Friends,

Let’s review December’s Moontower reader survey. For context, this letter went out to ~ 9k recipients and has an open rate of 50%. 180 readers responded, or about 4% of the typical number of readers who open the letter.

[The actual views of the letter are 2x that number routinely and for a popular issue I’ve seen as high as 5x that number as it gets passed around by men who stare at computer screens all day. More on that ahead.]

My guess, based on how the responses rolled in, is that it mostly represents subscribers as opposed to people who clicked on the Twitter link. 180 responses was about 2/3 of what I was hoping for, but based on Zoho’s survey math it’s not a terrible sample — 95% confidence, 7% margin of error — which feels like a decent enough resolution. The bigger question, as is the case with any survey, is whether the sample was representative. My gut says yes because I wasn’t too surprised by the results.

We’ll start with numbers before getting to the provocative part — the answers to the open-ended questions. The anonymity brought out honest, vulnerable answers.

Demographics

• 2/3 in US
• 20% non-white (Indian and Asian most common minority)
• 70% b/t 25 and 45 yrs old
• 45% have children (90% of parents have kids college-aged or younger)
• 95% male (Male heavy, not surprising but 19 to 1?! Can’t say this didn’t rattle me)

Politics and Education

• 85% moderate to progressive political leaning
• More than 1/3 have a graduate degree
  • 1/3 of the grad degrees are a terminal degree (MD, PhD, JD)

Industry

• >50% in finance
  • 50% of these are in asset management front offices (risk/trading)
  • 14% of these are advisors or allocators
• 25% software

Title

• 40% director/founder/c-suite
• 12% entry level

Income

• 50% > $250k annual household income
• 11% > $750k annual household income (concentrated in asset management/front office/securities brokerage)
  • 50% of this cohort >$2mm annual household income

Investing/Giving

• 50% self-report as “accredited investors”
• Only 15% have more than 40% of wealth in home equity
• 50% could estimate the annual volatility of their portfolio (this percentage is also true for the people with > $750k income)
• 50% of respondents give more than 1% of income to charity;
  • Of the people who give more than 1%, 30% give more than 5%

Open Ended Questions

Some preamble:

• Thanks for the honesty
• I took liberties in the name of summarization by assigning most of the responses into general categories but I’m no doctor.
• Percentages won’t add to 100% b/c some responses included multiple answers and some responses went uncategorized

1. What personal shortcoming/insecurity comes to mind? (116 responses)

• Half of the reported shortcomings revolve around some version of low confidence or fear.
• A quarter of the responses are matters of self-control whether it’s ADD, listlessness, a lack of discipline, or indecisiveness. An answer I didn’t see that could fit either next to or envelop many of these —”lack of meaning”. It can be hard to motivate unless the reason seems urgent or at least worthwhile. Kind of like the dizziness of freedom I mentioned last week.
• The remaining balance of insecurities are directly framed as difficulties in handling our own perceptions of others or being competitive (ie vanity/status games). The low confidence categories also have an interpersonal aspect but they are not framed directly in that way. They seem to have more of a component of self-esteem. It’s all interrelated but I tried to find a distinction. Basically “Am I frustrated with others or myself?”
• Imposter syndrome is one of those fears that we hear a lot about. Like many fears, it’s adaptive to a point. One of my heroes (we are going to get to that word later), Sal Khan, has a brilliant framing of it you can borrow:

  

  [That blurb is from my notes from one of the best interviews I listened to recently: Sal Khan On The Finding Mastery Podcast]

  
  The idea of healthy imposter syndrome is best captured in Bardo during the hallucinogenic bathroom scene when the protagonist’s father advises: “Take a swig of success, swish it around and spit it out, otherwise it will poison you.”

2. If you had no money concerns and purchased all the things you wanted and checked off every place on your travel bucket list (like imagine you won the lotto and several years have elapsed since), what would you do with your time?
   (150 responses)

   

   Other than the 5 people who want to specifically design houses, this was not shocking. Sadly, but also not shocking, only 3% answered, “what I’m doing now”.

   The only thing I’ll say here is if you say you want to garden when you retire, and you don’t garden now, you are fooling yourself. Your actions reflect priority. Sure there are some things which money is a prerequisite for, but I’m just a seller of the idea that your current self arrives at some mental projection of your future self where you will do the things you think you like. Look at the first question — half of the responses are fear. Look at the demographics. Most of you are less than 45 years old and by the standards of geography and history — rich. (I get that nobody ever feels rich — hedonic treadmill, the banana republic parody we seem to live in, egg prices. But the material reality is, as Jack Raines points out, that you have already won.)

   If this is the wrong language to speak to you, consider the outside view. What do half of the rich boomers you see do as they travel around the world on cruise ships or finally get the value out of those timeshares they’ve been roosting on? They complain about money and inflation instead of all these amazing aspirations they had about what they’d do when they had money or time.

   Or they spend their time in doctors’ offices. I’m not saying this to be mean. (I have aging parents and these are not personally easy times…but they do cultivate perspective). I’m saying this to merge this question and the one before it with a blunt solution at least a few of you might need — start living right now. Every week I hear of a friend of a friend dropping dead. That’s something that you hear more of in your 40s. It’s counterintuitive…but I hope that it kills your fear.

   3. What’s stopping you from being more like your hero? (83 responses)

   

   I will start by admitting that this question is poorly posed. The word “hero” conjures worship, cults, Aquaman. There were only 83 real responses because “I’m an adult — I don’t have heros”. Fair enough. Yinh had the same reaction and I projected my own connotation of that word on everyone else.

   We have all heard the expression “don’t meet your heros”…those on a pedestal can only fall down. But I’m not talking about a person I want to wholesale exchange my life with or even be handed their superpower.

   A hero is someone who embodies a personal aspiration. It’s someone who I keep in mind as a model for behavior. A teacher with a loving but firm demeanor. A parent that stays calm when the children turn the living room into a winter wonderland out of tiny cut-up styrofoam (this happened in December. I wish I kept a picture but I was too busy overreacting with the giant a-hole daddy voice).

   Visualizing heroes is how I hack our preloaded “mimic others” bloatware for good use. Where did your own aspirations come from? You’re not Buffalo Bill trying to wear their skin. You’re trying to channel inspiration. “How might X approach this? How would X react to this situation?” You can have a stable of heroes for different situations. They can be celebrities, people you know, or even fictional.

   Ultimately, I blame myself for the poor wording. I could have used “role model” or just “someone you admire”. Semantics aside, I hope the visualization hack, should you try it, is useful.

   And one last thing…look at those responses — from “welp” to “selfish” to “low priority”, those of you who responded did so with deep self-awareness. Y’all are clearly familiar with the Kipling quote:

   If you don’t get what you want, you either didn’t really want it, or you tried to negotiate over the price
   

   [In our house there’s no such thing as “I didn’t have enough time”…it’s always “I didn’t prioritize it”. Be responsible or get help. There are definitely victims in the world — but we are not them]

    

Amusing Bits

• 2/3 of you can drive stick (I actually never tried)
• 40% played a sport in college (nearly 20% of the NCAA athletes were basketball players)Book recs that showed up more than once:

And to wrap this up, you should know that 45% of you have seen Dazed & Confused and the rest of you buried a dagger in my heart.

It’s paywalled, but Freddie deBoer did an awesome ranking of Linklater films. D&C is #2. Its spiritual sequel, Everybody Wants Some!!, was #3.

Money Angle

Byrne Hobart is one of these alien finance writers like Matt Levine who I just marvel at. Geniuses that dazzle with both quality and quantity. One of the differences is Byrne presumes a bit more financial knowledge from his audience. I was stoked to see he launched a second letter, Capital Gains, that breaks down one financial concept a week. It’s more basic than his regular writing making it a great resource to forward to learners as a reference or simply see a new way of communicating something you already know. Even for you, Byrne will make you see in a fresh way.

For example, this bit at the end of his recent Capital Gains post:

• Money Manager Fees: Who Gets Paid How? (6 min read)Understanding why different types of funds charge different fees

  The thing for investors to watch out for is not the total fee load, but to look at what they’re paying for compared to what they’re getting. A multi-strategy fund can plausibly be undercharging if the pass-through fees and performance fees eat half the gross return, if what’s left is an uncorrelated return that beats other alternatives. And a mutual fund can be overcharging when it asks for 50 basis points a year if it claims to be offering stock-selection alpha but is really delivering market-tracking beta at a high markup.

  And this applies to individuals, too: you can decompose your own compensation into the beta-like returns from what line of work you’re in, what your educational background is, and your location. But it’s hard to get upside trading one kind of beta for another; for example, if you move somewhere for a high-paying job, you’ll make more, but a lot of that extra income compensates for a higher cost of living.

  Alpha is whatever value you add on top of what’s expected based on superficial and commoditized traits. Selling beta at a markup can be a very good living, but delivering alpha is more lucrative and ultimately more satisfying.

