Why I Bought A House

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Some context is needed. Yes, I just bought a house. But it is the fifth house that I have owned in my lifetime. I bought my first house shortly after I turned 25. I have no fear of residential real estate.

So it is kind of an interesting experience when I buy a house, because, by anybody’s definition, I am a financially sophisticated guy. In fact, you could probably put me in the top .01% of financial sophistication. I am a macro expert, I have an informed opinion on the future direction of interest rates and home prices. But interestingly, the most money I ever made on a house was that first one when I was 25, when I didn’t know my ass from a hole in the ground.

Most people who buy a house are financially unsophisticated. They don’t know jack about interest rates. Likely they have never seen a mortgage amortization table, or have any idea how principal amortizes over time. They have never seen statistics like the Case-Shiller index, or building permits or housing starts or new home sales. They don’t care. They like a house, they buy the house. Oftentimes, people make money in spite of themselves.

So just because I know all this finance stuff, don’t mean that I am much better off. But hear this. 3.75% on a 30-year fixed rate mortgage is a generational low and is not going much lower. If someone is offering you the chance to borrow money for 30 years at 3.75%, you should probably take it. Just saying. I actually had no debt on my last house, and I gotta tell you, the best thing in the world is not having a mortgage payment. I had the ability to pay cash for this one, too, but…at 3.75% I am going to borrow the money.

30 years is a long frickin’ time. Imagine you take out a mortgage in 1965 for 6%. Inflation is 2%. In the 70s, inflation goes much higher (including wage inflation). By the time you get to your last payment, in 1990, it is almost an afterthought, it is so small. Of course, if you take out a 30-year fixed in Japan in 1990, you are really not happy, because of deflation, but that seems unlikely here.

Don't Be A CF

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I used to go to this barbershop back in the day. All the barbers were drag queens. No kidding! It was great. They were also practical jokers. They used to do things like leave remote-controlled fart machines out on the sidewalk and blast people as they walked by.

So after the haircut you would go in the back room to pay, and one day they had their appointment book out, and I looked, and next to some of the names it had the letters “CF.” I asked, “what is CF?”

“Cheap f*ck,” he said.

I got a kick out of that. I was relieved to see that there was no CF next to my name. But that’s only because I tipped more than normal at that place, because it was so awesome. Usually I was a pretty bad tipper. At restaurants, I would tip the minimum necessary, 15%, which is below average by most people’s standards.

Especially for a Wall Street guy.

We Are All Here to Feel a Little Stress

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Quick story from the associate training class, Lehman Brothers, 2001.

The businesses would come in and give presentations to the MBAs. Some of them were good, some were bad, some were boring, some were funny. We got about 25 of them, and they all started to sound the same after a while.

I don’t know why this sticks out in my head, but one day we were hearing from the FX research guys. This very European fellow had finished the boring presentation and had moved on to the Q&A. I had mostly tuned out because this wasn’t about trading, and all I wanted to do was trade. Some noob in the back asks the FX research job if his job is stressful.

I’m like, what the hell kind of question is that? Plus, he’s a research guy, so how stressful can that be?

European guy takes it in stride, thinks for a moment, and says, “You know—we are all here to feel a little stress, no?”

To this day, that is one of the most profound things I’ve ever heard.

I think this is where you have to ask yourself, what are you trying to do here? You know that a career in banking or the capital markets is stressful, right? Do you know how stressful? Sure, there are scary stories, like about the banker kid at BofA that actually died, but if you’re like a lot of people, there’s a good chance that you haven’t been mentally or emotionally tested even once in your life, not remotely. Even competitive sports doesn’t really count in a lot of cases—just because it’s physically demanding, doesn’t mean it’s stressful.

