The Lure of the Unsolvable Problem

By Jack Forehand, CFA (@practicalquant) —

I was talking to someone recently who was exploring potential career options and they asked me a question that got me thinking. They wanted to know why out of all the available career options I decided to work in asset management. I gave the usual answers that many people would give to that type of question. I certainly love what I do, and being able to do something that I enjoy every day has had huge benefits for me. I also have always been more of a math guy, and running quantitative investment strategies fits right into what I do well. Investment management is also certainly a good way to make a decent living from a financial perspective.

So those were the answers I gave.

But in reflecting on the question since then, I realized that I left something significant out. To understand what that is, I first need to go off on a tangent about my favorite thing to do in my free time.

Since I was a kid, I have always been involved in competitive sailboat racing. Like investing, being successful in sailboat racing involves managing a large number of variables simultaneously, each of which is impossible to predict in advance.

The first leg of a sailing race almost always requires sailing directly into the wind. The issue with that is that sailing directly into the wind is impossible because the sails of a boat need to fill with wind in order for it to move forward. They can’t do that when the wind is coming from directly ahead. The best a boat can do is to sail at 45-degree angles back and forth and slowly make its way into the wind.

In theory, this isn’t too difficult. But in practice, trying to do it in a race is a huge challenge because those variables I mentioned earlier introduce many complications into the process. The wind rarely blows from a constant direction, so it is typically shifting as you make your way to the mark that you need to round. It is also usually stronger in some places than others, and the boats that sail in the stronger wind will go faster. In addition to that, the tide creates currents than can benefit some boats over others. And to top it all off, other boats try to negatively affect you by taking your wind or forcing you into difficult positions.

When you add all of that up, you have a large number of unpredictable factors and an endless number of combinations of them. The boat that does the best job of managing these factors will likely win the race. But no matter how well you balance all of these variables, you will never be perfect. There are always ways to get better. Even the winning boat never sails the perfect race

Although sailing and investing might not seem to have much in common on the surface, the similarities are actually striking. They both pose problems with more variables than can possibly be controlled for. They both operate in systems where the perfect answer can never be found. They are both unsolvable problems.

When I look at the things I do in my life, that desire to figure out things that cannot be figured out is a common thread.

In thinking back to the discussion I had with the young person asking for career advice, I think this is what I missed. I think a major factor that drove me to asset management is my desire to try to solve something that can’t be solved.

The investment profession has some of the smartest people in the world. But no matter how smart you are, there will always be ways you can get better. No matter how much you learn, what you don’t know will always exceed what you do.

Just when you think you are good at investing, the market has a way of humbling you and making you realize that no one will ever completely figure it out. That may sound like a stressful thing, but in reality, it is what makes doing this job great. For someone who strives to constantly learn and to constantly improve, there is nothing better than something you can never get too good at.

So next time someone asks me for career advice, I will certainly mention that it is important to love what you do. I will also mention that it is crucial to do something that you are good at. But on a deeper level, I think it is also important to challenge yourself every day. And there is no greater challenge than a problem that can never be solved. Investing has offered such a challenge for me. I know that I will spend the rest of my career trying to improve and refine our investment strategies. But I also know that I will never reach the point where further improvements can’t be made. And I wouldn’t want it any other way.

Photo: Copyright: / donskarpo

Jack Forehand is Co-Founder and President at Validea Capital. He is also a partner at and co-authored “The Guru Investor: How to Beat the Market Using History’s Best Investment Strategies”. Jack holds the Chartered Financial Analyst designation from the CFA Institute. Follow him on Twitter at @practicalquant.