Political Biases Ruin Portfolios
SBF’s Ill-Fated Trump Trade
One of the funniest passages from Michael Lewis's "Going Infinite" recounts the saga of Sam Bankman-Fried (SBF) during his time at Jane Street.
SBF, eager to predict the 2016 election outcome, devised a system that allowed him to forecast state election results ahead of major news sources.
Knowledge of the 2016 election outcome should have given him a significant informational advantage over fellow market traders.
SBF’s system accurately foresaw Trump's election victory. In theory, this should have been a windfall for him.
He wagered that a Trump victory would have a negative impact on the market. He didn’t even question the possibility that Trump might be good for the stock market. The immediate aftermath seemed to confirm his belief as futures plummeted overnight after Trump won.
Yet by morning, as Trump's win became evident, the market responded positively, anticipating potential tax cuts and deregulation. This miscalculation led to a staggering $300 million loss for Jane Street.
This loss was a result of SBF’s political biases.