Marketing Yourself

Financial careerists will find useful ideas in this Shawn Wang post which likely had developers and designers in mind:

How To Market Yourself Without Being A Celebrity (Link)

In fact, if the thought of “marketing yourself” offends you then you are exactly the person who needs to read it. Some of you reading this are crushing it and don’t think you need to self-market. But consider another perspective. A public-facing body of work is an invitation for others to engage. This is an obvious benefit to ladder-climbers. But even if you are satisfied with your career arc, building this outward invitation will be rewarding. It can lead to collaborating on passion projects or causes, it can reduce your cost to hire, and it leads to more credible introductions into domains you are interested in. Domains where you are just a beginner. You are transmuting your prior track record into more general mana.

The entire essay is filled with useful strategies and specific tips down to the tradeoffs of platforms.

Some sections I especially liked:

  1. Personal branding strategies

    Anything but average: I identify as a “Basic Bro” – I have my PS4, and Nintendo Switch, I like Marvel movies and watch the same Netflix shows you watch. Just like the million other Basic Bros like me. Totally basic. Totally boring. NOT a personal brand. In fact anything not “average” is a good candidate for inclusion…

    Identity + Opinions: [Shawn gives examples] I really want to give you more hints on this, but I’m afraid if I gave more examples I might limit your imagination.

  2. Marketing Yourself In Public

    Don’t Lie: Stephen Covey calls this the Speed of Trust. Once you lose trust, everything you say gets run against a suspicion check, and you have to put up more proof points to be taken seriously.

    Don’t share secrets: I always think about Christopher Lee, who fought in the British Special Forces in World War 2 before his legendary acting career. When pried for information about what he did in the War, he would say: “Can you keep a secret? Well, so can I.”

    Inbound vs Outbound Personal Marketing: Borrowing from Hubspot’s Inbound marketing and Seth Godin’s Permission marketing. Outbound Personal Marketing is what most people do what they look for jobs – only when they need it, and trawling through reams of job listings and putting their CV in the pile with everyone else. Inbound Personal Marketing is what you’ll end up doing if you do everything here right – people (prospective bosses and coworkers, not recruiters) knowing your work and your interests, and hitting you up on exactly the things you love to do.

    Market Like Nobody’s Watching: Because normal comfort zones are not set up to market yourself, you should try to do a little more than you’re comfortable with. An aggressive form of this advice? If you’re not getting complaints about how you’re showing up everywhere, you’re not doing it enough. This makes sense to some people, and is way too upfront and annoying for others. We all have to find our balance – it’s your name on the line after all.

    Market Like One Person’s Watching: Marketing is more effective when it is targeted at a specific someone instead of just everyone…

    Market for the Job You Want: This is a variant of “Careful what you wish for… You just might get it.”

Camp ZoMaZaMa

My brother-in-law was exposed to his brother who tested positive for Covid. That meant Yinh’s sis and her kids were at our house all week. In a prelude to the upcoming school year we turned our living room into Camp ZoMaZaMa (an alliteration of Zoe, Maddox, Zak, & Maxen…don’t ask, I’ll just say this wasn’t consciously intentional).

The room is staying that way. School starts this Thursday in our district. This is fine [visualize ‘dog in burning room’ meme].

Interesting postscript to the Covid story. Both my brother-in-law and his brother took mutliple Covid tests each this week. All negative other than the one that launched the quarantine. Everyone they had been in contact with was also negative. So in the end my bro-in-law got a self-quarantined bachelor week, the kids ruined our productivity, and we suspect the rare false-positive test result. But for all the inconvenience, we did get a summer week of unscripted fun before school starts. The kids will remember that forever. Zoe even made a Camp ZoMaZaMa website using to memorialize it.

I should probably buy the domain name.

Gap Year & Signaling Value

Harvard or Gap Year?

I’ve noticed 2 things.

  1. It’s fashionable to encourage 18-year-olds to take a gap year instead of dropping $50k for a remote year at Harvard.
  2. The delta between Harvard or “Stansbury” (Jessie Spano anyone?) and a state school is “signaling value” not education value.

People have mixed feelings about #2. There are two poles.

  • Idealists recoil at its imperfect sorting and potential biases. The stakes are high, this is understandable.
  • Pragmatists accept the rules of the game “as is”. They have no time for normative arguments, they have SATs to study for (unless you are applying to a UC!). Every non-rich parent feels this way, a choice Maslow would have easily predicted.

Like those Venn diagrams that all overlap at a”you can be here” center, I suspect most people reconcile idealism and pragmatism effectively enough. By that, I mean pragmatism wins out but idealism gets all the civilized talk when you and your friends are drinking wine around the kitchen island.

But when an idealist uses their contempt for #2 to justify #1 they are confusing their beliefs with reality. In the trading world, these are the same people who care about being right over making money. In law, it would be like being a brilliant litigator who always loses on a technicality. Eventually you will need a new job, preferably one without a scoreboard.

When the idealist argues for a gap year instead of the Harvard Zoom semester they need more than “college admissions is a dog and pony show”. That’s not an argument for opting out. Similarly, we all agree that facetime at work is a sham, while we continue to work late. That’s how Nash equilibriums work. While suboptimal in aggregate, your move is the same one you’d make even if everyone else chose differently. So unless you think that a Harvard ’24 diploma will have an asterisk on your resume forevermore, the case for a gap year needs to be rooted in more than the rejection of pretense.

Loosening The College Grip

Having shown my hand on how I think the university sorting function will maintain perceived value, I would like to hear which forces are conspiring to upend that. If the university is not the atomic unit for compressing a person’s pre-drinking age life into a single string, what will serve that function?

Thinking aloud a bit, diplomas need to be viewed from the employers’ point of view. A diploma reduces your cost to being hired. You paid part of the cost in your tuition. The employer pays part of the cost through higher wages. The university collects a finder’s fee. The university is outsourced HR but since the university is “working” for every hiring company, the employer requires the student to bear some of the cost.

For those rooting for the “death of universities”, they must believe the “finder’s fee” is too high. I’m very receptive to that possibility, but I have questions.

  • So what model emerges to solve matchmaking even if we feel the university’s educating function is settled?
  • Is it a matter of unbundling the signaling effect from education by making the student’s abilities as measurable as their blood pressure?
  • Is Google or Facebook with their intimate knowledge of your behavior better suited to sort you (and if so at what age)?
  • Is your search history more predictive of whatever employers care about than your transcript?
  • Is distance learning going to create more fingerprints that big data forensics can use to identify potential?

Perhaps the risk is not that your resume will have an asterisk, but that you don’t need a resume at all. When you have enough compute why settle for a summary?

The answer to such a question is the breadcrumbs to humanity’s oldest questions. Have fun with that.

Some recent news on the unbundling of signal and education that probably isn’t getting enough attention:

To be blunt, university degrees are only as valuable as the weight applied by company hiring managers, and Google has just signaled that a $300 certificate has parity with a diploma. If you can earn $93k after taking a $300 course, then what’s the future of higher education? (Link)

Higher ed in the next 20 years will be largely influenced by large employers’ hiring practices. We are seeing experiments like Lambda and this effort by Google. I’m funding a 529 for my boys but there’s an outside chance by the time it’s their turn there will be de-risked alts to the 4-year college.

Video Game Veto

Several family members wanted to get Zak a Nintendo Switch when he turned 7 a few weeks ago. I shot it down. I’m the bad guy. Sorry, not sorry. I’ll defend my stance and do you one better. I’ll explain why my stance even needs to be defended. Somehow in this battle over video games, I found myself on the low ground.

First, my defense is simple. Opportunity cost. Here’s an example. My 4-year-old Max recently lost his iPad for 10 days. For those of you who follow Yinh’s Insta (feel free to follow, her ‘stories’ are more amusing than anything I write), there was a period of this kid creating his own Marvel paper costumes and pumping out artwork like he was getting paid commission. Less screentime meant more creativity.

When the iPad resurfaced, it crowded out much of his ingenuity. It’s worse than that too. The iPad summons the devil. Every time Max is asked to turn off the screen we suffer a hell tantrum. All the phases of opiate withdrawal unfolding several times a day.

