Notes From SIG's Todd Simkin

Link: https://fs.blog/knowledge-podcast/todd-simkin/

From the description:

Todd Simkin is Associate Director at Susquehanna International Group, a privately held trading and technology firm. During his 25 years with the company he has held a variety of roles, including responsibility for SIG’s firm-wide education and trader development, where he taught the company’s new traders what questions to ask and what criteria to weigh before making hugely impactful decisions for the firm.

He calls on experiences from his lengthy career in financial services and educating traders to help Shane understand how to make better decisions. On this episode Simkin breaks down all the influences that go into how and why we make decisions, why financial decisions are different than inter-personal ones, the strategies involved with teaching other people to make better decisions, what he looks for when he’s hiring, the value of asking the right questions, and so much more.

[FD: I started my career at SIG eventually spending 8 years there. I’m living proof of what Todd says in the interview: Traders are made not born. A statement famed Turtle Trader Richard Dennis, and Trading Places’ Mortimer Duke would agree with. So it must be true.]

This interview lifts the veil a bit on SIGs trader education program, but is more broadly a statement of SIG’s culture. We get things wrong all the time but we need to make decisions. SIG is like a think tank on the subject of decision-making. It’s a popular topic these days, in fact many of Shane’s prior guests have been experts in the field. SIG was an early adopter of institutionalizing concepts from behavioral science. And as we’ll see, this is really a team effort. Isolated attempts of correcting one’s own cognitive biases have shown to be nearly futile and Daniel Khaneman has himself lamented how awareness of bias doesn’t seem to inoculate us from it.

In addition, to the decision ideas Todd talks about, I found this to be a masterclass in communication. If you are a parent, this episode is full of gold.

These are my notes organized by theme. You can find my Otter transcript here.

Decision-Making

SIG’s approach starts with humility

Our approach is to recognize that we, we are often on the bad end of informational asymmetry, that other people who are looking to trade in the markets frequently no more than we do. And as a as a result, we don’t want to back our own limited opinion against a more informed counterparty. Instead, what we want to do is take the information that we have coming from outside sources, and there are multiple outside sources, different types of products that are being traded, different options series, if we’re trading derivatives, and use that information to improve our own information set to then be able to allocate our capital in a way that we think will lead to a return.

How to manage information asymmetry — start with reasonable priors then update hard

There a few ways that we’ve tried to handle it. One is to is to build out research capabilities internally so that we do have sort of some basis for our initial opinion. But the most important thing, from our perspective, is to be willing to update that opinion, in a Bayesian way to use approaches that are that are going to be inclusive of all the information available to us. And only when we get to mutually exclusive information, or mutually exclusive signals. Can we say something here doesn’t jive right? It’s totally fine. If somebody says they think that the stock price is greater than 100, no, nothing else, I think the stock price is going to be greater than 100. Somebody else says they think the stock price is going to be lower than 105. I say, Okay, now I’ve got a market. Now I’ve got two sides. And then someone else says, Do you think the stock price is going to be lower than 97? Now we don’t have information that can coexist in the same universe. I don’t need to know who’s right. But I do know that it can’t both be above 100 and be below 97.

I have used a similar analogy. Trader’s are not acting on some thesis or worldview about the future. They are simply looking for contrary pieces of information that are unlikely to be simultaneously true, and take counterparty to both sides. If the Warriors are 20 bid to win the NBA Championship and the field is 85 bid this is a strong-form example of “can’t simultaneously be true” aka arbitrage. In reality, the process of finding opposing propositions requires:

a) casting a wide net for information

b) normalizing the information (see Measurement Not Prediction)

c) communicating & outputting the cleaned information back to decision-makers

This process underpins many business flows. Trading is just one example of a type of business. Performed methodically, what SIG is doing is a business not an investment strategy.

Bayesian Updating Applied To Trading

Options derive the value because the future stock price is not going to be the same as what it is today. And there’s some probability that it’s going to be higher or lower. And knowing what that forward looking probability distribution function looks like, leads to the ability to price the options to come up with the fair value based on their expectancy. And one of the determinants of sort of how much a stock can move is what we call its volatility. The volatility is just the annualized percentage return on the stock in any given year, or really for a time slice because it can change that can change over time.

So if I think that the fair value of an option is say, $3, because of all of the assumptions that I have built into that, and then someone comes and wants to buy 10,000 options from me for a price of $3.10. There are two things I could do one, I could say, well, I know that all of my assumptions are grounded in truth, I know the future better than anybody else. So I know that over the long run, if I sell these options at $3.10, I’m going to make 10 cents in an expected return over and over and over again, that is not the approach that we take at Susquehanna.

Instead, I would say this option can be worth more than $3. Given some some possible sets of information about the future. Maybe this person knows something about the fair value of the underlying of the stock that’s different than what I know, looking at the stock market. And I can test that by going out and trying to trade stock. Maybe they know something about the forward looking volatility, the forward looking probability density function. And I can say, Well, if that’s the case, how wrong would I need to be to now be losing if I if I entered this trade? And this is where where Bayes Theorem comes in. Because I can say I have my prior assumption set, my prior probability distribution. Now, how much do I want to weigh this new information to come up with a new a new distribution that will allow me to come up with a fair value.

And again, in isolation, it’s really hard for me just to say this person’s wrong. But if I have a similar looking option similar because it’s the same expiration, or because it’s the same strike and a different expiration, or that there’s something about the option that looks close enough to this, I can say, I can find disconfirming information. And only when I find disconfirming information, can I feel more comfortable about taking the other side of this trade

Confirmation and Attribution Bias Example In Discourse

There are lots of other things in your life, where you’re you’ve got ego tied up, you’ve got some part of your personality benefits from sort of the truth value of whatever position it is that you’re taking. So when you get disconfirming information, you’re going to discount it. I’ve been thinking so much about tribalism lately, like this is just something that’s been showing up in conversations I’ve been having all around. The thing that that’s very clear is that when people hear information that comports with whatever their tribe believes, or whatever their tribe supports, they’re willing to accept it without doing a lot of digging into the quality of the source, the quality of the information, the sort of the implications of the rest of the information that goes with it. And anything that challenges their tribe believes they are going to be more dismissive of whether or not it comes from a quality source. I’ve got children that that feel very strongly aligned with political parties. And, and I also have a quote on the wall in my office that I think is just such a good important quote, to, to help remind me about the importance of habits leading to, to behaviors, I shared the quote with with one of my daughters, my 16-year-old, and, and she said, that sounds kind of interesting. Like I sort of like that. And then I shared with her who the quote was from, and she’s like, alright, I don’t need it. And it was because it was from somebody in the other camp, it was from the wrong political party.

[Me: Reminds me of Paul Graham’s Keep Your Identity Small]

If you’re curious about the quote it was from Reagan espousing good habits. It’s an articulate way to say that “you’ll play like you practiced”:

The character that takes command and moments of crucial choices has already been determined. It has been determined by 1000 other choices made earlier in seemingly unimportant moments, it has been determined by all the little choices of years passed. By all those times when the voice of conscience was at war with the voice temptation, whispering the lie that it doesn’t really matter. It has been determined by all the day to day decisions made when life seemed easy and crazy seemed far away. The decisions that piece by piece, bit by bit developed habits of discipline or of laziness, habits of self sacrifice, or self indulgence. Habits of duty and honor and integrity are dishonor and shame.

Tribalism is the negative expression of an otherwise useful shortcut:

Heuristics are shortcuts that we take that are mentally freeing, right, it will be really hard to always work from first principles. So it’s so much easier. If you can have a heuristic that you can fall back on, that just sort of tells you what to do next, without having to stop and  think through the process. When your heuristic is, “I’m going to find people who are like me, and if I do what they do, then I’m going to sort of maintain my integrity, I’m still going to be like me, because this is what people like me do”, then it’s very easy to fall into the trap of not sufficiently contemplating each of those, each of those actions, each of those different behaviors.

Rules vs Principles: It’s not cut-and-dry. Context matters. Rules are amazing shortcuts for some things.

It’s so much easier if you have a rule than if you tried to have a principle. “I don’t eat dessert” is so much easier than each time that you have the opportunity to have dessert to say, well, I don’t eat a lot of dessert is this one of the times that I’m better making a change there.  I get up and do some type of exercise every morning. And I find it easy to exercise seven days a week, I found it really hard to exercise five days a week. And the reason was every morning the alarm goes off at 5am, it’s really easy to not have your feet hit the ground and get going. It’s really easy to say, well, I need to take two days off anyway, this can be one of the days that I take off. So on the “I don’t eat dessert rule”, I think that’s a great way to pre-decide. Lazy has a lot of value laid in it, to lighten your cognitive load. I don’t have to stop and think about everything if I’ve already spent the time thinking about it.

