More on Time Dilation: Mountain Time

So March is over. I know it’s hard to believe but it was only 31 days. Just like every other March ever. I’ve written about time dilation and how memories are the true x-axis in our experience of time. The topic is immediately relevant to all of us at the exact same time.

Morgan Housel wrote this week:

There’s a well-known idea that time feels like it speeds up as you age. Summer break feels like an eternity when you’re nine years old but your 60s can skip by in a flash.

The leading theory for why this happens is that the perception of time relies on the number of memories formed in a period, and memories are encoded from new and surprising experiences. The monotony of commuting to work on the same road for 20 years passes without leaving a mark. But every day is a memorable surprise to a child experiencing her first summer camp, or learning how big the universe is for the first time.

Time slowed in March because for the first time since childhood many of us are being bombarded with new and surprising experiences.

We learned that shaking hands can be deadly.

That the economy can stop overnight.

How much people can come together, and how isolating lockdown can feel.

Derek Sivers once wrote:

People only really learn when they’re surprised. If they’re not surprised, then what you told them just fits in with what they already know. No minds were changed. No new perspective. Just more information.
See the full post. (Link)

Going even deeper

More To That, with its signature cartoons, starts with the physical fact that time passes faster in the mountains than at sea level. It’s a fantastic and fun read. Don’t worry, it doesn’t go too Christopher Nolan on you. It ends with a provocative idea:
Remember that when you enter one of those [periods of shock], you enter a space where time expands, and things slow down substantially. The days will move by slower as the haze of uncertainty thickens, and you will feel each minute lengthen as familiar routines fade away into the background.

It is here where your decisions will matter most.

The majority of progress is determined by the minority of choices you make. Setbacks, such as the one we’re all in the midst of, is where we lay down the foundation for how things will move once the dust settles. It’s not the years of continual progress that builds our view of the world, but our response to rapid pushbacks that does.

Full post. (Link)

Lockdown Living Quick Hits


We played lots of Sushi Go this week as a family. It’s a simple introduction to the “hand drafting” mechanism for the 6-year-old. Thought we’d give him a dose of that before busting out 7 Wonders. When my mom and cousin were staying with us for a few weeks last year we were playing that game nightly. Be cool to have Zak in the mix when we get the band back together.


I introduced Zak to Scratch Jr this weekend which is a block-based coding language derived from Scratch, a coding language developed by the MIT Media Lab about 5 years ago. It’s very intuitive. Within an hour Zak was able to design and loop a very simple story (a snake walks around on the screen, and when it touches the cat, the cat says “ouch”). It’s free. We used the iOS version.

Homeschooling has been more like homeplaying. It’s been really fun to watch the progression of how the boys play together with so much time together. They are role-playing Marvel, playing with Beyblades, fuse beads, drawing/coloring, building forts and jumping all over the furniture. Giving them “school” stuff to do feels like it’s more about giving us some quiet.

We implemented a system this week for Zak. He collects and files a bead for any of the following accomplishments.

  • Math (workbooks, online, Singapore math tests, Sudoku)
  • Reading (he’s into Bad Guys books)
  • Research (this is writing about an experience. So going on a hike, or something he learned from watching a video or show)
  • Act of kindness (this week was writing letters to grandma and a cousin. Could also be helping with someone else’s chores)
  • Games (playing Chess online)
  • Writing (any creative story or simply about his weekend)
  • Special Projects (ie learning Scratch Jr, science project, helping me with the Census, learning to ride a bike)

The rule is he must collect 3 beads per week per category, except acts of kindness which is every day. When he earns a bead he files it in a tray with compartments and at the end of the week, we reset. Week 1 went well as he felt like he had a say in how his days went and it otherwise provided a touch of structure to the day which is mostly them playing. 10am is garage time. That’s when they come to my home office and do stuff. Mostly jumping on furniture and pulling things out of storage that they shouldn’t. Like the plastic Easter eggs.

I got some inspiration of having a system from this post called Kanban Kids.

I’ll caveat all this with a quick thought. If the kids were singularly obsessed with something like music, chess, or anything where they were more on the “producing” rather than “consuming” side of the spectrum, I’d pretty much be ok with letting them do that the whole time. We try to span different things because they aren’t obsessed, not because we have an issue with obsession.
Date Night

We are very lucky to have Yinh’s mom living with us. Yinh and I were able to steal a few hours on Friday. We ordered takeout sandwiches from Southie’s in Rockridge, grabbed some sodas and fries from McDonald’s drive-thru, then parked in an empty lot to eat and chat without being yelled over. I’m not exactly recommending this behavior which I learned makes us scofflaws. Interested in how other couples are mixing up the routine.