Money Angle For Masochists

On August 5th 2022, this tweet appeared on my timeline:

J @jaym217

CVNA Leaps are priced for perfection. K=50 Straddle can potentially be sold for ~50$ if you can hedge upside blowout risk

8:07 AM ∙ Aug 5, 2022

The tweet asserts that the LEAPs are expensive or “priced for perfection”. The next part of the sentence is shaky if you take it literally — “if you can hedge the upside blowout risk”. You “can” sell the straddle for about $50 whether or not you can hedge the upside, but the author is prudently demonstrating where the risk resides. I give a total hall pass to the writing as my own tweets are often thrown together while standing in line at Trader Joe’s.

Allow me to re-word the tweet without worrying about character limits and without feeling rushed.

“Optically, the CVNA LEAP straddle is expensive because it’s trading for the same premium as the strike price. I can’t get burned on the downside so my only concern is the unbounded upside of the call option I’m short, so if I can truncate the potential loss there, this straddle is a good candidate to sell”

The original poster exhibits a solid understanding of options. But…markets are hard. They don’t leave free or near-free money laying around. It turns out, with 5 months of hindsight, this is a good case study in the limits of optically attractive trades.

By dissecting what has happened we can learn about how to think of options “dynamically”.

I’m going to try a rhetorical approach to this lesson to make it more interactive. If you want to continue strap in:

A Socratic Dissection Of An Option Trade

Last Call

This is the last “Last Call”. Your feedback indicated the main body, Money Angle, and my personal life were your favorite parts.

I suspect curated links are still useful because I appreciate them in letters I sub to but I decided to just send a 2nd email every week. Here’s the description from my re-written About page:

Moontower Munchies (Wednesdays)

This is a lightweight email.

It could be a few links I found interesting. I focus on productivity, self-hacking, modernity, finance, learning tools, and sometimes philosophy or culture.

Or

It could be one link to a piece of content with my notes. I’m a compulsive note-taker and often scribble my own comments into them connecting ideas to something else in my grey(ing) matter.

Happy Lunar New Year rabbits…stay groovy!

I meant to put together a summary and discussion of December’s Moontower survey. There are many interesting topics, especially in response to the open-ended questions that you answered so thoughtfully and vulnerably. Alas, I spent a lot of time writing the Money Angle For Masochists section so the survey summary is delayed until next Sunday.

Instead, I’ll point you to an interview that keeps lingering for me.

In 2021, Tim Ferriss interviewed George Mumford. Mumford has been a mindfulness coach to MJ, Kobe, and countless other elite performers. Mumford’s personal story is as inspiring as any. And if your life has been touched by the darkness of addiction it will be extra relatable.

There was a particular excerpt that resonated that I included in the Meaning Section of my Affirmations and North Star page. It reminded me of the proverbial donkey placed equidistant between 2 troughs of food who starves to death.

On the “dizziness of freedom” (all emphasis mine):

Freedom is not free. The dizziness of freedom is because you’re on a road less traveled, you’re on shaky ground. The ground you’re on is moving to the degree that — I’m going back to 1846, Søren Kierkegaard, and he said that one side of the coin is freedom or potential. The other side is anxiety or uncertainty. So he called it the “alarming possibility of being able.” So when you grow, when you change a behavior or a habit, you have to experience anxiety. You have to experience uncertainty. You have to experience discomfort.

You get comfortable with being uncomfortable. Before you have freedom, you don’t have to think. You don’t have to reflect. You don’t have to take a risk. You don’t have to be vulnerable. Now you’ll be in freedom and you’re going through a different door. You’re trying something else. Then the dizziness is you do this thing, you can do that thing.

So you start understanding there’s no meaning in the universe other than what you give it, that when you do one thing you lose something else. If I have five choices and I make one, I lose four. So now I’m in here, now I’m worrying about, did I make the right choice? The uncertainty is a military term they use, VUCA, V-U-C-A. From moment to moment, things are volatile, uncertain, complex, and ambiguous. So you have to embrace uncertainty, ambiguity. That’s part of life. This is what life is about. It’s about saying “yes and”. Yes, it’s frustrating. It’s unpleasant, and it’s okay. This is it. When I grow, this is what comes with it. If I achieve my goals, you look at the positive, but there’s a negative.

The other side is you’re in a rowboat with people. You change, they’ve got to change. They’ve got to move. They don’t want to move. Or they got you in a box and now you’re out of the box. So now they’ve got to see who you are. They’re going to keep you in a box and get mad at you. So for whatever reason, it always comes down to discomfort, being uncomfortable. The nervous system is wired this way. If it’s pleasant, we approach. If it’s unpleasant, we avoid. And if it’s neither, we’re indifferent, we space out, because the nervous system does so.

When you impute meaning onto something, and say, “It’s going to be great. Even though it’s uncomfortable, I know on the other side, this is the only way out.” Once I commit to that and I have the experience of going through it and then coming to another level of grace, of ease, of peace, then I continue to do that. That’s what I talk about — the superpower trust. You need trust, but when you can verify it through insight, through information, through experience, now it goes from confidence to conviction, and then now, you get on a beneficial cycle where things keep getting better— the rich get richer, because you know that if you learn and you achieve, it’s going to generate enthusiasm and you’re going to want to learn more. You’re going to want to commit to it, because you know that — this is what the elite performers do. They see those things as challenges. “Oh, this is great. This is an opportunity for me to express myself.” So that mindset is the growth mindset, but it’s also pursuing excellence.

Money Angle

One bit of feedback I got from the survey was that Money Angle can sometimes fly over readers’ heads. I can own a share of the blame for my writing style. But also some topics are really unnecessary for the average investor or reader and by discussing them in the same section I often discuss basic topics can overwhelm someone who can’t tell what’s relevant to their current or future learning tree and what’s not.

I moved all the brain damage to the new Money Angle For Masochists section.

Today’s regular Money Angle section is a couple of links:

• How Much Growth Can You Expect? (6 min read)
  Nick Maggiulli

  Nick is a master of making investing topics scrutable for the average person. Last year he published his first book Just Keep Buying which I recommend and buy for people. It tackles personal financial questions intelligently without overcomplicating the nature of investing.

  In this blog post, he presents realistic numbers for what investing is actually capable of in the long-term (which is much less than the financial media would like you to believe).

  If happiness is the gap between reality and expectations the post will help you calibrate to decrease your chance of disappointment. Another of his posts, his first of 2023, is in my opinion, a natural (though unintended) sequel to this calibration:

  It’s Time to Work (5 min read)

   

• Examples Of Comparing Interest Rates With Different Compounding Intervals (2 min read)
  Moontower

  I wrote this quick post as scaffolding for the post you’ll find below in Money Angle For Masochists to build up to the idea of continuously compounded interest. If you already understand how to compute yields and various compounding intervals then you can skip this one. If you don’t then be aware of 1 of its real-life uses:

  Note in all these cases, $90 is growing to $100. We are just seeing that the implied rate depends on the compounding assumption. In real life, when you see “compounded daily” or “compounded monthly” and so on, you are now equipped with the tools to compare rates on an apples-to-apples basis. If a rate is lower but compounds more frequently than another rate the relative value between both loans is ambiguous. 

Before we continue to the masochism, let’s try a math problem:

Suppose you have an 85 average on the first 4 tests of the semester. There’s one test left. All tests have an equal value in your final score. You need a 90 average for an A in the class.

What do you need on the last test to get an A in the class?

What is the maximum score you can get for the semester?

If you are comfortable with this math then you have all the quantitative knowledge to understand the next topic. I suspect the post might still be challenging despite the math being grade school level. If you find it difficult, I’d like to know where you start to get lost. I think it’s a good topic and would like to make it accessible for anyone who was interested.

Let’s go.

Money Angle For Masochists

Understanding Implied Forwards (14 min read)
Moontower

Learn about implied forwards starting with interest rates and then moving into implied volatility. Implied forwards will help you:

1. find trading opportunities
2. understand arbitrage and its limits

While the post works through the dry mechanics there are wider lessons that can be applied to general pricing and reasoning that should have a larger audience than just option degenerates and the people who read footnotes (this post has many).

A few excerpts in that vein:

• When you study asset pricing, one of the early lessons is to step through the cash flows. This is the basis of arbitrage pricing theory (APT), a way of thinking about asset values according to their arbitrage or boundary conditions. As opposed to other pricing models, ie CAPM, someone using APT says the price of an asset is X because if it weren’t there would be free money in the world. By walking through the cash flows, they would then show you the free money. The fair APT price is the one for which there is no free money.
  
• Process
  Forwards vols represent another way to study term structures. Since term structures can shift, slope, and twist you can make bets on the specific movement using outright vega, time spreads, and time butterflies respectively. A tool to measure forward vols is a thermometer in a doctor’s bag. How do we conceptually situate such tools in the greater context of diagnosis and treatment?

  
  The post includes a discussion of my own process.

