Goals vs. Systems & Wanting It

People often get confused between goals and systems. If you have goals, you read about how what you really need to get where you want to go is a system. If you have a system, you read about how what you really need are some specific, measurable goals.

The trick that nobody talks about is that what you actually need is both. Setting specific goals that you can check off and feel accomplished by completing is important, and once you have the goal, you have to build a plan to get there, that’s the system.

The piece that people get wrong is when they set the goal, it may be measurable, specific, etc., but it isn’t what they actually want. Setting a goal to run a certain amount of miles in a certain time or make a certain amount of money might sound like what you want, but lots of times it isn’t. And if your goal isn’t really what you want to do, you aren’t going to stick with the system.

In my experience, when it comes to goals (and excellence in general), there are four kinds of people. Those who do ‘it’, those who want ‘it’, those who want to want ‘it’, and everybody else. Surrounding yourself with people who know what they want and then just do what it takes to get there is the ideal. But those people are rare. People who want it can, with the right tools and resources, become people who do it. The most dangerous group isn’t everybody else, they are obviously not who you want to be with. The most dangerous group is those who want to want it. It can be easy to confuse them with people who actually want it — for years at a time. But they don’t want it, they might think they are supposed to want it, and trap themselves into pretending they want it until their whole self-image is as somebody who wants it.

Consumption Smoothing

WCI touched on consumption smoothing in a recent post. This is one area where classical economics and real life observation (and behavioral economics) differ greatly.

Consumption smoothing is the act of consuming a more equal amount over your lifetime than just a percent of income or some other measure. The textbook says if you expect your earnings from 40 years old and on to be $1,000,000+ each year, but only $30,000 before that, you should borrow and spend as much as you can get your hands on in your 20s and 30s because you’re probably going to die sleeping on a fat pile of money anyway, so there is no reason to share the kitchen with cockroaches even when you are young and poor.

However, nobody knows the future, and as soon as we start looking even 5 years out, there are so many unknowns that from a stress minimizing perspective, any appreciable attempt to smooth consumption would, at least for me personally, be totally counter productive.

There is also a (puritanical?) values system that suggests living young and lean so that later you can be comfortable and use the optionality you’ve created. This is as opposed to consumption smoothing from the beginning, and getting yourself to a place of negative optionality because you’ve accumulated debt which you have to pay off, limited your future possibilities.

Now, don’t get me wrong, there is certainly some place for consumption smoothing, but as the original link says, moderation is key. When I moved to California after school, I was paying more than 50% of my take-home pay on rent and saving very little at all. This is definitely consumption smoothing in action, as my expenses have increased much more slowly than my (expected and actual) wages since then. However, I’m still early in my career, and classic consumption smoothing models should still have me saving very little, yet that is not my preference.

I’m not sure exactly why not, and haven’t come across (though I expect it exists) a model that describes my utility curve. Something about a very low/negative discount rate on future spending, a desire for optionality early on, and a high aversion to debt.

My Favorite Interview Question

I have had the (often) enlightening experience of being one of the primary interviewers at a growing firm, and have had the chance to interview dozens of (often) interesting, bright people.

The question I’m probably most known for is a variation on the classic ‘walk me through your thought process for estimating a very large number’ genre of interview question. I won’t go into the details, but as a brief aside, it is shocking to me how many people are complete unaware that this is a genre of question. If your follow-up question is asking me about why I would ever ask such a question, you clearly didn’t do much research on interview questions.

Anyway — most people, in the course of answering my thought process question, start with the population of the world. It would shock you how many people have no idea how many zeroes worth of other people share the planet with them. Over time, I figured out that I think knowing how many other souls are on this little rock we call home is a better indicator to me of the general intelligence (or whatever it is I’m looking for) than even my beloved question.

I’m not sure why that’s the case, it’s a fairly trivial fact that everybody learns at some point in their life, and can probably be searched by speaking at your watch, but somehow it is deeply important. If you don’t know how many people are on the Earth, how can you discuss ‘the bottom billion’? How can you put anything in context? I think this is just one of those facts that people who are great co-workers walk around with.

