Moontower #67


In last week’s Money Angle I shared a post describing how mock-trading teaches trainees to think about the relative value between calls and puts when they glance at an option chain. That post’s appeal is limited to those with a specific interest in trading. However, it’s a specific instance of a wider skill that everyone needs — the ability to compare alternatives.

Like It Or Not, You Are A Relative Value Trader

Do you buy travel insurance? Should you fix or replace your water heater? It’s a muggy 95 degrees in Manhattan, do you Uber or subway to a meeting you are running late for (traffic risk vs sweating through your shirt risk)?

Everything has a price and opportunity cost. But what is slightly opaque is that prices can imply probabilities.

Let’s play.

Seems like an innocent enough meme, but here are some bad answers. Give it some thought then read my breakdown. (Link)


  • How to convert the rewards to relative probabilities.
  • How to think about the relative probabilities to identify mispricings.
  • How being a broke-college student changes the implied probabilities behind your decision. (This part was fun. It shows how your intuition is confirmed by math. Never fear nerd terms like “risk-neutral” again).

Finally, I’ll excerpt my plug for anonymous Twitter account @EconomPic aka “Jake” where I discovered the meme:
One of my favorite Twitter follows is the anonymous account @econompic. He’s in my top 5 and you should follow him too (only about 15% of my followers follow him which is basically as stupid as a butterfly trading for a credit). Go for the finance stuff and stay for takes on breakfast cereal, Weezer, and the NBA. Oh and the polls. You see, Jake’s polls act like the Susquehanna partner while Andrew is the rest of #fintwit. They are cleverly designed to surface mispricings in how people think about risk or relative value.

His relative value instincts are well-tuned. It’s like he has goggles that allow him to filter the world through prices. It’s a lens that’s critical for trading. One of his recent tweets is a great example of this.

The Money Angle

A new post is up in the Moontower Money Wiki:

The Diversification Imperative (Link)

  1. “Diversifying your investments is classic advice. If anything, it is underpracticed.The point of this note is to make an even stronger claim than just ‘I recommend you diversify’…My claim is: If you do not diversify you are incinerating wealth.”

    Find out why.

  2. “Any standalone investment with favorable qualities will be bid to the point where it looks overpriced when viewed in isolation.”

    Let that sink in.

    The academic version of that idea is “you don’t get paid for diversifiable risks”. Don’t worry, I sidestep the rigor in preference of logical intuition.

  3. “The downside of diversification is that when you look back at your portfolio you will always regret not putting all your bets on what turned out to be the best horse.”

    Discover the simple trick you can do to not just neutralize the regret but make you embarrassed you had it in the first place.

The wiki is a distilled guide about how I reason about investing and savings. Every individual is a mini-bank needing to match their assets with future liabilities (ie the fact that you need to eat whether or not you have a job). I try to convert some notes into something public-facing every few weeks. The wiki is shareable and lives in Notion. You can check it here.

Last Call

  • The Japanese have a reputation for “having a word for everything”. There’s a word for “looking at the moon”, a word for “flower-petal storm”, and one of my favorite words, hashigo, to refer to bar-hopping. Steve found this made-up list of English words on Reddit that refer to highly specific feelings that you can definitely relate to. I suspect there have been many jouskas tangling in people’s minds lately. (screenshot)
  • Eric had an interesting perspective on taking down monuments. It’s a short post but quickly zeros in on the narrative symbolism of statues (at least the ones not used to honor the dead), the symbolism of removing them, but where I think it gets most interesting is the wider meta-meaning. He writes:

    But what about a new story? That is much harder to tease-out. America is still bound by the old, nonrenewable narrative of the Post-WWII Era. “America, through purity of ideology, military, and economic strength, stands for and defends liberty around the world.” This story around which our nation is centered, like all the others, is a lie, but it is increasingly out-of-step with reality. Nihilism is bleeding into our social life with not much to replace it. Recent histories of America are pessimistic, realistic pieces, which seek to strip-away the artifice and rose-colored tones of both the recent and distant past.

