Insights From Not Boring’s Hypergrowth

Packy McCormick’s Not Boring ad-supported newsletter growth has been meteoric. Packy reflected on the first year in a refreshingly transparent way. I encourage you to read it in entirety.

A Not Boring Adventure, One Year In (Link)

I re-factored it a bit for future reference.


Lessons 

  1. Make room for hobbies, even just a few hours a week.
  2. Don’t be afraid to admit that something you thought was a good idea turned out to be a bad idea. You’ll know it in your gut. Trust that instinct and cut bait.
    • One of the problems with being good at writing is that you can convince people that bad ideas are good. You can even convince yourself.
    • [My observation]: Packy embodies Not be the best. Be the only.

      I realized that I could write about the things that I liked writing about — strategy, finance, economics, and tech — even though they were crowded, as long as I wrote about it with my own, unique voice.

      [I encourage people by reminding them that everything is a remix but there are so many people who “hear” differently and your voice might be the one that resonates. There are no adults. Ask for forgiveness not permission. However you want to put it…get unstuck and move. Motion creates motion]

  3. Sustainable growth comes from a consistently quality product that people want to share. Growth hacking doesn’t work long-term, but it does help to kick things off.
    • Growth

      We decided the best path was to come up with a list of 100 growth ideas. We got to eleven, and did maybe three of them. I’m not a growth hack person.

      • Not Boring has grown through a series of fortunate events, and a lot of help from friends and internet strangers.
      • Asking People to Share and Launching Not Boring
      • Setting up a landing page on Product Hunt
      • Referral program
    • Luck  [Me: Seemed inevitable because of 2 things: hard work & focus on customer]
      • Packy mentions how much luck he had but I’d say the amount of work and thought meant that good luck was inevitable. The magnitude can be debated.
      • Responding to reader’s desires

      I spend a lot of time on Twitter and talking to people to figure out the most interesting companies and things going on that people don’t quite understand, and then I try to understand and translate.

  4. Subs vs Sponsors (ie ads)
    • Subscriptions
      • Pro: generate predictable cashflows
      • Pro: allow writers to focus on writing quality content for their core audience instead of optimizing for clicks (the argument goes)
      • Pro: subscription-based writers aren’t beholden to their advertisers and can therefore write whatever they want without fear of retribution
      • Con: Harder to grow because content is behind a paywall
      • Con: People will only pay for so many subscriptions
      • Con: When someone subscribes for a year, you need to write for a year

    Good for: Topics with a clear focus, especially work-related ones that can be expensed

    • Advertising
      • Pro: Free content means readers can share and drive growth
      • Pro: Makes content more broadly accessible. Another way to look at it is that advertisers are paying for everyone’s subscription
      • Pro: Writers can experiment and dance around more since people didn’t pay for a particular type of content
      • Pro: Optionality

      • Con: Need to spend time doing ad sales and writing ad copy
      • Con: Ads take space that people need to read before getting to the meat

    Good for: More general content with wider appeal

    • Why sponsors were a better fit for Not Boring:
      • Product/Content: It’s not focused on a particular niche.
      • Growth: Not Boring grows mainly through word of mouth. Putting the best content behind a paywall means that people can’t share the best stuff.

[A fast growing letter with a large possible audience seems to be better suited to ads.]

    • Getting sponsors
      • Making a pitch deck

        I surveyed Not Boring readers to learn more about their backgrounds, professions, and preferences, and with examples of previous sponsorships in hand, put together a rough sponsorship deck. Instead of doing outbound sales, because I hate selling, once I had the deck, I decided to tweet it out into the universe

Broader Lessons

  • Flywheels work even if accidental

The Not Boring Flywheel

Writing —> Not Boring Investing Syndicate —> Attracts growing companies —> Loop

  • [In my words: You can’t please everyone. Own that. ]

The only things I’m not optimistic about are cynics and “well, actually…” people. It’s easy to dunk. It’s easy to look smart saying why things aren’t going to work. But those people are not our people. [emphasis on this negative screen is mine]. Not Boring is for the optimists, and for the people trying to make crazy things happen. I’m definitely going to be biased. I’m going to have the backs of the companies in which we invest, and the companies that support Not Boring.

A Thought Exercise For Outsourcing Liquidity Risk

A portfolio manager shorting a stock will size a position not just based on price target and conviction but based on the risk relative to bankroll and relative to the liquidity. There are conventional ways to do this. Volume, days-to-cover, variance, 90s nostalgia factor (kidding on that one…worrying about that going forward is like closing the barn door after the horse escaped). While these inputs inform a sizing decision, the bottleneck in the risk management process is not in the sizing. It’s in the remedy when your sizing turns out to be wrong. Eventually it will be. Your plan needs to tolerate that eventuality.

