the easiest thing on my to-do list

Moontower #259

Friends,

I saw something Nick said on LinkedIn:

The reason why so many rich people don't feel rich is because they know people even richer than themselves.

And they continue to meet these people as they become wealthier.

The end result is that no one feels rich, even when they are.

If you scan the replies you’ll find people nodding in unison to the beat of “comparison is the thief of joy” agreement.

The challenge is that we are comparative. Anxiety over status and pecking order are part of the human OS. In a Malthusian world, this inheritance adapted us to the cold struggle of survival. But in a post-fertilizer society, its influence is less important. Somebody should tell our limbic system that though. Instead, the same force that minimizes the biological requirement to compare — technology — is used to amplify it for clicks.

So here we are. Swimming in surplus, reading on hi-res screens, in a gilded hamster wheel, chasing a hamster on a bigger wheel.

Telling people to “not compare” is like preaching abstinence. Good luck with that.

Instead, we should redirect our urge to compare. Towards gratitude. When you have an annoying day or pang of jealousy compare it to a bad day. If your kid has the flu or you have some genuinely serious concern you do that god-bargaining thing — “Give me the flu, just make my kid better”, “Make me drive back and forth to the airport 50 times, just let me hear mom’s ok”. It's like as soon as the stressor passes we forgot the deal we made in the foxhole. Don't.

Right now, as you sit here with all the minor annoyances, be grateful you get to deal with them. You are here. You are some ghost’s counterfactual. Thank you for today. Say it. It's very difficult to find bitterness when you sit in gratitude. And gratitude is so easy, you just have to remember to prompt it. It’s just a practice. And like any practice it’s a choice.

The laws are not fair. I don’t mean the laws of man but those of soil and rain, magnets and light. They are indifferent to constructed notions of justice. There’s a dumbass with an obelisk in his bank account. So what? There’s a kid with a heart of gold and a wizard mind on a feeding tube somewhere too. You could compare yourself to them but you don't.

I was a compulsive comparer in my twenties. I’m sympathetic. But I had a major change in my 30s. Maybe some vulnerability crept in. A switch when I had kids perhaps. Health reminds you that choices have consequences. Or worse, you learn your genes are tyrants.

My wife can complain about a lot of things about me. But where she is effusive is in her belief that I have a super power where I am immune to comparison. I doubt I’ve broken any zen code. I’ve only chosen to be hyperconscious of randomness. Maybe that would make you a nihilist. Maybe you need some bigger sense of why or a story about how it all fits together. That’s ok. Sense-making is our uniquely human heritage.

For me, the perspective of randomness triages my exertion of control and mindshare. We can use something as mundane as diet to demonstrate. What I eat today is less random than the day the weather. I have some influence on what food is in the pantry. But even if I grew my own food I can't control how the effects of industrialization influences the water and air that food grows in. You can't literally eat like a caveman in 2025.

Similarly if I create value, I can influence my ability to pay the rent. If I add levers to that value I’d be able to pay more rent. But the function that sits between input and output is noisier the further you get from the initial push. But I’ll never take my opportunity to push in the first place for granted.

I mean it when I say any day I wake up is a great day. I don't know how many I get. It's all gravy. All of it. There’s nothing in the stars that says I’m entitled to any of it. Internalize that belief you’ll be left wondering — how did I ever compare myself to someone who “has more”?

Every f’ing day, the easiest thing on my to-do list is just not looking over my neighbor’s fence.

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This is a nice read:

"Fuck You Money” is Useless Without the “Fuck You” (5 min read)
by Rick Foerster

I won’t address its content directly. It’s a short post and worth a click. But it resonated because it picks the scab of a theme I’ve been on for a few weeks, especially in last week’s it would be stupid if your game made you miserable.

I feel like Jim Carrey shouting 'I think everybody should get rich and famous and do everything they ever dreamed of so they can see that it's not the answer.'

I can see that and I’m a nobody. I could be a butler to a lot of people reading this letter.

The financially free are often the least free people I've ever seen. Which tells you that a sense of freedom comes from something else. To go one further, most people don't understand what having freedom would mean…that the things you build your self-identity on en route to “getting to the freedom” become hindrances later. Like stockpiling treasure for an afterlife where the supply of treasure is already infinite. Now what are you about?

Kierkegaard’s “dizziness of freedom” can be avoided if you just stay on the treadmill and watch the mileage go up and to the right. But if you don't love view from the treadmill, just remember…it's a treadmill. Even as number goes up the view stays the same.

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Money Angle

This is in some respect a continuation of above.