Zak, being 7 and having better emotional control, is not as dramatic but the video games are still crowding out his creativity.

You would think my no-Switch policy would be unanimously embraced. You’d be wrong. Here are the arguments and pro-video game propaganda I push back against.

  • “You played video games and look how you turned out”

    If you grew up in the era of “blowing dust” out of your NES cartridges and have managed to simply not blow your life to smithereens, people will say this to you. We have all seen the amusing correlation/causation pictures. Well, this fallacy is a specific strain of those spurious conclusions. The post-hoc fallacy. If Y came after X, then Y caused X.

    This fallacy is everywhere. Kid has hives. Sleeps in parents’ bed. Hives go away. Therefore, his bed caused the hives. (This just happened in our house). You have a cold so you drink soup. Cold goes away. Must have been the soup. These interventions are given credit for mean reversion’s work.

    The video game example is even worse in my mind because of opportunity cost. I might have a good job today in spite of, not because of, video games. How much didn’t I do because of video games? Maybe I would have been a better athlete, musician, or programmer. All activities that competed for time with video games. Hobbies that if cultivated would have been unambiguously more rewarding considering, today, I wish I was better in all 3 domains and could care less about my video game skills.

  • Video games have benefits

    When I was a kid, I was told video games “rot your brain”. Today, everything from critical thinking to reflexes are attributed to playing games. Scholarships, profits, and Ninja all lend games a legitimacy they didn’t enjoy in 1987. Nothing will make you seem stodgier, techno-fearing, and possibly stupid than being anti-video game.

    Consider Shopify founder Tobi Lutke. He is outspoken in his claims of games like Factorio and Starcraft contributing to his business savvy. Well, if you have ever heard Tobi speak, he’s really smart. A mind like his is going to deconstruct strategy and actively pull the insights from the game. Being analytical in the first place is what’s most important. If it wasn’t video games, he would have cracked something else.

    It’s not the game, it’s the approach to the game. Just like TV or movies or reading. Any passive activity can be intellectually enriching if your approach is active. When you read are you asking what the themes are? Why is the author framing things a certain way? How does it relate to other knowledge? Critically reading or watching can turn “brain-rotting” behaviors into brain-building ones.

Pushing Back Against The Modern Halo Around Gaming

You’d be forgiven for thinking I contribute to the gaming halo. The gaming section of my site is anchored by Let Your Kids Play Boardgames. Some nuance is in order. Our kids play some video games. Playing them is not especially bad or good. I put it in the same category as passively watching TV and it would count against that attention budget. (I reserve the right to modify my stance for games especially strategic or competitive).

Gaming, video or tabletop, can be an amazing way to learn. Fun is a renewable form of fuel to burn. Yet in the wrong personality, it can be horribly inefficient. Like learning about basketball from watching the Kardashians. How many people playing poker on their phones mindlessly are internalizing probability lessons? And parents, you know zombie-mode when you see it.

The halo of gaming stems from its strategic and competitive aspects. Still, strategy and planning can be acquired in many ways. Just this week I was thinking about how much Zak could learn if I asked him to break down the steps to catch a trout. He’d need to find out where to go when to go, what bait to use, and what technique to employ. Taking a big problem and breaking it into smaller steps.

Gaming has fast feedback cycles. Great for learning. But also convenient to get a mouse to push a dopamine lever. Then there’s the whole issue of transference. Does becoming a grandmaster make you better at other strategic endeavors or does it just make you good at chess? And here’s the diabolical question — if the grandmaster excelled in other domains how much credit should we give to chess? Again the fallacy rears its head, post hoc ergo propter hoc. Our minds are so easily tricked. The literature on transference is mixed, but it’s such a believable grift that most people won’t bother to check.

Overall I think the benefits of games are conveniently oversold. Just like TV, if accompanied by parental prompts and guidance they can be an enriching tool to practice critical thinking. Some kids, like young Tobi Lutke, will be inclined that way on their own. Many will just stare with dead eyes, unfazed if the house was burning down. Maybe I’m just an old crank who wishes he had that time back. I’d rather see what kids come up with when they aren’t sitting in front of a screen.