Most plans are to cut risk by buying back some percentage of your shorts. This is like trading with a stop. You are constructing an option since you cover as the stock goes against you and you add as the stock goes in your favor (remember if you short a stock and it falls, to maintain exposure as a percentage of AUM you need to short even more).

The problem with this plan is it is soft optionality. It’s not the same as buying a hard option like a deep ITM put, or buying an OTM call to hedge your short position. Hard options protect you from gap risk. You know, that thing that happens when a stock is halted. Or when the US goes to sleep. Or when a gamma squeeze creates a massive imbalance.

To improve risk management, managers should at least entertain the question: “if I wanted to buy X amount of deep ITM puts instead of shorting shares how much would it cost?”

The answer to that question comes from market-makers who sit in the middle of the marketplace. They hoover up market intel to synthesize a price so you can know exactly how much it costs to express your view with a hard option. Sure, that price embeds a consultation fee in the form of a vig, but at least they are on the hook for mispricing. Not you.

A market maker’s job is to price the spread between soft optionality and hard optionality by gauging the liquidity required to dynamically hedge. Market makers are also in highly competitive, low margin businesses. If you pass on their price for the hard optionality you must ask yourself…”is my assessment of the liquidity/gap risk that much better than theirs OR are their margins excessive?”

At the very least, you can consider this reasoning a sanity check before you size up a big short.

Interview Questions A Market Maker Gave Me in 1999

SIG is well known for asking probability questions to filter trainees. This is not surprising. They view option theory as a pillar of decision-making in general. Thinking in probabilities takes practice which is why they like to look for talent amongst gamers who make many probabilistic decisions and need to interpret feedback in the context of uncertainty. They require many hours of poker during  “class”. In this 3 month period, junior traders live and breathe options in lovely suburban Philly after apprenticing (“clerking”) on a trading desk for about a year.

Here’s some of the questions I remember from my interviews in 1999.

  1. You flip a single die and will paid $1 times the number that comes up. How much would you pay to play?
    • Suppose I let you take a mulligan on the roll. Now how much would you pay (you are pricing an option now btw)?
  2. My batting avg is higher than yours for the first half of the season. It’s also higher than your for the second half of the season.

    Is it possible your avg for the full season is higher than mine?

    (Hint: Simpsons paradox)

  3. You are mid game that you have a wager on. Opponent offers to double the stakes or you automatically lose. (Like the doubling cube in backgammon)

    What’s the min probability of winning you need to continue playing?

  4. You’re down by 2 with seconds left in regulation basketball game and have a 50/50 chance of winning a game if it goes to overtime. You have a 50% 2-pt shooter and a 33% 3-pt shooter.

    Who do you give the ball to?

    (simple EV question)

  5. You are given $1,000,000 for free but there’s a catch. You must put all of it into play on roulette.

    What do you do?

  6. There’s a 30% chance of raining Saturday. 30% chance of raining Sunday.

    What’s the probability it rains at least one day?

To encourage you to try before looking up the answers, I’ll make it annoying…the answers are somewhere in this thread.

I wrapped that thread with a short post on Trading And Aptitude (Link)

Option Theory As A Pillar Of Decision-Making

  • Understanding Options and Decision-Making (Thread)
    @HideNotSlide

    In an old Barron’s Roundtable, Jeff Yass, the founder of SIG had strong words about how fundamental option theory is to decision making.

    Of course this sounds self-serving, from a guy who understood options as a young teen. But it reminds me of a more famous investor. Warren Buffet. I’ll rely on readers to find it but I remember Munger saying that Buffet was already thinking of options at a precocious age. While Buffet calls derivatives “weapons of mass destruction” his own investing history shows an explicit use of options (his put-selling maneuvers are well-documented…and critically path-resistant since they are not marked-to-market). I’m not a Buffet expert, but his use of “insurance float” sure looks like something that came out of the mind of a derivatives trader.

    • The Moontower Volatility Wiki is growing every week due to submissions from the online vol community. It also includes every post I’ve written on options, many of which try to use options theory to understand markets and think about probabilities.
    • Decision-making is a practice.
      • A pillar of sound decision-making is thinking in probabilities or as Annie Duke’s book is titled, Thinking In Bets. Here’s the notes I took on an interview with her which captures the essence.
      • This weekend I came across a great post by in the same vein by Jonathan Bales The Time I Sold Furbies For Money. I especially liked the bits about Belichick’s non-punt, and poker pro Phil Laak about learning what “5% feels like”. [Phil is a good friend of some friends I made in the options game so it was especially cool to see his thinking turn up in that post].

