There's Room for More Art. There's Room for More Companies.

April 12, 2019

Social Status Games

In college, I cared about the social status games of prestige and money. These are zero-sum games. There are only so many jobs. Some people get good jobs and other people get less good jobs and other people get no jobs.

I wanted the best job. So I picked the industry that paid the highest: investment banking. But in order to get the best job in the best industry, I had to work the hardest. I compared my actions to a competitor working harder than me. There always was someone working harder than me (even if they weren't real, they were there).

Looking back, this wasn't healthy. I imagined a competitor waking up early to hit the gym because that's what Bankers did. I imagined a competitor being with hotter women because that's what Bankers did. I imagined a competitor drinking 3-5 nights a week while simultaneously pulling off a 4.0 because that's what Bankers did. So I did all those things.

I wanted the best job. The best job was investment banking. So I had to be more of a Banker than anyone else.

In the social status game context, this makes sense. At my dream firm, there were only 12 open spots. Of those 12 spots, only one spot would be given to a student from a non-target school. So I convinced myself I had to be more of a Banker than thousands of students who were gunning for investment banking jobs. I had to be the best. Makes sense.

There are a few mistakes in my logic here. First, a social status game like this is not worth playing. This should be clear to anyone who has played these games before and quit. Second, my attempt to be the absolute best Banker would not necessarily translate into the best job. Turns out entry-level investment banking recruiting isn't a holistic, fair process (and who knows, maybe some other kid was more Banker than me anyway). Third, aspiring for an ideal other than what's true to myself is wrong. Turns out I don't need to be a Banker to be a banker. I like reading, long conversations, and staying in to watch films on Friday nights. And I work in banking. There's nothing wrong with this. There never was. It just took me a while to realize it.

It's easy to look back and be disgusted at myself for playing a game like that. And taking it so seriously. Perhaps I'm playing another game now and I'm just not being honest with myself. I know I'm still playing the prestige and money games - we all are. I'm just playing at a much lower intensity than before.

Every human plays status games; this makes us human. Everyone has their Joneses to keep up with. Whether that's trying to get a job at the best Wall Street firm, getting the most followers on Instagram, or standing up for the most underprivileged folks.

Maybe some people are above these games. I don't think I've met any of them them. If you're out there, please identify yourself.

Public Markets

Last week at work I discussed public market investing with my colleagues. I don't think it's possible to earn true alpha. A few colleagues disagreed. And they got me thinking.

My argument goes like this: the only way to generate true alpha is to develop a strategy that beats the market over and over. That's alpha, right? Once you find this strategy, back-test it. If it still beats the market, put money in it. Profit.

It's hard to discover these alpha-generating strategies. Smart people spend their life on it and most don't find any alpha-generating strategies.

Even if I was inclined to try to beat the market, I don't think I could. I don't think I have enough processing power (IQ, if you must) to consider myself one of the smartest people. Especially in something like investing, which is one big puzzle. Some smart people are fascinated with puzzles and are much better than me at solving them. These people have PhDs in Computational Mathematics and work for Renaissance Technologies.

And because the stock market is available to everyone, there's certainly a trader out there smarter than me. With more data. With more experience. This character is the guy on the other side of my trades. And much of the time that guy doesn't even generate alpha. How am I supposed to? I don't have a good answer, so I don't try. I invest in ETFs and private companies with my capital.

My colleagues brought up the point that I may be overestimating the people on the other side of trade. For example, there are mutual fund managers who manage lots of money. I've met some of these people. Some are smarter than me. Some aren't. They don't seem like the Computational Mathematics PhDs, anyways. These managers have portfolios of 100+ stocks and have lots on their minds. Do they have an active process for accounting for cognitive biases? Do they maintain investing principles? Or are they more wrapped up in career-risk problems, thereby avoiding investment risk? I don't know. But it gave me a bit of hope.

Let's keep pushing on it though. If this were true, if some mutual fund managers were worse at investing than the smart people, wouldn't that be understood and exploited by the smart people? And if there was alpha from doing this, wouldn't enough smart people realize this and invest in the opposite trades as the mutual fund managers? And wouldn't this then remove the alpha because the "alpha arbitrage" is back in equilibrium? Back to square one.

So despite my conversation, I still don't think you can create alpha. And even if I did, the game is a zero-sum game. There is a losing pick for every winning pick. If I were going to bet my career on playing a zero-sum game, I'd have to be confident I could be the best.

Public markets are available to everyone, so I assume I'm playing against the smartest in the world. Am I confident that I'm in the top 0.0001% of the smartest people? Because I have to be in order to win at this game. And since I'm not, I don't want to play a game where the winner wins only when a loser loses.

Public market returns are a zero-sum game.  I was willing to play the Banker game. But I'm too scared to play the Smarts game. Turns out I don't need to play either of them.

Non-Zero-Sum Games

Why do I bring all this up? There's a way to withdraw from the "must be the absolute best" narrative by stepping away from zero-sum games. Creation is a non-zero-sum game.

I've tried to apply my "absolute best" framework to creative or entrepreneurial projects. I want to write. So I start writing. But what is the end goal? Is there a path for me to become the best writer? (This is how I think about everything.)

I ask myself, "Am I the 'writer' type?" At first glance, maybe not. I was a Numbers Kid, not a Words Kid. But I've always been creative and have an appreciation for detail. I could go back and fort, but it's narrative fallacy all the way down. Let's just assume anyone can be a writer, regardless of past inclinations. So I can be a writer. Great.

How do I become the best writer? By writing a lot. Okay, that seems easy. I just have to write more than everyone else and I'll eventually get to the top. But I'm already 23. And some people have written thousands and millions of words more than me. Well, crap. If someone who started writing at age 14 writes at the same pace as me, and I'm 23, I no longer have a shot at being the best writer.

However, this isn't how the world works. First, mastery isn't linear. Putting in the most time doesn't make you the best. Plus, of the amount of people able to put in time, a small percentage do. These things are encouraging. These qualities make the writing game more intriguing to play. Maybe I do have a shot at the top.

But even more important is that "absolute best" doesn't matter in creative endeavors like it matters in zero-sum games. There can be an infinite amount of great things. Do you get tired of listening to new music? Me neither. What about movies? Nope. There's always room for great art.

Companies are the same. As long as it solves a problem, a new company is worth it. Creating a company is creating something brand new, creating wealth. It doesn't need to be the best company. It just has to be good enough to make a profit (proof of solving a worthwhile problem).

I think this is the joy that artists and entrepreneurs have over others: they are playing non-zero-sum games. It's okay if they aren't the "absolute best" because they can expand the pie instead of taking a piece from someone else. If I get one of the 12 spots at the best firm, that leaves only 11 for everyone else. But in entrepreneurship, I can create a company. And you can create a company. And we can both grow professionally and bring something amazing into this world. Just because I create one doesn't mean there's one less for you to create.

Creation is what matters. Creation is the game to play. Creators lift each other up, because the struggle is putting pen to paper. Creators recognize this and how a push in the right direction can help. There are never enough great songs. There are never enough great books. There are never enough great companies. Let's make stuff.

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