Welcome To The Machine

Unless you are Silicon Valley billionaire you accept that you have a finite life. But for those of us who can’t afford the frozen-in-carbonite shot at immortality, there is a poor man’s substitute. Parallel identities. Multiple ways to live the single draw you get from a womb. It’s gonna sound strange but stick with me for a second. See this musing I came across (here’s the text, I saved you a click):
Many friends have taken a serious interest in longevity.

I get it. But I’ve always been more interested in the other lever; resets.

There’s little reason identity should persist across 80 (or 200) years. French Foreign Legionnaires and cheating husbands have always presumed new identities. Identity persistence has only recently happened as a result strong government record keeping and centralization.

If we are going to pursue biological longevity– we should allow a diversity of lives to be lived. Many folks achieve this with an ‘alt’– see LARPing and trail names. But if life is to be radically extended, information resets seem almost necessary. That is to allow total amnesia as a choice. Total reset.

I see it as an extension of what we do online. We can have different avatars/profiles/etc in different spaces, and there are also different spaces for different purposes. Online games are not necessarily meant to be a place where you live your entire life (although it does happen), but they are meant to be places where you can explore different parts of yourself or engage in different types of play.

Not taking this seriously feels like the same type of failure the anti-longevity often traffics in. That is to refuse to believe that the way we are living life now could not be better because it lack’s biological precedent. Sometimes all you need is to reset the game.

So maybe it’s just that I don’t see why our first lives should be the only ones that we can explore. Maybe we can have lives for different spaces in our limited time. Or maybe this is just wishful thinking on my part?

If that resonates, raise your hand. You have just enjoyed the work of a T1000. It can mimic the voice of whoever it comes into contact with. In this case, it put a liquid sword through writer Nadia Egbhal.

What’s going on?

That musing was generated by GPT-3 after being primed by one of Nadia’s posts. H/t to Stefan for sharing it with me (which was very coincidental since he didn’t know that I recently ordered Nadia’s latest book).


I’m going to lean on Anne-Laure‘s concise description of GPT-3:

GPT stands for “generative pre-training transformer”, a language model which can generate world knowledge by training on a diverse corpus of text. GPT-3 is the third iteration of this model. It’s basically a language predictor: you feed it some content, and it guesses what should come next.

What makes GPT-3 extraordinary compared to its predecessors is the sheer size of the model, which has 175 billion parameters. GPT-2 “only” had 1.5 billion parameters, which was already considered massive when it was released last year.

GPT-3 has effectively ingested most of what humans have published online. It uses all the text available on the Internet to generate a statistically plausible response based on the text input it receives. And because it has lots of data to figure out what response is most plausible, the predictions tend to be quite accurate—too accurate for some people who fear software based on GPT-3 will replace their job.

Faster than you can utter the syllables in “Skynet”, Ann-Laure gives a promising view of how such a virtual assistant can augment not just our productivity but more importantly our creativity. Check out her post for concrete examples of how such a tool is aiding teaching, idea gen, and most intriguingly, design. (Link)


Standing Out

There’s already a beta of a tool that uses GPT-3 to generate personal-sounding emails trained on your own writing style. Byrne Hobart anticipates the concern:

“Managers can write emails with text like “k got it,” but their subordinates have to fluff that out with punctuation, capitalization, and other niceties. If this gets widespread, it will save some time, but also force us to find a new norm for maintaining the social pecking order in text.

The emphasis is mine.

The concern is that as GPT-3 flattens or commoditizes skills, even creative skills like writing, people will jockey for new ways to assert their value. This recognizes an often critical dimension of value: relative scarcity. You understand this if you play fantasy football. If all TEs are very good but very similar, then a 2011 Gronk or Jimmy Graham VORP justifies a first-round pick.