I’m a few weeks away from the 4 year anniversary of leaving full-time trading. I have a lot of thoughts about it. Much of it orbiting the theme of control vs randomness. Some of it having to do with crossing from early to late 40s.

Jared hits hard here:

This is the way I look at the world: the 20s are the 20s. The 30s are the 30s. But the 40s are not the 40s. There are the early 40s, and the late 40s. You cannot generalize about the 40s. In your early 40s, you’re full of vim and vigor, going to titty bars and strutting around like a peacock. In your late 40s, you get sleeping injuries.

In my own words — your early 40s are closer to your 30s and your late 40s are closer to your 50s. You either hear that and say “duh, water is wet” or our souls just melded. There’s no in-between.

I’m not up to writing about all of these thoughts I alluded to. But I’ll say this about leaving…it’s been hard but right. Look, it was never deterministic, everything’s a bet. But it was and is the right bet. I did believe it was right for me just after I did it. But that’s not surprising. The real test would be after time passed. Time has only reaffirmed the choice.

If you read Rick’s piece above and the most viral tweet I ever wrote which is a time capsule of my decision process around quitting you find the same message.

If you are going to be hammer, you should know why your building what you’re building. Sometimes it’s as simple as a roof over your family. But this section is in Money Angle because revenue minus costs is, beyond a certain stage of life, something you have more choice over. Your costs are not givens beyond a threshold that a lot of readers here will find themselves past. They are intentions. But did you give your life choices the DOGE treatment?

We praise inefficiency and bemoan waste and yet are our own houses in order? Is the logic of outsource every inconvenience bleeding over into outsource everything that doesn’t make me money? Is working for way more than you need a necessary security blanket or is it a balm for “I don’t have a point of view so I’ll just horde options”? Which is just finance-brain version of “I’d rather not think”.

Neil Postman worried that Huxley was right, not Orwell. That instead of oppression by Big Brother, we would embrace our technological overlords. We’d volunteer our souls.

By analogy, you can also contract Stockholm Syndrome from a logic of maximization. From an addiction to hit rate. To be clear, the poison of finance-brain stuff is in the dose not the principle. We find the antidote to the maximization urge in finance too. The post If You Make Money Every Day, You’re Not Maximizing is a treatise on hedging but if you read it up one level, it’s about decision making. There’s no long-term benefit without a cost — and often the cost is not direct but a possibility of loss. If you can’t afford to ever lose, how can you get anywhere worth being?

The variables…what to want, what to do, who to be around…they’re all choices. But the money stuff is empty if it’s divorced from intention.

If you don’t choose, your environment will happily pick for you.

A little post-script

A semi-tactical thought. It’s useful to think of various periods of explore vs exploit, putting aside negative connotation of “exploit. Maybe “explore vs focus” is worth the alliterative sacrifice.

The point is there is less paradox of introspection vs be a hammer than you think. You have an explore mode, you discover something worth focusing on according to your set of criteria, and then you hammer away until the cycle rejuvenates.

But that “set of criteria” is a deceptively small phrase considering what lies beneath. That’s where the introspection lives. That’s where you are most vulnerable to infection by the desire of others.

A little rant

If there’s an imbalance in the world or at least in America, it’s that we are full of hammers because endurance is how you become visible. But endurance, something admirable and necessary, can also become a liability for the rest of us.

I look at some of the people in charge (the net worths of senators have been making the rounds online) and I’m just like how about “do less”. Where is all this wealth coming from for people on salaries? So brazen and unrelenting and gripping to power. All of it, just hammers everywhere.

And then the private industry hammers who are anointed experts in all things.

Here’s a little exercise for you whatever industry you’re in — look at the most successful people — do they strike you as worldly paragons of wisdom? Do they have some special insight into the matters that have battered humanity since antiquity? If anything I feel the exact opposite. I just see relentless paperclip maximizers.

I’m unimpressed about everything about them beyond that narrow thing for which I’m simultaneously impressed beyond belief. You do not need to explain their achievements with a general capacity for wisdom. They have more in common with Escobar than Buddha. You'd have to kill them to make them give up.

If everyone starts thinking their boss or boss’s boss is Plato, then I’ll understand why these rich people are so worshipped. But the current scale invariance between our perception of powerful people in our lives and powerful people on TV does not compute.

You know who hangs on the life advice of super-rich people? Children. Because they haven’t been around enough to see all the contradictions. All the data that breaks the model. Today, we got grown folks playing the role of the little girl in that commercial. It’s cute for a kid. But if you believe what that girl believe as an adult…we put you in a rubber room.

Or give you generational wealth. Same difference.

Do it again, daddy.

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Money Angle For Masochists

In value over replacement, I explained a handy feature of option theory or really derivative pricing broadly is it models important aspects of decision-making explicitly. Especially opportunity costs:

In options, the opportunity cost can be thought of as the risk-free rate. But the risk-free rate is an instance of a category we call benchmark.

Professional investors separate alpha from beta by benchmarking to an index. We can get fancier into benchmarking by using factors. Private investments can be subject to hurdles. All of these ideas are focused on the same question:

What is the marginal contribution of an action or intervention?

This is important because that’s what we compare the marginal cost to.

I discuss later in the post that structured products appear to have a compelling pitch by a sleight of hand. They prey on our “VOR blindness” when they announce that they can’t lose money. It’s a sales tactic that ignore opportunity cost. If I return 1% in a world with a 5% risk-free-rate or even 3% inflation I’m just falling for a real vs nominal illusion. My capital has lost ground despite the 1% gain.

[If you would buy these structured notes but be unwilling to spend your bond coupons on index calls you either don’t understand that you are doing the same thing in principle or you are saying I’d rather pay someone to do this. Either is ok to admit, just have your eyes open.]

In that example, making opportunity costs explicit neuters an otherwise compelling pitch. But this can also work in reverse. We can make an uncompelling pitch favorable.

I’ll give 2 examples from the trading world.

✔️Zero or negative edge trading strategies

You’re running a large delta-neutral vol book. It spits off tons of deltas as stocks move around and gamma varies. You need to continuously hedge. Assume your explicit and implicit (ie slippage) hedging costs are 10 bps.

Imagine you came up with a mean reversion stat arb strategy that had zero pre-transaction cost expectancy. Hell, pretend the strategy has -5 bps of expectancy.

Instead of facing the “street” on all these delta hedges you could internalize them by allocating them to the stat arb book. The book is nominally delta-neutral but might lose less in expectancy over some assumed holding period than constantly turning your deltas over on the exchanges.

In other words, a strategy that would be a non-starter from an alpha POV is worth doing because it loses less than the alternative. The bogey is not “we need to make positive edge” but the explicit cost of otherwise paying 10 bps.

By properly benchmarking our decisions, we have turned an uncompelling pitch to a favorable one.

[Real-life observation: Index Trader A is short QQQ gamma and Trader B is long AAPL gamma going into earnings and the stock has a big move down. Trader B needs to buy AAPL and Index Trader B needs to sell it. AAPL is 9% of QQQ so if the index book is 11x bigger than the single stock book and they have matched greeks, then the buy and sell orders would happen to pair off. But even if they didn’t the deltas between the 2 books would be virtually paired off and the firm would hedge the residual in the open market. This saves transaction costs and slippage on gross position sizes.]

✔️Option “dissection”

In the clip below (excerpted from the large screencast), I explain how market makers use synthetic and arbitrage structures like condors and butterflies to “chunk” risk by themes. They can then remove such well-defined strategies from their main risk view so they don’t have to hedge the greeks they spit off.

It’s not alchemy as far as edge. It’s simply splitting your risk into those that can be safely cordoned off vs ones that need more management (open ended exposures to vol or higher moments of the distribution).

In a large options book you have all this open interest because you got paid to buy or sell it at one point. But now it’s just stale inventory. You have no view on it. It’s effectively random risk. But it’s expensive to flatten it all.

[Actually it’s incoherent to do so. The whole reason you have a business is because someone needs to warehouse the risk that arises due to a mismatch in timing and desire — hedge fund A wants to buy puts on Tuesday and mutual fund B wants to sell calls on Thursday. Your role is to trade with both of them and manage the vertical spread they’ve effectively foisted on you. Sequentially to boot. You were forced to be short vol for 2 days in the interim.]

Your risk management logic looks like:

a) I need to hedge

b) Hedging is expensive

c) Can I reduce hedging costs proportionally more than the risk of being less hedged adds?

In other words, your risk management criterion is against an inevitable cost. The hedge is not positive expectancy, it just needs to reduce risk at reasonable cost or reduce costs without adding risk.

Dissection reduces costs without adding risk (although it changes the shape of risk. If you are indifferent to the new shape it gives you choices and those choices need not have anything to do with being profitable — they just need to lose less.)

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From My Actual Life

This holiday weekend, I’m on a boys trip with my sons. We are spending 2 days touring historic Gold Rush sites in Northern California. At almost $3k an ounce, we’ll be panning with mesh to make sure we don’t miss any flakes!

Stay Groovy

☮️

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