflation you choose to rely on your human capital.

The key is that you will still be excited to employ your ability and the returns that come from being a willing perma-learner. You won’t have a strong desire to stop working since you chose a stroll that forgives you for meandering instead of a sprint. A sprint taxes you not just physically, but mentally, by making you think there’s only one way to win. Racing is insidiously expensive because it directs your gaze to a finish line. A bizarre approach to life, since tomorrow is never guaranteed.

The post led to many responses (it’s the most reactions I’ve gotten from a post, especially as a percentage of total views). Many of you are thinking deeply about the same topic. I’ve had a few young people respond. I am impressed at how deliberate they are about their long-term strategy. I was never that mature. Unsurprisingly, most of the responses came from finance/trading folks of similar age as me. Many extremely financially successful or downright rich. Some of them have been sick of their profession for years but in the absence of a roadmap can’t pry themselves away from stacking more chips.

I keep thinking about this. I keep coming back to a half-baked thought but I’ll blurt it out and you can finish it in your own oven. It could be a wasteful or irresponsible thought. Or it can unlock more thoughts and break inertia. I take zero responsibility, blame, or credit for what you do with it.

You will never walk away from money without a reason. But money is not fungible with risk. Actually it’s a risk-absorber. For many, the feeling of a life well-lived requires risk. If you accumulated more money than you need, you have sterilized a lot of risk. And you’ve sterilized the feeling of being alive. There are many types of risky pursuits. Some are fun but not meaningful. Some are meaningful but not fun. And everything in between.

Before making any changes to your life think about:

  • The size of risk you need to feel engaged
  • The nature of the risk you need (where is it on the fun/meaningful spectrum?)  

With the answers to these questions, you will know whether you just need a new hobby…or if you need “a man to come through the door with a gun”.

Finally, I’ll point you to 2 terrific related posts that have lingered for me.

  • The Path (5 min read)
    Chris Wong

    Excerpt with my emphasis:

    For me, The Path started when I began my career in finance in 2002. Actually, I’ve probably been on The Path even longer, since middle school. Get good grades, get on the honors track, do extracurriculars. Get into a good college. Get a good job. Get promoted. Get a better job. Get promoted. Get a better job. Get promoted.By the time I turned thirty, I had begun to question The Path.

    The real reasons were that the money was good and The Path was a siren’s call to a life of comfort. The money to me was security and optionality. But I wasn’t using the optionality to do anything and because I had already stopped spending money on things I didn’t enjoy, I had a degree of financial security. Why be inauthentic to myself in order to pursue goals that didn’t interest me? In finance, the answer to the interview question “Why do you want this job?” is a dirty open secret. You are not allowed to say money. Even though that is everyone’s real answer. You must make up an answer to prove that you are not a masochistic psychopath. I couldn’t lie anymore. The only reason to stay in this job was money, but to me cash was the applause of Performance Art and I would rather put on my own show in an empty theater.

  • Speculation: A Game You Can’t Win (More To That)
    Lawrence Yeo

    Risk aversion is the idea that a loss of X hurts more than the joy of winning X. That means the profession of investing has an emotional volatility drain that wears us down. This short post will similarly resonate with traders. If you are not a trader and it resonates, I’d suggest you are misallocating your time.

    Excerpt from Lawrence’s post:

    …financial freedom isn’t about money, it’s about attention. The less you have to think about money, the more free you actually are. Speculation is the antithesis of that statement.

    Read the whole post here.