But you’re not part of a group of non-dessert eaters, right? This isn’t part of a broader identity that you’re now wrapped up in, where if you decide to change that rule and have dessert, you don’t have other people calling you a dessert denier, right? Who cares, right? Okay, so she used to eat dessert or used to deny dessert, and now he’s having an ice cream sundae. Good for him. Maybe it’s his birthday, whatever it is, this is a decision, that’s totally fine with him. And you don’t have to worry that you have now also contradicted all of the other tenets held by the people in the non-desert eating group.

If it’s something that is more tribal, where we are the type of people that do this and don’t do that, then a violation of one part of that removes you from this group.

Shane points out a paradox in cognitive science. Knowing our biases doesn’t seem to help us overcome them. This is a topic the brilliant Ced Chin has studied in depth. Ced told me that the literature suggests the only way cognitive bias inoculation works is via group reinforcement. I told him that was exactly the cultural DNA when I was at SIG which makes me believe there is a lot of value in being aware of bias. Anytime you replayed your decision process, it was a cultural norm to point out where in the process you were prone to bias.

Todd addresses why this works:

It is definitely true that it is sort of descriptive of the past. A lot of these heuristics and biases are things that we can see when we after we’ve already identified that a mistake has been made. And we say, Okay, well, why was the mistake made? Say, oh, because I was anchored, or because of the way the question was framed, or whatever it might be, we have a really hard time seeing it in ourselves.

But here’s the key:

We have a really easy time seeing when someone else is making that type of stupid mistake. A big part of our approach to education is to teach people to talk through their decisions, and to end to talk about why they’re doing what they’re doing with their peers, the other people on their team. If we can do that real-time, that’s great. Often in trading, you don’t have that opportunity, because things are just too immediate. But certainly, anytime things have changed. If you’re doing things differently, it’s a really good time to turn to the traders around you. And the quantitative researchers around you and the assistant traders and your team and say, Hmm, it looks like all the sudden Gamestop is a whole lot more volatile than it was a week ago. Here’s how I’m positioning for this trading. What do you guys think? And have someone say, oh, it seems like you’re really anchored to last week’s volatility. If things have changed that much, you need to move much more quickly than you’re moving right now.

So you don’t realize that you’re anchored, that’s the whole nature of being anchored, is that you don’t recognize the outsized importance that the anchor has on your decision, but somebody else who’s a little bit more distant from it can. So if we’re good at encouraging communication, then we’re going to be really good at getting other people to help improve your decision process.

[Me: There it is. The key — communication. It’s not some magic formula. Even after I left SIG I spent my whole career working with SIG alum. This culture and these types of communications happen all day on the desk. Despite the common perceptions of “trading”, I have always found it to be a team game and communication skills are paramount.]

Speaking of teamwork, the next quote is money:

I know that you are fond of pointing out that you are the sum of the five people that you spend the most time with. So if the people that you’re spending the most time with are your co workers who are thinking about trading the same way you are, then maybe you’re going to combine the same types of errors, it’s certainly better than then trying to act on your own.

But even better is if you have a culture that rewards truth finding, as opposed to rewarding action.

If nobody feels personally attacked, because of somebody else pointing out their error, but instead feels like we together have now done more to get closer to, to some truth to the better way to act or the you know, the more accurate, fair value of this asset that we’re trading, then everybody feels like it’s a win. And they will therefore encourage the involvement of the people around them.

Shane asks what the most important variables are for being a better decision maker. He expects Todd might say probabilistic thinking but Todd’s answer was fast and blunt.

Talk more is number one, that beats probabilistic thinking that, that beats sort of anything else.Truth finding is, is being able to bring in other people in the decision process in a constructive way. So finding good ways to communicate to improve the input from others. 

Thinking probabilistically I think is definitely a very, very important piece of trying to diagnose what works by trying to think of where where things fall apart, where people fail.

The other place that people fail is falling in love with their decision process and not being open to being wrong. So in openness to to feedback to finding disconfirming information to actively seeking out disconfirming information, which is really uncomfortable. But that that I think is the other piece that is is super important for being a good trader.

Education

In 2009 Todd moved over to the education side of SIG where he focused on teaching decision-making under uncertainty, option pricing, finance and how to apply this knowledge to markets. SIG’s training is legend for good reason. In hindsight, I recognize just how  well-designed it was. It felt intense yet forgiving, competitive yet nurturing.

When I went to SIG “class” as it was called you’d spend 3 months at the headquarters. 20 years ago, it was a bootcamp that included:

• 4 weeks of theory (including 4 hours of deriving Black Scholes assumptions and 4 hours of deriving the formula. Went mostly over my head)
• 8 weeks of mock trading in an on-site simulated options pit.
• Interspersed where lectures by various business heads
• You were also required a minimum of 100 hours of poker and the class winner was chosen by Sharpe Ratio

Todd pulls back the veil on SIG’s education philosophy:

Susquehanna has always had a very growth mindset perspective on teaching trading, you know, before Carol Dweck, had even shared her views on growth mindset. It has always been the company’s position that traders are made not born. We’re now over 2000 people worldwide, and we still have a small company mindset of we’ve got to make the best of what we have.

The way that we’re training people today is certainly changed from what it was originally, but there are a lot of things that have stayed the same. And among that is, is this idea that if we have smart people that are educable, and vocal about their thought process, so that we can improve it and willing to be wrong, then we can teach them about trading.

The principles from Todd’s background in linguistics and deaf education informed how SIG designed their training.

When I was originally studying education, I was thinking that I might be teaching sixth-grade deaf kids how to do math. Instead, I’ve got MIT graduates who certainly understand math, but don’t know trading. And I’m teaching them how to make these asset allocation decisions with imperfect information. But the approach is still the same.

The approach is still this one of modeling the process, finding out where somebody is, and finding out what they can grow to and providing the appropriate support so that they can grow to be a better decision maker. 

SIG rejected Piaget’s approach that suggests learning unfolds at pre-determined developmental stages.

Piaget had, you know, a pretty rigid framework for the stages that you move through how you move through them. And that education effectively ended at adolescence. And because he said, Now, that’s kind of bunk. That’s not how any of this works.

SIG’s approach adheres more closely to Russian psychologist Lev Vygotsky. Notice the engine at work:

All of education is socio-cultural, all of education comes from interaction with others. And those others in order for them to be educators have to be more knowledgeable than you are. And that when you have interaction with more knowledgeable others, what those people are able to do is recognize your zone of proximal development, you have a zone of things that you know, and then you’ve got a zone that is just too far out of your reach that, you know, no matter what if I were to sit down my six year old nephew, and try to explain linear algebra to him, he’s not going to get it yet, he just doesn’t have the fundamental tools to do that.

But somewhere outside of your zone of mastery is this zone of proximal development, the zone that that you can move into with appropriate support and that support in the Vigotsky literature is referred to as scaffolding. And you want it to be the minimal amount of support necessary to appropriately move somebody to be able to handle the next level of mastery. Over time, you can dismantle that support, dismantle that scaffolding and that zone becomes part of their zone of mastery, and you’ve just pushed out where their zone of proximal development is so that over time you can you can move them into an area where they’re learning more and more and they’ve got greater mastery and competence in whatever area is that that you’ve been teaching them. And eventually, they become more knowledgeable than other people around them. And they can provide the scaffolding as the more knowledgeable other for their peers as well.

[cross reference from ScienceDirect about the zone of prozimal development (ZPD) and the difference in approach between Piaget and Vygotsky:

This use of ZPD defines ‘teachability’ of the child in a specific activity or in problem solving. If an activity or problem can be accomplished by the child with the help of more capable others, this activity or skill is considered possible to teach the child. If, however, the activity or skill cannot be accomplished by the child with the help of more capable others, it is considered not useful to teach to the child.