• Meta-understanding
  This discussion of forward vols was like month 1 learning at SIG. It’s foundational. It’s also table stakes. Every pro understands it. I’m not giving away trade secrets. I am not some EMH maxi but I’ll say I’ve been more impressed than not at how often I’ll explore some opportunity and be discouraged to know that the market has already figured it out. The thing that looks mispriced often just has features that are overlooked by my model. This doesn’t become apparent until you dig further, or until you put on a trade only to get bloodied by something you didn’t account for as a particular path unfolds.
  

  This may sound so negative that you are wondering why I even bother writing about this on the internet. Most people are so far out of their depth, is this even useful?

  My answer is a confident “yes” if you can learn the right lesson from it:

  There is no silver bullet. Successful trading is the sum of doing many small things correctly including reasoning. Understanding arbitrage-pricing principles is a prerequisite for establishing what is baked into any price. Only from that vantage point can one then reason about why something might be priced in a way that doesn’t make sense and whether that’s an opportunity or a trap. By slowly transforming your mind to one that compares any trade idea with its arbitrage-free boundary conditions or replicating portfolio/strategy, you develop an evergreen lens to ever-changing markets.

  
  You may only gain or handle one small insight from these posts. But don’t be discouraged. Understanding is like antivenom. It takes a lot of cost and effort to produce a small amount. If you enjoy this process despite its difficulty then it’s a craft you can pursue for intellectual rewards and profit.

  
  If profit is your only motivation, at least you know what you’re up against.

Last Call

Interview with Bill Burnett & Dave Evans on Designing Your Life (5 min read)

Bill and Dave are at the Stanford Design School, a place that massively influenced another of my favorite online people — boardgame design teacher and middle school educator — Kathleen Mercury.

These guys apply design principles to life and decision-making (and show when not to!). It’s been almost a decade since they published their book and did the TED circuit but the material is timeless.

Here are my notes from their interview with Peter Bregman:

You are not defined by your earlier choices

• Don’t let “dysfunctional beliefs” or sunk costs trap you (ie I studied X in college so I must practice X)
• Humans are curiosity-driven. Life may have beaten it out of us but it just needs re-awakening.

Behavior change —> Bias to action

You can’t think your way out of a rut. To solve problems you must take action. They call experiments “life design prototypes”.

• The answers you seek are out there in the world not in your head.
• Expand your circle. Those in your bubble often have the same problems or thought patterns — there’s no new data there.
• “Finite is your friend” —> lower the mental burden of novel experiments by saying you will only do the new thing 6 times, or spend 5 minutes a day doing X

Decision-Making

Large focus on awareness of the nature of the decision and the power of re-framing. Problem-solving requires applying the frame that best aligns with your need. Before you can do this, it’s critical to understand your current framing of a problem.

• Life-design thinking with experimentation won’t help with certain types of decisions. For example, should you buy disability insurance? You can learn everything there is to know about your risks, the costs of insurance, the suppliers of insurance and so on but it’s a decision that you must make one way or another and accept the inherent ambiguity. Acceptance is the answer.

This leads to the single most common re-frame they use:

There is no single answer to your life. There is no single best “you”. There are many possible great satisfying lives that you can have and you never actually know about the ones you didn’t get a chance to try so we’re all getting partial credit on essay questions, not right wrong on true/false on all the big issues of life. Once you accept that this is the nature of being a human being you can say “how’s it going today?” and the answer is “it’s going reasonably well. And that’s fabulous because this is as good as it gets.”

• Borrowing from decision researchers like Dan Gilbert they mention tactics like “burning bridges” by making certain decisions irrevocable. [Me: This makes a lot of sense to me bc FOMO is an energy suck. I tend to satisfice on everything that doesn’t hold major meaning to me — if I’m like 70% sure that product X will tick my boxes I just buy it and move on. I don’t care enough about my TV to spend a week in analysis/paralysis about how deep the blacks are. But if I were a cinephile I might.]
• “Anchor problems”: These occur when you become inflexibly anchored to a single solution to a problem.For example, you say: ”I’d like to do it I’d like to be a gardener or do something in the garden but I’ve decided the only solution is moving to the Berkshires. Since we can’t move to the Berkshires, I can’t have a garden, therefore I can’t be happy”

  What you’ve done is you’ve baked the solution into the problem. The solution has been defined as the problem.
  

  Instead, you might notice there are community gardens in the Upper West Side of Manhattan or you could start by putting a container on the porch. There are a million different ways you can do it but people take a solution, pretend it’s the problem and then say “Oh gosh since I can’t have the thing I want, I can’t solve this problem.” They’ve mistaken a solution for a problem and now they’ve anchored on it and can’t move forward. Once we explain it to them it’s almost laughable. They go, “Oh yea I could reframe this and there are hundreds of ways to be a gardener in Manhattan. Maybe “gardener” is also an anchor problem because the reality is maybe it’s about spending time outdoors in Central Park or maybe it’s about growing something”

• “Gravity problems”: These are unactionable problems. They are still issues but if a problem cannot be acted on it’s not so much a problem as it is a circumstance. Like gravity. As soon as you realize your problem is a gravity problem, that it’s not actionable the way it’s currently framed, you can unfixate from it. You might hate knowing you will never get rich being a poet, but can you live and write poetry? Of course.

A few lines that were dropped in passing that are actually quite poignant.

Here they are with my commentary:

I’d rather get a B on time then an A too late

Dave’s framing for how to think about optimization. Forgive yourself for being human. Any sensible approach to prioritization means you can’t turn every weakness into a strength. Again, the theme of acceptance. Or not letting perfect be the enemy of the good. I tutor 2nd graders that are far behind their grade level. Am I the best person to do this? Is this the best use of my time? Does this scale? No all counts. But it’s something that needs to be done and they still need people. If the only people who tutor are the “optimal” people to do so then what do you think is going to happen if we are already short tutors?

Some people obsess over peak performance and optimizing and so on. That’s fine. It’s a big world. In most things, I’m more concerned with the area under the curve than its peak.

Meaning comes from engagement, what you spend your time on.

I believe that there is no Meaning with a capital “M”. We create our own meaning and since I put more stock in actions than words, I think what you spend your time on is the best reflection of where you draw your meaning. This is often oblique. Maybe you spend all your time making money on something you don’t necessarily care about. This strikes me as a difficult way to live but it may reflect your value of providing for your family. There’s always a question of balance…the time spent providing is a cost to you and them as well and deciding where the diminishing returns to being at work vs being present are personal and downstream from not just our values and desires but insecurities and ego.

Figuring it out is kind of helpful but actually behaving differently is hugely helpful

Dave dropped that line in the context of therapy (he was explaining that this work is not therapy and ofc there are problems for which you should seek therapy). It reminded me of a story Slatestarcodex told about a psychiatric patient his clinic was helping. The patient was crippled by OCD. Every time she left the house she needed to go home because she thought she left the hair dryer on. The doctors racked their brains trying to get to the origin of the problem until someone suggested a highly effective but, seemingly unsatisfying solution — she could just bring the blow dryer with her:

Approximately half the psychiatrists at my hospital thought this was absolutely scandalous, and This Is Not How One Treats Obsessive Compulsive Disorder, and what if it got out to the broader psychiatric community that instead of giving all of these high-tech medications and sophisticated therapies we were just telling people to put their hair dryers on the front seat of their car? But I think the guy deserved a medal. Here’s someone who was totally untreatable by the normal methods, with a debilitating condition, and a drop-dead simple intervention that nobody else had thought of gave her her life back. If one day I open up my own psychiatric practice, I am half-seriously considering using a picture of a hair dryer as the logo, just to let everyone know where I stand on this issue.

That’s enough for this week. Go Big Blue…it’s been 7 years since they made the NFL playoffs.

Stay groovy!

Welcome to year 4 of this party at the Moontower. I took a 3 week holiday break from writing and the universe sent locusts. Well, a different bug at least — Covid and RSV which I’m pretty sure is bronchitis rebranded from the 1980s when I was a kid. Our house was a petri dish and the rain has been non-stop, although as a Californian you’re not allowed to mention precipitation without the solemn acknowledgment “we really need it”. I’m inside playing a lot of NBA2k23 with the kids and as much fun as that is, I’m done with winter. But like Pepé Le Pew, I doubt it’s done with me. Bah.

One silver lining was doing stuff I don’t do as much as I would sometimes like to — play guitar (1,2,3 songs with friends), watch movies (Bardo stood out) and binge TV (Classic Concentration reruns). I watched some mainstream stuff too. Avatar 2 and…White Lotus season 2.

I enjoyed and would recommend season 2 (I haven’t seen season 1 but it’s not necessary). White Lotus is a murder mystery but the mystery is actually not central to the show. The characters and dialogue are the draw. I recently watched this ancient but outstanding interview with Tarantino where he contrasts how American cinema [used to be] best at storytelling while “Europe was where you had character-based or mood-based films”. (Eddie Izzard’s old bit about British vs US movies implants the distinction with the stickiest mind-adhesive — side-splitting laughter). White Lotus is more in the spirit of a European film with a cheap Coen Brothers-style plot pushing the series forward.

