I often share articles about career management. Interviewing, negotiation, what to study, and so on. Some of my writing is me thinking aloud about my own career. But when I’m asked directly for general career advice, I got nothing of my own. It’s impossible to not let your own experience have a tyrannical influence on what you say, so the advice I give could literally be the opposite of what’s right for you. A tension I see with all advice is whether the outcome was “because of” or “in spite of”. (I probably triggered some people by using video games as an example of this)

So recently, when I was asked for advice, I queried the hive and noted the common advice. The context was quant/trading but there were broad prescriptions as well.

Kris @KrisAbdelmessih

In the past, several quant/vol accounts have done some threads on getting jobs/internships in the space and advice for junior folk. Let’s compile them so they can be re-used to answer DMs and anyone who cares cc @bennpeifert @Ksidiii @therobotjames @choffstein

October 28th 2021

13 Retweets100 Likes

I refactored it to make evergreen and cleaner. As an assurance, even though some of these accounts are anonymous, they are professionals.

Before the details let’s see the common themes.

Everyone Agrees These Are Important

• Emphasis on aptitude (often proxied by pedigree) & teachability over direct market knowledge Although if you lack any market knowledge you might struggle convincing an interviewer on the next point…

• A genuine interest: The game is hard, you will need persistence and interest to carry you through the inevitable difficulties. You should be able to demonstrate this.

• Skills. In today’s marketplace, you must have technical skills. Math and coding. While that’s a common theme below, I’ll give 2 additional reasons for needing these skills. The first — as an assistant, the more useful you can be to your bosses the faster you’ll progress. Training apprentices is expensive in time and money. It’s not great if you have to spend company time learning broad skills. You put yourself at a disadvantage. Secondly, skills allow you to self-start. You can prototype and test. If you need to rely on a dev or quant to study hypotheses that are probably wrong in the first place, you are dead in the water. You need to be able to build yourself so you can iterate through ideas faster.

Check out the rest of the document here:

https://notion.moontowermeta.com/career-advice

It includes:

• Advice from specific accounts
• Broader advice from outside the trading world. Some controversial.
• A link to my own career musings

Money Angle

Using Insurance For Tax-Free Investment Growth

I recently did some work to understand permanent insurance. Collective eye roll. I’m with you. I begrudge Peter Thiel for forcing me to do this.

My annoyance is your gain. I documented what I’ve learned about permanent and private placement life insurance. Here’s an excerpt from the conclusion:

Insurance is not a fun topic. I’m more of markets guy not a Marty-Bird-structuring-type-of-guy. It makes my head hurt. The layers of fuzzy risks plus costs present many trade-offs. Overall, it felt worthwhile to consolidate and organize my notes from reading and phone calls into this post.

continue reading:

Using Insurance For Tax-Free Investment Growth (14 min read)

From My Actual Life

My buddy Paul was living in Taiwan recently. We had a call one night to talk about career stuff (which for me is just mid-life crisis therapy). Paul does these regularly because his work is focused on thinking about how we work. He has done tons of research, spoken to hundreds of people, and given a lot of thought to life paths. Despite an MIT degree and success out the gate in the consulting world, he pulled the ripcord on a trajectory that would make most parents proud.

Paul asked if we could turn the camera on for the chat. Sure why not.

You can find the convo here. Paul’s insights and story will get you thinking. I might get you thinking if you can get past how slow I can speak. I recommend 1.5x speed because the thought of you seeing me at 1x speed makes me not want to get outta bed ever again.

[In his weekly letter, Paul highlighted the 11 points he found resonant. Check it out and sub to his terrific Substack here]

Paul Millerd ✍📖 @p_millerd

Had an epic conversation with @KrisAbdelmessih about decision-making and valuing possibility as well as an exploration of his own dip into the “find your people” creator world. A really fun convo that change how I thought about my own journey too How a Trader Models The Solo Creative Journey – Kris Abdelmessih (Podcast)Kris Abdelmessih is a former trader and writes about the relationship between money, work & creativity. We explore how to value possibility.think-boundless.com

November 10th 2021

2 Retweets27 Likes

Welcome shareholder. You probably own an index.