Final Round Interviews: The Wall Street Rain Dance

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I was cleaning out my office a few months ago, when I came across some sheets of paper with microscopic handwriting that looked like a cheat sheet from some class I had taken in business school. I was wrong. It was interview notes back from the year 2000, when I was looking for jobs on Wall Street. Pages and pages of tiny handwriting, with rehearsed answers to interview questions, an overview of the banking industry and its competitive landscape, my opinions on the financial markets, and more. I must have spent hours putting this together. And you know what?

It was a great use of my time.

In general, a lot of those generic interview questions tend to end up in interviews because they are pretty useful in sizing people up. And there’s nothing wrong with a rehearsed answer if it’s well-thought out. Preparation is good. A lack of preparation is bad. Level 10 of the video game is rehearsing it and then getting it to sound spontaneous.

It’s also good to spend all that time learning about the lay of the land in the banking industry. Wall Street Oasis would have been helpful back then. The internet was still pretty young, and while I did plenty of online research, there weren’t any useful forums like there are today. Firms want to know that you’ve gathered some kind of intelligence and you know what the culture is like. If you’re interviewing at 10 different places, it’s hard to keep it all separate in your head, but I have to tell you, back then I was largely ignorant of why Lehman was different from Merrill was different from Solly/Citi.

I think ultimately, what people are trying to figure out in interviews is a) can this person make money for the firm, making me richer directly, or indirectly, as a shareholder, and b) is this person going to fit in and be fun to work with. If you are sitting in the interview, you have already made it quite far. Everyone who has made it to this point is smart. Everyone who has made it to this point is talented. When I was interviewing people, in these final rounds, everyone was super-qualified. But it got down to a) and b). Can this person produce, and are they cool? This is where the boring people and the bullshit artists get tossed.

I Need The CFA Like I Need Hantavirus

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Who doesn’t love letters after their names? Jared Dillian, PhD. Jared Dillian, MD. Jared Dillian, Esq. Jared Dillian, CFA.

My favorite is when someone puts “MBA” after his name. John Smith, MBA. Whoever does that, is the biggest tool known to mankind.

I first explored getting the CFA designation when I was in business school, back in 1998. Some dude from AIMR (that’s what they called the CFA Institute back then) came and spoke at the career center. He was a slug. I couldn’t possibly think of anything more boring to do with the next three years of my life. Besides, I had plenty of other shit to do. The CFA would have to wait.

If memory serves me correctly, I decided to give Level One a shot in 2002, when I was working at Lehman. I passed. The following year, I was dealing with some personal stuff and wasn’t really emotionally available, but I took Level Two anyway, and flunked.

After that I gave up.

Top 5 Memories

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One of my favorite scenes in TV history is when Charlie on LOST is sitting around trying to think up his five greatest memories ever, because he knows he is going to die. I remember when I saw that on TV, I spent a lot of time thinking about what my five greatest memories were.

If you have a couple of hours to kill on a weekend, it’s a pretty interesting exercise, you might want to try it. I am going to tell you all five of mine right now. Some of them were from a long time ago. The first was on July 4th, 1989, the day I met my wife. I will tell you the story of how I met my wife. I was at gifted and talented camp, and all of us nerds, about twenty of us, this big clique we used to run around in, were goofing off in the dormitory lounge, after study hour and before bed, and the boys and girls started pretending to kiss each other tonight. I was pretty bold and random as a teenager, I would literally do anything, so there was this girl I had my eye on, sitting on the couch, so I flopped down on the couch on my back, put my head in her lap, and asked for a kiss, kind of expecting that she’d push me off onto the floor. But she actually gave me a kiss, like a real kiss, and there was so much electricity that everyone in the room just stopped what they were doing and stared, and as I went back up stairs to the boys’ floor with my buddies, they were like, what the hell was that? I had no idea. The two of us spent the entire next day on the balcony of the dorm, talking. We didn’t even come down to eat.

How I Lost A Million Dollars

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I worked on Wall Street. I had a great career on Wall Street. But it could have been even better.

