Money Games II

In part 1, I wrote about what I believe money is. Why it matters and doesn’t matter.

In part 2, I want to explore how defining aspects of money games as finite or infinite can help calibrate decisions to be less wrong going forward. If a finite game gives you only two moves, then thinking about it from an infinite perspective should reveal a third move.

War Diaz

In their minds, the Diaz brothers almost never lose a fight even though their official records say otherwise. They are infinite fighters competing inside a finite game. The game they play is one where the objective is to break the will of the opponent. Force the other player to quit either voluntarily via submission or by force via loss of consciousness or catastrophic injury.

Since it’s extremely difficult to make either Nick or Nate Diaz quit, they rarely ever lose this version of the fight game. They simply run out of time.

Even though they play within the rules of legally-sanctioned MMA combat, if you believe what they say – if you believe they keep it real – then the game they play is beyond the official rule set.

Every fight is a continuation of an infinite game of will where the goal is to outlast your opponent, breaking them before they break you. This type of mentality cannot be maintained within the confines of time limits, rounds, and judge’s score cards. Losing via a judge’s decision is not the same as losing a real fight™.

If you rarely quit. If you rarely break. And if you can keep playing the game, you haven’t lost.

“There is but one infinite game.” - James P Carse

Your infinite game is singular and unique to you alone. It's a personal journey defined by the infinite player. The rules, the goals, the reason to play are defined by you. And playing this game is done for the sole purpose of continuing to play.

The infinite game is an RPG where you are the main character. On top of this meta game called life there are many smaller, more finite games.

The spectrum

According to James Carse: finite games are played to win; infinite games are played to keep playing.

From these two principles, we can derive a framework for finite and infinite games that is the basis for this writing.

What distinguishes the finite from the infinite game is the infinite cannot be controlled. It’s largely undefinable, unknowable, and uncertain. Infinite and finite games lie on a spectrum. The infinite side represents the uncontrollable. The side that we can never fully explain or comprehend. The spiritual. The Godly. The woo woo. The unexpected. Surprises live on the infinite side of the spectrum.

Standard physics has quantum physics, a land of mind-bending and non-deterministic possibilities. Finite games have infinite games. The rules of finite games are easy to measure while the rules of infinite games are hard to make sense of.

Finite games are more defined and deterministic. More certain, known, and predictable. More tangible and objective. Finite games have a known beginning and end. A predictable outcome. And specifically defined boundaries.

Infinite games focus on the process. Finite games focus on the outcome.

There are many finite games you are playing at one time. The infinite game is the one you play all the time.

The ETH money game

Boxing and jiu-jitsu, though they can be thought of as infinite games in themselves, are less infinite compared to MMA. The mechanical reason for this is: MMA has less rules so is more unpredictable. The same comparison can be made between Go and Chess. Go has less rules but more possible moves. Chess is the opposite.

Money games are all the types of finite games humans play with value, which includes investing, trading, and business.

The money game we are discussing here is most closely related to investing. Before crypto, money games like investing were played by people who had some kind of special privilege like already possessing a lot of money or having special certificates. Crypto is different because it lets everyone play the same game under the same rules. Everyone can see what the rules are and how they work. The ETH money game is inclusive, permissionless, and without boundaries.

Oversimplification is this writer’s game, and the laws of supply and demand are the best simplifications of the money game. Supply and demand are not iron-clad. They are bendable in many ways and based on social factors like legitimacy, but they are useful abstractions for playing the money game.

Buying and selling are finite game mechanics. If I sell, I create more supply. If I buy, I create more demand. Simple, deterministic cause and effect.

The ETH money game is made of one set of points: ETH; one action: conversion (buy or sell); and one rule set: time. Everything else is communication between players, which includes prices and narratives. In the finite game of ETH investing, the market and its prices show the score at one moment in time.

You play this game with everyone who holds or wants to hold your asset. The goal of the ETH money game is to hold more ETH. Buy means converting something else to ETH. Sell means converting ETH to something else (like USD or DAI). Holding can be thought of as a passive or defensive position. Buying and selling are specifically defined actions at specific points in time.

Investing as an infinite game has no end. The whole point is to keep playing. It is even possible to pass on the game to others after you die.

We will look at ETH investing from both the finite and infinite sides of the spectrum.

Finding a rhythm

In a finite game, you can tell if the game has been won or lost. In an infinite game, you can’t. The main difference between finite and infinite games is time. Time is a boundary in finite games. In more infinite games, time is unpredictable and extending your time in the game is the whole point.

The series of decisions for each player can be broken down to buy, sell, or hold. A buy initiates a holding period, which ends in a sell. Each of these sets of decisions – beginning with buy and ending in sell – can be thought of as a finite game in itself because there is a well-defined beginning and end.

There are two possible gameplans or strategies here: buy and hold; or buy and sell. Every move other than holding initiates a new sequence of events where new decisions must be made. The simplest strategies as explained by Warren Buffet and Howard Marks are about not selling because selling adds complexity. If your plan is to buy and hold, you’ve limited the possible moves and decisions, and made the game more finite – more predictable – and in theory, more winnable.

However, buy and hold only works if you have income or positive cash flow or else you risk becoming a forced seller. This is a simpler strategy in the context of the investing game but relies on playing other games like cash flow or income generation. I know this now, but I wish I figured this out a lot sooner.

The market has a rhythm. Events tend to recur. Players tend to repeat certain actions depending on the situation and timing. Time spent playing any game allows us to become more aware of these rhythms.