An index is like a box of stocks. You might see the word “value” in the description of the box you own. Let’s find out what’s inside this box of supposed bargains.

The big reveal…

Gunjan Banerji @GunjanJS

AMC and Avis are now the biggest holdings in the iShares Russell 2000 Value ETF #valueinvesting $CAR

November 3rd 2021

41 Retweets204 Likes

Congratulations?

Wanna know another name you definitely own if you own any index not categorized as “value”? Here’s a hint, it goes vroom without a sound.

SqueezeMetrics @SqueezeMetrics

@AlexLachance11 @bogosorting THE PEOPLE WHO ARE BUYING CALL OPTIONS ON TESLA RIGHT NOW ARE DOING SO AS A HEDGE AGAINST THE *VERY REAL* POSSIBILITY THAT TESLA STOCK GAMMASPLODES TO 25% OF THE S&P 500 (12.5% OF GLOBAL EQUITIES), DESTROYING PASSIVE INVESTING FOR YEARS TO COME

November 3rd 2021

65 Retweets419 Likes

Destroy passive indexing for years to come?! All caps too. Sounds serious.

But is it?

Travis @coloradotravis

So this is a fascinating thesis that I think a lot of people are dismissing out of hand just because it seems too extreme. But let’s unpack for a sec here what @SqueezeMetrics (who, worryingly, has a tendency to be right) is saying & attach it to some observed phenomena. 1/

SqueezeMetrics @SqueezeMetrics

@AlexLachance11 @bogosorting THE PEOPLE WHO ARE BUYING CALL OPTIONS ON TESLA RIGHT NOW ARE DOING SO AS A HEDGE AGAINST THE *VERY REAL* POSSIBILITY THAT TESLA STOCK GAMMASPLODES TO 25% OF THE S&P 500 (12.5% OF GLOBAL EQUITIES), DESTROYING PASSIVE INVESTING FOR YEARS TO COME

November 3rd 2021

49 Retweets303 Likes

I’ve followed Squeeze and Travis for a long time. They are sharp. The conversation woke up sensei Bau.

The insights he added remind me how disinflationary the internet is. This thread is totally free:

baufinanciaphaster  @bauhiniacapital

@coloradotravis @SqueezeMetrics So let’s look at the path to get there. Let’s imagine TSLA doubles while S&P stays flat. If TSLA premium still has the same ratio of TSLA premium vs rest of market premium in dollar terms, that will mean that TSLA premium vs TSLA compared to Market premium vs market… fell.

November 3rd 2021

2 Retweets13 Likes

Read the thread for more detail. It’s about the nature of a squeeze that uses options to push a stock higher. I’ll circle back to the core insight of the thread but I want to back up for a moment because there’s an opportunity to learn about how to think about options generally.

How Options Complete A Market

Out-of-the-money call options are “soft” deltas. If you bought the stock instead of calls, you bought “hard” deltas. Soft deltas can decay with time and, depending on their moneyness, contractions in implied volatility. The distinction actually highlights why options are useful.

Options “complete” the picture for a stock.

What does that mean?

Consider 2 stocks ¹ both trading for $100:

• Stock A: Has a uniformly equal chance of being worth any whole dollar amount between $80 and $120. Its value averages to $100.
• Stock B: Has a 90% chance of going to 0, and a 10% chance of going to $1,000. Its expected value is also $100.

If you just pulled up either of these tickers you’d see a $100 stock, but the distributions that drive that price are vastly different. A single price lacks the dimensionality to convey the underlying distribution. Alas, the options market will show you exactly what it thinks the distribution is. It “completes” the information.

Volatility, skew, and kurtosis can be extracted from an option surface across time to provide a 3-D probability picture (the odds of certain outcomes, by a certain date).

In the above example, the $750 strike call is worthless for Stock A and worth $25 for Stock B (10% probability x $250 payoff if the stock goes to $1,000).

Ok, let’s say I’m feeling benevolent and offer to sell you shares in either stock for $90 (and I mean truly benevolent. I’m not some Orlando homeowner pasting Zillow on its 90% of Zestimate bid because I have a meth lab in the basement). If you take either stock for $90, the expected return is exactly the same — $10.