As I’m sure most of you have found out by now, Wall Street is populated with these standard-issue guys, with identical haircuts and clothes, identical educational backgrounds, even growing up in the same handful of towns around the Tri-State area. Wall Street is supposedly populated with all these swashbuckling risk-takers, but when it comes to hiring, they don’t take any risks at all. They do the same thing they have been doing for decades. They hire what they know.

There are, of course, exceptions to that rule (like me), but they are exceedingly rare. Why take a chance on unknown quantity X, when they can get standard-issue guy who walks, talks, looks, and acts the part? Maybe unknown quantity X can do the job better, but at least we know standard-issue guy can do the job.

So back in 2000, Lehman Brothers takes a risk, takes a chance on me, and from a strictly P&L standpoint, they made out like bandits. I made, by my estimate, about $150-$200 million for the firm over seven years, and I was paid a fraction of that. But I was not standard-issue Wall Street. I wore crappy Mens Wearhouse suits, sometimes with holes in them. I wore shirts that were colors other than blue or white. Most of the time, I shaved my head. I did not look or act the part.

I am very lucky, because

The One Rule Of Resumes

I actually just got done polishing up my resume. I do it about once a year. No, I am not quitting the Dirtnap and going to be a working stiff at some broker-dealer. In fact, I don’t plan on working for anybody ever again. But it’s nice to have around, like the break-glass-in-case-of-emergency thing, because, well, you never know. And if you need one fast, you don’t want to be scrambling around trying to remember everything you did for the last five years.

Technical vs Fundamental trading

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Let’s discuss some basic trading concepts.

I started out as a “technical” trader and then became more of a fundamental trader, and now I am a hybrid of the two, with a healthy dose of sentiment trading. After 15 years of doing this, I think I’ve found the right mix. But I will tell you what doesn’t work: starting at charts in a vacuum. At least, it didn’t for me.

You can have a solid base of knowledge about technical analysis, and find yourself in situations where you observe a “breakdown,” so you sell into it and the stock rips in your face and you cover your short, skulking off in the corner to lick your wounds. What happened? If you were ignorant of the fundamentals, like, maybe the company was a takeout candidate, then shame on you. But people do this, they trade on charts in a vacuum. This is partly how I got myself into trouble with Time Warner Cable.

Correspondingly, you can’t trade on fundamentals alone, either. Fundamental analysts tend to have this very narrow view of the world where they can determine the “fair value” for a security and the market will converge to it over time. The first hard lesson to learn is that there is no such thing as fair value, and the second hard lesson to learn is that even if there was, the market is going to take its time getting there, and your risk tolerance is path-dependent. Cheap things can get cheaper and rich things can get richer. So what is the silver bullet, if there is one?

How Not To Screw Up An Internship

I saw a lot of interns come and go during my time at the Brothers Lehman. Some were good, some were bad, but honestly, I can’t remember any of them. You know why? Because I had other shit to do than to deal with stupid interns. I was running a giant trading desk with a multi-billion dollar book, and I was spending most of my time plugging holes, trying not to lose money to customers or to sales guys or to errors. When I wasn’t fixing other people’s fuck-ups, I was drinking in a bar or drinking at home. I had very little energy to sit around at teach the futures basis to some kid.

So the first thing you will learn as an intern is that Wall Street folks are primarily self-interested and they don’t really care what you do as long as you stay out of the way. Some of them will even give you a “project” whose sole purpose is to keep you out of the way. Beware the “project.” Nobody really cares whether you do a good job on the project or not. If you sit in a corner working on a project all summer, chances are that when the HR people come around to ask if you should be hired full-time, even if they remember your name, they won’t have an opinion about you.

But the alternative, sitting right next to someone at the desk all day and constantly asking questions for six weeks is a bad idea, too. Unless you are an excellent conversationalist, and you actually know something about the markets (you don’t), this is going to get old fast. So being an intern is all about a good mix of being visible and invisible, and being visible and invisible at the right times.

But here is the key point: