25: The Milken Way, Your Life Is a Call Option, Against 3X Speed, Jensen's Inequality Use in Daily Life, Alfa Mist
“No choice is inherently the best. What makes something the best choice? You. You make it the best through your commitment to it. Your dedication and actions make any choice great.” - Derek Sivers
Investing & Business
The Milken Way
Reading time: ~10 minutes
If you’ve never heard of Milken before, go read it. If you already the story inside-out, go read it. Top quality post here, written in a very entertaining way!
Key highlights from your humble servitor:
1: Sick Intro 👀
Legend has it that in 1970 a young trader sat in the early morning commuter bus from New Jersey to Manhattan with a miner’s headlamp strapped to his head. The lamp allowed him to read financial filings in the darkness before arriving at the office. This story about Michael Milken may be apocryphal, but his commitment to his work was without question. Milken often arrived at the office at 4:30 a.m. and prided himself on making hundreds of phone calls a day. He was on a mission to make high yield bonds a household name
2: The “complaint”
What was the issue, Burnham asked? “They won’t give me capital,” Milken complained. That changed after the merger and Milken was given capital on which he earned staggering returns (100 percent on his $2 million in 1973). He proceeded to build out Drexel’s high yield desk, which became known as “The Department,” into the dominant player in the space. He moved his team to a new office in Los Angeles to be close to his family. It speaks to his importance within Drexel that he could run his own firm within a firm on the West Coast.
3: Even cancer can’t resist the man
Around the time of his release from prison in 1993, Milken was diagnosed with prostate cancer (he had already lost multiple relatives to cancer). To his dismay he discovered that prostate cancer lacked funding and innovation. “We were this quiet corner no one wanted to be associated with,” a doctor recalled.
Again, Milken sponged up information and people. He reached out to scores of doctors and sifted through documentation of traditional and non-traditional treatments. His own cancer was cured after a combination of radiation treatments, hormone therapy, and changes to his diet (Milken even co-authored a cookbook).
About a decade later in 2004, Fortune called him “The Man Who Changed Medicine” with a “Manhattan Project for cancer.” What exactly had Milken done? Well, it looked a lot like his approach to the high yield market.
4: Interesting takeaways for YOU!
The enduring lesson is about the value created through financial and social liquidity. Milken continuously worked to connect people, ideas, and capital into a flourishing ecosystem.
You can replicate this concept in your own life:
Go deep in an area of passion or interest. Do the work: collect and unearth valuable information. Identify the key players. Share what you learned.
Increase social liquidity. Introduce the old hands and the young guard. Figure out who would benefit from an introduction. Create a venue for the open exchange of ideas and information, whether that’s an email chain, a slack or discord channel, a happy hour, or mountain retreat.
Increase capitalization and stake new players. If you find yourself with capital (financial, social, intellectual) or influence with those who allocate capital, use it to back deserving new players who will grow the pie for everyone
Your Life Is a Call Option
Reading time: ~10 minutes
Interesting small format by The Diff (Byrne Hobart and Jack Wiseman) within this week’s newsletter, about how you can bucket life events based on Price, Payouts and Variance 🤔
What do you do when you get knocked off your motorcycle on the way to the interview? If you’re Bob Chapman, and on the way to a Salomon Brothers interview, you keep going. He showed up covered in blood, and got the job.
The situation perfectly illustrates the dynamics of volatility. After the accident, your odds of getting the job are pretty low. If you show up to the interview and crash-and-burn (so to speak), you’ve got an easy excuse. On the other hand, you’re bound to stand out amongst the pool of applicants and nobody will question your commitment, so you might as well give it a try. In option terms, Chapman’s current price went way down—the visibly bleeding interviewee has worse odds than the one who shows up looking sharp. But the variance went way up! His interview was definitely going to be the most memorable one for that role, so all he really had to solve for was a) appearing generally qualified, and b) convincing his interviewer that the motorcycle-riding and accident demonstrated the right kind of risk tolerance.
Thought-provoking stuff…
David Perell’s Manifesto Against 3X Speed
Reading time: ~10 minutes
Mike is so busy preparing for the future that he never steps into it. The satisfaction of binge consumption brings instant gratification, so why try anything else? The problem is that shoving information into your mind can create the illusion of knowledge, especially when you rush it. True learning requires contemplation. And implementation. And a commitment to reflecting on great ideas over and over again.
Many great takeaways in this short paragraph, part of Perell’s latest mini-essay.
Jensen’s Inequality as an Intuition Tool
Reading time: ~10 minutes
Exponential phenomena confuse our brains. It has become tiresome to point out that we do not have natural intuition for growth and decay rates. Even finance folk who are apt to appreciate the idea of compounding seem to not recognize it when the investing skin is pulled off it.
[…]
Be careful when trying to make estimates of how a function or process will payoff based upon the average input. If the function has exponential dynamics, Jensen’s Inequality tells us that the weighted average value of the function will not coincide with average input you feed it.
If the function is convex, the average input will underestimate the average output. If the function is concave, it will overestimate the average output.
I basically took the intro and takeaways to give you the 30s extract but the post goes into great lengths with various examples about covid and r0, traffic, and dice rolls. Go check it out!
Treat for the Ears
Perfect soundtrack for tearing down wallpaper and destroying a bathroom tile by tile
Other Interesting Links
A Modern Dose of Timeless Perspective: “How to Live” by Derek Sivers (Book Summary)
Salesforce and the Benioff Culture (Spoiler: it’s WILD)
Until next week!
Antoine