Unlike Piaget, who believed that instruction should follow development, Vygotskij argued that guidance can, should, and does lead development. They would differently define what is currently called ‘developmentally appropriate curriculum.’ Piaget insisted that learning is essentially an individual endeavor and that adults can only facilitate by providing an enriched stimulating learning environment and opportunities for children to share and discuss their egocentric thinking with each other to promote disequilibrium in the child’s thinking. Adults should not interfere in the child’s individual thinking because it can only lead to imposition of the adult’s ideas onto the child—what Piaget called ‘sociocentrism.’ In contrast, Vygotskij encouraged adults to provide guidance and help and to engage students in activities that are beyond their individual levels of competence (‘performance before competence,’ Cazden 1992)…
A student’s teachability depends not only on the student but also on the teacher (and broader communities in which the child participates). Thus, no test of the child alone would accurately determine the child’s teachability—the teacher always counts.]

How SIG mitigates hindsight bias and “resulting” which is the practice of having an outcome dictate whether you made a good decision at the time with the information you had at hand:

We do everything we can to shield, the person we’re giving feedback to from knowing the results. I’m not going to tell you whether or not this trade worked out, I will tell you the information that was available to me at the time that I made the trade, and then what I did, and you can give me feedback on that process. So the identification from this less formal setting comes from from knowledge about about how trading works, or how this particular risk taking works. In our education setting, it’s something that we control a whole lot more cleanly. We don’t have to present a very complex trade and see who can figure out the pieces of it until everybody in the trading class is ready to get there.

In Being A Pro And Permission To Be Serious I argue that a hallmark of being a professional is the equivalent of “watching film” to get better.

Here is Todd describing a Socratic learning process:

We can build from from smaller pieces up to up to the larger concept, and see who along the way, isn’t processing that smaller piece appropriately. And a big part of how information is passed from the mentor to the mentee is by modeling the decision process, it is not enough to say you should have raised the vol by two points when this trade came in. Instead, it’s so much more important to say, okay, when this trade came in, I remembered that earlier in the week, somebody had traded this other structure. And when they did, I updated my possible outcome space to look different. This trade confirmed with that other trade did so so now I was I just more heavily weighted this other outcome. And the result was that I took volatility up two points, then someone knows not only what to do, which is really not the important thing to take away. But how to do it, which is very much what we’re looking to teach…

We’re really discussing how we would behave in a situation and modeling what the conversation should look like and will disagree with each other. The answer to just about every trading question is “it depends”, which is a really hard thing for someone to hear when they’re first learning because they want the answer. They want to know, when I’m in this exact situation, again, what is the optimal thing to do?

The interesting part of the conversation comes in the what it depends on. All of these questions lead to the some type of answer of what you could do. And there’s some things that are clearly wrong. And it’s important to talk about that, too. So when we’re talking about it in a trading context, it’s really nice that one teacher can say, “I think that I probably would have shown a bid for this price and this amount”. And someone else says, “Well, I don’t know that I would because this broker has behaved this way before. So I think that this might be a time where I’d be afraid that I’m opening myself up to selection bias if I if I were to price it that way, so I would do this.” And you have these senior traders who are disagreeing. And so there’s this really nice modeling of how to think about how to improve the process, so that you can reach an answer that you are tentatively more comfortable with.

His technique for extracting the most out of an interview is clearly influenced by SIG’s educational approach. I’ll let you see the quote first then explain my experience when I interviewed there.

The best outcome for me in an interview, is if the candidate walks away, and wishes they could have part of the interview back. That means that I did not spend the entirety of the interview in their zone of mastery, where they just got to show off  in front of me. Then I’m left to decide whether or not they would have the skills to do more. And I did not spend the entire time in the zone of frustration, where they couldn’t do anything. And it’s like, “okay, I didn’t expect you to know how to do that anyway but if you could, that would have been great to see” and still make a hiring decision.

Instead on on multiple dimensions, I’ve been able to find the place where, with a little bit of support, they could do a little bit more. A big part of the reason I like that is exactly this thing that we’re talking about, which is this openness to feedback.  I’m giving them feedback, because I’ve successfully mapped out their zone of proximal development, and now I’m providing a little bit of scaffolding to see what they can do with support.

You will find that some people embrace it and say, Oh, I think I see where you’re going. Let me see if I can take it from here. That’s a great answer.

You will find some people who are just waiting for you to give them more of the answer. Who will just wait for you to map out the entire selection process and then they’ll just fill in the numbers.