One way to become better at money games is to examine our history and choose strategies that compensate for our tendencies and corrects recurring mistakes.

10 years in the game

The following is not meant to be taken seriously or for anyone else to follow. It's simply a message to a naive kid from a slightly less naïve, older kid. It’s what I wish I would’ve known. Really, this whole thing is just a reflection of lessons learned.

You, my friend, are recklessly enthusiastic. You’ve made a lot of money but lost more of it than you needed to.

It seems you thought you were playing one game (buy and hold investing) but you lacked the foundations (consistent and reliable cash flow) to play properly so in reality you were playing another game (buy, hold, and forced selling). You were leaking money on a wild ride and instead of fixing the leak, you were YOLOing the whole way.

The same factors that contributed to the rise also contributed to the fall: highly optimistic risk taking, big leaps of faith, and the assumption of going up forever without protecting the downside.

The best part of the last decade playing the money game was developing a writing practice as the ultimate compounding investment. Writing not only to express what I think but as a process to figure out what I think.

Using infinite and finite games as a framework, you realize that infinite game strategies run underneath and in parallel to all the finite game strategies. Finite skills are specific to the game. Infinite skills apply everywhere.

In the infinite game, time is an arrow pointing in one direction. In finite games, time is bounded within a set beginning and end.

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Time allows us to set up decisions and actions in the future. In other words, future actions are set up by circumstances created by past decisions. Buying, selling, or holding are downstream from decisions we’ve made in the past. Because the future is unpredictable and we can’t really know how our actions will play out, the best we can do is practice finding the rhythm of both the markets and our own tendencies.

If we accept that investing is a finite game in the Carse sense, then there are many dimensions that we can already win before play even beings. The ideal is to set a plan which makes winning inevitable.

Only time will tell if this works.

Surviving cycles

The infinite game is about survival. If you never game-over yourself, and you keep learning and adapting, then eventually you will reach the long game. A black belt is a white belt who never quit.

In practical terms, surviving means sustaining your will and resources (credit: Simon Sinek) for as long as possible. The money game happens in cycles where the price peaks, then crashes, then peaks, then does it again and again. The same thing happens to your will and resources.

Cycles are like rounds. If you survived the last round, you get a reset. You can regroup. Take a breath. Then get back in. In any field the most legit people are the OGs. OGs survive, learn the lessons that need to be learned, and go on to the next round. Next match. Next game.

Compared to will, resources are easily definable and measurable. Will is on infinite side of the spectrum, intangible. You can run out of resources – as I have 3 times since 2014 – but if your will endures, you can still play the game.

When traders draw lines on price charts, there is always one line that is lower than all the rest. This line is where they believe the bottom is, where they think the price can go no lower until it does. After that line, the pain begins. The world begins to end when you draw a new line lower than the last line and think no way it happens again yet quickly it does and it’s at this point you realize that you fucked up.

All the hype and self-talk is easy at the start, but everyone has a breaking point. The longer it goes on, the more people discover theirs where you thought you were tougher than your body allowed you to be. The point where you must decide to stop or gut it out. To always go beyond your maximum pain point is stupid because pain has a purpose. It’s a message to stop and live to fight another day or it’s a step to building endurance. It’s impossible to always know the right answer, but either way, it’s a lesson to be learned and the more you feel it, the better you understand it.

Pain teaches us how much we can take. It humbles us. Then we learn that pain does, eventually, end. The memory is stored in our body. We become less fragile, more resilient. We become proud because we know we survived and afterwards is never as bad as during. We laugh about it. We tell stories. We share our pain with others.

These cycles of ups and downs are where you learn the tacit skills that can’t be easily explained or taught. Surviving is an iterative process. Survival is an infinite skill.

Greed and fear

Understand that money games are mostly about human emotions. It’s both an internal game with your own psychology and a multi-player game with the manic-depressive masses.

Sustaining your will and resources depends on balancing fear and greed. Greed at the right time increases your possible reward. Fear at the right time helps you keep it.

The game would be easy if we could all simply "Be fearful when others are greedy and greedy when others are fearful” as the sage advice goes. But like so many aphorisms that sound simple, following through is really hard. It expects us to know the feelings of the masses and be disciplined and courageous enough ourselves to go against the trend.

I find it easiest to buy when others are fearful because my conviction and greed levels are elevated by default. I’m recklessly optimistic. But I find it hardest to sell when others are greedy for the same reasons.

The fear, greed, and human element of the money game mean we never know what is going to happen because players including ourselves do not always act rationally. It’s like the weather. It’s like the waves. It’s like the seasons. We can kind of tell what’s going to happen, but we never know exactly. A good barometer for your own fear and greed is whether you can sleep at night. If you can’t, then you’re off-balance.

In money games, the balance isn’t between buying or selling, it’s between greed and fear. Don’t trust yourself to predict the future or control your emotions. It’s impossible. Instead, create a process. Find a way to learn from your mistakes and do better next time. Every person is different so each process is different, but if you can understand what is legit and why, your own fear and greed, how to survive and adapt long enough to keep playing, then, in theory, if all goes well, and you get lucky, you’re gonna make it.

Even though this game is hard and unpredictable, and at times, painful, what could be better than a game that never ends and can never be perfected. A ruthlessly fair competition where even failing can inspire others. It’s like the fight game or the writing game. It’s a mirror that shows you exactly who you are. No excuses. No one to blame. Everyone a critic.

It’s a hard thing to put yourself out there but it’s harder to know you never stepped into the arena. When in doubt, always remember the most timeless sage advice ever spoken by man: “Don’t be scared, homie.”

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