        I’ve previously commented on the neat analysis Bales himself did on the question of when you should “work for free”. You should follow @BalesFootball if you want to sharpen your “thinking like a gambler” sword.

  • A Personal Take

    I added thoughts on my days at SIG in response to the Yass thread. Here’s the text:

    When I was a Susq I heard Jeff speak a few times. It was always engaging.

    They were savage in my days there but the doubling down on tech and brains thru the years probably makes Jeff the richest dude in the world you never heard of (unless you look at pol donations, then you know). One of the talks was on the primacy of markets (Yass is an extreme libertarian, free-marketer, no fool should be allowed to keep their money type. Appealing views to many traders, esp when they are young). This post was one of his market lessons: Dinosaur Markets.

    One of my interactions with Jeff was a mystery to me:

    I remember when I was a 1st year mm on the Amex and I reported a giant trade that got crossed in AIG on the internal chat. I got a dm. “Pls call”. It was from Jeff. I was never so scared. Was I supposed to break that cross up? I called Jeff from an Amex phone and he just asked me for the trade details. Implied vols, who the broker was, what bank crossed it. I told him and he abruptly hung up. That was it. Still don’t know why of all the trades I’ve ever on reported why that warranted a call.

    Other times I’ve heard Jeff speak was on why the dot com bubble was not an example of market inefficiency and it goes back to understanding option theory and the relationship of volatility to positive skew and what drives volatility. I’ll write about that one sometime.

    He also speaks to every trading class for an hour that goes thru the 3 months of theory and mock trading in Bala Cynwyd. In my class he talked about career risk with NFL coaches affecting decisions (he defended an oft- mocked Barry Switzer decision to not punt)

    I will always be thankful for having worked and learned at SIG. I really didn’t have any business being hired there (2000 was the largest cohort bc $ was raining from the sky. They needed warm bodies to pick it up) and I think I’m proof that traders can be shaped and aren’t born. [By the way, this is very much why I try to teach what I’ve learned. Hopefully people smarter than me can build on it and let me invest in them 🙂 ]

    Incidentally, the head of HR who hired me gave important advice I always remember. When I explained I had a few higher offers she said:

    “You’ll be rich whatever you choose. Decide who you want to work with.”

    She knew SIG held the nuts.

Berkson’s Paradox

There is a positive correlation between a high school student’s grades and standardized test scores.

Yet… high standardized test scores before entering university do not predict university grades.

I’ll let you think a bit about possible reasons for that.

Some more statements:

  1. “Smart students are less athletic.”
  2. “Good books make bad movies.”
  3. “Height does not correlate with performance in the NBA”
  4. “People winning engineering contests are not that good at their job.”
  5. “In a good restaurant, the least appetizing sounding items likely taste better.”

You may have nodded with 1 and 2. Too bad they are illusions.

You may have been surprised by 3,4 and 5.

These are all examples of Berkson’s Paradox. What the heck is that?

Via Wikipedia:

The most common example of Berkson’s paradox is a false observation of a negative correlation between two positive traits, i.e., that members of a population which have some positive trait tend to lack a second. Berkson’s paradox occurs when this observation appears true when in reality the two properties are unrelated—or even positively correlated—because members of the population where both are absent are not equally observed.

Here Wikipedia summarizes the same example I highlighted from Jordan Ellenberg’s book How Not To Be Wrong around the idea that attractive men are rude.

Suppose Alex will only date a man if his niceness plus his handsomeness exceeds some threshold. Then nicer men do not have to be as handsome to qualify for Alex’s dating pool. So, among the men that Alex dates, Alex may observe that the nicer ones are less handsome on average (and vice versa), even if these traits are uncorrelated in the general population. Note that this does not mean that men in the dating pool compare unfavorably with men in the population. On the contrary, Alex’s selection criterion means that Alex has high standards. The average nice man that Alex dates is actually more handsome than the average man in the population (since even among nice men, the ugliest portion of the population is skipped). Berkson’s negative correlation is an effect that arises within the dating pool: the rude men that Alex dates must have been even more handsome to qualify. 

The key to understanding all of these examples is the correlations you expect break down when the sample is narrowed. This is commonly referred to as “range restriction”.

Let’s go back to the surprising statement I opened with. This time I’ll boldface the restrictor.

High standardized test scores before entering university do not predict university grades. 

Brilliant.org created a handy visual for understanding what’s happening. Even though SATs and GPA are positively correlated at large, at any particular university you may see a negative correlation.

They explain:

The admissions committee accepts students who have either a sufficiently high GPA, a sufficiently high SAT score, or some combination of the two. However, applicants who have both high GPAs and high SAT scores will likely get into a higher-tier school and not attend, even if they are accepted. The range of students that actually attend the school is given by the blue dots in the plot in the introduction. These dots show a downward trend even though the overall population (red and blue dots) show an upward trend. This trend reversal is the “paradox,” though there is nothing truly paradoxical about it. It is the result of a trade-off between GPA and SAT scores in the people reviewed.

