Moontower #93

Friends,

Consider 2 categories of writing.

• Category 1: Practical

  This is most writing you encounter. Primarily non-fiction to inform or explain. This writing should be clear and concise. Word choice and analogies must serve the explanations or stickiness of the concepts. Authors need to be ruthless in editing, willing to “kill their babies”.

  If you can reduce a post to just a few words then it’s wasteful. It is highly compressible. If you cannot compress a post easily, it is efficient. Irreducible. The best example of this is a recipe for a gin and tonic. There won’t be any wasted syllables in the instructions. The compression ratio is 100% since you can’t collapse it into fewer words.  Fund managers who quote Greek mythology have ratios closer to 0%. They kill trees when readers just want an Excel screenshot.

  The other important factor in practical writing is how insightful or useful the writing is. If something is concise but stupid that’s still bad writing. Good non-fiction will maximize both the insight and compression ratios.

• Category 2: Artistic

  This is writing that is just a joy to read. Humor would also fit in this category. There are many ways for this kind of writing to shine. The message can be powerful, revealing, or cutting. The diction, turns of phrase and rhythm all serve the message. It’s also possible the message itself might not even matter. Lyrics to songs come to mind. Most songwriters are not Bob Dylan and yet the artistry can be profound and evocative. The story-telling in rap or Kurt Cobain’s nonsense lyrics come to mind.

These categories are not mutually exclusive. Outstanding writing can straddle these categories. The post I’m sharing this week, in my wholly unqualified opinion, is such a piece. It’s Agnes Callard’s essay Acceptance Parenting.

Callard talks about the “gentle and harsh” critics of modern parenting. She addresses why advice to not helicopter is so difficult to follow. She addresses the Asian “tiger” mom Amy Chua. The story about coming out “trans” has an amazing twist in it. I usually excerpt a blurb, but in this case I find myself wanting to excerpt the whole post. It’s perfectly irreducible.

Enjoy Acceptance Parenting (Link)

The Money Angle

Some thoughts on Jim Leitner’s interview on MacroHive:

• My favorite idea from the pod: the discussion of replacing equity allocation with digital calls. He talks about buying say 5 year 100% OTM digital for 7 cents on a dollar. You should listen for his full reasoning but it rhymes with Warren Buffet’s thoughts on option pricing which is ultimately the difference between no-arb risk neutral derivs pricing and odds implied if you believe in an equity risk premium. (Alpha Architect blog)

  Let me add to that.

  Indulge this lazy theory as to why Leitner’s idea might be correct for a technical reason he can probably feel more than explain. Suppose we quintiled the broad market by valuation. Whatever metric, the US is in the highest partition. I would not be surprised if stock replacing your equity exposure with options would have been historically a good trade conditioned on extreme valuation. Not because you win more, but because you lose less when the markets roll over. And of course that means you can rebalance with a better hand after a drawdown. Total CAGR improves.

  I’ll go a step further. Why might the market might price the vol too cheap on those OTM calls? Perhaps a very expensive market exhibits autocorrelation on longer time frames (ie monthly vs weekly returns). In other words, momentum prevails. The momentum can lead to cheap implied to realized vol ratios in the same way that a stock that rallies 1% per day for 20 straight days will have been a bargain buy at 16% implied vol.

  So when Jim gets 13 to 1 on that digital, perhaps the true odds conditioned on an expensive market are 8 to 1 or 10 to 1. Again, this is a lazy musing, I would love to see if there’s any work out there on this.

  This whole exercise is the upside version of Spitznagel’s point about conditioning convex trades based on valuation. The piece very much flies in the face of anti-timing arguments and it’s quite robust to how expensive the convexity actually is. See Universa’s Those Wonderful Tenbaggers (Link)

• Jim’s discussion of BTC was ok but prompted a discussion with Yinh about our BTC holdings (which you can presume is small since I still fly coach):

  1. Your time horizon should dictate the dashboard of metrics that informs your decision.

  2. Disagreements about the “right” price are always a disagreement about time horizon. That’s what makes a market.

  One of the points he made was about PayPal making it easy to buy BTC was bullish. This kind of argument is simultaneously insightful and deranged because it is reflexively Ponzi but also right. The “horizon” field is left blank and for the investor to fill in.

• Jim’s book recs:

  1. The Checklist Manifesto

  Doctors make lots of decisions under uncertainty and Gawande’s book has many transferrable lessons to investment processes.

  2. Superforecasting

  Predictions should have time horizons and a confidence interval. Score yourself and over time you will improve.

• Other recs:

  1. Keep a journal of trades and the reasoning behind them. Your future self will thank you.

  2. Open a play account where the money isn’t make or break. His is $100k. This account absorbs the trades which come from “feeling the need to do something”. For your real accounts, most of the time you should sit on your hands.

Extras

• WSB gets emotional on Mad Money (5 min vid)
  r/wallstreetbets

  Last week I wrote Is Social Harmony The Last Collateral?. It was a post that regrettably resonated with many of you. Not to be dark (narrator: it’s dark), but this re-purposed Joker clip expresses the same message as my post but even better. Where I put “dentist”, it put “millennial”. The framing is more desperate and nihilistic than my post, but I reluctantly admit, it is probably more in touch. It shares my sense that the GFC was an even more watershed moment than it seemed at the time.

• Made my first financial meme. Look how grown-up I am. (link)

Last Call

Beautiful writing (thread)
@Julian

What’s the most beautiful piece of writing you’ve ever come across?

A thread with screenshots. Goodnight productivity.

One of my favorites from the thread was Khalil Gibran’s On Children. Gibran would have sympathized with “acceptance parenting”:

Your children are not your children.
They are the sons and daughters of Life’s longing for itself.
They come through you but not from you,
And though they are with you yet they belong not to you.
You may give them your love but not your thoughts,
For they have their own thoughts.
You may house their bodies but not their souls,
For their souls dwell in the house of tomorrow, which you cannot visit, not even in your dreams.
You may strive to be like them, but seek not to make them like you.
For life goes not backward nor tarries with yesterday.
You are the bows from which your children as living arrows are sent forth.
The archer sees the mark upon the path of the infinite, and He bends you with His might that His arrows may go swift and far.
Let your bending in the archer’s hand be for gladness;
For even as He loves the arrow that flies, so He loves also the bow that is stable.

From my actual life