Alex Danco has written brilliantly on the idea of positional scarcity in business strategy. And with all the talk of Zoom meetings these days, his model would suggest the VORP of in-person meetings will increase. He provides more examples in his essays:

  • Positional Scarcity (Link)
  • Positional Scarcity and the Virus (Link)

More GPT Links

  • Chess

    GPT-2 (the predecessor to GPT-3) can play chess without having any conception of a chessboard or that it’s playing a game. After being fed a giant corpus of chess game logs, its moves are generated as text responses. Kind of how you might train a chatbot on customer interactions. In this case, the customer is saying “f2-f4” and GPT responds “Ng1-f3”. (A twitter thread by Tom Chivers)

  • How to spot a GPT-3 generated post

    It turns out the text it generates violates Zipf’s Law such that common words occur too frequently and uncommon words are almost non-existent. Will we have browser extensions that tell us when we might be reading a robot-generated post? Leon makes a deep dive into GPT-3. (Link)

Self-Help Without The Guilt

I can be vulnerable to reading pop-science books and articles. This is against my better judgment. The cynic in me pretty much imagines a good writer or mediocre social scientist latching on to some tidy conclusion and building a career as quickly as they can on it. Authors know there is a first-mover advantage in ideas. Lodge grit, growth mindset, or ten thousand hours into people minds and they’ll:

a) ignore the deluge of counterevidence that follows it.
b) pattern-match this satisfying knowledge to everything they see.

It’s a race to get on as many podcasts as possible before Alexey Guzey stamps your work with the “doesn’t replicate” disclaimer. It’s not that these things are definitely disproven so much as they are believed in unjustifiable proportion to their evidence thanks to a persuasive advocate. I tend to be more sanguine about the grifting. After all, the authors are as susceptible to confirmation bias as the audience and I prefer to be charitable in my perceptions unless proven otherwise. I can hear some of you murmuring that a real scientist should be actively trying to minimize their confirmation bias. Look, I’m just rationalizing my infotainment, cut me some slack.

Alright, so we all agree airport nonfiction is Chinese food. Eat a salty meal, wash it down with a fortune cookie insight. Well, I came across a convincing post that gave me a free pass to indulge self-help without the indigestion.

From TJCX comes How To Read Self-Help (Link)

I urge you to read it, it’s pretty entertaining and calls out books you have definitely read. My own takeaways and thoughts below.
Self-help as wisdom

From Paul Graham’s definition of wisdom : “But this is a hallmark of wisdom: it’s trivial to read but nearly impossible to put into practice”.

Good self-help is actually wisdom. Wisdom is general. The author writes:

We’re embarrassed by self-help because (at its best) it’s full of banal platitudes—but these are platitudes because they’re so general. Specific rules like “if your boss likes golf and you want a raise, ask for it while taking her golfing” are too specific to be wisdom.

The reason business books often sound like self-help is that the conceptual demands of business often require us to recruit wisdom not specific knowledge.

…“business” has so much conceptual real estate that solving “business” problems requires tools that are closer to wisdom than to knowledge—no business book can predict what sorts of situations (businesses, market conditions, etc.) the reader will encounter, so instead it offers general, obvious-sounding rules.

Rules for reading self-help

  • Read self-help that makes sense

    A good rule of thumb is that arcane wisdom is rarely rightA good corollary here is that old self-help tends to be better, because:

    1. Pseudoknowledge is eventually exposed
    2. Wisdom tends to be stable over time

    My thoughts:

    This reveals an important point secondary point. It means real wisdom is actually commoditized and value is in the communicator. This is why I’m a fan of people writing even about well-trodden material. It’s not such an exaggeration to believe the best self-help is ancient Greek philosophers reformatted to make maximal impact on a glossy page. Not everybody wants to read Plato. I write about options and finance crap that is covered everywhere. But if you get 1% of your quilt of understanding from 100% of my effort it still makes a difference.

    Your work is content + voice and if we are certain about anything it’s that how you say is often more important than what you say.

  • Specific advice is probably overfit

    My thoughts:

    Anecdotes and examples make the lessons stick. But they should not be confused for proofs of the lesson. A friend once recommended me a self-help book in spite of the anecdotes which he found to undermine the strength of the case. You could say he’s so inoculated against charlatans’ techniques that his skeptical white blood cells reject any anecdote-shaped intruder.

  • Don’t be embarrassed

    We (the cognoscenti) are terrified of sounding trite, of repeating obvious truths, of saying things that have been said for millennia—so we laugh nervously at phrases like “accept yourself,” or we utter them with a certain ironic distance—but the reason these sayings sound trite is that understanding them s trivial, it is easy and available to anyone, regardless of social circle or education. But practicing these things is incredibly hard.

