If we see higher risk assets further over-valued, do not chase the move, but rather sell into price ...
Learning from Traders that Made It (Part 9)
03/27/2008 12:00 am EST
Sure enough, I was watching him trade the next day and he was taking larger than normal positions and taking trades he normally would have passed on. I watched for a while until he had closed out a position with a sizeable loss and then asked him to come see me in my office. When he came in and sat down, I asked him about the positions he had been taking earlier in the morning.
He told me he was having a great year and he needed to really ‘kill em’ the rest of the year so he could ‘buy that house my wife found’. He figured since he was already having a great year, he could take more risk than he usually did—both by trading larger than he normally traded and by taking trades he liked but normally wouldn’t have taken because the stops were too big. He felt he had a cushion to work with and was going to ‘take a big swing’ to try to finish the year off with a bang.
I scratched my head and told him he had made a great deal of money for the bank—in fact, he was the top earner on my trading desk so far for the year. Then I reminded him that he had never made this much money trading in one year in his entire career. Finally I asked him if he had had this record profitable year because he had been taking larger positions or taking trades with larger than normal stops. He answered that he had just traded the way he always had, but now things were different: there was just over a month left to trade in the year and he needed to make sure he got a huge bonus!
I warned him to be careful about changing his trading style and size just because he wanted something. He was having a record year because of his trading style and because he was selective about the trades he took. He listened, but I could see in his eyes he was only thinking about making more money so he could be sure he could get that house his wife wanted.
I had a quandary: he hadn’t violated any of trading desk rules. He wasn’t even having a bad month. But I sensed that his focus had shifted dramatically and in my experience as a manager and as a trader, this generally led to problems. I decided to go see my boss, Dave, the head of Capital Markets.
Dave listened intently and when I got to the part about the wife falling in love with a very expensive house, he groaned. Then he stopped me and asked, ‘how much bonus will he need to be able to buy the house?’ I told him. Then he asked how much he was up net for the year. I told him that and what I guessed his bonus would be if he stopped trading today. He’d be close to having enough—in fact, if the bank also had a good earnings year, he might have made enough already to qualify for a large enough bonus to buy the house.
But if he continued to trade larger and less selectively and began to lose a fair amount of money, he wouldn’t make it. I didn’t know what to do.
|More on part 10 Tomorrow||Part 1 | Part 2 | Part 3 | Part 4 | Part 5 | Part 6 | Part 7 | Part 8|
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