The TSLA Market / Economy

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7730

Earlier on in my career I decided I needed to read some business books because I felt that might be a good supplement to my academic training for my consulting work. At some point, I stopped this project but I found an old file with the list (which I think came from a Time article on the best business books of all time) and the books I read highlighted in green.

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It’s a bit of a mixed bag, but many of the books are more interesting than you might think at first. The Goal is a “business novel” about solving production process problems that is pretty widely applicable. The Innovator’s Dilemma is a great synthesis of case studies to develop insight on competitive strategies in dynamic markets.

I also read part of Porter’s Competitive Strategy, but didn’t finish. I may pick it up again some day since it has been so influential.

7731

I found Porter’s five forces analysis pretty “duh.”

They are:

Buyer power
Supplier power
Threat of entry
Threat of substitutes
Rivalry

All of which are, like, no fucking shit Sherlock?

Like quite obviously all these things are immensely important? I find Buffett’s annual letters far more informative, for example his writing on Sees Candy being an incredible business because it never really needs any additional capital.

And yet it is the bedrock of every POS consultant “strategic review” that supports whatever bullshit senior management was going to do anyway.

7732

The Innovator’s Dilemma was one book I read that had some practical value. Leaders these days bleat endlessly about innovation but can’t give concrete examples. The examples in the book are dated but good.

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7733

Lol books. Most peer-reviewed science is either overstated or outright false, and that’s with anonymous assholes challenging the authors ad infinitum on all kinds of inane minutia. You guys have confidence that unchecked people writing books are truth tellers? Anything related to business or pop psychology is especially tragic. Those have been the source of some of the worst fake ideas that caught on, such as the 10,000 hour rule, mindless eating, multiple intelligences, the POWER POSE, etc.

7734

Are you telling me The Da Vinci Code isn’t a factual account of the history of the Catholic Church?

7735

I’d say it’s more likely to be true than anything Malcolm Gladwell or Dan Ariely have written.

7736

You’re not wrong, but it’s not like you can’t get ahead in the workplace by regurgitating persuasive bullshit.

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7738

Jamie Dimon was issuing dire warnings last week.

7739

The economy IS fucked up. Inflation and wealth inequality are absolutely bonkers.

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7740

Yeah the core issue is all the money going to a small fraction of the people but democrats are paid (well) to ignore it.

7741

I can’t keep track of all of the fake books I read from 10+ years ago. It’s basically a minefield because so many of them turn out to be complete bullshit (again talking mostly about business and pop psychology). For example, I remember people slurping this when it came out, and it appears to still be a huge slurp:

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#1 Best Seller in Business Pricing. He also wrote this, along with a few other titles as well:

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How it’s going:

https://www.science.org/content/article/fraudulent-data-set-raise-questions-about-superstar-honesty-researcher

And when they say fraudulent data, they mean it in the most literal and cartoonish way possible:

For example, a set of odometer readings provided by customers when they first signed up for insurance, apparently real, was duplicated to suggest the study had twice as many participants, with random numbers between one and 1000 added to the original mileages to disguise the deceit. In the spreadsheet, the original figures appeared in the font Calibri, but each had a close twin in another font, Cambria, with the same number of cars listed on the policy, and odometer readings within 1000 miles of the original. In 1 million simulated versions of the experiment, the same kind of similarity appeared not a single time, Simmons, Nelson, and Simonsohn found. “These data are not just excessively similar,” they write. “They are impossibly similar.”

His co-authors bolted, correctly pointing out they had nothing to do with this data file. Ariely realizes he’s pinned on that issue, so of course he [wait for it] denies fabricating the data himself and strongly implies it must have been manipulated by the insurance company that provided it. That doesn’t make any fucking sense though:

https://twitter.com/datingdecisions/status/1427931450171662340

Right, and like, how would they even know exactly what to fake and by how much? It’s not even remotely plausible that happened. And of course, all of the communications with this alleged insurance company who cannot be named due to confidentiality have been lost. Also,

The timeline is also hazy: Ariely mentioned the study in a 2008 lecture and in a 2009 Harvard Business Review piece, years before the metadata indicates the Excel file was created. Ariely says he does not remember when the study was conducted.