  • Be patient

    Self-help is hard…Reading wisdom is the easiest part of becoming wise…we read a lot of self-help because we need to. As I’ve already mentioned, we need lots of examples to drive this wisdom home. We should be more forgiving of self-help (the genre) and more forgiving of ourselves.

DCF As A Lower Bound

Sunblock stock (SUN) makes 10% in a sunny year. Loses 2% in a rainy year.

Umbrella stock (RAIN) loses 2% in a sunny year. Makes 2% in a rainy year.


  • The year is 50% to be sunny.
  • The risk-free rate is 0%

A few things to think about

  1. SUN has a higher expected return and Sharpe than RAIN
  2. We can see the stocks have -1 correlation
  3. There is an arbitrage. You can put 50% into each stock and earn 4% in sunny years and 0% in rainy years for an EV of +2% on the portfolio

What can we expect?

The market prices of these stocks will adjust.

Let’s keep it simple and presume:

  1.  SUN’s price stays constant. Its returns characteristics are unchanged.
  2. RAIN’s price is to be bid up so it returns only 1% in a rainy year and loses 3% in a sunny year. Note that RAIN’s expected value is now -1% per year instead of zero.

Why would the market bid that much?

This is the subject of my latest post, You Don’t See The Whole Picture. (Link)

Expect to find:

  • A simple math example to show how the diversification benefits of an asset can benefit a portfolio EVEN if the asset has a negative expected return
  • Examples from the market-making and option trading worlds which describe the “supply chain of edge”. When you see prices that don’t make sense it’s possible you don’t see the info embedded in a higher link in the chain. Whether that’s due to analytical or structural limitations, incentives, or something else is a question you need to consider.

Some Musings I Left Out 

If I felt comfortable larping as an actual businessperson I might have included a few more thoughts in the post:

ComplementsFB can pay up for WhatsApp because they are the most efficient buyer. So the price to a bystander, who can’t see Zuckerburg’s dashboard, looks insane. And in fact, in isolation, the price might be insane. But to the party where its value is highest, it can be a bargain.

Disney paid $4b to buy Star Wars rights. It was a win/win for Lucas and Mickey. The synergies lower the effective price.


Sometimes tech giants scoop up small firms as acqui-hires or to leap-frog R&D time/cost. But I imagine sometimes it’s just defense. Kill Simba before he grows up to inherit the Sahara. Once again, the price looks high in isolation but this “strategic buying” is informed by a wider context.

A Lower Bound

The stand-alone value of a business is the intrinsic value of a call option. But, there is a non-zero chance that some combination makes the asset worth even more. An excessive price is a mix of intrinsic and extrinsic. Going further, is it possible the extrinsic premium increases in proportion to connectivity?

Louis Pasteur wasn’t doing R&D at chocolate chip cookie company, but he would have been paid more at a Nabisco than at his local French universities. But they need to find each other.

In a connected world, awash in capital, the DCF of any business in isolation might be just where the bidding starts.

The most practical implication of these ideas is that you are not paid for diversifiable risks, so you incinerate theoretical money when you don’t diversify. This is true regardless of your actual investment performance.

The Diversification Imperative is a reminder of the only free lunch in investing. (Link)

You Don’t See The Whole Picture

Overpriced Or Just Overpriced In Isolation

☀️Sunblock stock (SUN) makes 10% in sunny year. Loses 2% in rainy year.

☂️Umbrella stock (RAIN) loses 2% in sunny year. Makes 2% in rainy year.


  • The year is 50% to be sunny.
  • The risk free rate is 0

A few things to think about:

  1. SUN has a higher expected return and Sharpe than RAIN
  2. We can see the stocks have -1 correlation
  3. There is an arbitrage. You can put 50% into each stock and earn 4% in sunny years and 0% in rainy years for an EV of +2% on the portfolio

What can we expect?

The market prices of these stocks will adjust to there is no arb.