The scenery in Italy is a timeless luxury. The acting is exceptional. Sure, the references to “mimetic desire” and “dark triad” felt focus-grouped from Twitter but it totally works even as a nod to the terminally online. The show provoked a lot of thoughts that I expected would have been covered in reviews. I don’t normally read reviews until after I watch something so I can see how my interpretation squares with English majors with much better literary comprehension skills than I do. In this rare case, I found the quality of reviews to be unsatisfying, lacking the depth clenching the show. (If anyone has a review probably from a Substack that stood out pass it on…I’m too lazy to write one myself because it would require a second watch. It’s a weak-sauce excuse. I’m torn between saying “sorry” and “tough”).

The editorial The White Lotus Nails How We Struggle To Reassess Classic Cinema does an admirable job of covering one of the show’s remarkable repartees:

Grandpa Bert Di Grasso planned the trip to get in touch with the family’s Sicilian roots, including worshipping at the altar of “The Godfather.” He lights up with absolute glee when telling Portia why their lunch location is so important, reveling in how Al Pacino cries out “Apollonia!” as the Corleone character watches his wife explode before his eyes. “It’s a great scene,” Bert declares. Portia, having zero nostalgia or cultural kinship to the film pushes back. “She blows up? Like, blows up? It’s a little tasteless maybe,” she says.

Bert immediately tries to double down by saying, “Well, look, they’re trying to make a buck. They own the house where they shot the best American movie ever made,” but Portia finds a (possible incel) softboi ally in grandson Albie, who confidently disagrees with his grandpa about the film’s brilliance, telling him he only likes it because:

“you’re nostalgic for the solid days of the patriarchy…men love ‘The Godfather’ because they feel emasculated by modern society. It’s a fantasy about a time when they could go out and solve all their problems with violence and sleep with every woman and then come home to their wife who doesn’t ask them any questions and makes them pasta.”

My favorite part of the scene is the chicken-egg tension that follows:

Bert and Dom Di Grasso then go on to say that “The Godfather” is a “normal male fantasy,” which Albie disagrees with and instead says, “No, movies like that socialize men into having that fantasy.” His father pushes back: “Movies like that exist because men already do have that fantasy. They’re hard-wired,” and Bert agrees. “Mm-hmm, comes with the testosterone.” Albie can’t let it go, and either because he genuinely believes what he’s saying or because he’s trying to impress Portia by coming off as “one of the good ones,” he declares, “No. Gender is a construct. It’s created.”

The article continues…

The scene is magnificent because it’s a circle of three generations of men being so loudly wrong about the message of “The Godfather,” while simultaneously nailing why conversations surrounding classic films are never-ending and consistently complicated. All three of the Di Grasso men were introduced to “The Godfather” in different eras, and their relationships to masculinity are completely different because of not only the changing social climate, but the types of masculinity modeled for them by the men in their lives.

The interpretation of historical figures through contemporary values is a guaranteed click-bonanza as people who think they can anticipate “the right side of history” battle with those who take an unnecessary apology so far that they come out the other side of the Pac-Man map needing to actually apologize.

The scene ends with a line that could have been captioned with “to be continued all-the-time and forever on the internet”:

Does the Godfather’s masculinity reflect or culturally manufacture our apparent nature? I hate the trading advice if you don’t know what to do “sell half”, but I feel like bi-directional causation is embedded in so many forms of expression that any broad concept that devolves into a nature/nurture argument is hard to lay long odds on.

My “sell half” cop-out in this particular example is to recognize that men’s physical dominance is a thing but that it explains many behaviors rather than justifies them. “Explains but does not justify” is a phrase I picked up from Russ Roberts’ Do I Deserve What I Have Series which I reference in Why ‘Deserve” Makes My Skin Crawl. Russ asserts:

Accomplishments explain results; they don’t justify them 

Explanations are not justifications anymore than temptations determine outcomes. There’s a layer of personal agency that resides between eating a pint of Salt & Straw every day and not fitting in your jeans. Id vs ego.

Collectively, there’s a layer of cultural agency. Impulse vs laws. We like, decide, about stuff.

Decisions are never justified “just because [insert banal observation about nature]”. Discussion and debate are part logic, but that’s still only downstream from our value weightings. And those weightings can’t always be reconciled. In fact, if you take the wide-angle view of the human experience, it’s a miracle that we can agree enough to have any kind of general order. I have Oliver Sacks’ 1985 book The Man Who Mistook His Wife for a Hat and Other Clinical Tales on my nightstand. It’s a reminder that our perceptions and values are widely different cross-sectionally. This short post When Childhood Was Discovered explains that childhood as a concept is a fairly modern idea. It’s pretty clear that despite 23 pairs of chromosomes being a common denominator throughout history, we, as in the anthropological “we” change much faster than the 8th-grade life science “we”.

Arguments that pretend otherwise, leaning their full bodyweight on one side of the nature/nurture divide, collapse as soon as a second perspective enters the room. If the internet “dress” from 2015 taught us anything, it’s that we don’t even perceive colors the same. Good luck with the Godfather.

Money Angle

I have a friend who turned $2k into $6.5mm, eventually cashing out of the crypto markets with about $2.5mm. Because of the path, his framing is “what could I have done better?” He came to me looking for perspective on risk management.

I began my reply with a story I recounted in Talking To The Diamond Hands. In 2017, I was at dinner with a young product manager at Coinbase and an older tradfi friend that brought us all together.

At some point, the product manager who was about 22 went to the restroom. The senior guy, in a hushed tone, turned to me.

“So one of the reasons [the 22-year-old] wanted to talk to you is he has a high-class problem. He’s sitting on a giant pile of ETH he’s been mining since college. At current prices, he’s rich, but doesn’t know anything about investing. He needs advice and we thought you could help.”

As I was soaking that it in, our young tycoon was returning. There was no need to tippy-toe. The whiz kid cut right to it. He explained respectfully and with great maturity his “problem”.

What did I say to him?

“I don’t have much to say. If you listened to my opinion years ago you would never be in this beautiful predicament. I would never have held on this long, so there is nothing I can say that you should listen to. But now that you are here, I can offer one way to think about it — sell an amount that makes you feel like you never have to take a job just for money. You are 22 and achieved freedom.”

I don’t even know if this is good advice. It feels like such a dowdy perspective that it can only come from someone who would never have scored that big.

I re-told this story because I wanted to highlight an important point — there is no risk management rule forged from the business of trading that condones having most of your eggs in one basket. In other words, there’s no vetted risk management framework that would have let you turn $2k into $6mm so the entire conceit of “what could I have done better?” is misplaced.

That doesn’t mean it was wrong necessarily. It depends on your goals.

If you need ransom money by Friday, not betting everything on a roulette wheel tomorrow might be the riskiest course of action.

I’ve explained how bet sizing is not intuitive. I’m reading a Man For All Markets now, and there’s a scene where a 38-year-old Richard Feynman explains to Ed Thorp how he agreed to “be the house” for another friend who wanted to play roulette. Playing as the house, Feynman taps out after losing $80, underestimating the short-run variance of the game despite his advantage. The Nobel Laureate’s failed gambling intuition cautions us mortals that in some areas you should “work out the math”.

Now notice that my friend’s pickle is really not even at the level of bet sizing where we can triangulate on a reasonable range of answers given some constraints. My buddy’s dilemma is philosophical. What are constraints and the goals? His first task is to back up and find the inputs that reduce to “what matters to me”.

It reminded me of another conversation with a family member who was trying to solve what I’d call a “thymos-question” with a spreadsheet. Look, if you have a high income but feel the burning call to press your full potential in something that is just not lucrative, Excel isn’t going to help. You can’t generate a 3-D chart with a binary z-axis labeled “living the one life I got” and “dead”.

Luck is not a strategy. But it exists. If you want to bet on variance maybe the most practical thing to remember is “trade less when you don’t have an edge”. You are in the exact mirror situation of a casino with a small edge that wants you to pull the handle every day.

Once you know you’re gambling and decide that even long odds are the only acceptable way forward, try to minimize your contact with the rake, and shoot your shot.

Money Angle For Masochists

All option traders have stories about days they regret going into the office because they had a massively winning option position that they mitigated by hedging too aggressively. A $1 OTM put that goes $10 ITM, but they bought stock the whole way down hedging the delta. Or a short straddle that pins on expiration but the stock’s daily range meant they bought the high and sold the low. In the long option case, liquidity was the enemy — you would have preferred the stock gapped down $10.

Think now what this means for options backtests that pretend closing prices are the only prices. Your sampling frequency should align with the frequency by which your p/l matters. If you sample daily but your intraday risk and p/l matter you are acting like an ostrich.

This observation is rarely overlooked in short option strategies, at least by non-charlatans, but it’s worth noting that long options strategies that over-index on gapping price charts will overstate their attractiveness since the gaps are a gift in “not being able to rebalance”.

