Category: Living

My oldest child, a daughter, is now 23 years old with a fresh undergraduate degree and a new finance job at a regional bank in another city. When she and her siblings were young, I would occasionally have reason to tell them that, “one day we’ll be friends, but today isn’t that day. Today I’m just your dad.” What I meant then and is proving to be true now is simply that being a parent to a child is fundamentally different than being a parent to an adult. So, while I am still parent (noun) I do very little parenting (verb) anymore. I don’t have to remind my children about personal hygiene any longer, but we do talk about financial health, and sometimes they remind me that what I just said is “an inside thought” instead of the other way around. Our relationships and our conversations have changed and for that I am grateful but old habits die hard, and I have to remind myself to make suggestions instead of directives, to provide more philosophy and fewer ultimatums.

A recent conversation provided just such an opportunity as we were discussing the concept of options and optionality. An option, for the non-financially minded, is a legal instrument that affords the holder the right, but not the obligation, to take some action in the future; to “exercise the option”. Perhaps you own a call option which gives you the right to purchase 1,000 shares of TSLA at some predetermined point in the future for a predetermined price or a put option which gives you the right to sell 1,000 shares of MSFT. Such options are widely traded, and robust Nobel Prize awarded financial mathematics exist to help both sides of the trade understand what owning (or selling) that option is probably worth. Other options, like a right of first refusal to purchase your neighbor’s home are less frequently traded, but no less useful.

Another form of option that we encounter everyday but don’t often recognize are embedded options. Those are options which are embedded in some larger mechanism and often go overlooked and undervalued. An easy example of an embedded option exists in a residential mortgage, most of which allow the borrower to prepay in whole or in part at any point in time. If you have a little extra money, you can pay down your mortgage faster, shortening its total life or you can refinance for a lower rate and pay the loan off entirely. This is an embedded option that is owned by the borrower, sold by the lender, and has real financial worth though the borrower rarely, if ever, thinks about it that way.

Very often the exercise of an option is a zero-sum game where the exerciser wins and the counterparty loses. Exercising the call option on the TSLA shares means you’ve bought them, and the seller sold them, at a price below the current market rate. You win, he loses. Not exercising an option may also be zero-sum when the option holder has paid an upfront premium for it as in the case of the call option or may simply be a foregone opportunity cost as when you choose not to prepay your mortgage. The opportunity costs of exercising or not exercising embedded options are the ones we should pay the most attention to however, as it’s the hidden, unquantifiable costs that can inflict the most damage.

Embedded options are everywhere and not only in financial instruments, but as the daughter and I were discussing, we usually have to be searching for them to see them. But contrary to what the financial math might say, I’ve come to believe that sometimes the most valuable option we have in a situation is the one we don’t exercise or better, don’t even acknowledge owning.

Cars ◆ Jobs ◆ Relationships

The first embedded option the daughter and I discussed, the exercise of which tends to burn many a 23-year-old* with a shiny new finance degree is whether to keep or sell their old car for something new, expensive, and probably German. It’s easy when you start making a little money to decide that the car mom and dad gave you as a high school graduation present, or that you saved up and bought on your own, has “seen better days” and decide that you deserve something new and more reflective of your new station in life. I am not arguing that point, it may all be true and valid. What I am suggesting instead is that once you notice the option is there, it’s going to nag at you like a pebble in your shoe until you exercise it. Once you’ve decided you own the option you’ll begin to notice every little shimmy, shake, and rattle the car has always made until it drives you mad. In time the car that you loved and named and is full of great memories will become an object of scorn and derision. The car, too, will know that you know you own the option and it will start to hate you as well. Before you know it, you’re in a car dealer on a Saturday morning buying a car you don’t really need and probably taking out a loan to do it. This newly purchased vehicle will one day also be the subject of an embedded option and the doom loop continues. So, here is an example when ignoring the option for as long as possible will likely yield positive financial rewards.

A second example of an embedded option that is often best to ignore is in your career path. I have known lots of people, many of them young but not always, who routinely and too quickly exercise the option to move from one job to another, often earning a little more money in the trade. My experience, however, has shown that over the long term you’re often better served to stay in the traces, to avoid to quick flip, and to develop deep expertise that only comes with time. It’s the pebble in the shoe analogy again. I’ll just talk to a recruiter and it’s good interview experience, you think. Your foundation has subtly softened though, and imperceptibly your attitude changes. The pebble in the shoe continually reminds you of how much better you could be doing somewhere else…maybe. A quick flip may get you a few thousand dollars per annum more, a fancier office coffee machine, and perhaps a better but meaningless title (what does Chief Transformation Officer even mean?!?), but it also begins to erode your value when a prospective employer wonders why you move so often and how much mastery you’ve really attained. Your career is more of a long-term investment than an actively traded one and it takes time for compounding to work. Move too soon and too often and before you know it, execution costs have eaten away your long-term gains. So, exercise the career option sparingly, if at all.