We are still watching these Marvel movies. The 3-year-old is obsessed with Thanos who is one of the most diabolical villains ever. Channeling a Chris Rock joke, I’m thinking his 529 will be used as bail money one day. After the kids go down, Yinh and I are watching season 3 of Ozarks. Every time I watch Ozarks I go to bed grateful for how simple my life is. It’s like a parable of the perils of compounding lies. The relief after an episode ends is that same feeling when the alarm goes off, and you realize it’s Saturday.

Zoom happy hour

Saturday night a group of college friends got together for Zoom and booze. I do recommend this. It was a highlight of the week. When you are 20 years removed from college you probably don’t see your college friends that often, even if you  have a Whatsapp group with them. These happy hours are a COVID silver lining. Something that should persist when it’s all over. For a fun wrinkle, this week we all got on the Houseparty app which has a built-in trivia and charades system. It works well enough. The questions flash kinda fast. Or our reaction speeds are not on par with the average Houseparty user. Or we were all drunk. I’m gonna go with that.

Finally, some pics from our hikes this week.

This upcoming week Zak wants to do a 10 miler with a 6lb weight in his pack. His mother’s genes. I put a 25 lb kettlebell in my pack and was tired after a 3 miler. Lotta wood to chop.

The second bug is a yellow velvet ant which has a strong sting like a wasp. Its nickname is the “cow killer”.

Stay groovy.

Is Volatility A Risk?

A finance version of “categories are made for man”.

What is the definition of “risk”? If you ask a quant, they will say volatility. If you ask Warren Buffet he will tell you that’s stupid and that risk is the chance of permanent loss as opposed to price variation. I don’t want to get into a taxonomy of risk definitions. And I definitely don’t want to get into semantics. Or near-semantics like “risk” versus “uncertainty”.

Just like the border drawn on a map. It has nothing to do with some objective sense of right or wrong. The criteria for evaluating the definition of a border is simply how useful it is. The concept of risk is useful insofar as it helps you judge the merit of an investment. No single measure of risk is sufficient. Think of risk as a multi-faceted prism. The same investment projects different qualities depending on which angle you view it.

Check out this Twitter poll by @Econompic:

This poll targets differing views of risk. It’s trying to find a weakness in the “risk is volatility” definition. It does this by showing that asset B which has very low volatility is an inferior investment. It is, therefore, riskier according to any non-volatility based definition. It is riskier in a common-sense definition of risk. It’s possible however to find a context where the volatility-based definition matters. Let’s say you are a bank and mandated to hold all excess reserves in one of these investments overnight (I know it’s a stretch). Well, the volatility-based definition is useful if losing 2% in one day is an unacceptable outcome.

This exercise a reminder that any definition of risk should be evaluated by its usefulness. Any single definition is incomplete and insufficient for making an investment decision.

Picking on the quants’ definition of “volatility as risk” as popularized by Buffett is not new. Cliff Asness defends the quants in the first item of his cranky list My Top 10 Pet Peeves. (Link)

I also like #10 on poor justifications for individual bonds to bond funds.

I published my notes this week for an old interview between Ted Seides and Basil Qunibi of Novus. Novus is a fund consultant that is best described as “Moneyball for allocators”. Novus does performance attribution. Which means they figure out if a manager’s edge is what they say it is. If a manager’s performance has been due to good timing but they say their edge is security selection you should care. Especially if you attribute timing to luck as opposed to a persistent skill. You will also learn about the 4 Cs that they track and how they predict performance. (Link)

Borders Are Subjective

There used to be this concept known as dine-in. You would go to a restaurant, park your car, then go inside and meet somebody known as a host. This host was in charge of finding you a table. With chairs. And you could stay there to eat an entire dinner. And other people that did not live in your house were able to go and sit on their own chairs at the same table. You would prearrange a meeting time with these people just as you do with an AmazonZoom date now — by texting them ahead of time to see if you had a mutual opening in your calendar. There were many more appointments in those days that needed tracking so you would not just presume they were free.

Back to the host. It’s amazing to think how they could coordinate all of this. Tables needed to turn over. There were only so many people that could be served every hour. Dead space was lost time, but the rent was still being charged. Not only that. Think of how much property the restaurant used to need. Space for dining room obviously, but that’s not even the half of it. They needed land for a whole parking lot. You can google image “parking structures” to see just how businesses would economize on that need. Ugly, but I guess they were effective.

Anyway, one of my last dine-in experiences was with a navy pilot who was shipping off to the South China Sea. He was explaining how China had been basically adding rocks to tiny islands to grow them. After 30 years, these man-made bodies were large enough for the Chinese to build bases on. I can’t help thinking this maneuver is both completely unimaginative and genius at the same time. But whatever your opinion, they were playing a long game. Many Asian nations stake claims to the various islands. Land disputes are common. A military base is a handier way to end a dispute than posting a flag.

