Neat passage (where's it from?)

I'll add some rambling musing to this including the whole optimizing for grades thing (which btw I'm not wholly convinced is bad strategy despite the popularity of influencers to say otherwise)...
I was told that good grades were the path to💰 and i only wanted💰.

and i only wanted💰 bc i was lazy (not bc i wanted stuff).

Of course this was all mistaken. I wasn't lazy. I was bored & school does suck.
I didn't figure this all out til my fear of being broke as my parents went away.

That I didn't figure this out for a long time can mean a few different things.

Let's see...
Maybe I didn't figure that out because I'm not so bright. Plenty of other non-silver spooners figure this out at a young age.


Motivational idealist influencers who love to talk about Kahneman wouldn't know survivorship bias if it DM'd them a dck pic

Or most likely...
The advice you get is rooted in your elders' perception of risk. Their perception of risk is tyrannically path dependent because a person must live the live they have and not the hypothetical risk-reward life computed on some happiness frontier on an n-dimensional surface
So here I am trying to guide my kids in life. Balancing competing advice. Overcompensating for my mistakes which were the product of how my mind distorted my parents' best intentions. Zooming out I'm trying to model what they taught me, often with totally different details.
That's how I reconcile the fact that my parents are amazing role models even though there's plenty they were certainly wrong about.

The best I can hope for in life is not to be right but for my kids to honor life and consequences.
The capital "P" Privilege is people who love you enough to try for you. I always felt I was worth something bc my parents tried for me. All the time and very much to their ultimate cost. I count myself as being born supremely privileged because of that. Never a victim.

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More from @KrisAbdelmessih

28 Oct
Let's do dispersion trading for the uninitiated.

The vets will need to bear with me, it's been 20 years since i traded index anything...but that actually shows why it's a good thing to explain. The lessons from it come to bear on thinking about all portfolios, even today.
First what is dispersion trading?

In its purest form, imagine selling an index straddle and buying the components' straddles in proportion to the index weights. In practice, liquidity makes this impossible. Instead one settles for a "dirty dispersion" position.
The trade is "short correlation". It wants the average corr between the stocks in the basket to be as low as possible.

Imagine a 2 stock index. You own the straddles on the stocks and you are short the index straddle. The 2 stocks rip in opposite directions. The index is unch
Read 20 tweets
27 Oct
A thought on premium in options.

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.

A 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.
Read 5 tweets
26 Oct
I sometimes explain how I use boardgames as a tool to teach my kids. The unsaid assumption is that "transference" works.

Paraphrasing from Yale:

Transfer” is a cognitive practice whereby a learner’s mastery of skills in one context enables them to apply it in another.


I see examples of this all the time. Consider @Alex_Danco letter this week (I'm a big fan of his writing btw).

He writes about using poker as practice for decision-making practice. In the past, he's written about bridge as the cooperative, strategic analog to SV culture.
Kasparov has tacitly taken advantage of the fact that transference is a thing, parlaying his chess acumen into authoritative political strategy writing.

SIG hires world-class poker, backgammon, Magic, and chess players. On the Amex I met world-class bridge & chess players.
Read 15 tweets
23 Oct
Locking up your $$ to save you from yourself is a sales pitch in some parts.

I've said before:

"Any argument that says liquidity is bad because it exposes you to behavioral bias must address the value of that option."

Let's explore this.
First, why care?

Even if you want to lock up your $$ to "save you from yourself", that doesn't mean you don't deserve a discount for investing in something illiquid.

Your needs/preferences don't set the marginal price.

Don't be so vain, not everything is about you 🎶
The price of an illiquid investment are set by those who do care about liquidity even if you don't.

You inherit that discount the same way you get power windows for free nowadays. You get that even if you think you'd be better off with the exercise of cranking your own windows.
Read 28 tweets
15 Oct
A very humble thought on math in trading. I say humble because I risk straw-manning quant (look, I have yet to meet an IYI type quant that Taleb would caricature. I've been blown away by the curiousity and brains of every quant I've worked with). So with that caveat...
I look at backtests. But their useful domain feels really narrow to me. I'm not a quant so maybe it's just fear of what's over my head. I'll give an example of the type of idea that diverts my eyes from backtesty work.
I'm more attracted to ideas that are upstream of past moves. Understanding flows is an example of that.

How does it interact with backtests?

At the meta level. When I see a backtest and long histories etc my first meta question is about is N really N?
Read 9 tweets
13 Oct
Compounded returns experience "variance drain". This will be true if your bet size or allocation is a fixed percent of your wealth, savings, bankroll etc

Was messing with some coin flip stuff and got diverted by an illustration of geometric returns I figured I'd post...
First some quick intuition.

If you bet 1% of your wealth on a coin flip and win then lose, you are net down money. This is symmetrical. If you lose, then win, still down money.

1.01 * .99 = .99 * 1.01

This is compounding land
In additive or non-compounding land we bet a fixed dollar amount regardless of wealth.

So if I start with $100 and win a flip, then bet $1 again and lose the flip I'm back to $100.

The $1 I bet when my bankroll was less than 1% of my bankroll.

Additive world is not % world
Read 17 tweets

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