I believe though, the ultimate embedded option, is in your relationships. Your friendships, your business partners, and most importantly with your spouse or life partner. At some point that hot burn of a new love fades a bit. It doesn’t go out entirely, but the novelty passes and the love between two people can become routine and comfortable. There are people who, at this stage, become bored and begin to cast about for someone new, some one exciting, someone “who gets me.” The fact that he doesn’t rinse the toothpaste out of the sink or her damn cat that pees on the carpet become unbearable and grow to become sources of ire completely disproportionate to reality. The pebble in the shoe becomes you in someone else’s bed and everything built to that point is destroyed. But importantly, when you talk with people who have been in relationships, happily, for 30, 40, 50 years or more and ask them how they did it, the core answer is invariably the same. They never exercised the option. They never believed there was an option to exercise in the first place. They simply kept going forward as if there were no other option even when there is. One foot in front of the other, one day at a time, loving and being loved endlessly and forever. And in most cases, they realize a return on investment that far outweighs the costs.

Optionality is useful and can be very valuable, but often the best choice with the embedded options in our lives is to simply live as if they don’t exist.

*I’m not a complete fool. This behavior is not isolated to 23-year-olds. It happens to me – full-cycle – with shocking frequency.

There are times when, rather than discovering new and interesting things, is it good to be reminded of important things that you already know.  For me, a recent trip to the movies with my daughter was just such an occasion, as we watched A Complete Unknown, the newly released Bob Dylan biopic directed by James Mangold.  It was good, better than I had expected, and I plan to go again: there was a movie I seen onetime / I think I sat through it twice. 

The film’s title is partly a joke about the very familiarity of its subject, for the story of the nineteen-year old Dylan’s arrival in New York in 1961 and the miraculous series of songs he wrote there in his early twenties is already well known.  Martin Scorsese’s 2005 documentary film No Direction Home covers the same period in Dylan’s life, and both filmmakers borrow their titles from the chorus of his most famous and important song, written at that time: How does it feel / How does it feel / To be on your own / With no direction home / Like a complete unknown / Just like a rolling stone.

Continue reading “The unwashed phenomenon”

In parks there are more runners and in pools there are more swimmers, sales of new gym memberships are up and sales of fast food are down.  I have no data to support these claims, but intuitively they seem plausible descriptions of behavioural trends during the first half of January in London.  The start of a new year provides us all with the opportunity to reset our lives, trying a little harder to be the people we would like to be.  We want to be healthier and more focused on the important things of life.  We want to stop giving in to temptation and being distracted by ephemera.  This year, we say to ourselves, I resolve … 

By mid-February, things might seem different.  Doing what we consider to be in our long-term best interest often turns out to be more costly, more tiring, and, perhaps most importantly, less fun than just doing what seems most desirable right now, even when we know that much of the appeal of the immediate pleasure is likely to be a gross overestimation.  I have always enjoyed the saying, with regard to the drinking of cocktails:  One is good / Two is better / Three is too many / Four is not enough.  I recently came across an improved version, from Dorothy Parker: I like to have a martini / Two at the very most / After three I’m under the table / After four I’m under my host.   We all know how quickly alcohol weakens our resolve, but even for the sober among us there will be something which functions in our lives as the “third martini”, the point at which our resolve fails us and we start to do the things we know that we should not do.

Continue reading “Three martinis”

According to Matthew they came from the east, looking for a newly born king.  Neither Mark nor John say anything about the birth, whereas Luke, who does, mentions only shepherds and angels.  Traditionally they have been called wise men, and sometimes magi, a name which refers specifically to an ancient Persian priestly cast, but which has come to be used more generally to mean someone skilled in Oriental astrology and magic, which everywhere were the earliest forms of catalogued human knowledge.  Some think they might have been Zoroastrians. 

In the Western Christian tradition they were three in number primarily, it seems, because Matthew said that they brought with them three gifts, and for some reason the early Western church thought that wise Eastern men could manage one and only one present each.  In the Eastern Christian tradition they were twelve in number, which seems suspiciously like one wise man for each of the days between the date on which the birth was celebrated (25 December) and the date on which their arrival at the scene of the birth was celebrated (6 January).  Around three hundred years after they made their famous journey, the church upgraded them from magi to kings, reflecting no doubt a greater willingness among church leaders to defer to power rather than wisdom.  Around five hundred years after that, their names were first recorded in the text known as the Excerpta Latina barbari: Balthasar (from Arabia or Ethiopia), Melchior (from Persia), and Gaspar (from India). 

Continue reading “Comets”

I greatly enjoy reading long, multi-volume, immersive novels: Marcel Proust – bien sür – , Elena Ferrante, and Thomas Mann.  I also enjoy novellas, short books of fiction that might occupy around one hundred pages or less: Stefan Zweig – natürlich – , Françoise Sagan, and, again, Thomas Mann.  Novellas are not so much immersive as paddling; but, despite their brevity, at their best they clearly signal something important about life.  They have one point to make and they make it speedily.

Last year, a good friend gave me two novellas by Claire Keegan, a contemporary Irish writer.  Although I read a reasonable amount of Irish fiction, I had not come across her work previously.  When I started Small Things Like These (2022), I realised immediately that her writing was of the highest quality, as good as John McGahern (who is very, very good); and that the story she told was both difficult and important.  Subsequently, I have read two more of her books, and discovered that they each share the rare quality of great literature, the ability to capture with some precision the complexities and tensions within normal human relationships, and the moral dilemmas that arise in our everyday lives. 

Continue reading “Small things”