(Quick aside on why my friend deployed there: Since WWII, the US has been chaperone to the dance of the high seas. Making sure the trade routes to the punch bowl were always clear. De-escalating tensions between the horny boys with their emerging economies and testosterones. Only the metalheads, playing the role of North Korea in this overreach of a metaphor, want a mosh pit to break out but nobody asks them to dance anyway. So the chaperone is there to hinder encroachment by the jocks who are most capable of inciting a ruckus.)

It’s hard to deny the sovereignty of a military base. So every time a cartographer sits down to update borders, the Google Earth satellite view is going to be a better guide to labels than any deed filed at [insert Asian country] town hall. Even natural borders like rivers are arbitrary. Like the spot of a football. They are subject to influence and judgment.

This brings me to one of my favorite reads. The powerfully provocative (and amusing) The Categories Are Made For Man, Not Man For the Categories.

Some teasers:

  • “…I have a special place in my heart for the people who occasionally try to prove Biblical fallibility by pointing out whales are not a type of fish.”
  • “Your job is not to draw “the correct border”. There is no one correct border between Israel and Palestine…Instead you’d be making a series of trade-offs…[and] there are also much stupider decisions you could make…But, crucially, they would not be false. They would not be factually incorrect. They would just be failing to achieve pretty much any of the goals that we would expect a person solving land disputes in the Middle East to have.”

The conversation extends beyond physical borders:
“Statements like “the Zambezi River is full of angry hippos” are brute facts. Statements like “the Zambezi River is the territory of Namibia” are negotiable.

In the same way, statements like “whales have little hairs” are brute facts. Statements like “whales are not a kind of fish” are negotiable.

So it’s important to keep these two sorts of statements separate, and remember that in no case can an agreed-upon set of borders or a category boundary be factually incorrect.”

Slatestar summarizes the primacy of facts and definitions that characterize so-called rationalists (a tribe he is undoubtedly a key member) with this:
Abraham Lincoln’s famous riddle: “If you call a tail a leg, how many legs does a dog have?” And the answer: “Four – because a tail isn’t a leg regardless of what you call it.”

(if John Wilkes Booth had to suffer through that riddle, then I don’t blame him)

Now it’s going to start getting weird for people who pride themselves on being very left-brained (a false binary I’m not sure why anyone would proudly subscribe to):

I take this argument seriously because sticking to the truth really is important. But having taken it seriously, I think it’s seriously wrong.

Pause. Here’s an inventory of the practical upshots as I see them:

  1. Categories are defined by people.
  2. The usefulness of a category depends on the context.
  3. Therefore applying a category requires discretion.
  4. Discretion is inherently negotiable

Ok, now I urge you to read the whole post. (Link with my highlights)

He’s a psychiatrist. It’s interesting to see how this has influenced his thinking on issues of mental health, trangenderism, trans-Napoleonism, and therapies. The “hairdryer incident” shows just how wide the divide can be even amongst intelligent, reasonable people.

I’ve written here before about my own recognition of how categories made up. It’s not necessarily inconsistent to treat a group versus an individual from a group differently. The context of relationships is scale-dependant. When I deal with an individual I do my best to abide by the zeroth commandment. (Link)

Zoom Culture

The household was triple-booked for Zoom meetings at one point this week. 2 of the meetings belonged to the kids. If I still used a calendar app I would title these “meetings” mute-a-mole. But since time is now a flat circle that extends until the next time I tip a barber I think we’ll just drift in and out of virtual rooms like free-roaming ghosts that can only visit the places they have been. A pretty incomplete superpower.

Speaking of superpowers, we watch half an Avengers-related movie every weeknight. It’s for the children we say. The Hulk-Black Widow love affair is so out of place, I feel like I’m watching a first draft fan fiction. It’s stupid to adults and pointless to kids.

Back to Zoom culture for a moment. Things overheard:

  • Moms and women choosing the audio-only option. I mean my hoodies and shorts are trying to walk themselves to the washing machine at this point. I’m thinking there’s not much competition for self-appearance badges.
  • Employees seeing how nice their boss’s house is. If Bernie could have hung on a bit longer he could have rallied a slighted Zoom audience. Corporate calls should probably use a cubicle background. Remind us of the good ole days.
  • An allocator who has lots of calls with asset managers: “Does everyone have a second home?”. This is the March 2020 version of Where Are the Customer’s Yachts?