I think you’ll find some people who are totally resistant to it, who will shut you up, who will put their hand up and say, no, no, no. Let me work on it my way. And they’re always not working. Yeah. And I know why it’s not working. And I can help direct them away from it. But they don’t take the feedback. I don’t want the person who doesn’t take the feedback. And I don’t want the person who’s waiting for more feedback. I want the person who is hungry and eager to use the tools that are presented and available to them to then do the work themselves. That’s what’s going to be successful when they’re trading. And they get to have a small opportunity of doing that in the interview process.

In my first round, on campus interview, I struggled with 2 out of 3 questions. You can see the types of questions they ask in Interview Questions A Market Maker Gave Me in 1999. But I’m almost certain the only reason I was asked back for another round was because I was fascinated by the questions and asked what I could read to learn more so I would better prepared. Quantitavely I was a below-average hire but knowing that probably help me take learning more seriously. I don’t think I ever took learning very seriously in school (I took grades seriously). But trading sounded so interesting, I really wanted that job (see For Fun, My Career Origin Story).

As Todd was preparing to go on Jeopardy, we get this entertaining story that epitomizes SIG’s values and culture.

Before I went on the show, I knew that there were some things that I needed to really brush up on. Shakespeare comes up in ways that I knew that I didn’t have a deep enough knowledge of. I wanted to make sure I knew all the presidents and vice presidents in order, things like that. And Jeff Yass, one of the founders of Susquehanna, the Chief Risk Manager at Susquehanna, came into my office before I went, and he said, “Todd, nobody cares if you know anything about American history. But if you screw up the the betting on the Final Jeopardy and Daily Doubles, don’t even bother coming back.”

This was a lovely reminder that I couldn’t embarrass myself by not knowing trivia. And a very good reminder that what I do as a profession is put money at risk. So I should probably make sure that I’m thinking pretty clearly about about how I’m gambling in the game. And when I got back, he came in my office, close the door behind me said, “I know that you’re not supposed to share the results until the show airs but tell me how much money you had, how much money everybody had in Final Jeopardy, and I’ll tell you what you should have wagered”

And that’s all that he wanted to talk about when I when I got back. I won one night, so made it back to Final Jeopardy and he approved my wagers on both. 

Communication

On being a more constructive communicator:

Adam Grant recently was talking about how to get feedback from people who are lower on the the corporate echelon, direct reports or their reports. And one of the things that he talked about was to lead with an honest acknowledgement of your shortcomings. That’s really constructive, because that allows for feedback. It invites it in an open way where you’re clearly challenging behaviors and not the person and then has the open ended piece of asking the important “what else?” question.

Non-constructive ways are seeking out “Yes, man” answers. Like, “Hey, I just won $10,000 on that last trade that I did, seems like that was pretty good. Can you think of any ways I could have improved that?” It’s really hard to follow that up with, “Yeah, I think you probably should have won a lot more. Or you could have done it in a much less risky way. Or you won because you flipped the coin and it came up heads. Stop patting yourself on the back, this was not all that impressive.”  You haven’t really opened up for [constructive criticism] if you frame it as “why my trade was good.” Instead, tell me why this piece of my decision process was good.

The other important thing is to actually change your behavior when you get the feedback. If you get feedback, and then don’t do anything with it, people are going to stop giving you the feedback. It’s not just not helpful to ask for feedback and not change. It’s actually hurtful.

The theme of modeling behavior as the key to learning recurs throughout the interview. I’m also a strong believer in this idea (I don’t remember it being explicitly discussed at SIG, but it’s quite apparent that we learned by breathing in the culture). I am extremely conscious that my kids learn from what I do more than what I say. 

I was delighted to hear Todd’s approach to teaching his children and it’s the primary reason to return to this episode. 

“You’re not going to get this unless you hear how I’m approaching this decision”.

I think about this a lot more with my own children, that this is something that I think about a lot as I’m, as I’m raising adults into the world, they frequently come to me and my wife and ask for advice. The important thing for us to show them is not what the answer is, because we’re going to be wrong. But how we think about the answer which is probably going to be much more important for them as they go forward making decisions when I’m not going to be standing next to them, but they can have sort of the proverbial dad on their shoulder whispering in their ear. “Have you thought about this? Did you consider it this way? What is the cost of this? What are the benefits of this? Is this a decision that you can change after the fact?  Or is this one that you’re sticking with?”