Let’s keep it simple and presume:

  1.  SUN’s price stays constant so its returns characteristics are unchanged.
  2. RAIN’s price is to be bid up so it returns only 1% in a rainy year and loses 3% in a sunny year. Note that RAIN’s expected value is now -1% per year instead of zero.
Why would the market bid that much?

Because there’s still an arb.

You could put 30% of the portfolio into SUN and 70% in RAIN and still earn 50 bps per year with NO risk (remember RFR is 0%)!

What can we generalize?
  • A low or neg correlated asset, even one with a negative expected return, can improve a portfolio.
  • Assets can look appear overpriced in isolation, yet their price is more than justifiable.

When You Don’t Understand The Price You Don’t Understand The Picture

Price is set by the buyer best equipped to underwrite the risk.

If you weren’t willing to bid RAIN up you can bet SUN would have.

This leads to 2 important warnings.

1. You must diversify

Financial theory dictates that you do not get paid for diversifiable risks. To be blunt, you are incinerating money if you don’t diversify. The SUN/RAIN example can show how you would expect to lose money in RAIN in isolation because the market is priced assuming you could buy SUN. I cover this idea more in The Diversification Imperative.

2. You might be a tourist

It’s worth asking yourself, does X look overpriced because I have the wrong perspective? You are looking at RAIN but don’t see what the SUN investor sees.

A Market-Maker Example

If X is willing to pay me a high looking price for a stock or option, what’s the probability they are selling something else to someone else such that they are happy to pay me the “high” price?

Let’s say a call overwriter sees a modest surge in implied vol and is happy to collect some extra premium. Except he’s selling calls to a Citadel market-maker who’s happy to pay the “high” price because her desk is selling index vol. In fact, they are selling index implied correlation at 110%. You might be happy selling the calls for 2% when they are usually worth 1%, but if the person buying them from you knows they are worth 3% at the time you sold them then make no mistake, you are playing a losing game.

However, if your professional edge is in deeply understanding the stock you are selling calls on, then you might be the one capturing the edge in the expensive calls. You are capturing it ultimately from the fact that index volatility is ripping higher and market makers are simply capturing the margin between the weighted option prices of the single stock in proportion to the index volatility. So you, the informed single stock manager, is making edge against the index volatility buyer who set off the chain of events.

The decomposition of the edge between you and the market maker is unclear. But the lesson is you must know where you stand in the pecking order. When a market maker is asked why they are buying Stock A for $100 they respond “because I can sell Stock Z at $110”. There’s always a relative value reason. The more you internalize the SUN/RAIN example and how correlation relates to diversification the more natural this reasoning becomes.

Another example

Let’s consider another option relative value trade.  If volatility surges in A but not in B and they are tightly correlated let’s look at how 2 different market participants might react.


The naive investor isn’t aware of what is not monitoring the universe of names. They do not think cross-sectionally. They see a surge in A and decide to sell it. It may or may not work out. It’s a risky trade with commensurate reward potential.


The sophisticated trader recognizes they can sell A and buy B whose option prices are still stale (perhaps there has been a systematic seller in B who has been price insensitive. Maybe from the same class of investor our friend “naive” came from. They don’t look at the market broadly and realize the thing they are selling is starting to “stick out” as cheap to all the sharps).

Here’s the key: the sophisticated trader will do the same trade as the naive one but by hedging the vol with B, they can do the whole package bigger than if they simply sold A naked.

The sophisticated traders are the ones who see lots of flow. They “know where everything is”. While in this example, sophisticated and naive both sold A there will be times when sophisticated is lifting naive’s offer. Sophisticated has sorted the entire market and is optimizing buys and sells cross-sectionally.

Are you the fish at the table?

Flow traders and market makers are always wondering if their counterparty is legging a portfolio that they’d like to leg themselves if they saw the whole picture.

Sometimes it’s not possible because of structural reasons. For example, the risk that banks exhaust from structured product issuance or facilitating commodity hedges for corporations originates from a relationship nobody else can access.

A bank charter means some captive audiences. But that exhaust risk is recycled through the market much like a good flows through a vertical supply chain from wholesaler to retailer, with a markup being tacked on incrementally until its sold to a Robinhood client.