But the risks, are totally different. If you choose Stock B, 90% of the time you lose all your money. This is counterbalanced by the 10% of the time that more than 10x your investment.

This takes us back to options. If you are bullish on a stock, you need to understand the scenarios. If that $100 stock price is being driven by a long right tail but a high probability of a crash, you will size your trade differently. In fact, you might prefer to buy call options since they are levered to that right tail return. There’s a nerd way to explain that, but we can do it far more simply. If you were the only person who knew Stock B’s distribution and everyone else in the world thought all $100 stocks had the same distribution you could offer to pay $1 for the $750 call. There would be many eager sellers who would sell you that “worthless” option, unknowingly handing you a 25x theoretical return on your investment (remember the Stock B $750 call is worth $25 because there’s a 10% chance it goes $250 in-the-money).

Options allow you to tune your trade expression to the bet you want to actually make.

This is why vertical spreads are such useful hedges to market-makers. The long and short positions in calls sterilize the effect of the tails (and nearly all the non-linear greeks) and turn the bet into a simple over/under or binary bet. If a $10 wide vertical is trading for $2.50, you don’t need to know anything about the distribution. You know that you are getting 3-1 odds on it the stock expiring above the higher strike ².

Tuning Your TSLA Trade Expression

Back to white-hot TSLA. The company is valued at over $1T. I’ll ask some leading questions:

• What is the underlying distribution imputing that valuation? Is it more similar to Stock A or Stock B?
• Does your opinion make you want to replace your hard deltas with soft deltas?

For me, the more I think the stock price is driven by the right tail (vs the vol or first-moment outcomes) the more I want to “stock replace” with an option. An option is the correct expression of the bet because its value maps to a higher moment. Just like Stock B’s $750 strike was worth $25.

And the reason for this is not just because I’m looking up. It’s because I’m worried about what’s down below. I really want the put embedded in that call. I don’t want hard deltas when this thing rolls over.

Slow down. Don’t rush out and buy TSLA calls. You might be boarding a Higgins boat to Normandy. You are on the front lines with many YOLOs who got the same idea. You still have to deal with an important matter — price. What is the right price for the options? Even if call options are the right expression of a bullish bet on a liquidity spiral, you still need to estimate what the options should be worth.

I don’t have an answer to that of course. Whatever implied vols the calls are trading for is presumably the market’s best guess for what they are worth. But without looking at the prices, my “prior” is that the calls are overly expensive. Why would I expect that? Here’s my logic:

1. My leading questions were meant to lead you to “options are the correct expression of the bullish TSLA bet”
2. My powers of observation are not special. Many others realize this too and are buying calls.
3. The right-tail risk is large and idiosyncratic. Therefore it is difficult to hedge. In fact, the only hedge is a margin of safety in the price and keeping the size of any short call position a relatively small part of your bankroll.
4. There must be a satisfactory risk premium baked into the calls to compensate the sellers.

To understand how making the calls expensive foils buyers, let’s go a bit deeper by circling back to @bauhiniacapital.

Soft Deltas Depend On Price And Path

Let me start by re-printing @bauhiniacapital’s comments:

What I am getting at is that the ratio of how much people are putting into OTM calls – throwaway money – vs how much they get out of it is a) ridiculous and b) not scalable infinitely. People run out of money…

To find new people to FOMO into it requires more premium thrown away. The only way to maintain the squeeze forever cleanly is through straight delta. If done via options, you need path and disposable “entertainment value income“

I emphasized those terms because it’s a sharp insight:

If done via options, you need path and disposable “entertainment value income“

The nuance deserves more than a tweet so I’ll expand here.

• Disposable “entertainment value incomeOption premium can be thought of as:

  the size of a stock’s future price change discounted by its probability

  The fair price of the premium relies most importantly on the future volatility of the stock (a quantity that cannot be observed today, of course). But like insurance, the lived experience of owning an out-of-the-money option is you usually lose your premium.