This weekend we are watching Tiger-King on Netflix. This is straight-up my wheelhouse. It’s so ridiculous I hope 10% of it is real. Joe Exotic isn’t even the best character. ‘Doc’ Antle is what Charlie Manson would have been if Brian Wilson had signed him to a record deal. Doc is scarier than that dude Scarface is based on. I was sad at the thruple wedding. Joe was the only guy having fun. But the cake looked worthy of freezing for a year.

I know 3 NYers that got Covid. They are fine now. One of them runs about 30 miles a week and has a resting HR under 50. He was hospitalized. Stay safe.

Like I said last week, if you just wanna chat, hit me up. I’ll try to fit you in between circle time and those blank moments where I try to remember what was so romantic about homeschool.

The Seppuku Portfolio

Markets have been chaotic

Extremely high realized volatility.

  • Weekly moves look more like annual moves. In other words, the market has been sqrt(52) or about 7x more volatile than in past years.

Whipsaw correlations

  • There have been days when bonds and stocks have simultaneously sold off significantly. Gold correlation is a random number generator.

Dislocations galore.

  • Some of these are ETFs and closed-end funds deviating from NAVs. This screener can show you closed-end dislocations. Be careful with this stuff.
  • Treasury basis trades
  • This week gold futures surged higher relative to spot prices amidst talk of delivery bottlenecks across the pond. Then Friday front month-second month gold futures spread collapsed $30.
  • Oil contango exploded wider this week with the front month now trading at a 15% discount to the second month. Annualize that. It’s not surprising that tanker pure plays surged higher (if you are interested in a deeper look, check out this Adventures in Capitalism post.). The contango widened similarly during the GFC as the arb was limited by supply of credit. This time it’s about the limited supply of storage/tankers.

The chaos reflects the uncertainty in the real economy

Unemployment claims this week was a 30 sigma event which says as much about using normal distributions on financial variables as it does about how acute this shock is to the economy.

Options trader turned restauranteur and entrepreneur extraordinaire Nick Kokonas linked to Vanity Fair’s:

“You Can’t Speak in Strong Enough Dystopian Words to Describe It”: Why the Coronavirus Pandemic Could Change Dining as We Know It, Forever

The combination of perishable inventory and high labor costs as a percentage of sales makes the restaurant biz especially vulnerable. Restaurants are one of the better examples of the types of businesses facing an existential threat. Businesses that are exposed for their outsize degree of operating leverage.

I recommend Howard Lindzon’s Panic with Friends YouTube interview with Rob Koyfin as they dive into that idea. Rob’s the founder of Koyfin which is what Yahoo Finance would be if Bloomberg owned it. That’s a joke by the way. I use Koyfin myself but really liked watching Rob navigate the platform on the call to demonstrate just how the market was reacting to high operating leverage businesses. It was a markets lesson and tech tutorial in under 30 minutes. (H/t to Brian for the rec)

Personal portfolios

I like reading how markets people invest personally. We have a professional subscription to Jared Dillian’s Daily Dirtnap and he posts his portfolio and what he’s doing. His letter is paid so I will not share his allocations.

2 of my favorite fintwitters are public about their own investments:

Corey Hoffstein (Link)
Meb Faber (Link)

Moontower Portfolio

If you are curious about the Moontower portfolio it’s roughly:

1/3 real estate
1/2 short term notes and cash
15% public investments
<5% private investments

A look at the public portion:

8% RE
39% international equity
14% domestic equity
20% metals
18% US energy

Recently doubled down on energy/metals tilt, rotating out of treasury notes.

I refer to the public portion as the Seppuku Portfolio since it would be suicidal for a US investment manager to hold.


A note on carrying so much cash compared to most recommended allocations. It is a risky long-term proposition. Just consider the price of stamps in the past 30 years. But in the near-term, it provides a lot of optionality.

It’s reasonable to argue we overpay for this. While we don’t own our own businesses, there is a lot of volatility in our professions. A lot of lumpiness in our cash flows. But just like financial options I believe there are additional multi-order greeks on this optionality. They don’t come from differential equations. They are psychological. A behavioral edge even though I sort of hate this term.

Let me rationalize, I mean, explain.

We put a lot of value on the ability to not work for an extended period if we chose to. Not because of laziness but for the feeling that choosing to work where you are is an active choice. When Yinh took 2018 off this felt like a stress-free harvesting of the optionality. She was able to search for the best possible match for a new job. I feel like the payoff from being able to find a match without pressure is a payoff that does not show up in your Mint view as a line-item. But it will one day show up disguised as a different balance sheet asset.

Our parents are immigrants. They came to the US in 70s with little. We learned everything about grinding from watching them. They still have little. They passed scarcity mindsets to us. And Kiyosaki likely thinks we are fools who learned our lessons from “Poor Dads”. But we did manage to learn about leverage and its many forms.