Frankly, as long as someone knows it’s between 1-10 billion, I’m not sweating it. They are nervous, it’s been a long day, whatever. But when someone can get within a billion or so of the actual population, it stands out to me more than I ever thought it would.

How Much You Know

Most areas of life with any appreciable level of nuance involved share a growth trajectory that looks like this:

This applies to sports, finance, and life in general. It’s critical to avoid taking advice from people in the shaded area, or what I call the “‘Thanks for the tip’ zone”.

Unfortunately for people to the left of the TftT-zone, because people in the zone are often more certain about what they think they know than people to the right of it, it can appear that people you shouldn’t be taking advice from are the real experts.

When trying to learn something new, it’s critical to make sure the people you’re learning from are living on the right side of the graph. When you get unsolicited advice from someone in the zone, tell them “thanks for the tip”, and let it go in one ear and out the other.

Statistical Pet Peeves

I am fairly well known around my office for cynicism skepticism around “fun facts”. I usually need to see the figurative receipt before I believe it. When it comes to more complicated topics, I’m going to want to see the study.

Not all studies are created equal, however, and there are a million ways to use results to mislead the target audience (often journalists or the public).

There are three kinds of lies: lies, damned lies, and statistics.

Benjamin Disraeli

There are two things I do when I spot statistic abuse: the first is to close my browser tab, shake my head briefly for having been tricked into wasting a click, and forgetting it ever happened. The second is, if the subject matter is interesting enough, to look into the original study and see what the authors actually said. If the authors themselves are the ones making things purposefully unclear, I usually just assume the study is biased too, and don’t update my bayesian priors at all.

Without further ado, two fast ways to make me think the author is a clown in the best case, or purposefully misleading in the worst case.

1.) Stating a change of a percentage as a percentage:

For example: Reporting a change in income taxes from 10% to 11% that looks like:

Income taxes are slated to rise by 10% starting in 2017.

The average reader is going to have absolutely no clue what this means, and is likely to conclude that taxes (which they probably know are already close to 10%) are going to double.

This sort of thing happens all the time, and is most often seen in headlines, which is one of my unforgivable sins. A faster way to my ‘ignore list’ does not exist. That is why my adblocker also blocks the entire news section of yahoo finance.

Now, there is a perfectly acceptable way to report the percent on a percent change, but using the same example above, it looks like:

Income taxes are slated to rise from 10% to 11% starting in 2017, a 10% increase.

It’s so easy to make things clear that I can’t help but have a harsh interpretation when it’s not done.

2.) Dual Y-axis Graphs

What is a dual Y-axis graph and why do I have beef?

Here’s the first sample I found on google.

Note the two y-axes. this is the hallmark of a two y-axis graph.

So what is the problem? The problem is that you can make a two y-axis graph “say” virtually anything you want. The relative values of units are completely out the window (and don’t get me started if the units are different). The only thing you can’t abuse is the direction of relationship from start to finish, assuming the data is a time series (meaning the x-axis represents dates/times).

If a graph has two x-axes and doesn’t have zero showing at the bottom of both axes, it’s a clear sign that the graphee has an agenda.

Now, sometimes you want to make as strong a case as possible, and sometimes you have a time series (which, in my opinion in the most proper time to use a two-axis graph, if one exists) rather than a bar chart comparing discrete variables or something, and the point of the graph is to reinforce the relationship within the series (upticks and downticks on the same days in the series, for instance), then a two-axis graph is a powerful visual tool.

For me, this means the person publishing the graph needs to have already made the point they are trying to prove clear (rather than using the graph as the smoking gun), and needs to have an already impeachable standing as far as statistical integrity. Needless to say, there aren’t many people whose graphs pass this test.

Dual axis graphs are a staple of finance presentations (investment bankers, sell-side firms, etc.) and publications with agendas, and it takes too much time to unravel the actual relationships shown in the data for them to be worth much.

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Consuming Content – A Personal Take

I consume content in a variety of ways. However, I think about consuming content in a way that is much different from most people I know.

What content don’t I consume?

For anything that could broadly be called “news”, I spend exactly 0 seconds per day actively seeking it out. I trust that when something big happens, it’s going to bleed over into the other places where I am actively looking. If someone at work tells me something big happened, I check the uk.reuters website (note, I’m in America) and see if it made the front page. If it didn’t, I usually ignore it.