Since long option p/l’s can have highly skewed distributions (ie most of the profits coming from a few trades) this is not just a theoretical concern. Consider the expected value computation for optimal video poker play:

The Royal Flush, an event that happens 1 in 40,000 hands (if you played a hand every 10 seconds and didn’t sleep from Monday to Friday you’d expect to get one Royal Flush) contributes 2% of the game’s return. Said differently, if there was no possibility of a Royal Flush the house edge goes from .5% to 2.5%. This would be like the bid-ask spread in a $10 stock going from a nickel to a quarter. Annualize that churn in any strategy and see what happens to the “alpha”.

There’s a Wario world perspective (cc private equity) in which the downside of illiquidity gets moral equivalence with its upside. If you can’t re-balance you are safe from yourself and behavioral trading biases. Like pretending that every gap comes back. That’s the unsaid assumption that discourages you from selling at in-between prices. (If close-to-close vol is much lower than OHLC or tick vol then you want to sell straddles and go on vacation. Basically betting on mean reversion. Too bad this volatility behavior is only known in hindsight. Conversely, if you are long gamma you want to hedge more frequently if you know that close-to-close vol computations are smaller than range or tick vol computations of realized vol. If only you could know in advance.)

Well, this week Matt Levine wrote a banger called Structure. First an echo:

One cynical way to understand private investing generally is that private investment firms — venture capital, private equity, private real estate, etc. — charge their customers high fees for the service of avoiding the visible volatility of public markets. If you invest in stocks, sometimes they go up, and other times they go down. If you invest in private assets, they don’t trade; sometimes they go up (because companies raise new rounds of capital at higher prices), but the companies and the investment managers take pains to keep them from going down. This makes the chart of returns look much nicer — it mostly goes up smoothly — so the private investment managers can charge higher fees. We talk about this theory from time to time around here.

The real meat of the post is describing how start-ups, rather than taking a down-round in funding, prefer “structure”. Levine walks through the mechanics, but the gist is that the new investors who subscribe at the stale, overpriced valuation are getting an embedded put option (it’s more of a put spread since it only protects you so far). This gives the illusion that the valuation is unchanged, but only because you didn’t assign the put value. If you wanted to compare valuations over time, you’d need to back out the value of the put, to see how much the private company’s value has actually fallen.

Instead, we are left with the optics that the valuation is the same but the economic reality is that it’s lower. That should tell you quite a bit about the dog-and-pony culture around private investing. (In fairness, Levine explains how most insiders understand all this but that makes the gaslighting even darker in my axiological naivety).

I’d accept the pushback that it’s all made up anyway so who cares if we decompose the price of the glitter from the measure of fairy dust.

Last Call

• Martin Shkreli Explains Why Sam Bankman-Fried Got Lucky With His Judge (80 min)
  
  One of the YT comments says it best: This episode was fascinating. Martin is an amazing narrator. Like the David Attenborough of prison.

  Martin loves to talk. It’s surreal how much he tells us.

• My friend Khe is hosting a free 3-day free event called Your Roadmap for an Epic 2023. The only disclosure I have for promoting this is that Khe is a damn ninja. If you need help unlocking this is your jam. It starts January 10th.Sign up here

  What to expect:

  • Day 1: A Productivity System that Works For You
  • Day 2: Find Your Focus and Achieve Clarity with “Radical Prioritization”
  • Day 3: The 20-Minute Productivity Plan

From My Actual Life

New Years’ energy comes with resolutions. I deleted the Twitter app on my phone. Using it on my desktop only has cut my usage dramatically. I don’t know how much free time this creates but I’d be embarrassed to admit it even if I did. Better late than never.

I’m combining this resolution with another: write or work on writing projects for 2 hours a day. (In addition to an essay backlog, I have 6-8 writing projects in various stages of progress. They lean towards being guides/educational wikis.)

Being more explicit about this is a personal necessity. The more I get done in the general (if still poorly defined) pull of my ambition the better I feel. For better or worse, this is my wiring. I probably only love myself conditionally. I’ll deal with the fallout of that one day, but today’s not that day. Writing feels like a large component of that — it’s best to give imposter syndrome the finger once and for all.

Part of the productivity kick is checkboxing daily fitness, even if it’s just an hour’s walk, and reading books or technical material. My goal is an hour a day there, and reading substacks and articles doesn’t count towards that goal. I have about 70 books on my nightstand that I want to read and need to build that muscle again. Plus it’s a critical complement to improving my writing.

Separately, I’ve used also turned these projects into stand-alone websites:

The Moontower Volatility Wiki —> https://moontowerquant.com/

The Moontower Money Wiki —> https://moontowermoney.com/

These will continue to see progress. In addition, I will be rolling out another website that is a bit of a learning wiki. As I work on projects related to education/teaching/learning that site will be a companion where I will share stuff I learn in public. It will be a living document. Open source ethos and all that. I’ll share it in this letter when I publish it.

I’ll wrap with this:

We watched the Chris Hemsworth Limitless series on Disney+. Chris basically works with a different personal wellness expert in each episode to learn about stress, brain health, physical performance, and increasing your healthspan not just lifespan. It’s educational and often poignant. Australia is also shot beautifully. Eye candy. So is Chris (dudes you know it’s true too). Thor also seems shockingly down-to-earth.

There’s a scene in the death episode where he asks a stage 4 cancer patient in her 20s what she thinks about aging. Her response is pure perspective:

Aging is beautiful. I’d love to age.

Let’s have a groovy 2023, thanks for coming along!

Let’s start with a math puzzle from Martin Gardner’s Entertaining Mathematical Puzzles:

THE SILVER BAR

A silver prospector was unable to pay his March rent in advance. He owned a bar of pure silver, 31 inches long, so he made the following arrangement with his landlady. He would cut the bar into smaller pieces. On the first day of March, he would give the lady an inch of the bar, and on each succeeding day he would add another inch to her amount of silver. She would keep this silver as security. At the end of the month, when the prospector expected to be able to pay his rent in full, she would return the pieces to him.

March has 31 days, so one way to cut the bar would be to cut it into 31 sections, each an inch long. But since it required considerable labor to cut the bar, the prospector wished to carry out his agreement with the fewest possible number of pieces. For example, he might give the lady an inch on the first day, another inch on the second day, then on the third day he could take back the two pieces and give her a solid 3- inch section.

Assuming that portions of the bar are traded back and forth in this fashion, see if you can determine the smallest number of pieces into which the prospector needs to cut his silver bar.

Don’t read further unless you want the solution.

This is the solution:

The prospector can keep his agreement by cutting his 31-inch silver bar into as few as five sections with lengths of 1, 2, 4, 8, and 16 inches.

You’ll note that you can sum to any length up to 31 with that set of bars.

Disclosure: I read this problem aloud to my kids on Wednesday night at bedtime and none of us got the answer.

The key to this problem is it can be expressed cleanly using binary or a base-2 number system instead of using the base-10 system we are used to.

Earlier that afternoon I taught Zak (9) how to count in binary. I made these charts to summarize how I explained it to him.

It’s useful to remember that when you hear “tens place” what is really meant is the [symbol occupying that space] x 10¹

• In base-10: there’s a one’s place, tens place, hundreds place…
• In binary: there’s a one’s place, twos place, fours place, eights place…

Once Zak understood this he could represent our family members’ ages in binary. I had him do the same thing using base-8 by following the same pattern.

• In base-8: there’s a one’s place, eights place, sixty-fours place, five hundred and twelve place…

So representing my age of 44 in base-8 = 54 because there are 5 eights + 4 ones.

Computers do calculations in binary because electrical signals on a chip are either on or off. So representing numbers can be thought of like a morse code of “on”/”off” at light speed or something. Feel free to correct me, that’s my armchair impression.

Now a brutal coincidence.

Despite teaching binary that afternoon, I did not recognize it was the key to answering the riddle! Zak was flabbergasted by the coincidence that the solution was in “what’s that word you keep saying…binary?” after he just learned it. Baader-Meinhoff on steroids. (It was really cute that he kept shaking his head about the coincidence that the thing he just learned showed up in a random problem I chose that night. The coincidence hit him just as hard, maybe even harder, than it did me.)

The silver bars cut into 5 lengths as a binary solution:

This is all about to get better (or worse depending on what temperature you run at on the techno-optimism thermometer).

Yesterday, I started tinkering with OpenAI’s recently released ChatGPT. I found this concise description of ChatGPT:

A large language model trained by OpenAI is a machine learning model that has been trained on a large dataset of natural language text, typically using a deep learning approach. This allows the model to learn the patterns and structures of human language and to generate text that is similar in style and content to human-generated text.

You can sign-up to try it for yourself here.

This is a Twitter thread of prompts I’ve given it and its responses. Everything from a Kelly Betting problem to imagining if DMX wrote the hook for No Scrubs.

I also gave the bot a condensed version of the riddle.

Prompt: If I have a 31 inch silver bar but I need to make the minimum number of cuts so I can create a new bar any length up to 31 inches, how many cuts do I need?