Why is this so important?

Because it shows up everywhere! It’s tempting to see counterintuitive correlations and try to create a story about them but they are often not surprising once we realize that the narrow pool selects between 2 dominating attributes. Consider the NBA where many players are selected by skill and height. Height does not correlate with performance in the NBA because a short player in the NBA must have abnormally high skill to have gotten to the restricted range known as the NBA. Similarly, the chance of random 7 footer in the population playing in the NBA is an order of magnitude more likely than an average height player to make it to the NBA. It’s the same reason why you shouldn’t be surprised when a small NFL player like Wes Welker or Steve Tasker is a badass (I see you 90s Bills. I also hated you, but Tasker was a maniac).

So now I’ll go back to the original statements and boldface the “range restrictors”.

  1. Smart students are less athletic.”
  2. Good books make bad movies.”
  3. “Height does not correlate with performance in the NBA
  4. “People winning engineering contests are not that good at their job.”
  5. “In a good restaurant, the least appetizing sounding items likely taste better.”

The visual versions of all of these can be found in @page_eco Twitter thread that inspired this post.

More examples

  • Grit and violinists

    David Epstein spots a “restriction of range” problem in the book Grit which cites a study of 30 violinists. When you squash the range of a variable that is correlated with the dependent variable you risk understating the correlation with the restricted variable. In this case, the sample was violinists who had already been accepted to a famous academy. We have squashed their innate talent even though it likely has a wide range.

    He also articulates the NBA example: If you studied the correlation of height to points scored in basketball for NBA players you find a jarring negative correlation but that is because you are selecting from a sample of abnormally tall players, to begin with. You’ve squashed the height variable, which would lead people to think that height has no impact on points scored.

  • Surgeons

    Nassim Taleb has warned that you should be wary of surgeons that look like stars who play surgeons on TV.

  • Hedge fund managers

    Not due diligence advice but I’m guessing you probably would have wanted to invest with a black or female hedge fund manager in say the 1980s.

Finally, one last example from Byrne Hobart who has a “range restriction” detector in his brain:

Institutional Investor highlights a study showing that CEOs get more authority relative to boards when they benefit from lucky economic conditions they had nothing to do with. There’s always some range restriction at work when analyzing the performance of CEOs. In a simple model, a CEO gets the job through some combination of a) underlying skill, and b) the ability to persuade. That persuasive skill means that we should expect the worst CEOs to be overcompensated, and the best to be underpaid. And it makes sense that one channel through which charisma works is in taking credit for good news and dodging blame for bad news, irrespective of who was really responsible for either. 

It’s not surprising Byrne spots Berkson’s Paradox everywhere. He wrote Brilliant Jerks, Crazy Hotties, and Other Artifacts of Range Restriction. (Link)

On Delta Hedging

Delta hedging is a trade-off between transaction costs (direct+slippage) and risk reduction. Some observations to help you think about it top-down:

  • Delta hedging is sampling prices with trades instead of simple observation

    When you compute realized volatility you choose a sampling period, say close-to-close. You can think of your delta hedges as samples. If you and I delta hedge at different prices we are sampling different volatilities. Close-to-close vol might not even correlate with our samples. So everyone’s lived experience of their attempted “market neutral” is different based on how their sampled vol compared with the implied. This is why delta hedging is bedeviling.

  • Delta hedging links implied vols to subsequent carry p/l

    Delta hedging is the link between the implied vols you trade at and the subsequent p/l you realize regardless of what some objective measure of realized spits out. If you hedge a 1 month option 2x over its life you aren’t really trading vol since hedging that infrequently is going to generate a pretty random vol compared to the vol that’s realized by conventional measures. If you are trading implied vs realized strat you are mismatched.

  • Transaction cost vs risk trade-off

    If you hedge hourly your sampled vol will land somewhere close to traditional measures of realized (assume no flash crashes or quick resolving discontinuities). But it costs you a few bps in slippage each time. Expensive. So you need to tolerate some delta, which means you don’t hedge “continuously” as the pricing models assume. How much you let your deltas run will depend on so many factors. Non-exhaustive list:

    1. Tolerable p/l variance
    2. How much gamma you have
    3. Opinion of how returns are distributed.

    Another thought. You could hedge more frequently but with a more liquid instrument like ES. So you are sampling vol more often, and saving on slippage, but increasing basis risk. (Be careful about taxes!…Futures are designated “1256” contracts and have specialized tax treatment which means you need to track p/l in different buckets for tax purposes.)