  So for the game to continue, the buyers of these options need to win. For them to win, either the sellers of the options need to lose OR the folks selling TSLA shares need to lose (which is another way of saying the stock needs to continue going up). So the stock requires more inflows OR the options need to be systematically too cheap.³

For the options to be structurally underpriced, the market makers need to be willing punching bags and this is not a feature we typically associate with that role. In fact, it’s the opposite. A prerequisite for survival is being a quick learner. You can beat them big once. But that usually just leads to a false sense of security, because they simply adapt. How? They will raise their volatility offers. I’m not a market maker (hell I’m not even employed, so I feel like AL Bundy writing about options this much…“Hey everyone I scored 4 touchdowns in one game in HS!”) but this is what I imagine:

1. 1. MM’s jack the vol way up to sell it, effectively sweeping bits and pieces of liquidity along the way.Market makers are quick to raise the vols when they see buying knowing that the momentum buyers are vol-insensitive. (If you have a buyer that has no reserve, you will crank the vol up as far as your competitors, who are in the same boat, will let you.⁴)
   2. With the vol high enough the gamma effect fallsWe don’t need to resort to technical explanations. Intuition works…a 5% move in a 100% implied vol stock is not even a standard deviation. The higher the vol, the larger the move required to necessitate gamma hedging.
   3. Time also works against an OTM optionAs time passes, the options greeks including its gamma decay further.

All of this splainin’ reduces to:

The people supplying the options are not “willing losers”. ⁵ They will only sell options they deem overpriced. In the long run, they tend to be right as evidenced by their persistent prosperity over many market regimes.

So what’s left?

• PathFor the market makers and the buyers to win there is only one possibility. The path must roughly go straight up. And voila that is what’s happening. But the music will stop since that which is unsustainable, won’t be sustained. That says nothing of timing and I probably could have written the same thing a year ago, and it would have made the YOLOs amongst you poorer. What can I say, this is a free email. YMMV.I’ll turn back to @bauhiniacapital’s observation of the psychology:

  And one requires ever more inflows because the inflow is not sitting on #HugeGainz (if it did, it wouldn’t feel FOMO). On right tail outcome, it requires geometric growth in interest against arithmetic growth in supply (wealth of new FOMOers).

  The TSLA options bid is a Schellinged levered proxy bet on one-way demand overtaking the supply of issuance in a non-linear, non-elastic price crescendo.

Wrapping Up

• Continued inflows are ultimately constrained by real economic income. Some questions I posed aloud in the thread:
  • Is it possible to decompose the bid stack into how thick the “entertainment value” bid is?
  • Can you map that to strike prices?Bau wondered how that maps to BTFD/income-draining risk-replenishment because at some point, ‘bad luck’ becomes negative reinforcement.
• The duration and extent of what we are seeing in markets today raise a lot of questions about what we understand about economics, flows, and how returns are generated. Twitter aggregates provocative discussions on these topics. I felt that walking through these threads, I could add value to your understanding of options. As far as the broader dynamics, I’m just sense-making in public.
• A recap of the scenario and how it relates to options:
  1. If the right tail is driving the expected return, call options are the vehicle to express that bet.
  2. Everyone is already trying to buy them.
  3. The price of the options is like a gate that modulates how big those flows need to be to trigger gamma squeezes.
  4. Any single outcome might work out for the buyers, but over time, winning requires an ever-increasing rate of inflow for the scheme to self-sustain.
  5. If buying soft-deltas via options is a losing game are buyers right back at square zero, needing to express the squeeze by just buying shares (ie hard deltas)?I don’t know.But I do know, if you’re a passive index buyer, hard deltas at a 1.2T market cap is what you got.
• Just as I got to the end of writing this, the plot thickens.

Much is made lately of unrealized gains being a means of tax avoidance, so I propose selling 10% of my Tesla stock.

Do you support this?

— Elon Musk (@elonmusk) November 6, 2021

If Elon wanted to minimize his slippage he could decide he didn’t want to sell more than 1% of the daily volume. If we assume TSLA trades 25-30mm shares a day and is around $1200 it would take him about 3 months to sell $20B worth of stock. This is a moving target, because if he fixes the $ amount he wants to sell at $20B then if the price falls he needs to sell more shares, and if the price rallies he’d need to sell less. The scenarios lengthen or shorten how long it would take to liquidate the shares respectively.