Our lack of financial leverage enables us to maximize our human capital leverage. With implied prospective returns uninviting for the past few years, this seemed like a reasonable trade. Our total allocation reflects that tilt. With that lens, I guess you can file this under market-timing. Call me a sinner.

If you can’t watch a bull market rage without you this is just as risky as being YOLO long. No easy answers when you think of multi-order effects of an allocation. You need to do what’s best for you. It starts with asking the right questions. And they mostly have nothing to do with finance.

21st Century Cover Letter

When I sat down to write this week I swear I had a plan but I got distracted by some tweets which reminded me to tell the story of Liz. It’s a story that extends last week’s musing.

If you recall, last week I explained how to use Twitter to “build your own cabinet”. Reader Paul Barnes connected this to innovative investment firm Tyro Partners’ strategy of crowdsourcing research from KOLs or “key opinion leaders”. This is the commercial-grade version of following certain people because of the quality of their crowdsourcing. I refer to this as “drafting in their lanes”.

You can go further. You could recruit. If you are a high-status online persona you can effectively lower your cost to meet talented people. This is especially true if the talented target has yet to establish visible status. Famous investor Jim O’Shaughnessey’s advice:

Follow people, get a sense for their thought process, and then when you see something that you think is really interesting, reach out. 

Paul noted how Jim followed through on this advice by having Liz Hall on his Infinite Loops podcast this week. Let me give you some background.

Back in December, Venkatesh Rao started this challenge that went viral on Twitter. It boiled down to people threading 100 tweets on a topic of their choosing. I read many of these tweetstorms. I can’t express how stupid I felt reading these. There are a lot of blindingly smart people out there. Some of my favorites were actually threads by people who wrote on things they were not even pros in. The hater in me wants say “get a life”. But really I’m just impressed. Anyway, the first investing storm came from account @LAForeverHall. This was like a meteor without warning. I would have expected the 100-tweet-storm-on-finance to come from one of its more established voices. But it comes from Liz.

I noticed the thread shortly after she posted it. She had a couple hundred followers max. I wish I could have bought the 1000 or 2000 strike call on her follower count, because I immediately knew it was going viral (Viral is of course relative. The biggest #fintwit celebs are not even NFL kicker fame. Jim Cramer is probably the ceiling). I immediately reached out to say thanks and congrats on a great read.

A few weeks later Liz mentioned on Twitter she was visiting the Bay Area, so we made a plan to meet up. She was staying in Berkeley so I asked to meet at Victory Point, a boardgame cafe on Shattuck.

Her story is extraordinary, in the full meaning of the word. Extra. Ordinary. She grew up in rural CA, north of Sacramento. She dropped out of school in 4th grade and was homeschooled for 6 months before that fizzled. She spent the next 5 feral years watching tv and playing games. Meeting in a game cafe turned out to be serendipity. She was well versed in many heavy games including the epic 18xx train games which are meaty stock market simulations. Heavy-handed foreshadowing.

At around 16 years old, her attention focused. She nerd-sniped election strategy both in US and foreign politics. While intellectually interesting, grokking election strats isn’t practically useful. Since her grandfather was an investor she was aware of the stock market and turned her full attention in that direction.

We discussed her views on education. The challenge of being largely unsocialized. The “dark arts” of copywriting and how it can twist your soul up. Some investing discussion, mostly around metagame. As we chat, I’m hearing about all her recent coffees with people she’s meeting. Doors that are opening. In fact, at that meeting, she told me she was going to NY to be on an O’Shaughnessey podcast. I assumed it was Patrick’s, but it would be his father’s instead.

A couple of observations

1) It’s impossible to not appreciate how quickly an unpermissioned platform like Twitter can elevate an uncredentialed, trans outsider based simply on quality of thought. I doubt she could imagine the power of that thread to change her life. Little did she know how many people she would meet in the coming months. Little did she know it would lead to her moving to NYC.

2) While it only took a week to write the Tweetstorm, her more public emergence (she has over 5k twitter followers today) is hardly evidence of overnight sensations. Those don’t exist — you probably know the metaphor of success being like bamboo. Liz logged over a decade of personal investing experience. The thread was a cover letter. Martin Luther pinned 95 theses to a door. That was media in the Middle Ages. Liz put 100 on Twitter. You can go ahead and put the MS Word cover letter template in deleted items now.