All those questions that I would ask in trying to reach a decision, instead of just sort of asking it to myself and then and then handing over the the outcome? I share the process and sharing the process leads to more constructive conversations with my children and with and with our traders.

Reflective listening:

Something that I learned while I was in college, from a book called Teacher Effectiveness Training. When I read it in the book, and we talked about it in class, I said, this is the dumbest piece of advice anybody’s ever put down on paper. And it was around reflective listening. And the idea was that instead of trying to step in, and problem solve, instead of trying to reframe instead of trying to provide context or or dig deeper, all you do is tell the person what you heard them say.

So that night, a friend of mine was over at my apartment for dinner. And she was talking about a problem that she was having with a roommate. And I was like, just for kicks, I’m going to give this a shot. And she’s, you know, salting the chicken or whatever it was, and she’s like “my roommate never puts her dishes away, and it bugs the hell out of me.” I reply, “So it sounds like you’re really bothered when she doesn’t put away your dishes.” She says, “Yeah, and it’s not just that, it’s also that she doesn’t appreciate it. When I do clean up.” Then I said, “So it sounds like you know, part of the problem here is that you’re not feeling appreciated.”

She’s gonna think I’m the dumbest guy that she’s ever known, right? Like, all I’m doing is, is repeating what she’s saying. And I was like, well, this, this certainly feels dumb. And I guess at some point, I got to call myself out on and point out that I’m just doing this stupid thing from the stupid book. And that’s, and then she turned to me and said, “Todd, this is the most beneficial conversation I’ve had about my relationship with my roommate ever. I feel like I’m coming away with this understanding myself better and her.”

Her experience was totally different from mine! She felt heard, she felt seen. And she felt like she now had the power to make a better decision about her relationship going forward. And I thought, Okay, well, maybe this guy’s not so stupid. Maybe this book isn’t so stupid. And maybe these methods work in places that I wouldn’t have thought they would work. And it’s not always the solution. But it’s a much better solution than I would have thought it would be. And it’s something that I find myself doing with my kids all the time, and it no longer feels forced to me It no longer feels fake. To me, it’s very clear that what I’m doing is allowing the space for for them to finish their own thought. That’s one of the things that I do with my kids that I think has been been really beneficial.

“How do you feel about that?”

His daughter’s friend was venting to his daughter. Here’s what happened:

My daughter said, “Well, how do you feel about that?” And, and her friends said, “that is the most Simkin thing that I could hear you say at that point? Instead of asking what I want to do next, you start with, ‘how do I feel about it’, which is something that the friend and my daughter have heard from me and Shelly, my wife, over and over again.

Again, it’s really hard for us to jump in and start providing advice, if we don’t even know where the child is coming from. If we start saying “well, it sounds like that other kid was being a jerk?” and then your kid is like “no, that’s not what I was saying at all. How do you not get me? How do you not understand what this is just starting with?”

So we say “How do you feel about that?” It feels like the Freudian psychologist sitting back, you know, while you’re lying on the couch mumbling something, but turns out to be really helpful.

This is really very similar to understanding truth, that if you don’t have an understanding of what’s really happening as a starting point, if we can’t sort of agree on the facts, then then we’re not going to be able to reach a good decision trading or interpersonally.

The principle of charity in life and in trading [this principle is 1 of my 3 Simple Rules For Social Media]:

When I’m modeling decision processes for my classes or kids, I use the principle of charity. When somebody says something, assuming that they’re not an idiot, assuming that they’re coming from from a place of sincerity and good intentions, and giving them the benefit of the doubt.

On the trading side, this principle of charity is really giving somebody credit for knowing what they’re doing when they’re trading against you. This is what sort of protects you from from being run over by somebody who has better information than you do.

On the interpersonal side, this gift to the other person, is an assumption that that they are well intentioned and smart and approaching this for the same purpose that you are, and therefore you’re going to end up being aligned in your process to reach a resolution to a conflict or to come to an agreement about whatever it is that you guys are talking about. Every single negotiation is a cooperation and collaboration.

We’re never in a situation where the person has to negotiate with you. They have some alternative, they can walk away, which means that the only reason anybody’s going to engage you in a negotiation is because by doing so they’re going to get a better outcome than by not doing so. If that’s the case, then every negotiation is collaborative. Having a favorable outcome for yourself means that you have to have a favorable outcome for them as well. Otherwise, they’re not gonna be part of this conversation, and definitely not future conversations.