  • The reason to systematize your hedging rules

    Once you tally all the considerations you just want to systematize the hedging. Fixed time intervals, time intervals divided in proportion to volume traded, just trade on the close, every time you go to the bathroom. Whatever. Just reduce the temptation to trade emotionally.  Why?

    Cutting long gamma short and letting short gamma ride is the vol traders equivalent of being a loser in delta one trading.  Be consistent about your rules whether you are short or long gamma.

  • Be realistic about what delta is capable of hedging.

    Market making 101 — the only way to actually hedge an option is with another option.  This is especially true with low delta or tail options.

Finally…my ongoing joke is delta is the only Greek. Be short options where she expires and long where she doesn’t.

This thread was a cleaned up version of a popular Twitter thread.

Cultural Flashback

One night, while browsing Netflix, I came across a show called Valentino. I gave it a chance.

Oh man. I wasn’t ready for wave of feelings it conjured. I was instantly transported back to childhood.

A vivid cultural flashback.

Valentino is an Egyptian show with English subtitles. The mannerisms, expressions, body language, intonation, dynamics between old and young, male and female. I have not viscerally felt that way since perhaps 2005 when I visited Egypt. To be totally immersed, in a culture that is both deeply familiar, and philosophically foreign.

The show is quite ridiculous and has that Arrested Development energy (RIP Jessica Walter this week). I’ve urged my family to watch it. My mom finds it hard to watch because the male lead actor, now 80, plays a hapless, pathetic character. But he’s a famous, celebrated actor in Egypt who my mom loves and has even seen on stage. To see him in this role is too much for her to bear. My sis however enjoyed the same nostalgia feeling I got. Even her husband, who our clan affectionately refer to as “The White” , recognized our family in the show’s dynamics.

A crazy aside: we thought “The White”  was a just a European mutt, but 23andMe sent him a revision 2 weeks ago that stirred intrigue. He’s got Egyptian in him! So many questions. First one — they send revisions out of the blue?! And not to be gross, but can chromosomes cross…oh nevermind. Here’s the proof:

Anyway, the ship stuck in the Suez Canal has brought Egypt into focus for 2 American seconds. Nick who lived and worked there wrote a resonant thread about its culture. It’s short and worth a read. Between the show and the thread I reflected a bit on my own experience.

I’ll leave you with my response:

Anecdote…a friend of mine here in the states (but born in Egypt) went back to Egypt and started a trading shop. He is a good dude and really wanted to teach a group of Egyptians to trade. The “fatalism” work ethic eventually caused him to abandon ship after 2 years. He described constant no-shows, excuses, and frankly people had a hard time connecting the dots to why making money was worthwhile. No sense of urgency. Nick’s use of “fatalism” captured the essence of what my friend reported to me. I don’t see this quality in Egyptians here [in the US].

I’m not on top of Egyptian politics and I’ve only been there once. Arabic was my first language though i lost it by the time I started school. I can understand what I call “household Arabic” and I Spanglish it when I speak. I was surrounded by Egyptians in Brooklyn and NJ growing up. I actually rejected much of its culture growing up. My mom is a very independent thinker and a bit brash and let’s just say she doesn’t stay in her place. It had a big impact on me and my sis.

I have a lot of issues with the culture and yet I find the people to have a beauty that I am drawn to. There is def something that I deeply enjoy in their mannerisms, expression, and warmness that I think is cultural and that I have affinity or at least nostalgia for.

Yinh and I contrast my family quite a bit from hers. My family wears emotions on sleeves. Perhaps hot blooded, stubborn, but very expressive and openly loving. Big fat Greek wedding kinda crowd. Very extraverted. Whereas my wife’s (Vietnamese)fam is more even keeled and reserved but every bit as tight. They are also so much easier to deal with (shhh, don’t tell).

Anyway, it occurred to me that Nick’s comments about Egypt are the type of comments read by the wrong person would get him egged. There are eggshells everywhere around topics like these but I find the “feeling” of being around different cultures to be real and a gift. It’s a treat to know that immersing yourself in another culture can transport you. It’s one of the most interesting things about being the animals we are.

There’s probably cultural features that are absolutely good or bad. My mom could never live in Egypt but likes visiting. Debating these differences sounds like a very bad block of Twitter city that I avoid and I’m not especially educated on topics like that. I just enjoy feeling the differences in how people talk, touch and communicate in general.

I just started watching Valentino on Netflix which is like an Egyptian Arrested Development. It is totally transporting me to a different cultural time in my life. Overbearing matriarch (grandma “teta”), men useless in a particular way, polite insincerity mixed with love.

