Moontower #86

Friends,

Two years ago my wife Yinh started her podcast Growth From Failure. Her second guest was Berkeley Chess School founder Elizabeth Shaughnessy. It is one of my favorite interviews ever. We have referenced wisdom from it on many occasions since. Yinh texts with her from time to time and always comes away so invigorated. This past week I was stoked to meet the 83-years-young chess whiz. My expectations were high.

It turns out I still underestimated how special she is.

We went to lunch at Cafenated Coffee in Berkeley and 5 minutes into the conversation I immediately regretted not having a notebook. Elizabeth is bursting with passion for her mission and practical insights for teaching, life, and of course chess.

I did a full write-up that I’d love for you to check out: Lunch With The Amazing Founder Of Berkeley Chess: Elizabeth Shaughnessy (Link)

Here I’ll give a brief version of why it’s so special but the full article gets into ideas you can literally apply today in your life.

The Mission of Berkeley Chess School

BCS is a true Robinhood organization. As a non-profit, they are funded by donations and fees they receive for after-school programs around the Bay Area and private lessons (our son and his friends do group private lessons with BCS instructors). This supports their mission to provide free or low-cost chess instruction to students at poorly sourced Title 1 schools. In the past 40 years, BCS has taught over 250,000 kids.

But when you sit with Elizabeth you realize this is about far more than a game. Today, with Covid decimating enrollment, the school has re-purposed its building to teach disadvantaged kids. These are kids from low-income sections of Oakland, Richmond and Berkeley who are struggling with distance learning. These kids have no internet or computers at home. Without intervention, these kids, already struggling academically before the pandemic hit, may suffer an irreparable learning loss that could affect their health and financial well-being far into their adult lives.

From her experience, Elizabeth is convinced there is hope.

How Does Chess Help?

As a fan of games and games in learning, I like to believe that the skills acquired in play “transfer” to other domains. This is something I’ve wondered aloud about on Twitter. It is rooted in causality. I specifically asked Elizabeth if she thought a joy of chess was simply a symptom of a more general aptitude or if chess was imparting a more generalized skill that could be applied to other fields.

Elizabeth is a big believer that there is transference.

• Chess asks kids to slow down and be methodical.Count how many pieces are threatening your pieces. Do this for every piece, on every turn, to find the strengths and weaknesses on the board.  Then look at all the checks you can deliver, then the captures, then the attacks. When all this is done, then make your move.
• Consequences matter and compoundChess teaches you that consequences matter. Make a rash move and you get penalized by your opponent.  Mistakes are expensive in chess and life. What scenarios can unfold if you always skip math class? How will this serve your long term objective of being a Wall Street wizard if you’re unable to calculate risk or odds?
• Chess sharpens your focus.She has repeatedly seen firsthand the power of chess to harness kids’ attention. It’s an effective tool to settle kids so they can get into a better headspace for learning. Kids who start out resistant often do not want to go home after school.

Chess can show kids they are smart. It teaches them to believe in their own abilities. Many of the kids BCS teaches face long odds in life but chess can offer lessons in foresight, creativity, problem solving, and self-control.

Helping BCS

Children heatseek that which provides immediate benefit or stimulation. BCS has figured out how to stimulate children that have been written off. Any witness to that transformation will see one thing — the longest lever we have as a society to improve a child’s well-being today and into adulthood. When I listen to Elizabeth, I can feel what she has seen.

If you are looking for high impact ways to give back I encourage you to check out my full post or if you prefer you can simply head over to BCS site to learn more. (Berkeley Chess School)

Tips and Insights

Elizabeth cannot help but spill insights all over the place when talking. Check out the full post to get:

• practical tips for learning chess today
• how to play chess with children and why
• insights into teaching girls specifically
• the role of genius
• the pros and cons of being a good loser

And if you are wondering her view on Netflix’s Queen’s Gambit — she thought it was too long but the beginning and end were fantastic. Ultimately, she thought it deserved high marks for making chess so compelling.

Wrapping Up

My 7-yr-old has been taking lessons with BCS intermittently since he was 5. Even our copycat 4-yr-old is into it. It took him all week of multiple games per night to learn how the knight (he’ll correct you if you call it a “horse”) moves. I better start learning more, they are hot on my heels. I’m MoontowerMeta on Lichess.org if you want to add me. I’m a beginner. I’m still beating the 7-yr-old but it’s getting tougher.

This is one of Elizabeth’s sons teaching chess at our pod a few weeks ago.

The Money Angle

I’m about halfway through Colin Bennet’s terrific book Trading Volatility, Correlation, Term Structure and Skew (pdf).

Bennet is (or was) the Head of Quantitative Derivatives Strategy at Santandar. The book sits in a very sweet spot. It has lots of practical insights into managing vol portfolios and the mechanics of both vanilla and exotic options, var, and vol swaps. I’ll likely do a full post summarizing the takeaways I appreciated most, but in the meantime I thought to share this blurb about the oft-referred VRP (vol risk premium).

Just because implied vols trade over realized does not mean they are mispriced:

[To be fair the author asserts they still are. More importantly, you should read ch. 3 of the book to see how he decomposes the premium to systematic risk and pure vol demand premia.]

I wrote something similar a few weeks back:

Index options should be “overpriced”.

The question is how much premium do they deserve. If stocks warrant a risk premium over the RFR it’s because their systematic risk cannot be hedged. Index options must conceptually inherit this premium otherwise there would an arb in portfolio allocation.

An index option, held delta neutral, gets paid as correlations in the marketplace increase. It literally makes money when systematic risk embodies.

A standard for deciding if puts are expensive: Its price should have enough premium in it that by buying a put, if delta hedged, that you would actually have basis risk. In other words, it’s premium should make it uncertain that you would actually make money in a sell-off. If your argument is that it’s expensive in a vacuum (perhaps as a comparison to realized vol) then what if it was only 1% premium to realized? That sounds like a bargain for something that hedges the risk that, like, the whole world has. This isn’t news to most investors or anyone who understands portfolio construction and the beauty of neg correlations. It’s just another instance of my sun/rain example.

Finance is the best.

Somewhere there’s a scientist with a grant to ask Hulk Hogan and his 24″ pythons for his opinion on UBI. (Tweet)

Last Call

• Focus Like A Predator (link)
  Shay Allen Hill

  Have you ever had a lucid dream? Shay describes what that means: Lucid dreaming is when you realize that you are dreaming while you are dreaming. It turns out you can train yourself to have lucid dreams by crafting a trigger. Shay re-purposes that technique to create a sharper boundary between productivity and leisure activity. In doing so, you too can learn to “focus like a predator”

• A list of websites and Twitter accounts for teaching kids math (thread)
• Seen online:

  There is a troubling yet common practice in the nutritional supplement industry known as “fairy dusting”: a manufacturer includes a tiny amount of a popular herb or nutrient in a product, then lists the ingredient on the product label, even though the dose is far too small to be effective.

  Forget the supplement industry, what’s the analogy in your industry? It would make a good list.

From my actual life