  • Listen to her story. From living in a skating rink, to her family history, and through her trajectory as an investor and writer. Here’s the recently released podcast episode on Infinite Loops. Liz Hall — An Outsider’s Perspective (Link)
  • The tweetstorm that kicked it all off. (Link)
  • Her write up about chasing down a small-cap investing opportunity. The Curious Case of the California Orchard Company (Link)
  • What she learned as a copywriter. How You Can Make $62,723.85 From Writing In Two Weeks Without An Education (Link)

I’ve read both of those posts. They are long but worthy reads. She started a letter recently if you want to sign up. (Subscribe link)


On numeracy…

Staying on the subject, I highly recommend the book Innumeracy by mathematician John Allen Paulos. It’s a discussion about how to be more numerate and why it’s such an integral part of critical reasoning. I read it nearly 20 years ago. It was influential and entertaining. It was recommended reading in my training and my firm even had Paulos give a talk to the traders. You can read the book for free online. (Link)

His passage on astrology will give you a flavor of his typical takedowns.

Astrology maintains that the gravitational attraction of the planets at the time of one’s birth somehow has an effect on one’s personality. This seems very difficult to swallow, for two reasons: (a) no physical or neurophysiological mechanism through which this gravitational (or other sort of) attraction is supposed to act is ever even hinted at, much less explained; and (b) the gravitational pull of the delivering obstetrician far outweighs that of the planet or planets involved. Remember that the gravitational force an object exerts on a body—say, a newborn baby—is proportional to the object’s mass but inversely proportional to the square of the distance of the object from the body—in this case, the baby. Does this mean that fat obstetricians deliver babies that have one set of personality characteristics, and skinny ones deliver babies that have quite different characteristics?

Paulos also wrote a book called A Mathematician Plays The Stock Market. It’s passable if you read Fooled By Randomness and A Random Walk Down Wall Street which sold many more copies.

Should You Invest In Stocks Now?

Should you invest in stocks now?

With the market down 30% from the peak, I’ve seen many variations of this question in recent weeks. Mostly people who dollar-cost average by adding money from every paycheck wondering if they should increase the amounts they put in since the market is “on sale”. It’s an understandable question — I load up on Lucky Charms when they go on sale.

Ok, number one, nobody is qualified to answer this question for you, so let’s get that out of the way. While I hope the following will help you come to your own answer, the learning opportunity here is to get a better understanding of how markets work.

We need to address the mistaken presumption in the question. There’s a bit of a myth that the market is cheaper today. Well, this is true if you compare current prices to past earnings. But markets look forward. Lower nominal prices do not mean bargain. If fundamental deterioration was steeper than the price decline the market is actually more expensive. What a buyer is really interested in is whether the prices are a better value. If Trader Joes sells bruised bananas for half price, the cheapness is for a reason. Right now corporate America’s prospects are brown and soft. Is 30% the right discount? It’s a coin toss.

The market from a bystander perspective is nothing more than the fair point spread. In other words, whenever you put money in you are basically investing at the fair price. I’ll preempt some pushback to that by saying this perspective is a bit scope dependent. There are people who make money in narrow niches of the market that can be mispriced. Dislocations and liquidity frictions can mean opportunities for those experts. Just like if you were an expert in your local real estate market (have great contractor and banker relationships, got the look from the broker you grew up with, some other form of private info), market turmoil could lead to some easy layups. But zoom the scope out until you are a tourist and you are back to tossing fair coins.

This is always the case when you put money in the market. The price balances the buyers’ and sellers’ consensus of the future. Right now all buyers and sellers are meeting at prices that assume earnings in the future will be worse than they expected back in January. If you bet on Bucs to win the Super Bowl this year and Tom Brady gets hurt, the price to bet on the Bucs will get cheaper. The lower price to buy them is probably an equivalent value to the higher non-injured Brady price. It just reflects bleaker fundamentals.

Let’s belabor the point from another angle. The silliness of statements like “I’m a buyer of the market if it goes down to 200” when it’s currently trading for 3000. The unsaid assumption baked into that statement is “all else equal”. Well duh, all else equal, when the market is trading for 3000 there’s a stack of bids from 2000 to 3000. The only way your 2000 bid becomes in play is if the world is different. A bid is an inherently conditional statement. I wish I could have bought my house for $200k. But if my neighbor’s house ever goes on sale for $200k, it’s more likely we’re about pestilence deep into Egypt’s 10 plagues than I’m getting the deal of a lifetime.

Evergreen advice

It’s widely understood that the average stock picker is no better than chance at figuring out what a value is. A full-time endeavor whose output is no better than chance. The conclusion is obvious. Trying to time or beat the market is a low-yielding object of attention. You cannot do this reliably or repeatedly. Not worth the brain damage to trying to decipher if the market is a value. You aren’t counting cards to overbet a stacked blackjack deck here.

