Moontower #53

Friends,

Hi Sunday email openers!

You might want to tune in to this evening’s benefit concert. The iHeart Radio Living Room Concert for America. It has a recognizable pop lineup. (Link)

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When I sat down to write this week I swear I had a plan but I got distracted by some tweets which reminded me to tell the story of Liz. It’s a story that extends last week’s musing.

If you recall, last week I explained how to use Twitter to “build your own cabinet”. Reader Paul Barnes connected this to innovative investment firm Tyro Partners’ strategy of crowdsourcing research from KOLs or “key opinion leaders”. This is the commercial-grade version of following certain people because of the quality of their crowdsourcing. I refer to this as “drafting in their lanes”.

You can go further. You could recruit. If you are a high-status online persona you can effectively lower your cost to meet talented people. This is especially true if the talented target has yet to establish visible status. Famous investor Jim O’Shaughnessey’s advice:

Follow people, get a sense for their thought process, and then when you see something that you think is really interesting, reach out. 

Paul noted how Jim followed through on this advice by having Liz Hall on his Infinite Loops podcast this week. Let me give you some background.

Back in December, Venkatesh Rao started this challenge that went viral on Twitter. It boiled down to people threading 100 tweets on a topic of their choosing. I read many of these tweetstorms. I can’t express how stupid I felt reading these. There are a lot of blindingly smart people out there. Some of my favorites were actually threads by people who wrote on things they were not even pros in. The hater in me wants say “get a life”. But really I’m just impressed. Anyway, the first investing storm came from account @LAForeverHall. This was like a meteor without warning. I would have expected the 100-tweet-storm-on-finance to come from one of its more established voices. But it comes from Liz.

I noticed the thread shortly after she posted it. She had a couple hundred followers max. I wish I could have bought the 1000 or 2000 strike call on her follower count, because I immediately knew it was going viral (Viral is of course relative. The biggest #fintwit celebs are not even NFL kicker fame. Jim Cramer is probably the ceiling). I immediately reached out to say thanks and congrats on a great read.

A few weeks later Liz mentioned on Twitter she was visiting the Bay Area, so we made a plan to meet up. She was staying in Berkeley so I asked to meet at Victory Point, a boardgame cafe on Shattuck.

Her story is extraordinary, in the full meaning of the word. Extra. Ordinary. She grew up in rural CA, north of Sacramento. She dropped out of school in 4th grade and was homeschooled for 6 months before that fizzled. She spent the next 5 feral years watching tv and playing games. Meeting in a game cafe turned out to be serendipity. She was well versed in many heavy games including the epic 18xx train games which are meaty stock market simulations. Heavy-handed foreshadowing.

At around 16 years old, her attention focused. She nerd-sniped election strategy both in US and foreign politics. While intellectually interesting, grokking election strats isn’t practically useful. Since her grandfather was an investor she was aware of the stock market and turned her full attention in that direction.

We discussed her views on education. The challenge of being largely unsocialized. The “dark arts” of copywriting and how it can twist your soul up. Some investing discussion, mostly around metagame. As we chat, I’m hearing about all her recent coffees with people she’s meeting. Doors that are opening. In fact, at that meeting, she told me she was going to NY to be on an O’Shaughnessey podcast. I assumed it was Patrick’s, but it would be his father’s instead.

A couple of observations

1) It’s impossible to not appreciate how quickly an unpermissioned platform like Twitter can elevate an uncredentialed, trans outsider based simply on quality of thought. I doubt she could imagine the power of that thread to change her life. Little did she know how many people she would meet in the coming months. Little did she know it would lead to her moving to NYC.

2) While it only took a week to write the Tweetstorm, her more public emergence (she has over 5k twitter followers today) is hardly evidence of overnight sensations. Those don’t exist — you probably know the metaphor of success being like bamboo. Liz logged over a decade of personal investing experience. The thread was a cover letter. Martin Luther pinned 95 theses to a door. That was media in the Middle Ages. Liz put 100 on Twitter. You can go ahead and put the MS Word cover letter template in deleted items now.

Links

• Listen to her story. From living in a skating rink, to her family history, and through her trajectory as an investor and writer. Here’s the recently released podcast episode on Infinite Loops. Liz Hall — An Outsider’s Perspective (Link)
• The tweetstorm that kicked it all off. (Link)
• Her write up about chasing down a small-cap investing opportunity. The Curious Case of the California Orchard Company (Link)
• What she learned as a copywriter. How You Can Make $62,723.85 From Writing In Two Weeks Without An Education (Link)

I’ve read both of those posts. They are long but worthy reads. She started a letter recently if you want to sign up. (Subscribe link)

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The Money Angle

Markets have been chaotic

Extremely high realized volatility.

