As part of my series on judgment and decision making, I discussed the benefits of avoiding overthinking. Jim Paul has a good anecdote that illustrates this point nicely:

One morning Joe Siegel and I were on the trading floor when one of my accounts called in from vacation. “What’s lumber doing today?”

“It’s limit up.”

“Why?”

“The cash market is a lot stronger because storms in the Northwest are making it hard to get the lumber out from the mills.”

“Where’s cash?”

I told him prices for two-by-fours of white fir, western SPF, and green Douglas fir, and continued reading the news wire. The “green” in green Douglas fir refers to the fact that it has been newly cut (it has not been dried), just like someone who is new at something is referred to as green.

Siegel looked over at me and said, “I never have understood why they get such a premium price for lumber that they paint green.”1

I couldn’t believe it. Here was Joe Siegel, easily trading more lumber futures than anyone else on the floor, and he didn’t even know the difference between green and kiln-dried lumber in the cash market. I wasn’t sure if he was kidding me or not. But looking back, I can only now see how it was possible for him to be such a successful trader without knowing that green lumber isn’t actually painted green. He was a trader, and he relied on short-term information like order flow and price action to make his decisions because his time frame was short-term. He didn’t let longer-term information more suited for investor types interfere with his trading. He knew the difference between traders and investors.2

Editorializing a bit, Siegel was successful because he evaluated the data based on experience and past history, and he made deliberate, emotionless decisions. He didn’t spend his time studying the lumber industry, climate change forecasts, or environmental impact surveys. He read the short-term data, evaluated the odds, and made decisions. Intentional ignorance is not admirable, but devoting time and attention to the right places while forsaking all others is.

  1. Paul, Jim, and Brendan Moynihan. What I Learned Losing a Million Dollars. New York, NY: Columbia University Press, 2013. Kindle link. ↩︎

  2. Paul, Kindle link. ↩︎