It responded:

To create a bar of any length up to 31 inches, you would need to make five cuts to your silver bar. This is because the minimum number of cuts required to create a bar of any length up to a given length is equal to the log base 2 of that length, rounded up to the nearest whole number. In this case, the log base 2 of 31 is 4.8, which rounds up to 5. Therefore, you would need to make five cuts to your silver bar to create a new bar of any length up to 31 inches.

“log base 2”?! It knew it was a problem for binary.

Lacking the vision to peer around corners, my small mind can only see the 6 inches in front of my face. And I can see turning to ChatGPT over Google for many types of searches. But with the explosion of “generative AI” in the past year (GPT engines, Dall-E, Stable Diffusion or Midjourney for images), it’s clear the times they are a-changin’

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Money Angle

Author and veteran trader Brent Donnelly’s recent post, #37, in his highly educational, free Substack series 50 Trades In 50 Weeks dissects common traits of successful traders:

Week 37: Common Traits of Top Traders (10 min read)

It’s a terrific read for what it validates, but also for what is surprising (“You can succeed in trading with any level of risk appetite.”) It’s also a great read to see how he constructs a survey to challenge his beliefs.

I want to zoom in on one of the key 5 key traits he identifies: “calibrated confidence”.

When we hosted the StockSlam sessions in October we gave a couple of homeworks before the in-person events. One of the homeworks involved this module:

You will be asked to make 90% confidence intervals on some facts.

90% confidence interval can be understood with an example:

I have not been outside for a few hours, and without looking up the answer, “I’m 90% confident that the temperature outside my window is between 45°F and 60°F, or (45,60).”  If I wanted to be more (like 99%) confident, I would widen the interval, and conversely a tighter interval would coincide with less confidence.

Example questions included:

• Without looking anything up, what is your 90% confidence interval on the number of bones in the human body?
• What is your 90% confidence interval on the length (# of letters) of the longest word in English?

Note what you are doing. You are making markets where you think fair value is 90% to be inside your bid/ask spread.

This is highly relevant to trading and handicapping.

If you get 10 out 10 markets “right” then you are more conservative than we asked you to be. In other words, you were too wide. In markets, this means you will never trade. You are bidding $50 for a stock trading $60. You will get no market share.

If you get say 5 out of 10 markets right, then you were too confident. In markets, everyone will trade with you and you will be sadder for it.

Trading is only partially about knowing “fair value”. It’s in your meta-knowledge about fair value that the magic happens. You are always dealing in uncertainty…your feel for the degree of uncertainty is how you recognize opportunity or defend yourself. This is not just market-maker talk. It’s the essence of what Buffet understood when he said “margin of safety”.

Google “Paul Slovic’s horse bettor study” and you will find several posts such as:

How Can Confidence Kill Investment Returns? (4 min read)

They all talk about a 1973 study where experienced horse handicappers are given a few pieces of data of their own choosing. Armed with their preferred data, they are able to make good bets, but critically, they are well-calibrated about their accuracy. Their confidence and accuracy were in agreement.

However, as the bettors are given increasing amounts of data their accuracy falls, but their confidence shoots up. No bueno.

Presumably, they were less experienced in weighing the additional data which turns out to be noise to their handicapping process, but the presence of more info gave them the illusion that they would be better. A disastrous combo.

Improving Our Handicapping Skills

It sounds discouraging to realize that decision-making is not just an exercise in accurate prediction but also judging how wide our error bars should be. But there’s plenty of good news. This is not a skill anyone is born with. It is learned.

[This is why prop trading firms who recruit elite students from top schools screen for teachability which I suspect is randomly allocated across skill. There are elite students or athletes who can remain humble learners despite the advantages of their talents and there are insufferably overconfident talents who have yet to get hit by the Mack truck of peak competition. This latter group is dangerous to themselves and if given enough rope, to their backers too.]

3 suggestions to get better:

1. Self-diagnose. You can take a fun calibration test to establish some context:
   http://confidence.success-equation.com/

   This thread includes my results as well as many others including several side threads of interpretation and discussion.

2. Read Superforecasting: The Art and Science of PredictionThis book is a great primer on what it takes to predict but most importantly frames prediction as a skill we can improve at. I took extensive notes which weave my thoughts into some of the key points.
3. Bet on stuffHow long will it take to finish your school or work assignment?

   What percent of random sample of people from your contact list knows what date the winter solstice falls on?

   (My wife and I bet on what facts are “common knowledge” when one of us gets defensive to the other’s attack “how did you not know that?” We’ll poll some people with a text message and bet on the consensus. These “studies” are highly correlated with one of us having “one drink too many”.)

   Calibration is a nice benefit of a betting culture (1 min read).

Last Call

I saw this tweet by one of my favorite accounts:

imagine everybody in your life telling you can’t do something… and then you do it

while this is glorious, it also means you will never fully be able to trust anyone again

— Visa’s Vapid Vicissitudes ⛵️ (@visakanv) December 1, 2022

In light of the extreme timeline we seem to be living in these days, I’ll share a spot-on observation from Rohit Krishnan’s most excellent post How VCs Can Avoid Being Tricked (emphasis mine):

Don’t fall in love [with founders] more than necessary:

Try to internalise the following: “human ability is normally distributed but the outcomes are power law distributed”. What this means is that just because someone builds a company that produces extraordinary outcomes, 10000x the average, doesn’t mean that they were 10000x as capable. Achievements are created from multiplicative outcomes of many different variables. So if you’re investing in a “10x founder” it doesn’t mean that they themselves are 10x the capability of everyone else, but what it means is that their advantage, combined with everyone else’s advantage, can get you to a 10000x outcome. Which means the adulation we pour on top of some folks creates its own gravitational field, and makes others susceptible to falling in love. The most difficult task is to not let someone else control your decision making for you, which is what you give up. If your job is to get seduced by the right narrative by the right-seeming person, guess what you’ll get seduced by anyone who can tell a compelling narrative.

I think the advice, written in an investment context, can be generalized to apply to Visa’s concern.

From My Actual Life

I hate shopping. I don’t pay attention to Black Friday or Cyber Monday. Until this year. I just went bonkers and spent all of Monday incinerating cash while feeling exactly what the gods of retail want me to feel like — “I’m getting a bargain!”

This might help your gifting:

How To Become A Truly Excellent Gift Giver (9 min read)
by Eliza Brooke

Anyway, I’m in charge of buying all the kids in our lives gifts and no parent wants clutter, so books it is.

I crowdsourced books for kids 9-12 and compiled the results in a table which I will add to over time.

Book Ideas For Kids

I’ll add a special mention for Rookie Bookie which I read with Zak this year. It’s written by a Wall Street quant with a sports analytics love. This observation from the book is a nice demonstration of how the book is fun for the adult reading with the kid:

Announcers say a team has won 3 out of the last 4 because it sounds more impressive than saying they won 3 out of the last 5. Even though that’s actually what happened.

Another famous Wall Street quant and author did a better book review than I could:

Last thing…Moontower reader Murph got inspired by my incessant advocacy of Notion combined with Potion.so to quickly turn your into a website. Here’s what he built:

https://rebalanced.finance/

Never been easier to scratch your generative itches folks…

Stay groovy!

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

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

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

Have at it…

Moontower Affirmations and North Stars

Money Angle

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

If you’re looking for gifts this holiday season, here are my suggestions for the books every investor should own.

If you’re looking to read and learn, you need books that have stood the test of time. These few will, I believe, still be indispensable decades from now.

— Jason Zweig (@jasonzweigwsj) November 25, 2022

A few other lists of recommendations:

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

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

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

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

Investing

The Four Pillars of Investing by William Bernstein

Just Keep Buying by Nick Maggiulli

The Most Important Thing by Howard Marks

Investing with a personal finance slant

The Psychology of Money by Morgan Housel

I Will Teach You To Be Rich by Ramit Sethi

Economics and Business

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

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

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

Fooled by Randomness by Nassim Taleb

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

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

Last Call

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

   

From My Actual Life

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

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

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

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

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

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

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

Dropping my dad off at his place and found this. Me and my parents…1980 in Brooklyn.

My dad is 31 here. I'm 44 now.

I'm on borrowed time on whatever black hair I have left. pic.twitter.com/HEUSxpIjZK

— Kris (@KrisAbdelmessih) November 27, 2022

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

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

Stay groovy.

I didn’t mince words last week:

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

Yes, you should absolutely learn about:

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

Now stop and go home.

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

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

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

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

David Senra’s Founders Podcast.

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

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

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

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

Getting Started with Founders

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

#207: Claude Hopkins, Scientific Advertising

#189: David Ogilvy, The Unpublished David Ogilvy

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

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

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

My favorite so far — inspiration straight into my veins:

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

#245: Rick Rubin, In The Studio

…and these episodes were worth heavy note-taking:

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

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

  There’s more.

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

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

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

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

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

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

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

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

Ok, so recapping.

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

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

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

   Do you see the paradox?

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

2. Gather energy

   Check out Founders.

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

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

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

   Despite the investing-focused title of the speech, its central theme is broader:
   
   Learning Is behavioral change!

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

   • Moontower notes (9 min read)

   • Frederik Gieschen’s notes (7 min read)

   • Presentation slides (download)
   

3. Strike

   This old post includes links to light your fire.

   • Get Unstuck and Move (10 min read)

Money Angle

A question I posed last week:

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

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

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

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

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

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

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

Last Call

Rounding out the personal growth theme this week:

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

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

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

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

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

  [This works for getting better at anything including relationships]
  

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

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

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

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

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

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

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

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

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

From My Actual Life

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

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

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

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

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

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

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

Happy Thanksgiving and stay groovy fam!

It’s Halloween so Moontower should spook you. We’ll get to that.

But first, let’s pretend this is a normal post. I’ll follow the little formula:

1. Hey here’s some cool thing I read:

   [Inserts link] Book Review: San Fransicko by AC10 (formerly Slatestarcodex)
   

2. Offer a tantalizing bit:

   San Fransicko is subtitled “Why Progressives Ruin Cities”. It builds off the kind of stories familiar to most Bay Area residents:

   In the spring of 2021 two colleagues and I went to San Francisco. We first went to check in on the open-air drug scenes in the Tenderloin and United Nations Plaza. It was the usual scenes of people sitting against buildings and injecting drug needles into their necks and feet. There was garbage, old food, and feces everywhere. After a couple of hours, we decided to go out to eat in the Mission. Work was over. We were all looking forward to a relaxing dinner. We were eating ice cream and walking along Valencia Street when a psychotic man, perhaps about thirty years old, began following us and screaming obscenities. When we turned around to look at him, he screamed at us, “What are you looking for, huh! WHAT. ARE. YOU. LOOKING. FOR!” and started walking faster toward us. We walked faster until the man found other people to verbally assault.

   Things haven’t always been like this. San Francisco used to be one of the safest and most beautiful cities in the world…
   

3. Provide my own twisty commentary:

   The failed-stateness of San Francisco is common knowledge by now. I don’t even lock my doors when I park there. Just leave nothing in the car so I don’t have to risk a call to Safelite. [As I type that it occurs to me that Safelite’s cap-ex would have been best spent on whatever graft necessary to save Chesa Boudin’s job.]
   Oh wait, Chesa’s influence on SF’s decay is not so cut-and-dry. Why?

   Read the Slatestar review of the book!

   The post is done in a fun format. He dissects 10 of the book’s claims put forth by author and failed gubernatorial candidate Michael Shellenberger. Sometimes AC10 agrees, sometimes not, and sometimes you’re left with a non-verdict. This isn’t surprising. Books in this genre are axes because while they start with nuggets of truth, to fill a few hundreds pages with persuasion, you need to turn a lot of greys into blacks.

   Anyway, once each claim is given its trial, AC10 goes raw and says how he really feels in the actual review. I like Spock-treatment giving way to Judge Judy flow. It’s kinda like Stairway To Heaven. It starts like “oh this is interesting” nod along, nod along, ok it’s getting repetitive, now tedious, I mean it’s good and all, but also like enough already — then, finally — boom. Enough talk, weapons drawn. Energy sword cuts through the night sky as an unholy, pentatonic run screams from above as Bonzo shakes the ground, the Earth splits swallowing both civility and the quaint illusion that it ever mattered.

   [Aside: if you have never seen this deleted scene from Almost Famous, correct that when you have 12 minutes. The older brother holds the DNA from which all fanboys have been cloned and Frances McDormand’s listening expressions required not a minute less than 10,000 hours in front of a mirror. You’ll never hear the song the same way again. Cameron Crowe is a worthy rabbit hole at 2am.]

   Fun aside, the most useful exercise living inside the AC10 post is watching him reason through the claims. Since SF exists in the national conversation as a political football bouncing its way through debates on crime, public school lottos, sanctuary city status, drugs, NIMBYism, and cyberpunk levels of wealth disparity, the breakdowns have something for everyone no matter where you live. With humor and an eagle-eye, AC10 shows why his book reviews are often better than the books themselves.

Very well.

I kept the usual formula sweet and short so you will actually read the book review.

[Run along and read it]

Look at you. [deep satisfying sigh]

So kind to come back after reading that long post.

Oh wait. Is something wrong? Did your brain melt out of your cranial orifices when you got to claim #7?

I had to read it 2x just to make sure the words were in the same order as the first time I read it.

Talk about a record-scratch moment.

Naturally, I had to stop my entire life and go down a Jim Jones rabbit hole. It’s Halloween. Go ahead and indulge your morbid fascination with cult leaders and mind control. There’s a lot to learn from them in my humble-even-if-you-think-it’s-deranged opinion:

• Jonestown: The Life and Death of People’s Temple (85 min)

  This film is loaded with real footage, audio and interview. This is some crazy stuff captured on film. Be warned.

• The Jonestown Massacre: Paradise Lost (100 min)

  From the description: This feature-length docudrama tracks the final build-up to a horrific doomsday

  This is a dramatization. I watched it second. It’s more haunting than the documentary.

I watched them back-to-back in the same sitting. The way truth can be stranger than fiction is so…ugh words feel ineffectual. Trust me on this.

Warning: the expression “drink the Kool-Aid” will become offensive to you. What you think happened, isn’t what happened. Seriously, it’s an expression that needs to die.

This was all written under the influence of this song (which comes from an epic album btw)

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Money Angle

This week I wrap and recap the month-long “real talk” series on trading/investing. I felt compelled to distill and consolidate these thoughts and append them to my progressing-like-molasses Moontower Money Wiki.

As a reminder, this wiki is my treatise on investing, broken into bite-size parts residing under 2 major headings:

• The Nature Of Markets
• Implementation

It’s intended to be a manual. The first part of it is only half complete and at the pace I’m moving my deadline is death.

Anyway, this month’s series has been encapsulated in:

• Special Topic: “Do You even Trade Bro?” (Link)

  It’s a touch irreverent and subdivided into:

  • The Fundamental Misunderstanding
  • A Warning About Options
  • If You Insist On Trading…
  • Is The Brain Damage Worth It?

Personal comment: If you find this stuff useful, share it. I don’t know what the right balance of how often I should even say something like that. I’m always torn between the utter naivete of “if it’s useful people will find it” and being a whore I can live with. But I’ve noticed that I keep landing in interesting conversations and opportunities as this (whatever “this” is) and I think that will be true if I keep being useful so there’s a whole virtuous loop and all that jazz that me and others have definitely spent too many words describing but the most important takeaway is that it’s real.

[I encourage anyone who thinks they have something to share to drown their self-limiting beliefs in the toilet and get on with the sharing already.]

Last Call

I posted this. Don’t judge. (I kinda did get judged but whatever. I’m secure, I swear.)

🤯

Was counting by 9s with the 6-yr-old before bed and literally just realized that the tens and ones place sum to 9 up to 90.

09
18
27
36
..

I think this is the same feeling my BIL had when he learned seahorses were real. As an adult. pic.twitter.com/NqM1yBDCkA

— Kris (@KrisAbdelmessih) October 26, 2022

To which I get this mind-blowing reply from resident math genius @quantian.

We learn of “digital roots”. It’s easiest to show by demonstration.

The digital root of 231 is the sum of the digits: 2 + 3 +1 = 6

You can do this for any number, just proceed until the final digital root is a single digit.

So for 489, we go:

4 + 8 + 9 = 21

(then 21 gets reduced)

2 + 1 = 3

So the digital root of 489 is 3.

After reading @quantian’s explanation, I summarized the conclusion:

Any number minus its digital root must be wholly divisible by 9.

So 489 – 3 = 486.

486/9 = 54

Sweet.

Gets better though.

Digits add up to 3 = divisible by 3. Add up to 9= teach them indivisible by 9. Teach them on a digital clock. I still do it reflexively 55 yrs later. My volume knob is rarely not divisible by 3….

— Joe Bang (@Jadam2122) October 26, 2022

So we can recap the rules:

• Any number with a digital root of 9 is divisible by 9
• Any number with a digital root of 3 is divisible by 3
• Any number minus its digital root is wholly divisible

Add this to any number ending in 5 being divisible by 5 and even numbers being divisible by 2 and you have a playful set of numeric wonders. And as @jadam2122 recommends, your digital clock becomes a fun toy for the kids.

And I’ll address the question some if not many want to blurt out…what’s the point?

The point is wonder.

I have zero doubt that there are readers who know the practical application of these observations (and I welcome them, and will even share the ones you send). But we are pattern-matching machines. Narratives, math, music, concepts. It’s all around us.

It’s true, in this letter, we often talk about how being a pattern bloodhound often leads us astray with confirmation and availability bias. But this ability to match patterns is also a skill from chess to trading to persuasion to self-awareness to diagnosis and to discovery. It’s a power we learn to wield. It uncovers the seams between disciplines.

If every time you saw a pattern, you dismiss it because its application was not-yet-apparent then your mental library of patterns would grow too slowly and the probability that you would match new stimuli to a small library would be tiny. You would deprive yourself of insight but also that feeling of wonder.

And that feeling of wonder is what leads to the next question.

And before you know it…you grow.

That’s why you’re here. Right?

Last Call

For all the San Fransicko talk, so much of it well-placed, it’s weirdness is exactly why it’s seductive. Yinh and I joined 12 friends on Friday night to don costumes for a night out in the Mission.

We started at Hawker Fare before hitting up Valencia Room and making it to a couple of classic Market Street spots that feel like archetypal SF — the piano bar Martini’s and the karaoke stage at The Mint.

I realized something about that seduction of SF. It’s weird and age-blind. The young and the old are out to play without restraint. It felt totally lacking in self-consciousness. I learned extensively of a sexual fetish that I’ve never even heard of before. Think of how weird that needs to be to find out about offline!

Coming back to reality was tough. When we got home after 2am I immediately went to email to check what time the 6-year-old’s final soccer game would be the next day, (since I’m the coach I should know, but I didn’t, and I couldn’t check when we were out because I, of course, left my phone in the Uber).

9am. The earliest game we had all season. Why wouldn’t it be?

Stay groovy.

Indulge me as I weave through a reflection I’ve been lingering on for a few weeks.

I was listening to software entrepreneur Travis Kimmel on the Mutiny Podcast (link). The whole conversation is fascinating and honestly quite dense when it gets into finance. There is a section where Travis, who studied philosophy, discusses the role of liberal arts in business.

He used a word that keeps unfolding itself in my head — “generative”.

He approaches the word came from its anti-thesis — skepticism. Travis is a fan. “Skepticism enforces discipline”. That’s a tight phrase describing a critical function for investors and traders — scrutinizing claims. Naive optimism can easily domino into over-extrapolation which is a fancy word for what hindsight simply calls “stupidity”.

Skepticism plays a key role in sound decision-making. The Big Five personality test has a dimension called agreeable/disagreeable. In Being A Disagreeable Investor, I point to the advantages of being disagreeable. [FWIW, I have median scores on 3 of the Big Five traits but score higher than the 90th percentile on “conscientiousness” and “agreeableness”. I interpret conscientiousness as the ability to jump through hoops. Combined with a standardized test, getting through a selective college signals high self-control + satisfactory IQ. As far as me being “highly agreeable”, I’ll just be happy that firms I worked for didn’t give people that test and screen me out.]

Back to Travis. Despite, celebrating skepticism he argues that skepticism cannot exist on its own. It must be part of a team because it is fundamentally “non-generative”. It is a razor that reduces. It does not build.

Seeing it phrased this way was a personal revelation. It unlocked a reinterpretation of my work history. It goes like this:

• The first 12 years of my career I was on the trading floor. I was in the mix of hundreds of people. It was social and often raucous. I got to see what my competitors were doing because they stood next to me all day. When a smart competitor did something others did not it was like watching an “alien move” in chess. Why did they do that? What were they seeing? By observing what happened before and after, you could use pattern-matching to reverse engineer decisions and strategies. This allowed you to learn more from a given sample of trades than you could in fully electronic markets where you can’t easily tie the tape back to its actors. High learning rates are addictive. The job was fun.
• When I moved upstairs to the hedge fund my early impression was it appeared quiet and academic. Without the roar of a pit to direct my attention, I had to re-train my senses and build new tools to “see” markets. Since I was hired to build the commodity volatility business I also had to guide decisions about infrastructure. My first few years at the fund were long hours and lots of collaboration with dev teams. I loved it. For new reasons. I was building. It was highly generative.
• Once the cockpits and engines were built, it was time to pilot the plane. Like the trading pits, I was back to the daily dogfight. Trading is a constant parade of mid-air decisions for 7 hours. Except this was a lot less fun than the pits. On the floor, there was a Ralph Wolf and Sam Sheepdog camaraderie that came with being shoulder-to-shoulder with your adversary. Everyone is both an opponent but also a possible future employer/employee. My first backer was a guy in my pit who worked for another firm. The people who have my old job are friends from my pit days. Upstairs, you have your team to talk to which is great, but it’s one outlet. Otherwise, you’re always chatting with brokers. Voice brokers can be friends but they are always balancing a fiduciary conflict. There’s no escaping the poker dynamic of those interactions.

With the lower learning rate off the floor, only occasional forays into building after the initial heavy lift, and a dip in social stimulation (I’m no life-of-the-party but self-identify squarely with extraversion) the job became tedious.

This arc combined with writing as a larger part of my life and the urge to self-align with projects where “agreeableness” holds more value to make leaving the gig inevitable. When I think about work, I realize that the right fit for me will need to tilt more towards being “generative” and I never saw it in those terms so clearly. So thanks for the language Mr. Travis Kimmel.

If interested, here’s how I personally apply this to myself.

I’m not much of a consumer. I rarely buy stuff and I don’t collect anything. Every piece of matter that seems to accumulate in my life feels like a liability I have to service. Things own me, I don’t own things. I feel bad when I don’t maintain things, but I also have zero desire to maintain them. So minimalism is less of a design aesthetic and more of a gate-protector of my time (ironically, I’m not much a fan of minimalist, cold modern spaces. I like rich environments that feel tied to the past with taste in ways I don’t possess but love to admire).

I feel like I was supposed to be some kind of bizarro librarian. Bizarro because I don’t read that much. But I collect ideas. I collect them for synthesis. Ultimately, I want ideas to be combined so they are useful.

Collection and synthesis are generative functions. A team needs both with skepticism sprinkled in to “enforce discipline”. The functions are then passed to a do-while loop known as practice.

The requirements of practice act as a filter on the vastness of ideas one could choose to collect and index.

Applying this logic personally, I’m increasingly of the mindset that my constraint is “how do I teach” effectively. “Effectively” means arming others with the ability to improve their outcomes from learning. I’m not interested in teaching trivia. I want to enable agency in service of growth.

Finding smoother ways to both represent and communicate lessons is a generative task. If I shed restraint for a moment, I admit it’s actually compulsive. It stirs me in ways that the video game of trading does not.

I’m more interested in being obsessed than the actual output of a job (in the case of trading, the output is cash baby). But I’d rather be obsessed than rich.

Some are obsessed with being rich. Some have obsessions that lend themselves to getting rich (the best athletes, programmers, portfolio managers). I think my best chance of being happy with how I spend my time is being obsessed. And who knows, maybe that will lead to getting rich.

(I was born in America and have gotten lucky enough to consider myself rich by any broad objective standard. I purposefully live in a place that makes me feel like a small fish in a big pond so I don’t think of myself as rich but I’d be an ass to bring that attitude to a global perspective. Words have scale dependence.)

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Money Angle

This month’s consolidation of ideas on the meta of trading continues with:

Trading Is A Team Sport (13 min read)

It covers:

• The importance of building a team
  • The value of multiple perspectives
  • How a team reduces bias in practice
• Building the team (mostly in a retail context)

Last Call

I just want to give some love to a few people doing great work. Notice how related and leveraged their journeys are to the permissionless internet. It feels like the singular most important force, for good and bad, of the past generation.

Paul Millerd

Paul is a friend who I’ve gotten to know from ping-ponging lots of ideas with over the past few years. I highly recommend his book Pathless Path (my review and notes).

He just published his 200th newsletter issue and it’s an amazing summary of everything he’s been sharing. It’s full of concise representations that you can carry with you as make decisions about your own path.

See The Great Digital Creator Arbitrage Opportunity (Boundless)

Kyla Scanlon

Kyla is a juggernaut creator on TikTok, Twitter, Youtube, Twitter, Substack and now Bloomberg who is pumping out funny, provoking, and highly educational finance content covering topics du jour. Unlike the common grift that typifies this niche, Kyla is the real deal, bringing the right mix of knowledge, skepticism, and humility to a fundamentally complex subject.

You can follow her on your preferred platform from her website:

https://kylascanlon.com/

so much of my life has been people taking chances on me and i have been trying to find a way to express gratitude around that but it's something that is so meaningful yet so hard to tangibly describe

— Kyla Scanlon (@kylascan) October 18, 2022

You gave them a reason to put that faith in you. You thank them by continuing to be you.

You might find that to be an agitating answer and that's exactly why they have been taking chances on you.

— Kris (@KrisAbdelmessih) October 18, 2022

Noah Bragg

Noah founded potion.so

I used it to create another website this week using Notion as my CMS or “content management system”. The website is a private project I’m doing with a few local collaborators but this showcase is filled with inspiration.

The latest website I built was up and running in minutes with a clean URL which is simply the domain I bought. I will be building another website soon for another project and it will also be built on Notion using Potion (my current online home is already built that way).

Noah is highly responsive and patient in dealing with a tech-handicapped fogey like me.

Millions of users, including many Moontower readers, are organizing their knowledge in Notion. You are one step away from turning that into a clean, beautiful, online property.

[None of these people pay me for endorsing them. In fact, it’s quite the opposite. I pay all three of them for their work.]