It’s easy to see where Todd gets his approach to parenting. This story of how his father modeled decision-making is brilliant but also so loving a thing to do when it might have been easy to just roll over. The setup was Todd was frustrated with lacrosse in high school and decided to quit.

Let’s follow along:

My father said, to come into the living room sit down, I want to talk to you. So I sat down in my towel and thought that this was going to be a couple seconds of  “You can’t quit lacrosse”, which which would have made some sense. A sort of  heavy-handed edict.

But instead, he said,  “Yeah, I’ve been thinking about it. It’s really been bothering me thinking about the fact that you’re quitting. It really bothers me because I haven’t heard why you want to quit, other than the fact that you’ve been frustrated with your coach, there’s not enough here. Like it doesn’t make sense. So you’re gonna have to explain to me in a way that it makes sense in order for me to be supportive of this.

In hindsight, I recognize that this was such great parenting happening here, which was not saying, here’s what you have to do, here’s what you can’t do. But instead, it said, if this is a reasonable and rational choice, or even an emotional choice, which isn’t necessarily rational, but if it’s an emotional and consistent choice, I’ll back you up on on doing this.

If it’s not, if this is rash, and it’s going to have long term implications for you, which it is,  you can’t quit the team and then three days later, go back and say you’ve decided that you want to rejoin, then there are big implications here. So you need to make sure that you’ve given this appropriate weight and appropriate thought, before following through with the decision that you can’t change. Tell me what you’re thinking and tell me what your plan is. If you do this, you’re gonna have an extra two hours every afternoon, you have an extra 10 hours a week. What are you doing with that time? How are you better off having that time, not on the lacrosse field than when you were on the lacrosse field.

The way we left it at the time was with me feeling a bit frustrated that I was not able to convince my father that this was the right choice. And because I couldn’t, I realized that maybe it wasn’t the right choice. Maybe what I needed to do was wait, and waiting was the low cost option, right that at the time, I didn’t know what options were. But in the way I sort of frame and think about the world. Now I recognize that this is what we would refer to as a real option that that there is a cost to it. It does cost me something, it costs you something in terms of my frustration level. And the fact that I’m tired after running for two hours straight. And I’m not as fast as the other guys on the team. So I’ve got to play catch up a lot. But that’s day by day, and in return, I get this upside of maybe there’s some benefit to me sticking with this longer term.

I ended up reaching the conclusion, a couple weeks later, that I wanted that to be my last lacrosse season. But I would finish out the season I would finish out both the commitment to the team and also find the opportunity to fill that time with with something else that was going to also be productive and ideally more productive than playing lacrosse, which I couldn’t do midseason. I couldn’t switch over and start start playing on the baseball team midseason. But the process of having my father model, deliberate decision making for something that was consequential was really was really pretty beneficial early on.

How this still influences Todd:

I try to take the same care today that my father had then, which is that he never erupted, you know, his his reaction was never emotional. It was purely inquisitive. It was like, you know, help me understand better. And the question he helped me understand better is, is exactly the way I approach decisions that my children are making is to say, look, you know that I love and support you with whatever it is that you’re doing. But I can either provide context, or at the very least more support if I understand better where you’re coming from.

One of the one of the other teachers of the class at Susquehanna has such a lovely touch, he just says, Tell me more, and tell me more doesn’t have any value laid in it, it doesn’t have , any judgment in it. It’s just saying, go ahead and add more words to what you’ve already shared. You want to take this action against this type of order flow? Why? Tell me more. And effectively what my father was saying is the same as what as what Mike, my co- teacher says, when he’s talking to our students, which is just, I cannot reach a conclusion about what you’re saying, until I understand it better. So help me understand it better. Tell me more.

What stands out for me is the magic that can happen when we combine the principles of charity with a demand for mental rigor and vulnerability. 

This approach establishes very early, that we’re on the same side that we have, if not all of the same goals, we have alignment with our values and our goals, I want to support you says all I’m looking for is an excuse to make sure that you and I are facing the same direction and facing the world together. Help me get there bring me into alignment with you by by telling me more,

“I want to support you. I want to help you, but I need to understand you better”