Moontower #48


I just feel like writing a personal story. If you are here for the links or Money Angle feel free to skip ahead. No hard feelings.

When I was at Cornell I spent my first 3 semesters lost. I got bad grades. I tried on majors like you try on sunglasses. Computer science, sociology, psychology. I was fortunate that my mother worked at a bank so during the summer between freshman and sophomore years I interned in NYC, commuting back and forth from my hometown in Hazlet, NJ.

I did monkey work. Like mailroom clerk stuff. But the experience exposed me to traders. They were almost mythical. First of all, I heard they made lots of money. Secondly, they worked in a glass trading room surrounded by monitors and segregated from the rest of us in the “back office”. And the thing that impressed me the most — they got free lunch delivered straight to their desks. I was young and broke with no direction. This free lunch thing was apparently an incalculable perk to my small imagination.

So when I could, I would wander into the room and talk to them. They seemed so smart. They had opinions about everything in the news. They seemed to speak another language. I wanted to be like them. So I decided I would go back to my sophomore year and take economics courses. And since I was lazy, it helped that it only took 8 courses to complete the major.

The major was easy. I took a non-quantitative path and just needed to bullshit my way through those little white booklets with the blue lines. I seemingly had a gift for this as I managed to get nearly perfect grades for the rest of my time in school. All the while, not really learning anything. (This approach remains one of my greatest personal regrets. It’s an insecurity that unabashedly influences how I raise my kids.)

So senior year arrives. It’s 1999. Most of my classmates want to be investment bankers and .com stocks are IPO’ing daily and popping 100%. Everyone is daytrading. I skipped class and traded a few single stocks myself with the $600 I had to my name. Leftover cash I was given from the Red Cross when my friends’ and my apartment building burned down (shout out to my fellow “Refugee All Stars”). I didn’t have a process but I got the bug so I enrolled in an investment class in the Hotel school.

When the semester ended, I convinced the professor to let me be a TA and he put me in charge of basically running the class. There were 2 smart French PhD students who were my assistants. Professor Avner Arbell let me lecture a hall of 175 students for 15 minutes of the 75-minute class twice a week. I’m going to every morning, printing out headlines or charts to be used on the overhead projector, then proceeding to make up a story of how it relates to something in the course. It’s so outrageous when I recount it. These students were paying to sit through nonsense.

So what happened? Well, as I was forced to prepare for these lectures it was the first time I did any real thinking. I was motivated by fear of being a fraud. Which I was. I was sincere but still a fraud. I must have done a good enough job because these students started to think of me as an authority. Which would lead to being asked questions, which led me to more research. And as I was working through all of this, two observations came together. One was I wanted to go into sales and trading, not banking. I heard about banking hours and being lazy I simply ruled that out. But the second observation was I enjoyed thinking about how macroeconomics seemed to relate to price. In hindsight, I think that link is so low resolution it’s a useless way to think about trading markets, but at the time it gave me the sense that if patterns existed they should be able to be exploited for money as easily as an ATM.

And so I started thinking of myself as a markets guy. Not a sales guy or banker type. I read Liar’s Poker many times over. I can see you cringing for me. So when I was walking around the career fair and I saw a guy at a booth with dice and cards I was intrigued. He wasn’t being flocked by sycophants in ill-fitting suits. And as I walked past a bit slowly he moved in with his pitch. Trading as a game. Odds and bluffing. Language that had nothing to do with “work” as I had conceived it. This was the language of fun. So I went for the interview. Lots of math questions. I got most of them wrong. But I asked him a simple question that may have changed my life. “What can I read that would make me better at this?”. He responded candidly. The first chapter of Getting the Best of It by David Sklansky. And so I read it over and over.

Whether it was mercy or perhaps he liked my question I don’t know, but this guy invited me to another interview. Little did I know that options markets were sizzling in the midst of the retail frenzy and this rep from Susquehanna just needed some warm bodies to stand in the pits and pick up the cash. And as luck would have it, the questions were straight from chapter one. All of them. I aced the interview. In subsequent rounds, I was able to hold my own without an answer key and just like that I was to be thrust into the world of trading options. Something I could not have imagined a year earlier. And even if I was probably a below-average recruit (this is for Susquehanna standards…I’m not calling myself an idiot. More than half of their hires scored an 800 on the Math SATs…I was coincidentally in the 5% of traders in the NYC office whose verbal SAT was higher than my math), I’m proud to be a survivor of a game which has weeded out more than 99% of its participants.

There are so many lucky breaks in this story. So many it might infuriate me if I were a jealous type and I was reading it. I’m aware of all of them. I have a lot of insecurity about my history. I was lazy. Unserious. And yet one historical accident after another broke my way. At least professionally.
So how do I honor that luck? Trying to figure that out is subtly shifting my perspective.

How do you think about your luck? What lessons or warnings are in your own stories? If anyone wants to share their own, I’d be honored to read it. Learning people’s honest versions is so upliftingly humanizing I thought I’d just take a stab an ask.

Thanks for indulging some very Moontowery musing.

The Money Angle

Think it through before clicking on the answer.

If you got this wrong you are, believe it or not, in professional company:

“these brags are self-skewers, revealing how poorly these managers understood the relationships between fees and volatility. Not surprisingly, these very same managers would…”

And this is example was the simple fixed fee case. The problem gets more tricky when we look at performance fees which take a percentage of profits. They are complicated by 2 main characteristics:

  • High watermarks and associated “crystallization” periods
  • The option-like payoffs embedded in their features. They are exposed to volatility. And volatility itself is correlated with geometric returns.