The markups are not explicitly in dollars but in the currency that lubricates financial markets — risk/reward. Mathematical expectancy, like a house’s edge, is priced by its most efficient holder.

If prices are always being set by the party who most efficiently underwrites/hedges/prices the risk and you know you are not one of those parties then you should wonder…

am I being arbed?

Pink Floyd Meditation Afterparty

I was up until 4am. We celebrated with cousins yesterday. It was the rare warm California night so the kids made the most of it. While not quite Tik-Tok worthy (see vid), it did inspire the post-kids part of the evening. I ended up listening to Dark Side Of The MoonWish You Were Here, and then The Wall. And when The Wall ended I immediately re-listened to it.

I haven’t listened to The Wall end-to-end since HS when the movie was basically on loop in the background at my best bud’s house. So how was it?

Nothing short of self-care.

If you are even a casual classic rock fan you already admire the hits from the album but you’re tossing away so many delicious parts of the animal. I recommend slowing down. Set the table. There’s a lot to savor. I know many of you use the Calm or Headspace apps. Just reminding you that Pink Floyd guided meditation has been around for almost 50 years. Goes well with chocolate.

Summer Birthdays

A little personal journal entry kind of post today (feel free to skip below to the links if you prefer).

Seven years ago today was a Friday. July 12. My 35th birthday. If it was a year earlier we probably would be pre-gaming for 80s night at DNA Lounge, but this year was going to be a quiet birthday.

Until we decided it was too quiet.

You see, we were just 2 days away from our first child’s due date. As a present for my birthday, Yinh gave me a Scrabble keychain. The “Z”. We were naming the boy Zakary. (We like to go to rock shows and we had recently seen Zakk Wylde at the Independent. Our Zak’s middle name, Myles, is named after a singer that Yinh in particular loves. Hint: he was actually in the movie Rockstar with Mark Wahlberg). Anyway, back to our quiet night. We were bored, in waiting limbo, and I really can’t remember who suggested it…”Let’s just call the hospital and see if they’ll take us”. As if you were trying to fit in a haircut before lunch.

So we called.

Turned out it was a slow night in the maternity ward. Come on down, we’ll induce you. We were going to celebrate 2 birthdays tonite at the SF baby factory, the CPMC on California St.

I’ll skip over the details. Zak wanted his own birthday. The following day, after an unplanned C-section, we heard his voice for the first time as the doctors lifted him up and out. That first cry is the greatest chord, forever seared into memory.

Summer birthday kids carry their own private pain. No narcissism Munchkins from Dunkin’. No “let them eat cake” moment to preside over in 3rd grade. But I’m not bitter. 7/11 gives out free Slurpees on 7/11. So take that non-Cancers. (That joke is for my lovely mom, whose birthday is 7 days before mine. The growing family birthday heritage might have Zak feel like we handed him a have-sex-in-October-baton.)

So Zak is 7 tomorrow. One of his teachers once described childhood as something to be thought of in sevens. The early period ending at age 7 as kids start to realize there’s a bit more to how the world works then what daddy says. The latest period, ages 14-21, being a tranche of its own for reasons we can all relate to.

If 7 is the end of an era, it explains some personal wistfulness I’m feeling. I often think of Paul Graham’s essay Life Is Short:

“You only get 52 weekends with your 2-year-old. If Christmas-as-magic lasts from say ages 3 to 10, you only get to watch your child experience it 8 times. And while it’s impossible to say what is a lot or a little of a continuous quantity like time, 8 is not a lot of something. If you had a handful of 8 peanuts or a shelf of 8 books to choose from, the quantity would definitely seem limited, no matter what your lifespan was.”

That’s a good way of putting it.

7/12/2013 (That’s a paleo cake Yinh made me. It’s 2 days before she is due to give birth)

Less than 24 hours later, life is forever changed.

7 years later, Zak modeling for the unibrow-paternity-test.

So I guess I’m 42. Hitchhiker’s Guide called the number 42 “the answer to the ultimate question of life, the universe, and everything”. That’s a lot of pressure for the next 365 days when I own that number.

Happy birthday to the July and summer birthdays on the list!

We owe everyone else 6 Rice Krispies treats each for those K thru 5th years.