My favorite story about Sam Bankman-Fried involves his time at Jane Street Capital where he built a system to get the 2016 U.S. Presidential election results before any mainstream media outlets. Bankman-Fried and a team of analysts, each of whom worked on a specific state, were able to obtain the state-level results of the 2016 election sometimes minutes before CNN (and others) announced them publicly.
However, despite learning of a pending Trump victory before anyone else, Jane Street still managed to lose money on their trade because they bet against U.S. markets. Though their short position seemed like the right choice initially, as the night went on and the market digested Trump’s victory, a U.S. rally ensued. Michael Lewis recalls the turn of events inside Jane Street in Going Infinite:
What had been a three-hundred-million-dollar profit for Jane Street was now a three-hundred-million-dollar loss. It went from single most profitable to single worst trade in Jane Street history.
What went wrong inside Jane Street had nothing to do with their intelligence or technical abilities and everything to do with where they focused their resources. As Lewis stated, “In retrospect, they had spent too much time getting their information and not enough time thinking about how to use it.” They were solving the wrong problem.
The lesson from Jane Street’s election mishap, however, extends far beyond the trading floor. Early in my career I made a similar error by overly focusing on my investments at the expense of my continued development and learning. Instead of trying to sharpen my skills at age 23, I was lost in spreadsheet land trying to optimize my (then tiny) portfolio. Any additional gains I managed to achieve from tweaking my portfolio pale in comparison to the compound growth I would’ve achieved by enhancing my skills, knowledge, and professional network.
The funny part about this story is that I felt incredibly productive the whole time I was optimizing my miniscule portfolio. I felt like I was making massive progress, but nothing could’ve been further from the truth.
Jack Butcher has referred to this concept as “All The Gear, But No Idea.” He notes how people start businesses by spending all of their time focusing on the wrong things. They buy fancy business cards and design a killer website, but don’t spend any time understanding how to get clients. All this activity feels productive, but, ultimately, doesn’t do much to help get the business off the ground.
Butcher likens these people to fishermen who fork out hundreds of thousands of dollars on a nice boat with a fast engine and a world class sonar system only to forget to buy bait and hooks. As Butcher suggests, you’d be better off catching fish with a cheap fishing rod with a single hook off the side of a bridge than you would with the best fishing boat in the world without bait and hooks.
The temptation to have the best tools can be seductive and lead us to over-invest in the “bells and whistles” instead of focusing on the essentials. Just like those fishermen, I too was captivated by complexity. At 23, I was enthralled with asset allocation and novel investment strategies, mistakenly believing that these were the keys to building wealth at my young age. Only later did I realize that I was wrong. Though these investment strategies were important, they mattered far less in my early 20s when I had so little money to invest.
This pitfall isn’t just reserved for careless fisherman or hyper-investment-obsessed twenty-somethings though. The trap of solving the wrong problem is one that any of us can fall into regardless of our profession or passions. Whether you’re reading yet another self-help book instead of taking action, or you’re tweaking the design of a presentation rather than focusing on its content, solving the wrong problem is a subtle diversion that can make busywork feel like productivity.
Unfortunately, the only solution I know to this problem is to take a step back and critically analyze your decisions. You have to ask yourself some tough questions: Are your current efforts aligned with your long-term goals? Is the work you are doing now the work you should be doing? Are you, in fact, solving the right problem?
With social media and the internet, it’s never been easier to distract ourselves from doing the things that we need to do. After all, you can always read another article, get another opinion, or watch another YouTube video instead of getting started. It reminds me of an incredible quote I recently heard from Chris Williamson:
The magic you’re looking for is in the work you’re avoiding.
Unfortunately, many of us avoid the work we should be doing simply because other metrics are easier to measure. I typically see this among parents who work endless hours to provide layer after layer of financial security to their offspring while spending almost no quality time with them. They mistakenly believe that providing resources (something that is easy to measure) is the only job that a parent should do. Though their intentions are likely rooted in love and the desire to provide, they’ve, regrettably, solved the wrong problem.
There are many examples of solving the wrong problem in the investment world as well. Many retail investors, who try their luck with market timing or security selection, end up spending countless hours doing research only to underperform the market anyways. Their mistake is believing that the primary problem in investing is what to buy or when to buy, rather than how to stay invested for the long-term.
So ask yourself: are you solving the right problem? In your career? With your health? In your relationships?
Or, are you focusing your efforts in the wrong places?
This idea reminds me of my favorite quote from Alex Hormozi:
The life you want is on the other side of a few hard conversations.
The question is: are you willing to have them with others? What about with yourself? Do you really want to solve the right problem, or do you just think you do?
Thank you for reading.
This is post 374. Any code I have related to this post can be found here with the same numbering: https://github.com/nmaggiulli/of-dollars-and-data