Since the effects of incentive fees vs fixed fees are only partially intuitive, I ran simulations for different scenarios

  • Low vol, low return assets (like bond funds)
  • Mid vol, mid return assets (like SPX)
  • High vol, low return assets (high vol, high return assets are obviously best suited for fixed fees)

The observations from the sims will provide you with intuition and help you understand the levers. You can even get a sense for what breakeven level of returns would make you indifferent between fixed fees or incentive fees subject for a given set of assumptions.

Towards the end, there is a handy summary of takeaways about how to think of fees for various fund types.

I haven’t put any time into learning to script in Google sheets so the sim lives in a good ol-fashioned Excel sheet. I can email it if you are interested. Thanks to Rob for his input in building the model.

Here you go: Do Professional Investors Understand Fees? (Link)

Always open to questions, comments, corrections.

Climb Higher

The Egg is a short story by Martian author Andy Weir. It’s a quick read. There’s a collision of metaphysical ideas in it. If you have ever thought of your life as a single draw from a grand simulation you’ll probably like it. (Link)

After you read it feel free to see the visual of my interpretation.

Last Call

  1. “This is the most metal shit ever…” (Link)
  2. Faraaz created this slick directory of creators and all of their best tweets, blogposts, interviews, and podcasts. (Link)
  3. Yinh is a fast typer. She won the typing contest at her prior job (she actually organized it as a fun “activity”). It’s so simple yet this superpower has likely had a material impact on her cumulative productivity. And knowing this I continue to peck at the keyboard like a lazy chicken. I’ve heard of using text expander shortcuts before, but Khe’s post sold me on trying. (Link)
  4. Thanks to @EconomPic I started listening to the Broken Record pod hosted by Gladwell and Rick Rubin. Great rec. I started with the Raconteurs episode since I’m a long time Jack White fanboy. Here’s my thread describing the episode. There’ s a link to the episode as well as a pic of the cast set up in Jack’s house in Detroit.
  5. Moontower boardgame links are often the most clicked on. Several people have circled back after getting their kids some of the games I recommend. That’s pretty awesome. This week Susquehanna posted the top games recommended by the prolific Shut up & Sit Down game channel. I added several of them to my wishlist. Is there any chance I can get 8 of you and a whole day to give Sidereal Confluence a spin? Looking at the gaming section of Susq’s blog I found this cool post on trading games in particular. (Link)

From my actual life 

Last Saturday I had a hall pass. So I went on a coke-fueled bender in Vegas with my nighttime-only friends.


I went to DunDraCon, a gaming convention held annually in the Bay Area. While there was a large room devoted to open gaming, I wasn’t well prepared. Many of the gaming sessions required signing up beforehand especially for meaty multi-hour games. So while I managed to slide into a few sessions, I ended up wandering around and taking in the culture.

This “con” as they are called is more geared towards role-playing games like D&D (have you taken the alignment test? I’m a ‘true neutral’). The common areas and meeting rooms of the hotel were teeming with people playing games, designers testing their prototypes, people painting miniatures, wargamers and sc-fi fans hunched over giant tabletop games with elaborate scenes. So much artistry and time clearly go into these hobbies. But this is all just an opening act. Wait until you see the heart of this con. The LARPers. Decked out in elaborate homemade costumes, sporting old English accents, and brandishing weapon skills, you become steeply aware that you are an onlooker to a rabbit hole that goes magma deep.

I have a peculiar adulation of subcultures. My sister has once referred to me as a “rabbit hole” because I’m always into some diet, activity, app, book, whatever. Probably like many of you who would actually read this letter. But this strangely modern nerd-flattery is actually a low bar. It’s like complimenting someone for being curious because they watch documentaries. Sorry, but when you see larpers you can’t feel like anything but an imposter with superficial interests. These folks are truly all-in. This is a devoted subculture. And if you want to judge people for being nerds I won’t hear of it (unless you can do it better than Triumph).

So I started thinking about how I’d always be an imposter because I’m a bit too practical. Or ascetic. I can be strangely averse to what I consider self-indulgence. Like I need to earn fun. Yinh jokes it’s all those years of Catholic school. Being so into one thing feels self-indulgent to me. But on an intellectual level I know that’s plain wrong. And even more so, being into one thing is not impractical especially if it suits your strengths (nods to “comparative advantage”). And so there is dissonance. And from dissonance comes my insecurity. And as I stand in the hotel courtyard watching a knight parry a mace onslaught with her plywood shield and scrap metal helmet, the insecurity is screaming at me “outsider, you don’t belong here. If you were a real nerd you’d have welded some chainmail and brought your own dice”.

So here I am, an outsider amongst outsiders. I don’t think I’ll ever understand larping even if I understand nostalgia. I even feel nostalgia for times I haven’t experienced but only heard or read about. I can see the appeal of wanting to ultra-marathon or climb Everest, even if I have zero interest in endurance tests myself. But larping is like some sex fetishes (Equus Erotica is my go-to example…come to think of it, it is a form of larping). I don’t judge it, but I don’t get it. Yet I envy the bonds of a subculture. They are strong by necessity. And the ultimate affront to my misplaced sense of their impracticality is a hard contrary truth…everything that ever mattered came from the fringe.

Don’t have a broken definition of what’s practical. Find your weird and follow it down the hole. I’ll do the same.

If you need inspiration from an actual writer, I’ll leave you with Paul Graham’s Marginal. (Link)

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