(Now I have the urge to call my cuz to have him rap Biggie in Arabic which always had me dyin as we rode around in his car in NJ) 

A Closing Suggestion

If you grew up around a different language or culture but feel a bit distant form it today, I urge you to take a chance on a foreign show that might recapture that. It has never been easier. I can’t emphasize how trippy and amusing watching Valentino has been for me. If you had access to a totally different world that has since disappeared from your daily consciousness, this is a reminder that it’s both fun and easy to rediscover.

And if you specifically have an interest in Egypt, Kamil recommended this book that I immediately ordered. Will I read it anytime soon? Insha’allah.

Seeing Sociopaths

A common criticism of people who vote straight down the party line is that they are not thinking. They are brainwashed.

This criticism fails for 2 reasons:

1. The greedy outsourcing algorithm

A voter may be lazy or just self-aware that they aren’t going to be informed on every topic. A party-line vote is a greedy algorithm for solving their decision by relying on the judgement of the like-minded. I’m sympathetic to this strategy especially if you build your own cabinet. Its failure mode is the voter forgets that their stance was a surrogate’s, not their own, then defends it like it’s blood.

2. Stances are signals.

Criticizing the person’s judgement misses the point. The actual stance and its reasons are irrelevant. This person is just putting on their team’s jersey. It’s very much like sports. When the star player defects to another team it may as well be treason. Allegiance is to the colors not the players. Republicans used to be about fiscal sobriety. Democrats valued free speech.

To call deeply partisan thinking “brainwashed” does not give people enough credit. I’ll walk you through a thought that has been lingering lately.

Many lament the feeling that facts appear as negotiable as a watch on Canal Street. This is especially true at the extremes of the political spectrum. Many mock extreme views as stupid. I disagree. That view only makes sense if you think extreme positions are about logic. Logic is not something used to build up these stances. I’m sorry, but it is post-fit. Not even as a sincere rationalization. It’s just playing along with the delusion that logic ever mattered.

How do I know?

Imagine regurgitating the NRA’s logic as if it wasn’t propaganda.

Imagine watching an anti-vaxxer explain how injecting a small dose of a virus into their body is unnatural while they smoke cigarettes and put pasteurized milk into their bowl of Lucky Charms.

Imagine taking ‘slippery slope’ arguments seriously.

The extremes give reasons for their behavior but only because we still pretend reasons matter. So they feel compelled to speak in those terms. But they know the reasons don’t matter. Politics are an expression of their chaotic alignments. Politics’ function is to advance their abject desires. Not for good reasons but simply because their desires exist. So when you argue with an extreme point of view, you’re wasting your time. Sociopaths are cosplaying a debate, but understand it’s a charade. Meanwhile useful idiots try to recycle the sociopaths’ logic in earnest debates.

The sociopath is honest to themselves and purposely dishonest to others. The useful idiots are dishonest to themselves and don’t even know it. They are not so much brainwashed as willing to play along if that will get them what they want. Self-deception only makes them more effective. Neither their urges or reasons are brainwashed. They are simply convenient.

David Hume wrote “reason is slave to the passions”. We fancy ourselves civil by requiring justifications, not might. But the object of might in the first place is self-interest. The self-interest still rules but we require the theater of reasons. The sociopaths supply the script, the sheep supply the numbers.

The grand delusion is that Hume is wrong.


My feeling that the invisible hand of sociopaths is heavier than we might think is inspired by Venkatesh Rao’s Gervais Principle which has haunted me for a few years. My feeling that dumb arguments are a distraction or a form of talk traces its roots back to Rao.

The Gervais Principle recently re-surfaced in Alex Danco’s post The Michael Scott Theory Of Social Class where he juxtaposes Rao’s model on another piece I keep saved…Michael Church’s Ladders of Social Class.

Highlights from Danco’s juxtaposition:

The Office Model

So, twelve years ago, Venkatesh Rao wrote a lengthy and fascinating series of essays called “The Gervais Principle”, which walked through the NBC show The Office, an American adaptation to Ricky Gervais’ original British series. The essays go after a particular aspect of organizational behavior, around how organizations that survive tend to self-stratify into three predictable layers.

  • In the bottom layer, you have around 80% of the office, who occupy the rank-and-file roles. They are the losers. Rao carefully notes that “losers” does not mean uncool, or unworthy; he specifically means “economic losers.” Losers are the people who are set in roles or stations in life where the output of their effort is wholly realized by someone else. As they learn throughout their careers, their skill or engagement might lead to incremental career progress, but no real leverage of any kind. Hence, they are “economic losers”, and they know it. They see the world through clear eyes, and cope. 
  • At the top you have Corporate. These are the sociopaths; the economic winners. They are smart, they care about getting power, and little else.
  • The losers and the sociopaths are actually pretty alike. They are alike in that they both see the world through clear eyes, as it actually is. The losers basically understand how the world works, and how their role fits within it. So do the sociopaths. 
  • In the middle, in between the losers and the sociopaths, is a very different group. That group is the middle managers: the clueless. In The Office this group is an iconic trio: in ascending order of cluelessness, Andy, Dwight, and of course – Michael. When it really comes down to it, The Office is a show about these three people.

