Moontower #145

Archive, Newsletter Thoughts 11 Minutes

Friends,

Soooo…getting back into the groove after vacation has been a failure. Been hard to conjure any productivity. While I was in Hawaii, I left my phone in the room most of the time. Was nice to mostly unplug. But vacation is fantasyland and then you come home. Instead of building on a healthy habit, I gave myself permission to guiltlessly hang out on Twitter as if I earned something. My history of swallowing a pint of ice cream after the rare cardio session is ample warning that in my personal constitution no good deed goes unpunished.

The upshot of all this?

Instead of having some tidy, prepared essay I’m gonna just overshare about life today. If you’re here for nerd stuff feel free to skip ahead to Money Angle, no hard feelings.

Ok. So there was a Twitter thread where a friend and a stranger were talking about me. The stranger was asking the friend why a portfolio manager (don’t mind me as I adjust my imaginary tie) would share insight about trading publicly. The tone, insofar as one can detect tone in text, was “traders shut up and trade, grifters teach”.

It’s not the first time I’ve seen something like that and I usually let it slide. I suspect I normally don’t get too much suspicion directed at me because it would be really hard to fake 21 years of prop trading with a massive sample size of daily trades and then write about risk and options in a way that other verified pros find value in. This is not me defending myself. This is you, beloved readers, especially the professional peers amongst you who are so supportive.

But this particular conversation did spark a reaction in me because it was a friend that was stuck in some isolated thread trying to defend me. So I chimed in to give him a break.

This is how I think about my writing about trading:

If you are a pro options trader reading me, then I’m reinforcing what you already know. Sometimes the articulation gives you a vocabulary that clarifies your thinking. I’m not turning over new rocks, but if I scramble them a bit, you may see something new.

If you are a novice trader/investor, you are learning things that are table stakes for the risk-taking side of the industry. The decision-making principles are not secrets. You can find any number of sources to learn from. People prefer to be communicated to in different ways. I’m just one of those many ways.

I would never write about secrets while I was working. I chose to write about the meta. The website is literally called MoontowerMeta. So if you are not violating any policies, you’re not exposing info that your friends use to make money, and you can still find angles that are helpful to readers then you have value to share. Aspiring writers sitting on trading desks, that’s your cue.

[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. But that’s also why there’s some middle ground where I want outside funding and investors are willing to fund it. If a purely automated, systematic strategy is a money-printing machine you’ll never see it. And if you do, its legibility will be its eventual downfall as it gains assets]

Still, a big question remains —why share? The stranger was hinting that I had an ulterior motive. Like maybe I had flamed out and was setting up my next job. There’s some truth to that but not in the way he insinuated. (The last year of my career was my best and it was not even close.)

I decided to tweet a thread on why I share. To do that I needed to back up and explain the decision process behind quitting.

The bizarre result was the thread went totally viral. I also realized the way I wrote it must have made people think I just quit. Tsk, tsk. If they were subbing to Moontower they know that is old news. If you didn’t receive this letter in your email don’t make that mistake:

Subscribe.

Before I quit trading, I framed the decision: I’m 43 yrs old. I can stay, make more $$, racing for 10 more years. Or I can leave now, while I have energy, reasonable health and less ageism against me to work towards something that I’m not in a race to get over.

It will take some time to figure out my next step but since my kids are 5 and 8, it’s a great time to take time. When I start my second professional life, it won’t be a race. It’s something I can do til I drop dead.

I’ve written about my lack of interest in any conventional retirement (I don’t play golf, I like to work and write with my free time as long as it’s on my terms). So a sustainable journey reduces my need for a large nest egg to carry through many non-working years. (I also put little trust in market returns as an arbiter of my financial destiny so I’m conservative about how long I need to work). If you know you can work say 20 years longer than if you raced in a finance career, then a lot of pressure is relieved.

Suddenly leaving isn’t so risky.

2 other points:

1. If I stayed I’d be in the same boat at 53 years old. What do I do with myself? I’d have more money, but also so what. Money is not an issue if you are happy working (and you don’t crave caviar every meal)

2. If I’m wrong, I can always get a finance job. It won’t pay what I used to make because the seniority you have with people you know for a long time is a special sort of trust and goodwill. I had a long leash (in finance speak that probably earns you 2 years of underperformance cushion).

I prefer not to take my mortality for granted and when you are in your 40s it becomes far more real. When you receive a phone call instead of a text out of the blue your pulse quickens a bit. I don’t obsess about $ like I did even 10 years ago and definitely not like 20 years ago. I didn’t grow up with it, but have fought the urge to see it as a security blanket catch-all for every kind of anxiety.

Scarcity mindset is adaptive when you are young and broke, because the scarcity can be quite real. The mindset is protection. Like a 40d put. But as you earn, that put becomes further OTM. You are going to be ok. No need to pay theta in the form of suboptimal decisions because you feel the need to service that put as if it’s 40d when it’s really 1 delta.

Everyone gotta do what they gotta do. But if you are unhappy with your fancy job, that’s on you. There are no excuses for that. It’s understandable to feel otherwise but I do believe you need to work through that. It’s really hard to develop a healthy relationship with $. I’m trying to get better at it all the time. Because I have to. It’s not wise to do a job you don’t want to do to allay irrational fears of being broke.

