5 years old

Moontower #221

Mar 17, 2024

Friends,

A week ago I did the second installment of the Financial Literacy Series for a group of local kids. It was mostly ad-libbed but you can see the outline here if you want to replicate it in your own community:

🐖Financial Literacy II: Entrepreneurship

In the session, I defined a business as:

a good or service that seeks to make a profit by improving people's lives

Profit is not a perfect thermometer. This was a reductionist lesson with kids in mind but it holds up well enough. The real key to the statement is “improving people’s lives”. Not everything that does that will make a profit and not everything that makes a profit is improving people’s lives but “improving lives” is the North Star.

Hold that thought.

Today is the 5 year anniversary of 40 people letting me spam them once a week with my “musings”. Moontower was born. Thanks to a loving audience of family and friends willing to indulge me.

In the past month, Moontower sites have gotten over 250,000 views, with over 75% of it coming from this letter. (And saying so is about as much effort I’m going to put into fishing for sponsors).

Before plowing ahead with a Money Angle I’m excited about, here are the principles that have sustained Moontower over the years. They were discovered by trial-and-error, but if you have a hankering to get started on something maybe it can provide some clarity a bit earlier in the process.

Serve. It’s the definition of a business — improve people’s lives. In this specific case, with:

a) knowledge

b) perspective (or at least healthy provocation), and

c) hopefully enough turns of phrase to have it beat someone else’s summary of a and b
My recipe which you are welcome, invited, and encouraged to steal:

a) break ideas down into components

b) be repetitive (ie write 5 posts on how compounding or logs work, but each from a slightly different but overlapping vantage point)

c) recap

d) spot concepts in the wild — relate them back to the fundamentals

e) cadence — keep showing up. The exposure is critical for a reader to consolidate concepts. To serve and not simply be spouting trivia, I need to stock your mental library so you can pull out the relevant volume when the situation calls for it

In equation form:

$learning = (knowledge + perspective)^t$

The key to such an equation of course is the exponent.

The goal I have for you when you read Moontower is the same goal I have for me when I write it — thicken the mental muscles. Every centimeter of hypertrophy must gel into a dense structure of links and callbacks. But even as you climb there’s a familiar, wide foothold just below each new height. You can retreat back to the last checkpoint or post, catch your breath, consolidate.1

You wouldn’t write like this in many high performing contexts because the goal is sometimes to weed people out. To find out who can get the farthest the fastest with minimal assistance. But this isn’t my concern. I write like I like to learn. Slowly. With the space to indulge the side-quests. And my simple bet is I’m not special — many people (enough to fill a basketball arena at least) will relate to learning this way.

It turns out a lot of neat serendipities fall out of pepe-le-pew-clinging to a basic formula. If you go into something like this with no expectations it’s going to be surprisingly rewarding. If, instead, you indulge the whim with an outcome in mind just be aware that there is a see-saw between growth and extraction that balances in proportion to time horizon (said plainly — there’s no payoff for a long time so bake that into your expectations).

My robot friend, in response to me lamenting how hard it was to squeeze sub growth organically, gave me what I need to hear: "MT is a slow burn". It pays off with consistent reading rather than occasional nibbles. It’s never going to have a mass audience. But as long as it always serves the reader, it’ll get the readers it deserve.2

The principles extend way past writing on the internet. But writing to you every week has made them more apparent to me. So thank you for helping me internalize and feel these principles, not just be intellectually aware of them.

David Senra’s Founders podcast is one of my favorites. In fact, he’s given me much of the language I use to understand the formula (not personally, I don’t know David, but a tribute to his show is that by listening you feel like you do!). He signs off every recording like “that’s 325 episodes down, 1000 more to go”. And the “1000 more to go” never decrements.

221 Sunday Moontowers down, 1000 more to go.

Refer a friend

Money Angle

I’m excited for this one. Back in December I noticed an old tweet thread called Intuitive Understanding of Options by @KeyPaganRush. I reached out immediately — “Would you turn this into a guest post for Moontower?”

@KeyPaganRush is not in finance (not to stoke imposter syndrome in finance folks but I’ll tell you I meet a lot of non-finance folks whose understanding of finance would make finance folks question whether they were the proverbial fish trying to climb a tree). KeyPaganRush was up for the task. It would take the next few months since he could only work on it during the weekends and with me advising on it there was a lot of asynchronous back and forth. KeyPaganRush tried to incorporate Black Scholes formula but at first it felt bolted on. I pushed him to go deeper. This would add a lot of time but what’s the rush? Get it right the first time and it lives forever as a useful reference post online.

3 months later the post is done. I’m super proud of KeyPaganRush for pushing through and thrilled to have the post alongside the rest of the educational option posts at Moontower.

Please follow KeyPaganRush and sub to his YouTube channel for more learning. He hasn’t posted in awhile on it but maybe the boost will encourage more output to all our benefit!

On to the post:

🖼️A Visual Primer For Understanding Options by KeyPaganRush

It starts:

The magic of the post is every concept with a fancy word in the table of contents is visually explained to the level of a 14 year old (and this is if I use the conservative boardgames age recommendation scale — Splendor is the most egregious example of this…10+. Huh? You don’t even need to read. Seriously, that game is a 6+)

The appendix works through numerical examples that elucidate how that formula corresponds to option p/l being determined by the spread between the implied and realized volatility.

Table of contents

An intuitive understanding of options

Central moments

Appendix

Recently, the awesome science channel Veritasium covered the Black-Scholes equation! It was awesome to see them cover a topic I actually know about in a way that a mass audience can understand. Even my 10-year-old enjoyed the video. They use lots of neat graphics and photos to chronicle the history of the equation (and because we learn about Ed Thorp at home it was fun for Zak to have him appear in the video!). And when they panned to the floor traders with their smocks on I got to exclaim “that used to be me” which triggered a bunch of great questions from the kids.

Enjoy:

From My Actual Life

8 years ago today I was in NYC on a business trip. I was at a dinner with some brokers. I checked my phone on a urinal break and noticed my family chat was blowing up — my sister just had a son. She was at a hospital in central NJ. I walked backed to the table — “Sorry fellas, I gotta skip out”. I took the next bus from Port Authority to my mother’s house in Monmouth County, borrowed her car, and surprised my sis and her husband and got to meet my hours-old nephew. They thought they saw a ghost when I walked in — “why aren’t you in CA?”. The biz trip was wall-to-wall meetings so I never bothered to tell them I was on the East Coast.

I visited with them for an hour and had to get back to my hotel in NYC to grab my things and on to JFK for an 8am flight back home. Exhausting night but it redefined how I think about St. Patrick’s Day ever since.

Also having my own kids, St Patrick’s is less about beer and more about green toilet water and a trail of gold chocolate coins leading to a box of Lucky Charms on St. Patty’s morning. I went to Safeway at 11pm last night. It was sold out of Lucky Charms but I literally got the last 2 nets of gold coins and the last remaining leprechaun treat:

Proud text to my wife:

☮️

Stay Groovy

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I can feel the payoff to this when I use MoontowerGPT to retrieve something I vaguely remember writing about but can’t remember where.

The profit is “finding the others”. It’s easy to undervalue if you fixate on cash. But it’s also the kind of profit that the IRS can’t find. It’s like an off-balance sheet asset that grows but GAAP hasn’t figured out how to value it. (Maybe it’s a a call option that could be priced via replication but that metaphor is seriously underbaked — if you figure it out let me know)