Byrne Hobart: evaluation

Transcript context

…Right. I think you can tell a couple stories there. I know I've been saying that you can tell multiple stories a lot but there are multiple stories that fit the facts. We have lots of different weird things to explain and therefore many different weird explanations that fit them. I think one version is, he's never all that smart and decided that he could just play up this weird, eccentric genius thing and that would help him get away with it. There are these anecdotes about how someone told him to cut his hair and he said, “No, I have to look kind of crazy for this.” so that fits in. And it is kind of an MIT thing to do that. To play up your eccentricity because you know there are these super brilliant, very eccentric people and you can be like them. It's kind of like how a lot of people read about Steve Jobs and they're like, “Well, the secret to success is to be this brilliant perfectionist who can always see the future and also be just a giant asshole to everyone you meet and I'm going to try to do both of those things.” And it turns out one of those is really, really easy to do and the other is really, really hard and you have to do both to be Steve Jobs. But you can sort of give this surface level impression of Jobsianess by just being really obnoxious to everyone. Some of it is that but the other is that if you get really good at just very narrow domain specific stuff, you might miss what other stuff people have to be good at for that skill set to be valuable. Thinking about his previous background where he worked at Jane Street, a prop trading firm, and seemed to do well there. They're very, very selective with who they hire, very hard to get in and they're very profitable. So it’s good to get in. It's entirely possible that part of what happened was just that Jane Street has its operations people and they have their trading people. There may have been enough siloing within that, that if your job is just identify discrepancies in ETF prices and take advantage of them, you don't actually have to know things like — How do we figure out which counterparties are credit worthy? How do we make sure we have enough liquidity? How do we have backup plans upon backup plans upon backup plans in case something goes wrong with our liquidity situation? They're very opaque in terms of their trading operations but part of the model seems to be that they want to be the trader who is there trading and making a market when everything falls apart. And what that means is that the way you make the most money in trading is when markets are insanely volatile, volume is very, very high, and you're still trading. But the reason that markets get really volatile when prices collapse and there's a lot of trade going on is that other people who would love to be trading can't trade because maybe the broker they use is suddenly insolvent and they can't get to a new broker, their money is frozen. a lot of trade going on is that other people who would love to be trading can't trade because maybe the broker they use is suddenly insolvent and they can't get to a new broker, their money is frozen. So if you're planning to be there when everybody else is out of the market, then you have to have lots and lots of contingency plans. It's not enough to buy lots of deep out of the money put options as Jane Street does, you also have to make sure that you're buying those options from a counterparty who will actually send you the money when you need it. You want to structure those things so the actual cash gets to your account at the time that needs to be there. And that maybe is something that a prop trader should not be spending most of their time thinking about. It's one of those things where it's like, if you own a house and over the last 24 hours you learned a whole lot about electrical wiring or you learned a whole lot about how plumbing works or how septic tanks work, that's not good. That means something very, very bad happened in your house. It could be nice to be an expert on those things but if you suddenly became an expert it's because somebody else wasn't doing their job. So I think you could be a trader like that where they can be very good at finding little pricing discrepancies and have just no awareness of what the operation stuff is. Especially because the better the operations team is, the less anyone else needs to be aware of them. You only email them when something is going wrong. So if nothing is going wrong, you never email them and then you forget they exist. Yeah, that's a good point. In fact, in the interview I did of him, I asked him what is the difference between Jane Street and FTX? And he mentioned that at Jane Street, there was this button he could press to buy and all the intermediaries, all the servers and all the bank accounts were just taken care of. What was really funny is he then said, “Let’s talk about that. Just getting a bank account is so hard when you're independent.” Apparently it turns out that it's so hard that you might have commingled funds because you couldn't manage to separate them out. You had this really interesting take. At one point we were talking about how every single market crash can be explained by the drug that was common in the industry at the time. And we finally achieved the hypergrade meth stage of that Emsam patch he was taking that’s stronger than Adderall.…

Stored transcript either side of the excerpt. The highlighted words are the published quote; the surrounding text is unedited source, never generated.