He could also decide to just fix how many shares he wanted to sell and simply accept whatever cash proceeds it generated.

He could also offer to swap them for Nissan which is worth $20B. Or for that matter any company in the bottom third of the entire SP500. Do you know what he can’t afford to buy for $20B?

All of SHIB.

The Monty Hall Problem was popular on Twitter this week. It’s worth taking a look at it because the Bayesian logic behind the solution is pertinent to reasoning about uncertainty in general.

Let’s start by turning to Wikipedia:

The Monty Hall problem is a brain teaser, in the form of a probability puzzle, loosely based on the American television game show Let’s Make a Deal and named after its original host, Monty Hall. The problem was originally posed (and solved) in a letter by Steve Selvin to the American Statistician in 1975. It became famous as a question from reader Craig F. Whitaker’s letter quoted in Marilyn vos Savant’s “Ask Marilyn” column in Parade magazine in 1990:

Suppose you’re on a game show, and you’re given the choice of three doors: Behind one door is a car; behind the others, goats. You pick a door, say No. 1, and the host, who knows what’s behind the doors, opens another door, say No. 3, which has a goat. He then says to you, “Do you want to pick door No. 2?” Is it to your advantage to switch your choice?

I’ll give you space to think about it.

So what happened?

Vos Savant’s response was that the contestant should switch to the other door.

She was right.

Man, if only the “You mad, bro?” was a thing back then. If that answer makes you mad, don’t worry, you are in good company:

Many readers of vos Savant’s column refused to believe switching is beneficial and rejected her explanation. After the problem appeared in Parade, approximately 10,000 readers, including nearly 1,000 with PhDs, wrote to the magazine, most of them calling vos Savant wrong. Even when given explanations, simulations, and formal mathematical proofs, many people still did not accept that switching is the best strategy. Paul Erdős, one of the most prolific mathematicians in history, remained unconvinced until he was shown a computer simulation demonstrating vos Savant’s predicted result.

I’m a dude, and even I got the “mansplain” vibe from the bold-faced section. Wikipedia continues:

The problem is a paradox of the veridical type, because the correct choice (that one should switch doors) is so counterintuitive it can seem absurd, but is nevertheless demonstrably true.

So I chimed in on Twitter with my favorite way to understand why you should switch:

The easiest way to understand Monty Hall imo is to remember:

The probability that the price is behind a door you didn't choose is 2/3.

So when they reveal the empty door the entire win probability belongs to the "other" door. https://t.co/fNS8orgE61 pic.twitter.com/vWFrYXgPGd

— Kris (@KrisAbdelmessih) October 5, 2021

You can find a fuller discussion of the problem and its variants by Professor Jeffrey Rosenthal here.

Rosenthal considers my explanation “shaky” because it fails in some of the variants.

The reason it works in this version is that the host is a “trusted actor”. He is 100% to open an empty door. If he opened a door at random, then your reflex that switching shouldn’t matter would be correct.

Problems like this are Bayesian and can be approached using what Rosenthal calls the “proportionality principle”.

The Proportionality Principle: If various alternatives are equally likely, and then some event is observed, the updated probabilities for the alternatives are proportional to the probabilities that the observed event would have occurred under those alternatives.

That’s a mouthful. Let me start with an example I made up, then map the proportionality principle’s definition, line by line, to the solution. [don’t crucify me for the made-up shooting percentages]

Paul George and Kawhi Leonard are equally likely to have the ball on the last play of the game down by 2. You discover the Clippers won. Paul George is a 50% 3-pt shooter and Kawhi is a 25% 3-pt shooter.

What’s the probability Paul George took the shot?

So the long way of doing this is to map the paths to victory.

I took the liberty:

What does this tell us?

1. The Clippers win 3/8 of the time (1/8 + 1/4). This makes sense since 37.5% is the average of their shooting percentages and they each have a 50% probability of getting the ball.
2. The state of “having won” is 37.5% of the whole set of possibilities. Paul George making the winning shot happens 25% of the time. But since the whole of our restricted “having won” condition is 37.5% we can see that 25% / 37.5% = 2/3

   So Paul George took the shot 2/3 of the time. Going into that last play we expect he wins us the game 1/4 of the time (50% chance of getting the ball x 50% chance of making the shot) but once we “condition” the question on “The Clippers won”, the probability that he took the shot jumps to 2/3!

The proportionality principle allows us to make a shortcut. Follow me step-by- step through the definition laid out above.

1. If various alternatives are equally likely, [check. Each player is 50% to get the ball]
2. and then some event is observed, [the event was the Clippers winning]
3. the updated probabilities for the alternatives are proportional to the probabilities that the observed event would have occurred under those alternatives. [for the Clippers to win one of these players needed to make the shot. Since Paul George is 2x as likely to make the shot (50% shooting % vs 25%), then he is a 2-1 favorite to have taken the shot. 2-1 is the same as 2 out of 3, therefore Paul George was 2/3 to have taken the shot. In case you didn’t notice, the way to convert odds to probabilities is to take a number in the “x to y odds” form and divide it by x+y. So 2-1 odds is the same as 2/(2+1) or 2/3. Just don’t forget which side of that expression is the “favorite” or “underdog”. This is similar how you convert gambling money lines to implied probabilities. All odds are implied probabilities because once you convert them into a fraction they are always less than 1.]

Real-life applications

If you like this kind of probability math, you can look into Bayes Theorem, which is about how we update our “priors”, ie our probability estimates at the get-go, once we get new information (sometimes called “conditioning”, because, well we impose new conditions).

If you don’t like this type of math, perhaps you feel like it’s not relevant. I assure you it is. Just imagine a disease has occurs 1 in 100,000 people but the test for it has a 5% false-positive rate. If you test 100,000 people for it, 5,000 of them will test positive in error yet only 1 person in the population actually has the disease. You’ve got 4,999 doomscrolling WebMD when their odds of actually having the sickness (after the positive test!) are on par with getting struck with lightning at some point in their life.

If this still sounds abstract, then you are my hero for somehow avoiding innumerate covid headlines.

Money Angle

• I wrote a new post this week.

  Portfolio Theory And The Invisible Option On Hobbies (7 min read)

  The post uses lessons from portfolio theory to show:

  The value of an asset viewed in isolation is actually a floor.

  There is an option value above the equity value. In fact, you can think of the equity value as the 0 strike of that extra optionality.

  The post is a qualitative discussion of what drives that option’s value. While portfolio theory reveals this invisible option, the lesson has an even wider appeal.

  It tells us that hobbies, especially uncommon ones, can have large optionality values and in the current networked world those weird things you do for leisure could be more rewarding than you considered before you started doing them (of course, you don’t need to care about that, but just in case you were curious, it’s there if you look).

• Seeing yourself on camera and hearing your own voice is always unsettling. But I realized the plumbing of voice trading in the options market, including the signal chain from negotiation to an option hitting the tape, is not widely understood even amongst professionals.

  So the Pirates, Jason and Corey were extremely generous to give me a spot to explain it. It’s pretty “inside baseball” and it won’t make you any money but it has a “day in the life of a trader” feel to it.

  I demand you subscribe to the channel. The Pirates content is smart, fun, and interesting. They even do videos explaining their thinking behind the channel and how to grow on YouTube which they are trying to do.

Last Call

You ever see something and wonder how you could never have seen that until now? This is one of those pictures.

Like, I’m not surprised a tree-swinger is toned, but it’s kinda strange that I’m just seeing this for the first time. I mean, I already knew kangaroos take ‘roids.

Chimp with alopecia reveals a truth usually concealed in fur: Chimps. Are. Ripped. https://t.co/eKYaFdNkwM pic.twitter.com/J7VhOgeWMv

— Steve Stewart-Williams (@SteveStuWill) July 23, 2021

My 8-year-old Zak is going to be taking the OLSAT soon. It’s a 64-question test that looks an awful lot like an IQ test. The test (or one of its brethren like the CoGat) is administered to all 3rd graders in CA. If you score in the top 2 or 3% you can be eligible for your local ‘gifted and talented’ program. 20% of the questions are considered “very challenging” and that’s where the separation on the high end happens.

