Moontower #84


This is the first year in nearly 20 that I haven’t played fantasy football. I blame Covid but it’s actually a blessing. [If you work in asset management I suggest you look away and skip to the next paragraph]. The bots level the playing field so any extra alpha would be work that pays like $2 an hour.

Despite FF being dead to me, I ended up reading every post by FantasyLabs co-founder Jonathan Bales. There’s no point in describing him. His writing style is addictingly personal. It’s smart stuff that goes down like a pint of of Salt & Straw.

I’ll get you started with one I have thought about from similar angles. [Special thanks to Adam who put Bales on my radar.]
Should You Work for Free? (link)
Sometimes, working for free is the most valuable thing you can do. Here’s how to figure out when it’s smart.
Why did I pick this essay in particular?

I tend to think “free” is misunderstood because free refers to price. Price is a narrow concept which gets all the attention. It’s the most legible. It’s easy to label. Really big companies love price. If they can get you to focus myopically on that single number they can ruthlessly optimize for delivering you a solution that they are best suited to supply. Big food wins when they commoditize. If you accept subconsciously all beef is the same regardless of where it came from then price is the only thing left to compete on.

So “free” is an idea that focuses you on a single aspect of a transaction. It’s short-term oriented. Free is not free if we imagine the repetition of that transaction. It has downstream effects that you are aggressively discounting in the present. (This stands in very sharp relief to what is happening in asset markets today — cash flows ever further out in the future are being inhaled into present prices).

Consider an obvious example: health. The cumulative effect of low quality food is an invisible debt that accumulates. Subsequent chronic illness is the equivalent of a debt service that crowds out future growth. Acute illness is a bankruptcy re-structuring (if you don’t test the limits of financial metaphors, are you even trying?).

A personal example is this newsletter. I do this for less than free. It takes about 7 hours a week to deliver these Pulitzer masterpieces every Sunday. That the rewards are invisible doesn’t make them any less real.

In business, I always enjoy the Costco example. Charlie Munger has written:

“When other companies find ways to save money, they turn it into profit. [Costco] passes it on to customers. It’s almost a religious duty. [They] sacrifice short-term profits for long-term success”.

It’s not as hokey as it sounds. Think of it this way. They are hiding profits in the customer’s own pockets. They will be return customers. That profit is hidden from competitors’ wandering eyes and the IRS. The strategy commits Costco to keeping the customers happy because the profit is realized over the long-term. It’s simple but requires rare discipline.

Bales on time horizon:

  • Reading, sleeping well, and working out. All stupid uses of time if your goal is to optimize your day…but if the question is “How can I create the most value for myself (happiness, money, however you want to define ‘value’) in, say, 2024, then you should probably create a long-term foundation for success, with reading, working out, and getting rest being among the most +EV things you could possibly do.Which cuts to the heart of the matter for working for a low or zero price.

    We’re all trying to strike a balance between maximizing money/value/happiness right now versus creating a sustainable foundation for long-term value generation. At one end, working for free makes no sense. At the other end, you should work for free all the time because it provides value to the maximum number of people.

Another aspect to delivering more than you get back to today is how goodwill accrues to you. It’s equity that cannot be taken away from you. Just because it doesn’t show up on the balance sheet doesn’t mean it’s not there. (Fans of gangster movies will note the more nefarious version — an asset you might call “favor receivables”).

Bales on entrepreneur’s mindset:

  • Do you know who works for free all the time? Entrepreneurs. Do you know who never works for free and gets paid for every hour they put in? Employees.Being an employee can be great. You can typically work only during set hours, get weekends off, don’t need to worry about problems that arise outside your expertise, etc.

    But, when you work for someone else, you (mathematically, at least in an efficient market) must take less money than you’re worth. And usually, you don’t get to participate in the upside if you (and your company) do an awesome job.

    To be clear, I’m talking about the typical mindset (and pay) of your average employee/entrepreneur; you can be an employee with an entrepreneur’s mindset, or vice versa. Some business owners are total shmucks and would be better off working for someone else. Most, probably. But many people are sharp enough to absolutely crush it on their own and just aren’t going out and doing it. Today, and tomorrow, more than ever, it’s easy to go get it for yourself.

