A Tale of Three Traders (Part 3)

02/13/2008 12:00 am EST


Timothy Morge

President, MarketGeometry.com

When Karl got back from buying cigarettes, he immediately asked me if the market had "come back to its senses." I told him that the position was doing better now and then told him our manager wanted him to call him from his office. Karl didn't flinch. He asked me to watch his position while he made the call and right before he entered the office to make the call, he said, "I'll bet it comes all the way back before I get off the phone, Tim. Give me a shout if I get in the black while I'm on the phone in here, huh?"

To this day, I don't know what my manager told Karl over the phone that day. He spent about 30 minutes in that office then walked over to his trading desk, put his suit coat on, thanked me for watching his position and then walked out of the trading room. Then, to my utter surprise, he walked back into the trading room a few moments later and opened the black binder and filled it out. Then he left for the day.

When I was done trading for the day, I, too, went over to fill out the black binder. I didn't have an overnight position, so I put zero down in that column. I'd made about $30,000 that day trading, so I wrote that down in the correct column. And then out of curiosity, I read what Karl had written. He put down that he had lost $90,000 for the day [which was a fraction of what he had actually lost, but that amount was within his allowable loss limit for any trading day] and he put down that he was carrying no overnight position. Our manager had apparently told him that someone had closed out his position. I shook my head in puzzlement, wondering why Karl would write down such a small loss in the black binder. Why write anything if you weren't willing to write the truth, I wondered to myself.

I got a bigger shock the next day. Karl came in the next morning with a newspaper under his arm and a fresh carton of cigarettes in his hand. He went over to his trading desk as if nothing had happened, sat down, lit a cigarette and began reading the newspaper. He spent the morning reading his newspaper, smoking, and making a few leisurely phone calls. Just after noon, he got up, walked over to my side of the desk and told me he was heading out a bit early. Then he went to the black binder and filled it out before leaving.

I had traded that day and it had been a fairly quiet day. I'd made about $20,000, so when I was done for the day, I went to the black binder and opened it and began filling it out. After I filled in my numbers, I glanced quickly at Karl's. He hadn't written a thing down under today's date. Instead, he had erased yesterday's loss number and changed it from $90,000 to $122,000. It didn't make sense to me, but none of it made sense to me. Why had he come in today, and why would he change his P&L number from yesterday?

My manager was out the entire week, and each day for the rest of the week, Karl came in on time, sat and read his newspaper, and when he decided to leave for the day, he went to the black binder and revised the first day's loss to a more negative number. And then he left for the day. By the end of the week, he had revised that number to a loss of just over $300,000. That was still a fraction of the actual loss. It was as if he could not stand to write the real loss down, could not stand to admit that he had lost the money.

What happened to Karl? He didn't get fired, actually. He was transferred the next week to the head office, where they could "watch over him more closely." He did leave the bank after the end of the year to take a job as an energy trader, so perhaps he had a term contract that ran out at the end of the year.

This event was early in my career as an institutional trader, and as time went on, I saw other traders go through what Karl went through that week. In point of fact, they could not believe that they had lost the amount of money they had lost, so they chose to ignore it, and then as time went on, they slowly came to grips with the actual loss, piece by piece, as one might get used to a new hairstyle or a new car.

More tomorrow in part 4. Part 1 | Part 2 | Part 4  | Part 5

Timothy Morge

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