I gave Zak a practice test just to familiarize him with it. He’s never taken a test with a time limit before and never filled out Scantron bubbles. Do not underestimate how confusing those sheets are to kids. It took a while for him to register how it worked because he only saw choices A,B,C,D for each of the 64 questions.

Daddy, the answer to question 1 is ‘cat’ not A,B,C, or D

I know, Zak, it’s just that…you know what bud, how about just circle the right answer on the question for now.

Hopefully, some practice breaks the seal so he isn’t scared when he sits for his first test ever. I think a small amount of prep is helpful even though I get the sense that caring about tests is not in style around here. Call me old-fashioned. I’m not bringing out a whip, but having the option to go to the program seems worth putting in a token effort if you think your kid has a shot.

Anyway, he took one test. Poking around a bit, I think his raw score would land him in the 90th percentile. Not good enough but it was his first shot and if he doesn’t improve much, that’s also totally fine too. Plenty of people are content just flipping burgers (I’m kidding, calm down. Also, get your own kid to stuff your insecurities into). One thing did stand out. He got all the math questions (about 1/3 of the test) correct.

Hmm.

It made me think of how I was a decent math student growing up.

Not good enough to compete with peers who did math team in HS, but enough to get through Calc BC. Regretfully, I never took another math class after that. I optimized my college courses for A’s not learning. Short-sighted.

I really felt the pain of that decision when I got hired to trade options and was surrounded by a cohort in which 50% of the trainees had an 800 math SAT. (There were 3 people in our office of about 60 that had an SAT verbal > math. I was one of them.) That inferiority exists even to this day. Until Google Translate can decode academic papers, those things are for lining birdcages.

However…

Every now and then, I’ll come across a math topic that seems useful for making estimates about practical things, so I’ll learn it.

And then I’m reminded I have no math gifts because that learning process is uphill in molasses. When I was young I did lots of practice problems (how else are you supposed to become a doctor and please mom) which got me proficient. Today, it’s a similar process. I just power through it.

But there is a difference in how I power through it.

Instead of practice problems, I watch YouTube until I can write the ELI5 version for others. Everyone has heard that if you want to test your knowledge, teach it to others. In that case, it’s a win-win. We all learn.

So that’s what I did this week. I wrote an ELI5 version of a concept called Jensen’s Inequality.

• Jensen’s Inequality As An Intuition Tool (10 min read)

  You will learn:

  • Why I found Jensen’s Inequality interesting
  • The conditions and statement of the inequality
  • An example that affects us all
  • Spotting Jensen’s in the wild

  If you struggle to understand it after reading it tell me. I am challenging myself to see if I can relay not just the concept but the significance of it with minimal effort on behalf of the reader. If I can get to the point where I’m “putting in the effort so you don’t have to” then I’ll feel like I’m being useful here.

  If you think you got it, test yourself the way I did. Construct an example. (That’s what I did with the “traffic on the way to Sizzler” example.)

• If you grok Jensen’s Inequality and want to relate it to portfolio construction Corey is your guy. Before I learned of this concept his tweets would have made no sense to me, but now I at least kinda get it.

Money Angle

My buddy Jake sent me this post:

Active vs. Passive Investing and the “Suckers at the Poker Table” Fallacy.

It’s an 8-minute read worthy of your time because it demonstrates several useful realities about markets.

• Reconciling a paradox: The idea that smart active managers can profit from the distortion of passive flows but if everyone is passive then there are no longer active suckers to exploit.

  The author does a neat demonstration decomposing market returns into money-weighted returns (active) and dollar-cost-averaging (passive) to disentangle beta from alpha.

• Markets are not a zero-sum game, even if the battle for “alpha” is.

  The size of the profits pie is not fixed…The “suckers at the poker table” paradigm goes astray because there isn’t some exogenous fixed size of the investment pie investors are fighting over. The returns are endogenous: They are in part determined by how smart the investors are, how well the capital in the economy is allocated, and by everything else that impacts economic and market outcomes.