If you actually believe in yourself you should imprint this point on your mind:

When you start to think about the value you can generate for yourself—again it can be happiness, freedom, money, whatever you want—you realize that getting paid for your time is -EV if you have awesome skills and can better people’s lives.

Bales is a realist. You should not let yourself be exploited.

  • You must be able to sort out those who are just looking for interns they never plan to hire from those from whom, at a minimum, you can really learn. And, to be clear, you should not be working for free for most people.And this next point is a brilliant tactic for reducing the adverse selection that would come from being chosen to work for free.

    It all comes back to providing value to the right people, meaning you’re the person who identifies them, and not vice versa. If someone asks you to do work for free, that might not be the best opportunity; your job is to spot the situation that’s going to improve your upside the most long-term—likely with someone who isn’t even necessarily looking for help—and then convince them you can improve their life…by actually doing it.

In sum, the article says:

  • Doing things that are positive EV in the long-run requires indexing your options by more criteria than just price.
  • Although working for free can be a hugely positive risk/reward, it’s still risky. Be discerning who you work for. (I’d lean heavily to those who have a lot to teach me, especially if the lessons are scarce in the wild).

I think you will enjoy the whole piece and think many of you will move right into his other posts. (Link)


The Money Angle

  • How the Pandemic is Fixing Some of the Real Estate Market’s Flaws (link)
    Byrne Hobart

    Housing is in an odd category as an investment. 

    The yield is in shelter, it has both convenient and inconvenient correlations, and it embeds a derivative that dictates the mother of gamma flows (for that see footnote 3].

    Historically, housing as an investment has a mixed track record.

    Byrne’s pros and cons are insightful and you should check them. I’ll share the one that made me (and will make any parent) laugh:

    “For people who could get priced out of a neighborhood, owning their home is a good hedge. There was a time when teachers, police officers, factory workers, and other Richard Scarry characters could afford to live in places like San Francisco and Manhattan. As those cities got more dominated by superstar industries, it was less and less tenable for people who didn’t work in those industries to pay rent, much less own their own homes.”

    Interestingly, CoVid has upended many of the attributes. Byrne explains why “today, home ownership is actually a much less economically dangerous choice, both for the marginal buyer and for the economy as a whole”. 

    Check it out for the rationale.

  • Covid Kills Inertia: Homeownership Edition (link)
    Alex Danco

    Another “how did Covid affect the conceptual value of homes” take. While there are many takes out there,

    Danco zooms in on one specific way where I could see Covid having a pretty significant impact on the way that housing works in specific cities, and on how homeownership works there for regular people.

    The analysis is rooted in the observation that the value of real estate is exclusionary. It’s a bundle of rights whose crown jewel is “friction”. 

    The “friction” value rests on a three-way power relationship between developers, politicians and homeowners: the developers want to do stuff, and homeowners want them to not do that stuff. Politicians influence the compromise through immediate decisions and long-term policies: they want economic growth from development, but they also want votes from the homeowners. Every municipality is a little different in how this triangle relationship has evolved; but once it’s in place, it’s pretty hard to change.

    Find out how Covid interrupted that relationship and ponder how it can alter the position of the various stakeholders in a community.

Last Call

  • The Inner Ring (link)
    C.S. Lewis

    My mother was very big on the lesson of not caring what other people think. We try to seed an inner compass in our children before the peer pressure years arrive. The winds of influence will inevitably spin them around, and hopefully they stagger out of those years facing North. This classic essay by C.S. Lewis is an articulate exposition of the psychology, danger, and futility of chasing the “inner ring”.

  • The Witness (Video)
    Tool minus Maynard

    This 7-minute experience is the closest you are getting to new Tool music this year. It was released to promote Gibson’s first Adam Jones signature 1979 Les Paul replicas. They made 79 of the aged, signed limited edition silverbursts. $10k a pop and they sold out right away. The

  • Saved By The Bell Reboot (trailer)

    You are going to spend Thanksgiving at Bayside. I do wonder how much the original cast needed to be paid to do this.

From my actual life 

I realize we might be a bit too “online” when we dressed up as our favorite meme of 2020. I think our meatspace friends in CA thought we were forest fires which would be poor form even for me.

I enclosed a couple other versions for reference.

Also, we did not buy that stuffed dog. Zak has had it since he was a baby. His name is “Doggie”. He’s suing the internet for royalties.

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