Twitter is a tool for relationships and to spread proof of work. I did one thing for 21 years. When I try to do something else I’m a major underdog. I’m not going back to school. I don’t enjoy school. My online presence is like a proof of work, so when I try to convince someone to take a chance on me in a new field I can show something that looks like a resume to someone that’s open-minded. If you wonder about my incentives on Twitter, I’m being open about it: relationships, proof of work, & optionality in distribution.

There it is. I tweet and write to “find the others” and to make myself marketable to future collaborators and clients. I don’t know if that makes it any less “ulterior” if it’s not in pursuit of a trading gig (if I was going to stay in trading I already had a ridiculous seat. There are not a lot of places to go unless I was going to be a founder, but I have no interest in that. Trying to be an emerging manager is institutional masochism. Respect to my friends on that journey. I love it for them. Not for me. I know enough to never say never, but my mindset is far away from that and I’m not getting any younger.)

This thread went viral because it struck a nerve with so many people. I’m a size 150 bid on how many DMs, texts, emails, and requests for phone calls I received. Many were just extending support but many wanted to discuss their own crossroads.

If you are curious, the replies to the thread are the less vulnerable versions of private messages.

Some made similar leaps in the past, some are in the midst of such a leap, some just starting to hear the whispers from their inner selves, and some were younger people with enough maturity to already anticipate how they might feel in their 40s. It was weirdly overwhelming to get such a candid glimpse of people’s feelings.

I’m happy to discuss any aspect of all this if any of you feel that’s what you need. I had many conversations before making my final decision. One of my local friends is a serial entrepreneur a decade removed from corporate America. He’s similar in age, with a family, and is particularly thoughtful about aligning who he is with his work. Over the course of several hangouts and long morning hikes I came to understand his framework. And parts of it were foreign in interesting ways. I never considered thinking about the problem the way he does. It unlocked thoughts within me but even now I’m still processing it. It’s a bit painful to think through because you need to be so honest with yourself. If you are not rattled, you’re doing it wrong. But I knew he understood me, just based on the questions he asked. In the next week or two, I’ll discuss the framework as well as what I’m thinking about most these days.

Since it’s Twitter, a number of trolls who must hate-follow me said it was a mid-life crisis as if I was defective. I suppose I am. In many ways, it would be easier to have just stayed in my job. But if there’s a defect I’d rather take over from the autopilot and intentionally try to go to the right destination than accidentally land in the wrong one with no fuel left in the tank.

Resources

In the public domain, the 2 friends I found especially helpful were Paul Millerd and Khe Hy.

Paul’s book, Pathless Path, which came out in January is going to be canon on this topic. My notes and review are here. I’ll even buy you a copy if you want. Paul is kind and brilliant. He’s had so many discussions with others on these topics that chatting with him is like plugging yourself straight into a current of flowing wisdom.

Khe’s path was extremely resonant because he was in the same field (in fact long after he left finance I learned that he was in meetings 20 feet from where I was standing in my office). Khe’s writings make him one of the OGs about thinking about our relationships with ourselves and our careers. He has successfully navigated the long path from corporate America to a business that sustains both his clients’ and family’s needs. For the better part of a decade, his writing has put you in the sidecar. I’ve plugged his work at every opportunity because it’s outstanding and he’s the kind of giving soul you love to see crush it. The next cohort of his $10k Work Bootcamp starts in a few weeks. The testimonials are ridiculous and I’m not surprised. He’s taken everything he’s learned and combined it with easy-to-use technology to turn you into a high-leverage weapon. Give it a look here. It’s 100% free.

Money Angle

One of the best threads I’ve seen in a while. It’s important because it shows how betting strategies vary based on your goals.

In the basic version, the “Devil’s Card Game” is constrained by the rule that you must bet your entire stack each time.

You can maximize:

  1. expectation
  2. utility (in the real world Kelly sizing is the instance of this when utility follows a log function)
  3. the chance of a particular outcome.

At the end of the thread, we relax the bet sizing rules and allow the player to bet any fraction of the bankroll they’d like. This is a key change.

It leads to a very interesting strategy called backward induction. In markets, the payoffs are not well-defined. But this game features a memory because it is a card game without replacement. Like blackjack. You can count the possibilities.

The thread shows how the backward induction strategy blows every other strategy out of the water.

If we generalize this, you come upon a provocative and possibly jarring insight:

The range of expectations simply based on betting strategies is extremely wide.

That means a good proposition can be ruined by an incompetent bettor. Likewise, a poor proposition can be somewhat salvaged by astute betting.

I leave you with musings.

  1. Is it better to pair a skilled gambler with a solid analyst or the best analyst with a mid-brow portfolio manager?
  2. How confident are you that the people who manage your money would pick the right betting strategy for a game with a known solution?

    Maybe allocators and portfolio managers should have to take gambling tests. If analytic superiority is a source of edge, the lack of it is not simply an absence of one type of edge. It’s actually damning because it nullifies any other edge over enough trials assuming markets are competitive (last I checked that was their defining feature).

From My Actual Life

We went to the Kaanapali region of Maui for Spring Break with 4 other families.

We ended up hanging out with 13 total families that we knew, nearly half were totally random encounters. With so many friends around, the kids didn’t notice mom and dad drank their 529s in the form of Mai Tai’s.

Fun bit: this pic was taken from the backyard of a friend’s place that also has quite the poker room. The friend was renting it from a certain celeb who liked to host card nights well attended by professional athletes and…Woody Harrelson.

#goals

(If you need any recommendations let me know. Also, with rental cars so expensive Turo was the way to go for many of us.)

Stay groovy!

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