MICHAEL LEWIS IS A MASTERFUL STORY TELLER WHO HAS DONE A PHENOMENAL JOB OF PORTRAYING THE ESSENCE OF WALL STREET AND TRADING IN HIS BOOKS LIARS POKER AND THE BIG SHORT. THE MOVIE, THE BIG SHORT IS AS CLOSE TO THE REALITY OF TRADING, RIGHT DOWN TO THE DIALOGUES AND DRESS CODES, AND LIFE ON WALL STREET AS I HAVE EVER SEEN. KUDOS TO THE FILM DIRECTOR ADAM MCKAY.
While these bestsellers and blockbusters capture the essence of significant episodes and personalities of Wall Street in recent times, they did not look enough into the more “mundane” aspects of trading careers.
I was an interest rates derivatives trader on Wall Street for close to 30 years. And I have a few observations to make about life as a trader with the hope that this can help others learn from the experience and prevent them from making crucial career mistakes.
So, with the disclaimer that the following opinions are just my opinions based on my experience and observations, and not based on any scientific or statistical study, take them for what they’re worth…just one trader’s two cents. And the he or his in this narrative is also meant to be inclusive of she or her.
The first stage of a trader’s life probably begins as a junior trader assigned to a “trading desk” which is usually a group of traders and analyst. Armed with an MBA and quantitative skills the young entrant is keen to show off or put his skills to work. It doesn’t take long for the newbie to discover that there’s so, so much he doesn’t know. He’s overwhelmed by the frenetic pace of activity and buzz of the trading floor. He’s in awe of the people, minds and machines.
The newbie gets assigned to a more experienced trader and begins to learn the ropes. Starts to absorb information. And over time achieves proficiency in a certain trading instrument or market niche and learns risk management. At the same time he adopts a role model. Usually, an experienced and successful trader after whom the newbie wishes to model his own career.
A few years go by and the newbie is no longer a newbie. He’s gained experience, had success, gotten promotions and more responsibility. This is a phase of learning and growth and often on a sharp upward trajectory.
This is the stage of learning and a state of happiness.
As the trader becomes more seasoned and experienced he’s given a bigger book to manage. That is, more risk capital to play with and larger risk limits. He now engages in trading on a bigger scale. Successes bring gratification and larger bonus checks. Success breeds more success. Which in turn emboldens the trader to take on larger positions. Soon the trader gets to be known in the markets as the “whale”, “big swinging dick”, “whiz kid”, “rainmaker” and such. The trading floor, the bosses, the markets and sometimes even the media are in awe of this trader. It’s hard not to let all of this feed into the trader’s head. The ego swells up and the trader starts believing the hype that he is God’s gift to mankind and all of those awesome things. I’m invincible, he thinks. What can possibly go wrong?
This is a dangerous state of mind. Hubris has set in.
Inevitably, something does go wrong. A large trade goes sour and he loses a lot of money. Tries to recover those losses and instead loses more. Perhaps he doubles up and blows through his risk limits and piles on bigger losses. The hot hand has gone cold. Clarity of thought has been replaced by emotionally clouded thinking. He’s running angry and scared. Rarely, if ever, the right ingredients for success.
The “big swinging dick” gets his risk limits downsized and is put on a “watch”. Worse, he may get fired from his job. The ego gets crushed. Anger and depression set in. What’s to be done?
The trader needs to rebuild his confidence and get back in the seat.
This is the stage where the trader has to rebuild himself if he’s going to continue in the game. It’s a humbling time of serious introspection. Of honestly and truthfully understanding what caused his successes and the downfall. Was the ascension all due to the trader’s skills or were the earlier successes largely supported by other, extraneous factors? What factors and decisions caused the downfall? How and what would he want to do differently? And most importantly, what learning has he gained to help him move forward?
This stage of self-reflection is necessary to learn and grow but, unfortunately, most often it comes with hindsight.
The key takeaways from this narrative, which may also apply to other career tracks, is to be consciously aware of when and if hubris begins to set in. That is a dangerous state that can derail great careers.
Keep that ego in check. Stay humble. Reflect often on how much of our successes are related purely to our skills and abilities and how much are attributable to extraneous factors.
Moral of the story: having foresight to prevent a downfall is better than fixing a career with hindsight.