The Language Focus

There are many fascinating parts of Rao’s multi-chapter series. I recommend reading through them all. But the most interesting topic he dives into, by far, is language. If you look at the way everyone talks to each other, you’ll find five distinct ways that the characters speak both within and between the three groups.

  • Posturetalk

    Posturetalk is everything said by Michael, Dwight and Andy, to anyone: the staff, the execs, or each other. Everything they say is some form or another of meaningless, performative babbling. This is the language of living inside a construct; where your entire world lives within arbitrarily drawn boxes, and you have nothing concrete to attach to. It’s the only language that Michael knows how to speak. 

  • Babytalk.

    Babytalk is the language spoken from the literal, to the clueless. It’s placating, soothing, or often misdirection: “There, there. You have no idea what you’re saying. Why don’t I distract you with something over here.” 

  • Powertalk, Gametalk, and Straight Talk

    The three other languages spoken, which don’t involve the Clueless, are Powertalk (the Sociopaths’ internal language, which is entirely about competitive information-gathering and retroactive deniability), Gametalk (The Losers’ internal language: recurring games or coded rituals to get through the day), and the rare instance where Corporate actually speaks directly with the losers: Straight Talk. It’s the one and only time where people actually speak directly, with zero encoding. 

Michael Church’s 3 Ladder Class System

Michael Church wrote a neat summary of the American social class system, and how the traditional metaphor of “climbing the ladder of social class” is wrong in an important way. There isn’t one single ladder; there are three – each with different values, norms and goals. You have the first, and largest ladder, Labour. Next, you have the “Educated Gentry” ladder that corresponds to what we typically call the Upper Middle Class. And finally, you have the elite ladder. And the remarkable thing about these ladders is how perfectly they correspond to the three-tiered pyramid in The Office, of the losers, clueless, and sociopaths. 

  • The Labour Ladder

    Climbing the labour ladder means making more money. At the bottom are really tough jobs, typically paid hourly, informally, or with tips. Above that there are stable, but modest blue collar jobs; then high-skilled or good Union-protected careers. Finally at the top you find “Labour leadership”, which doesn’t mean being a union boss, but means, “You’ve made it. You own stuff. You drive a new F-150, you have income properties, you enjoy nice things.”

    But you have not actually escaped the category of “economic losers”, because the Labour ladder does not create paths to leverage. That is the fundamental difference between how the labour ladder works versus how the elite ladder works. The people on the labour ladder fully understand this. 

  • The Elite Ladder

    The Elite ladder has a lot in common with the Labour ladder: it’s straightforward. You move up by getting more money and more power. The only fundamental difference is that you climb the Labour ladder by working hard, whereas you climb the Elite ladder by acquiring leverage.

  • Middle Ladder

    The middle ladder works completely differently from the other two. This ladder isn’t about money or power; it’s about being interesting. You climb this ladder by being more educated, and towards the top, by having costly habits and virtues.

    Generally speaking, the farther you go up this ladder, the more detached from reality you get. Importantly, this isn’t seen as a problem: it’s actually a virtue, so long as you portray it correctly. Sixty years ago, this group sought refuge and status in the suburbs, explicitly detaching themselves from the reality of dirty, dangerous cities. Now, it’s fashionable to move back downtown, detaching ourselves from the reality of gas-guzzling, chain restaurant normie suburbs. The farther you go into expensive, performative habits (Doing triathlons, eating farm-to-table) and coastal echo chambers (“I don’t know a single person who voted for Trump”; “We should ban cars”), the farther you progress up this ladder. 

The Office Model Applied To Class Structure In The US

Once you get familiar with [Rao’s Office model], you start to see it in other places. One of the biggest stages on which you could argue it plays out pretty faithfully is social class structure in North America.

I want to highlight something Church never covers, but you can see clear as day by superimposing The Gervais Principle on top. And that’s how clearly this three-ladder structure reveals itself through language. 

  • The great irony of the Educated Gentry [the middle ladder] is that the more time you spend in it, and the more people talk to you with that language, the more you turn into Michael Scott. It’s a funny juxtaposition, because Michael Scott in the show is absolutely not in this economic class (he never went to college; his job falls solidly in the labour ladder), but his character is a bang-on portrayal of what’s like to aspire to Petite Bourgeoisie values.
  • Language is the fundamental reinforcement mechanism of why arbitrarily constructed environments eventually turn you into Michael Scott. The more you have committed to being seen as interesting within your particular area, the more you detach from reality and move into a construct of your own creation. As this evolution takes place, more of your and your peers’ language will become Posturetalk, and more of the language that gets spoken to you by outsiders will become Babytalk. 