The odometer study has resurfaced other worries about Ariely’s work. In July, an expression of concern was attached to a paper he published in 2004 in Psychological Science; in that case, statistical errors could not be resolved because Ariely was unable to produce the original data. In a 2010 NPR interview, Ariely referred to dental insurance data that the company involved later said did not exist, WBUR reported.

This dude has a lot of books that are popular in this space. So, I guess what I’m saying is be careful what you read.

3 Likes
7742

Emotional Intelligence (1995)

7743

Would you mind elaborating on this? I’m still struggling with the book’s claim.

You’ve got Pimco selling a strangle to Firm ABC. Firm ABC doesn’t actually want that exposure, so they’re selling the same strangle to some third party DEF (or probably more accurately, they’re selling some set of positions that effectively replicates the strangle). So immediately after the trade is set up:

  • Pimco is exposed to large price volatility
  • ABC has no net exposure (combination of long strangle, short the replicated strangle)
  • Some third party DEF has the opposite exposure to Pimco

Suppose that the index future moves up, getting closer to the upper strike. It’s true that ABC’s (the hedged dealer that the book is describing) long strangle is larger now, but their offsetting replicated short strangle is also a larger position. They might have to “fiddle with their positions a little” (as the book describes) in order to stay neutral. But if they are ~neutral already, why is it obvious that their fiddling would be directional? Why would their fiddling necessarily put downward pressure on the futures to keep it between the strikes.

I appreciate that I’ve only got a surface-level understanding of these mechanics, but the basic story in this book is that a firm can open a position that has this weird advantage where the anticipated hedging activities of the counterparty actually make it more likely for that trade to be profitable. How can this possibly be true? It’s a net zero position, so if it’s structurally advantaged for Pimco, it’s got to be structurally disadvantaged for the counterparty dealer. If so, why would they ever take that position to begin with?

7744

LOL every terrible manager I’ve ever met loves “Good to Great.” Never read it but assume it is terrible.

7745

What’s better, Smartest Guys in the Room or Conspiracy of Fools? I really liked Fools and haven’t read Guys. But Kurt Eichenwald seems to have slightly lost his mind so I’m kind of wondering if everything he wrote in that book is, you know, true? But I remember reading it and having some slight sympathy for Lay, who maybe is just a moron and had no idea what was actually going on. Not a great defense but whatever.

7746

I own Conspiracy of Fools and am pretty sure I read it, but don’t really remember it. With something like this, the first one you read is always going to have the advantage - everything in it is new to you. So even if the other book is just as good, you’ll think of it as repetitive and subpar simply because of the sequence you read them in.

All that being said, I’d wager large amounts that Smartest Guys in the Room is the better book by a big margin - my recollection is that Bethany McLean had a better grasp of the finance/accounting/transaction substance that I cared about, whereas Eichenwald was telling more of a vibey narrative.

But after some googling and skimming reviews of people who compared the two, my most important message is this: Absolutely do not evaluate Smartest Guys in the Room (the book) based on the movie. The movie is absolutely terrible and no one should watch it. There are a bunch of reviews out there that are like, “Conspiracy of Fools is so much better”, but it turns out they’re comparing Eichenwald’s book to the dreadful movie version of SGitR.

7747

Smartest Guys in the Room is fantastic. She’s a great writer who makes complex concepts easy to understand. Some really run personal stuff about these assholes too.

7748

Yeah that’s exactly what I did. The movie is awful.

7749
7750

I think it’s mostly saying that Pimco’s trade was such an outsized trade relative to the risk tolerance of all the market makers in that space that it forced the market makers to change the way they traded this specific trade in a way that was +EV for Pimco.

If we don’t move towards either strike, that’s great for Pimco because their short options eventually just go to zero.

If we do move towards either strike, that option carries even more gamma and more theta for the market makers who are long it. This probably puts them over their firm’s risk tolerance so they are forced to sell it at a lower price to other market makers, who are still also hedging the gamma on the options.

All of this gamma hedging means that if we move away from the strike that market makers are long, market makers will be buying deltas below and selling deltas above, stacking the futures ladder and giving the market even more inertia to stay near the strike, in which case Pimco makes the most money.

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