Focus your energy on understanding your liquidity needs. Give that exercise its full due. Only you have visibility into your family’s income in a slowing economy. Make sure you have the cash you need to live. Nothing has changed about the fact that the market tempts you with a reward in exchange for volatility. If the risk is suitable, stick to your regular plan.

(Mandatory disclaimer…I’m not giving investment advice. I’m not qualified and have zero credentials.)

A word on market consensus right now

The debate rages on whether the market is oversold or has a lot further to fall. The market price collapses the expected value into a single number. There’s plenty of smart-sounding people with models and forecasts and opinions and degrees on both sides of that price. All of these ideas are swamped by the other market-based consensus: the volatility. The options market is pricing the 1-year standard deviation of the SP500 at 40%. This is about 2x the market’s typical confidence interval. Volatility is a more actionable input into your investment process because it directly feeds into the thing you should be thinking most about — your cash requirements for upcoming expenses. If that kind of volatility is intolerable given your upcoming liabilities (retirement, college, buying a house, and so on), then you are overexposed. Stock returns have always been an award with strings attached. Volatility is not just small print. It’s a double-edged feature. If it didn’t exist markets would not offer a reward.

Build Your Own Cabinet

By last weekend the urgency around Covid-19 hit critical mass. It had been building for weeks. I wrote:

The virtual hivemind was buzzing with concern while mainstream meatspace seemed complacent and oblivious in contrast. Luckily the virtual crossed over to reality.

I promised more to say about that. Specifically on how we consume information.

We are decades beyond the pastoral era of Tom Brokaw mediating world events through a single pipe into your living room. What remains of that gatekeeper model feels like a pot-stirring imperative not to inform but to confirm. To confirm its self-selected audience’s biases. Preachers have always found reliable income by selling affirming nods to the choir. With the major news networks so politicized, I’m reminded of a joke I used to hear on the Nymex floor.  “Do you know how I can tell your lying? Your lips are moving”.

In his post, The Media Who Cried Wolf, Dave Perell describes the collapse of trust in not just the media but institutions in general. He explains how the high-peak, staccato news cycle backs us into “adopting a posture of learned helplessness”.

Fortunately, there are alternatives. In fact, the alternatives likely drove big media to a “we-must-fan-partisan-dumpster-fires strategy” out of commercial necessity. The alternatives are the unfiltered sources of information bursting from permissionless platforms. WordPress, Twitter, Reddit, Substack, Medium, etc.

Ben Thompson, borrowing a computer networking term, writes in Zero Trust Information:
“…once we get through this crisis, it will be worth keeping in mind the story of Twitter and the heroic Seattle Flu Study team: what stopped them from doing critical research was too much centralization of authority and bureaucratic decision-making; what ultimately made their research materially accelerate the response of individuals and companies all over the country was first their bravery and sense of duty, and secondly the fact that on the Internet anyone can publish anything.

To that end, instead of trying to fight the Internet — to try and build a castle and moat around information, with all of the impossible tradeoffs that result — how much more value might there be in embracing the deluge? All available evidence is that young people, in particular, are figuring out the importance of individual verification; for example, this study from the Reuters Institute at Oxford:

We didn’t find, in our interviews, quite the crisis of trust in the media that we often hear about among young people. There is a general disbelief at some of the politicised opinion thrown around, but there is also a lot of appreciation of the quality of some of the individuals’ favoured brands. Fake news itself is seen as more of a nuisance than a democratic meltdown, especially given that the perceived scale of the problem is relatively small compared with the public attention it seems to receive. Users therefore feel capable of taking these issues into their own hands.

A previous study by Reuters Institute also found that social media exposed more viewpoints relative to offline news consumption, and another study suggested that political polarization was greatest amongst older people who used the Internet the least.”

Embracing the Deluge

Both traditional sources and the decentralized free-for-all will coexist. While the unpermissioned voices are not without risk (looking right at you Jenny McCarthy), it is no longer possible nor desirable to put the genie back in the bottle. But to learn from those who will not be bothered by the indignity of a sitting for a test, you need a new strategy. You must funnel wide and narrow quickly. For every rare gem trapped in a non-conformist’s amber, you will sift through elaborate forgeries and well-rehearsed charlatans.

This is not easy. You cannot be an expert in everything. Modernity is too specialized and complex. Punters don’t even kick field goals. This reality underscores the necessity of tuning a good filter. This filter cannot be so strict it ignores the fringe. This filter must consider whether something is “because of” or “in spite of”. It must weigh incentives. Then know when to overrule the weights. You’ll find yourself rummaging through a mish-mash of minds with bias and brilliance. With strange values and foreign logic. And this filter needs to triage these sources as they wait to be verified. Make no mistake, this is a 21tst century skill. So how do you do this?

Build a Cabinet

The solution is to recruit help.