Conclusion: The Michael Scott Theory of Social Class

The higher you ascend the Educated Gentry ladder, the more you become Michael Scott.

So: 

Serious Triathletes? Michael Scott. 

PhD Students? Michael Scott. 

Have an opinion on the right amount of hops? Michael Scott. 

More than 10,000 followers on Twitter? Michael Scott. 

Really into urbanism? Michael Scott. 

NYT Op-ed? Definitely Michael Scott.


Reading these essays in their entirety is fun. I recommend starting with Danco and Church because they are relatively quick. The Gervais Principle is as long as a book but its detail offers the highest reward. If you want a digital copy with my highlights ping me.

Here’s the links to the original essays:

Alex Danco’s The Michael Scott Theory of Social Class (Link)

Michael Church’s 3-Ladder System Of Social Class In The US (Link)

Venkatesh Rao’s The Gervais Principle (Link)

My Simple Rules For Social Media

My good friends’ son recently turned 13. He was allowed to get an IG account for his birthday. My friend shared my guidelines for social media with him.

1. Be kind
2. Be useful
3. Give people the benefit of the doubt

These rules are Twitter-centric especially #3 which makes allowances for the 280-character limit in Tweets. It’s tempting to get sucked into “someone being wrong on the internet” so having a code can save you from yourself.

Dropping your phone in the toilet also works.

What Does “Rich” Mean To You?

My Twitter following grew hand-in-hand with the newsletter. On Twitter I really just wanted 1,000 followers figuring that might be enough to crowdsource. That was a goal because Yinh and I would randomly text friends with a question to settle our own debates. I remember sitting in a cab as she blasted a group “Do you know what a solstice is?” because I claimed this was “common knowledge”.

Well I used Twitter this week for a survey.

“What number do you consider “rich”?

There are over 400 respondents by now but the poll is still open. You can see the thread and take the brief, anonymous survey here.

You can see the results here.

There’s 2 centimillionaires. 5% of respondents have a net worth greater than $10mm. And the relationship between wealth and age is fairly strong until about age 30 but then the correlation becomes much weaker. Lots of very rich 30 and 40 somethings. And there’s a 22-year-old worth $3mm. Smells like someone who has been mining ETH since high school.

The 400 respondents have a combined wealth of over $1.2b. Several people have joked that I have a valuable email list. But I did not collect email addresses. It will be interesting to see how the numbers change now that this mailing list is getting the survey. Then I’ll know just how valuable your email addresses are, muahaha!!!

Let me explain the context of this survey in the first place. It was a piggyback to my wealth tax email last weekend. A friend told me that he once read that people consider net worths 4x larger than their own to be “rich”. The reason this is interesting is you would expect that people in favor of a wealth tax would try to draw the line in relative terms since “rich” is relative. So someone worth $1mm might think $4mm should be the line, while the top respondent on our survey would draw the line at $1b.

In this case, I was trying to see if there was a relationship between a person’s net worth and what they considered rich. This sample produced a median multiple of 5. So someone with $1mm thought $5mm made you rich. Also, the median amount the entire sample considered to be rich was $5mm. That’s comforting. On average people who were worth at least $5mm considered themselves to be rich. So if you hit that mark, there’s a fair chance your neighbor’s yacht won’t actually make you feel as poor as those headlines of NYers making $750k/yr barely making ends meet will have you believe.

Many people sent me their definitions of being rich incorporating age, expenses, what makes them happy, where they live and so on. I wasn’t looking for thoughtful responses. I was looking for a gut impression. I used the word “rich” specifically for that reason. “Rich” is a child’s world. When I was a kid if another boy had that GI Joe aircraft carrier, they were automatically “rich”. It’s ironically a low-brow word. People were telling me the difference between rich and wealthy (which Chris Rock once quipped is the difference between Shaquille O’Neal and the person who signs his checks). I wasn’t interested in such nuance. Rich…first number that comes to your head. Go.

Back to the results. Of course fintwitters visualized the data. Of course fintwitters had comments. That’s the fun in this. Here’s a thread of reactions.

And as Kamil said, the best take points out that almost everyone thinks that $5mm is the bar for being rich. I’m only off by a factor of 2 when I said that $10mm was the new millionaire. In fact as of 2020, to be a 1%-er in the US a household needs $11mm!

And if you want to see net worth in the US by age as of 2020, you can find that table here.