  …Smart money going into appropriately priced investment opportunities grows the whole pie. Dumb money going to bad businesses shrinks the pie. Once it’s not a strictly zero-sum game, you don’t need “suckers at the poker table” to outperform.
  

• The demonstration shows how there is no such thing as truly passive. And if I may add, that means benchmarking your investing, which is constrained by your personal asset/liability picture (ie sometimes you get a bonus or extra cash to add to the market and sometimes you need to pull money out to send a kid to college) to some index is not a great comparison.

  If you’re planning to invest for an objective other than buying and holding forever, you have to make decisions about when and how much to invest and when and how much to withdraw. On a sufficiently long timeline, the probability of being a completely passive investor goes to zero.

  Eventually, you have to make an active investment decision, and at that point, the shrewd investors are lying in wait. Everyone eventually has to pay Charon to cross the river Styx.
  

In addition to these points, there’s a brief aside about the Grossman-Stiglitz Paradox which is a rabbit hole of its own. I’d buy stock in that paradox as something you will continue to hear more about.

Finally, while the author finds the zero-sumness of poker to be a poor analogy for investing, he links to a post about how poker has useful lessons for risk management called Getting Schooled In Risk (12 min read).

From My Actual Life

I got married 12 years ago on October 2nd. The wedding was in Cabo which means everyone sweat right through their clothes. The pictures of the reception look like the finish line of a marathon.

When I was at my mom’s house this summer, I found a treat in the magazine stand. It was the personalized US Weekly Yinh made for the guests. I’m unapologetically biased, but this is the greatest document ever made.

Kris @KrisAbdelmessih

At my mom’s house and found… The mock US Weekly my wife made for all of our wedding guests

August 3rd 2021

109 Likes

Well hello friends.

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

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

Health

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

Intellectual Inputs

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

Filing system for reading

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

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

Other sources of media

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

Courses

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

-b ± √ stuff

Oh, the cobwebs. Use it or lose it.

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

Kris @KrisAbdelmessih

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

August 31st 2021

4 Retweets82 Likes

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

• 3B1B Calculus
• https://brilliant.org/courses/
• Aswath Damodaran’s stats course (in case you’d like to learn stats applied to business)
• https://www.edx.org/course/statistical-learning
• https://seeing-theory.brown.edu/
• Gilbert Strang MIT Lectures on Linear Algebra

And of course, Khan Academy was a frequent recommendation.

The Future Of Moontower Weekly Musings

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

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

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

What will not change?

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

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

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

Recs

• Motivational books…I compiled the results here.

Kris @KrisAbdelmessih

Need some help I want to get a book/media for an elderly person who needs a pep talk (at a minimum). Person has obstacles but health is decent. Mindset has caused them to age much faster than physical age. Any recs?

August 11th 2021

3 Retweets28 Likes

• A crazy money-saving hack for CA residents
  Jake @EconomPic

  TIL California has a lemon law that applies to appliances > $100 that requires a company to provide spare parts for 7 years after purchase (even if not under warranty) or to replace the whole unit if parts are unavailable. Just got my just out of warrenty garage freezer replaced.

  August 24th 2021

  5 Retweets59 Likes

• Never think of a leafblower the same way
  Agustin Lebron @AgustinLebron3

  1/ I immigrated to the US 20 years ago, and I don’t regret the decision. The people, the opportunities. It really *is* a wonderful country. But downsides exist and they can basically all be summarized by the leafblower. A thread… 👇

  

  June 16th 2021

  10 Retweets77 Likes

• 1980s motivation
  Kris @KrisAbdelmessih

  Remember this poster from the 80s. It feels like a message from a different era, but in an immigrant household it was fuel.

  

  July 23rd 2021

  1 Retweet92 Likes

• The Japanese should have a word for this
  Kris @KrisAbdelmessih

  Life tip: You know that feeling of gratefulness and relief when you find out something was a scare or a near miss Bottle that feeling and sip it the next time you’re tempted to pop off on whatever bullshit

  July 29th 2021

  4 Retweets64 Likes

• Investing in future productivity

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

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

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

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

  Thanks for reading!