    The full post (Link)

    I’m over my skis on terrain like this, but here’s where my mind took this:

    1. The world is nuanced but we demand simple narratives. (Maybe we need to reduce cognitive load, maybe we need to recognize our “tribes” easily. Shrug)

    2. The myths that hold us together have either outlived their purpose or are simply impossible to perpetuate in a world where information is increasingly decentralized. They are called out for the self-delusion that they’ve always been. (Just think of how cherry-picked all the history you learned through 12th grade was — hopefully you had at least one irreverent history teacher in that time)

    3. The bridge to the future needs to be built. You can’t build a new bridge out of nihilism. I mean we’ve all seen the Big Lebowski. Nihilists couldn’t even conceal the fact that Tara Reid “kidnapped herself” from a few half-motivated bowlers.

    4. There’s a battle over whether we can keep any of the old bridge materials or whether we need to build from scratch. And some people are still holding on to the idea that the existing bridge is load-bearing as it is. The stakes are much higher than a bunch of statues that won’t make it long enough to be part of any civilization’s antiquity anyway.

  • On the subject of nihilism, Taylor surfaced a video essay about how David Foster Wallace’s concern about postmodernism has seeped into popular culture. See how modernist (think Brady Bunch) and postmodernist themes (Arrested Development/Family Guy/Seinfeld) manifest in famous TV shows with a special emphasis on recent TV. Did the pendulum swing back against postmodernism in shows like Office? (Link)

From my actual life 

In a week, I will have known Yinh for 17 years. We don’t complete each other’s sentences. We still have plenty of stories to tell each other, although CoVid lockdown is burning that fuse a bit faster. (I always think of the Chris Rock joke about a wife telling her spouse to “get kidnapped and come back with new stories”). We have thus far deferred marital mind-meld.

But you would not know this by watching us play the 21st-century version of the Newlywed game…Codenames.

The Joy Of Codenames

If you play any party games you know Codenames so I won’t re-hash it. If you don’t play party games then you should know that blacking out right after dinner at family functions is anti-social. You should play Codenames instead.

Being in sync with a Codenames teammate is successfully web-crawling their brain. You hop from the axon of one idea to the dendrites of another as you stretch to find how they linked words on the Codenames’ grid to the clue that launched the brain scan in the first place.

We tend to work best when she gives the clues because in our relationship I tend to be the one filled with more random nonsense. This is a bug in times when being distracted is a penalty, since I can bike-shed with the best of them. But in Codenames, being a central repository for mutual references that unlocks with a single word is a decided advantage.

Here’s an example from Friday night. Yinh gave the clue “Empire, 2”. This clue was supposed to unlock:

  • “strike”

    Easy enough. Empire was a reference to “Empire Strikes Back”.

  • “chair”

    Ok, so why did she think “empire” would lead me to “chair”?

    I had a theory as to why she connected these words, so to test it I asked her what her logic was. She stumbled. She had forgotten why these words went together, which made me think my theory was even more correct.

    I’ll give you a hint. It wasn’t an “empire” -> “throne” -> “chair” pathway.

    Here’s the actual pathway:

    “empire” –> what empire comes to mind? –> Roman or Ottoman –> Ottoman = “chair”

    Here’s the best part. Her logic was both not original thinking or explicit. It was a subconscious reference to Eddie Izzard’s Dressed to Kill stand-up special that we’ve seen together. When I reminded her of Izzard’s joke that linked the Ottoman Empire to furniture she immediately realized what she had done.

I always get a kick out of her screwing up a reference but still understanding what she means. Just this week, she asked me what the latest on the Skrillex vs NY Times drama was going to which I responded, “You mean Slatestarcodex?”. She laughed at how she butchered it and I was happy to know she listens to me when I talk about the random crap I find interesting.

Check out Codenames. Read your partner’s mind to crush your in-laws at your next family game night.

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