SBF's First Big Mishap

From Business Insider:

"Before founding FTX, misplacing $8 billion, and pleading not guilty to seven charges of fraud and conspiracy, Sam Bankman-Fried worked at Jane Street Capital. And he wound up responsible for the quantitative-trading firm's single worst loss, to the tune of $300 million, according to Michael Lewis' biography of the FTX founder.

During the 2016 presidential election, Jane Street's traders believed that the world's stock markets would tank if Donald Trump was elected. To get an edge on its competitors, the firm put Bankman-Fried in charge of a project to design a system that would predict the results, according to Lewis.

Bankman-Fried assigned different traders to specialize in voting data from different states. And it worked, as Jane Street was typically calling states minutes before CNN — and sometimes hours earlier — so it could place bets before other traders responded to the news, according to the book.

The most dramatic moment was in the Florida panhandle, which Jane Street called five minutes before CNN, Lewis wrote. It was so pro-Trump that it swung his odds of winning the presidency from 5% to 60% on Jane Street's system.

Jane Street bet several billion dollars against the S&P 500 and $250 million against other countries' stock markets, per Lewis' book. And it looked set to be one of its most profitable ever trades as Bankman-Fried went to sleep.

Three hours later, the US stock market had rallied.

"What had been a $300 million profit for Jane Street was a now a $300 million loss," Bankman-Fried told Lewis. "It went from single most profitable to single worst trade in Jane Street history."

We will soon be in another election season, so let this be a lesson. Even when you have the right information, or even have predictive powers, knowing how to use it is something different altogether. If you are an investor, and not a professional, full-time trader, you are playing the wrong game if you think the occupant of the oval office has historically had anything other than a marginal impact on the markets. Just stop with the election stuff.

Tell me where interest rates or inflation will be a month from now. Feed me a publicly traded company earnings call in advance. Show me which geopolitical bomb will go off next. DROP ME A NOTE BEFORE THEY ANNOUNCE THE RECESSION IS HERE. None of this advanced news feed will necessarily lead to higher portfolio returns. In fact, what you may think of as a huge advantage could be the thing that decimates a portfolio. Be careful what you wish for.

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