• Weekly moves look more like annual moves. In other words, the market has been sqrt(52) or about 7x more volatile than in past years.

Whipsaw correlations

• There have been days when bonds and stocks have simultaneously sold off significantly. Gold correlation is a random number generator.

Dislocations galore.

• Some of these are ETFs and closed-end funds deviating from NAVs. This screener can show you closed-end dislocations. Be careful with this stuff.
• Treasury basis trades
• This week gold futures surged higher relative to spot prices amidst talk of delivery bottlenecks across the pond. Then Friday front month-second month gold futures spread collapsed $30.
• Oil contango exploded wider this week with the front month now trading at a 15% discount to the second month. Annualize that. It’s not surprising that tanker pure plays surged higher (if you are interested in a deeper look, check out this Adventures in Capitalism post.). The contango widened similarly during the GFC as the arb was limited by supply of credit. This time it’s about the limited supply of storage/tankers.

The chaos reflects the uncertainty in the real economy

Unemployment claims this week was a 30 sigma event which says as much about using normal distributions on financial variables as it does about how acute this shock is to the economy.

Options trader turned restauranteur and entrepreneur extraordinaire Nick Kokonas linked to Vanity Fair’s:

“You Can’t Speak in Strong Enough Dystopian Words to Describe It”: Why the Coronavirus Pandemic Could Change Dining as We Know It, Forever

The combination of perishable inventory and high labor costs as a percentage of sales makes the restaurant biz especially vulnerable. Restaurants are one of the better examples of the types of businesses facing an existential threat. Businesses that are exposed for their outsize degree of operating leverage.

I recommend Howard Lindzon’s Panic with Friends YouTube interview with Rob Koyfin as they dive into that idea. Rob’s the founder of Koyfin which is what Yahoo Finance would be if Bloomberg owned it. That’s a joke by the way. I use Koyfin myself but really liked watching Rob navigate the platform on the call to demonstrate just how the market was reacting to high operating leverage businesses. It was a markets lesson and tech tutorial in under 30 minutes. (H/t to Brian for the rec)

Personal portfolios

I like reading how markets people invest personally. We have a professional subscription to Jared Dillian’s Daily Dirtnap and he posts his portfolio and what he’s doing. His letter is paid so I will not share his allocations.

2 of my favorite fintwitters are public about their own investments:

Corey Hoffstein (Link)
Meb Faber (Link)

Moontower Portfolio

If you are curious about the Moontower portfolio it’s roughly:

1/3 real estate
1/2 short term notes and cash
15% public investments
<5% private investments

A look at the public portion:

8% RE
39% international equity
14% domestic equity
20% metals
18% US energy

Recently doubled down on energy/metals tilt, rotating out of treasury notes.

I refer to the public portion as the Seppuku Portfolio since it would be suicidal for a US investment manager to hold.

Cash

A note on carrying so much cash compared to most recommended allocations. It is a risky long-term proposition. Just consider the price of stamps in the past 30 years. But in the near-term, it provides a lot of optionality.

It’s reasonable to argue we overpay for this. While we don’t own our own businesses, there is a lot of volatility in our professions. A lot of lumpiness in our cash flows. But just like financial options I believe there are additional multi-order greeks on this optionality. They don’t come from differential equations. They are psychological. A behavioral edge even though I sort of hate this term.

Let me rationalize, I mean, explain.

We put a lot of value on the ability to not work for an extended period if we chose to. Not because of laziness but for the feeling that choosing to work where you are is an active choice. When Yinh took 2018 off this felt like a stress-free harvesting of the optionality. She was able to search for the best possible match for a new job. I feel like the payoff from being able to find a match without pressure is a payoff that does not show up in your Mint view as a line-item. But it will one day show up disguised as a different balance sheet asset.

Our parents are immigrants. They came to the US in 70s with little. We learned everything about grinding from watching them. They still have little. They passed scarcity mindsets to us. And Koysaki likely thinks we are fools who learned our lessons from “Poor Dads”. But we did manage to learn about leverage and its many forms.

Our lack of financial leverage enables us to maximize our human capital leverage. With implied prospective returns uninviting for the past few years, this seemed like a reasonable trade. Our total allocation reflects that tilt. With that lens, I guess you can file this under market-timing. Call me a sinner.

If you can’t watch a bull market rage without you this is just as risky as being YOLO long. No easy answers when you think of multi-order effects of an allocation. You need to do what’s best for you. It starts with asking the right questions. And they mostly have nothing to do with finance.

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Climb Higher