Variance is when life delivers uneven results to you and you have to keep doing good things anyway.
To some of my readers, particularly those in finance or trading, this concept might already be familiar to you. In which case you’re welcome to skim or skip today’s piece and I’ll catch you next week.
But for everyone else, this is one of the fundamental building blocks I’ve found of solid decision making and really good living. And therefore I’d like to introduce you and/or elaborate on it.
Process vs. Outcome
This is something I’ve heard more and more from wise people as I’ve gotten older: “Focus on the process, not on the outcome.”
Sounds easy, right? Make good decisions and don’t worry about what happens.
Unfortunately, humans have emotions and biases and unbelievably strong self-doubt mechanisms. And therefore the outcomes of our decisions tend to affect us deeply and inappropriately. We tend to get torn apart when things aren’t going our way.
And, worst of all, we tend to not be very good at distinguishing between luck and skill. So we allow bad luck to inform not just our outcomes, but subsequently our decision making processes. Annie Duke, author of Thinking In Bets, calls this “resulting.”
For instance, when you’re playing poker against your cousins and aunt and uncle and you bet it all on a really good hand. But you lose. You start to question yourself, thinking “oh come on now, I shouldn’t have been that aggressive.”
When, really, statistically, you had a massive edge. And you definitely should have been aggressive. You arguably made the right decision, you just happened to land on the bad side of mathematics. It happens. And yet you’re beating yourself up for it, when really you could just move on knowing that in 8 out of 10 identical hands you would have won.
Or, for instance, when you’re playing a video game like Call of Duty or Clash Royale and you just can’t seem to win. Maybe you lose three matches in a row. Maybe you lose ten matches in a row. And it’s horribly discouraging, and you get angry and start screaming and throwing things. Or maybe you don’t do all that because you’re not a degenerate like me.
But you must put it into perspective — any game in the world is going to come with losing streaks. Same with winning streaks. You have to take the bad with the good. Remember that just yesterday you were having fun and playing really well. And that you’re still a good player. And remember that sometimes the only thing to do with a losing streak is to get through it.
Here’s a tough one: you work hard at your job for a few years. In a department or group where you know eventually the boss is going to retire. You covet her spot fiercely, just waiting for the day she makes her announcement. You’re absolutely certain that you’re the obvious choice. You’ve got a great reputation, you’ve worked months of overtime, and you know the job inside and out.
And then that day comes, and they promote somebody else.
Yes, it’s hard. Yes, it’s unfair. I mean, you did everything you were supposed to do. What the fuck.
Well, sometimes life isn’t fair. But … you did everything you were supposed to do. I’m also willing to bet that if you take that same diligence and commitment to all other areas of your life, wonderful things are going to happen for you. Because you are a person with excellent processes. You are a person who earns good outcomes, whether they are delivered to you in a timely fashion or not.
The Long Game
Over time, your processes will always dictate your trajectory. Always. The Law of Large Numbers dictates that a big enough sample size will eventually reveal the truth.
Everybody lands on the bad side of luck sometimes. And everybody has losing streaks where they can’t, for the life of them, figure out what the problem is. That’s life. The key is to discern where bad luck caught you by surprise and where the failure was truly your own. And where it was your own, work as hard as you can at fixing it.
In poker, or baseball, or trading, or just about any other repeating activity in your life, you and your emotions will be at the mercy of short-term outcomes. And unfortunately so will your wallet, and so will your sense of fulfillment. You will always be yanked around and shaken up by the vicissitudes of chance and fortune, and it can be really hard to deal with.
What you can’t control is where or when the statistics will fall in your favor. What you can’t control is other people or the will of the universe.
What you can control is continuing to hone, refine, and develop the way you do things. What you can control is you.
You can learn to be a better poker player. And to bet big on the right hands. And over time, you will make money.
You can keep being an excellent employee. And eventually, someone is going to promote you. And then you get to be as miserable and overworked as that other sap should have been.
You can keep paying attention to the details that you know matter, because you know the gravity of getting them right. And over time, if you zoom out, you’ll see that your trajectory is up and to the right. A good trajectory that is earned with consistency and clarity.
Variance is the random distribution of outcomes according to probability and all the variables of whatever you’re doing. Learn those variables, learn to work with those probabilities, and accept the results as they come.
And drink some water.
JDR
“The only good luck many great men ever had was being born with the ability and determination to overcome bad luck.” - Channing Pollock