Where am I looking?

I primarily consume content through reading, same as your grandpa. However, unlike grandpa, I don’t thumb through the Wall Street Journal and the Times every morning. I have subscriptions to those places so that when I see a link I can get through the paywall, but papers are throwing a broad net and I want a specific subset of their content.

Okay, so how do I know what to read? Easy. I follow the blogs and websites of smart people. I read their posts, and as luck (just kidding) would have it, they are paying attention to the same kinds of things that I want to know about. I kill two birds with one stone, I get a take on the hot issues, and I get a link to the original source material, which I can decide to read (or not).

How do I know what to read?

Building my repository of smart websites is an ongoing process, and has certainly taken time and thought. I started with a list from someone I respected (the list was absolutely enormous) and after a few weeks started cutting the fat and adding my own flavor. I’m sure the list would be totally unrecognizable to the person who gave it to me now, but having a starting point was really nice. As a sidenote – there is a great trend of good bloggers (especially in economics) banding together under one website, making the process even easier.

I break my list into categories: financial planning, economics, investing, tax, miscellaneous, and a temporary area for blogs on probation before they get promoted to the big leagues (or sadly, as is usually the case, deleted). I also have a section for people I know in real life and (shoutout) Benedict Evans has his own category called ‘tech’ which will hopefully someday not be so lonely.

I keep the lists small enough that about half of the time I can read everything that looks interesting within a week of it being posted. Sometimes if life gets in the way I end up behind, in which case I read all of the posts from my favorite authors then mark everything else as read and start fresh. I do that at least once a month. Having a huge backlog is daunting.

So, I read a lot. I have no idea how to quantify it, but I probably spend an hour or two per day (~630AM and 930PM are pretty typical times) reading plus whatever I end up reading that’s related to my work. I’m a fast reader (400-500 wpm?) so I purposefully consume a lot of written word because it’s efficient for me.

Okay, where else?

My other major time commitment for taking in content is through podcasts (see bottom half of this post). Podcasts have been great resources for a long time, I think we’re really hitting a critical mass where there’s not enough time in the day to listen to all the podcasts for a given topic.

I recently (to my embarrassment) learned that I can listen to podcasts at 2x speed. I’m pretty sure I’m not losing much comprehension, but I guess we’ll see.

I listen to podcasts in basically the same areas as I read, but given the increased time commitment (one post takes 30s-10 minutes to read while a podcast always takes 30-60 minutes [half now, I guess]), I keep my rotation tight, 5-10 podcasts at any given time. Virtually all of the podcasts I listen to are of the ‘host interviews guest’ variety. If the guest is interesting enough, I’ll add their website to my reading rotation or look for other podcasts that they’ve been on.

Anywhere else?

I also follow most of the people I read (and some others) on twitter. Regardless of what a person normally tweets about, if something big happens (e.g., Prince dies, RIP) I’m going to see it. However, I just think it’s pretty fun to reply at people who are talking about things where I consider myself to have a pretty informed opinion. It’s a great outlet for opinions that my friends on facebook certainly couldn’t care less about.

I watch television mainly for sports and specific shows, but certainly don’t consider it a primary source. I have watched shows like Jon Stewart’s, Colbert’s, and Oliver’s, but typically find that they are just another funny take on things that the blogs/pods/twitter have been talking about for a week already.

What else is different?

  • I read a lot.
  • If it’s important, I will always try to find the source material.
  • If it doesn’t have available source material (say, a study an article is based on is behind a $35 paywall [hilarious, by the way]), I give it close to 0 weight in my own personal Bayesian math.
  • My bar for somebody who I want to follow is extremely high. Like 30 people in the world, and most people haven’t heard of more than 2 of them.
  • The people I do follow, I read almost everything they put out.
  • I skim a few ‘linkfest’ type posts, but only click about 10% and then close another 50% of those after the first paragraph.
  • I read a lot.
  • Most of the people I follow are deep into their specialty. I don’t follow a lot of expert-turned-commentators whose only recent contributions to thought are op-eds and often venture into areas where their expertise is outweighed by the fact that they are out of their depth.

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