Build your very own cabinet of trusted advisors. Whose thinking resonates with you? Who can be verified by proof-of work? Curate what gets your attention. The sources you read, the blogs you RSS, the people you exchange ideas with, and the accounts you follow.

In the lyrics of the late Neil Peart:

“If you choose not to decide, you still have made a choice”

This exercise is not optional. If you don’t actively choose who you let in your mind, you will find squatters with bad agendas living in your head.

The risk

The echo-chamber. The outrage that bounces back and forth in the mainstream is a convenient reminder that there are many people who disagree with you. It can be easy to lose sight of that when you build your own church with its own choir to preach to. It’s common to believe that people examine facts then draw conclusions. Wrong. People form an impression first. An impression that by virtue of being first must be overtaken. It’s like a mental cortical reaction. How a fertilized egg blocks late-arriving sperm from fusing with it. Your brain is monogamous with the first gut reaction it meets.

To resist that, you need to date around. Curate from different beliefs. Let the ideas compete on their merit and see if you can be like an MMA fighter taking the best from each martial art. Yes this can be risky too. You may find yourself DM’ing with truthers or scheduling dopamine-fasts. But if you never make that error you are probably too conservative. If you never fail you don’t take enough risk. (Some prefer the if-you-never-missed-a-flight-you-wasted-too-much-time-in-airports-being-early argument)

So find a unifying thread between all your follows that transcends belief compatibility. Instead, search for sincerity or decency or curiosity or being logical. These are traits of honest debaters. An honest debate is a performance even a truth-seeking detractor will appreciate. You don’t need to agree with all your follows. If you do, beware, you are dangerously cozy.

How to build a cabinet
Twitter is a great way to observe the battle of ideas. You unknowingly start to assign believability scores. Some folks sound smart, almost too slick, but you can’t tell because they are out of your field. You struggle to judge them. So you watch them. At some point, they might tangle with an argument you have a solid grasp on. Now you have more information. You mentally build a profile. You wade through personalities looking for truth. The people you let in will become trusted sources of info. Unpaid curators.  Friendly adversaries who can improve your thinking. And in the best cases, friends.

Almost everything I read these days has been a recommendation from someone who has good taste in the topic at hand. By curating your people filters well, you curate your content funnel downstream. This is the way to efficiently navigate the deluge of ungated information. In this new world, the average content is worse, but the best is unparalleled and more abundant than a gated system would produce. Just try to find me a better TV character than Antoine Dodson.

Examples of sources in action
Coronaviruses and infection behavior were fairly foreign topics until recently. Twitter helped me get to the heart of the matter much faster than reading Wikipedia or news articles. The nerd analysis was strongly underway by late January around the time the market made its initial swoon. Pandemics are low probability events. Reasoning about low probability events and strategies for dealing with exponential phenomena are not intuitive. But watching discussions amongst people who are strong in these areas makes more sense than watching the news or listening to the average journalist.

First came the nerdy exponential math and flattening the curve arguments. Then the game theory arguments. For example, understanding that if you need to be certain before you act then you will never win against a fast-moving adversary. One of my cabinet members is follow (and friend) Meddling Mage. He has elite-level game instincts (the guy literally has a Magic the Gathering Card made in his honor) so you pay attention when he re-tweets something like this.

Another example is Nassim Taleb. He has made a living thinking about black swan events and risk mitigation. When I care about those types of topics I’m going to seek his view. His wisdom: if you are going to panic, it is better to panic early. If you are right the people who thought you overreacted won’t be around. Not to mention the fact that the act of overreacting makes it more likely that you will end up looking like you overreacted. That’s some pretty diabolical reflexivity. This is also true of terrorism by the way. The measures you take against terrorism make it less likely to occur which make you look foolish for worrying about it when it doesn’t happen. The better it works the more unnecessary it appears.

Rationalists will recognize the Bayesian process. Use trusted sources and your own instincts to form priors. Update and iterate. In the post-mortem, score your trusted sources and recalibrate going forward. Getting meta about info intake is worth some effort.

The Loudness Wars

A loud environment for information is also a compressed environment for information.

This is an outstanding article by Rusty Guinn about the loudness war in our media. Rusty is at Epsilon Theory where his team does neural net voodoo to analyze how narratives propagate throughout society. He uses the “loudness wars” metaphor from recorded music to discuss the media landscape. The first time I remember reading about loudness on music albums was when fans complained that Metallica’s 2008 Death Magnetic album sounded terrible because of the mix (I suspect many people think it sounded terrible for artistic reasons too). Turns out the loudness wars had already been going on for over a decade. The post is worth a read for that history alone.

Besides my Twitter lists, my cabinet includes many online writers which you can find here. (Link)