Getting in touch with your feelings might seem better suited for the Oprah crowd, but a little introspection just might save your career. Trader Monthly, October 2008. Download the pdf here
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Traders: Keeping Sane Amid the Ups and Downs
By John Flowers / New York Tuesday, Oct. 14, 2008
Wall Street players met the undiscovered country, one full of deep valleys, huge peaks and uncertain terrain. First, an 18% drop in the Dow industrials and S&P 500 indexes last week; then, on Monday, a leap back from the precipice. Even after the markets calmed down a bit on Tuesday, with the Dow down 76 points, for the people paid to keep track of this stuff it has all become a prescription for drinks and gallows humor and, really, anything to keep traders mentally in the black.
The traders and Wall Street insiders with the unenviable position of watching bottom after bottom fall out of the market also had to go home to face what most other Americans must face: dwindling retirement accounts and the prospect that pink slips may be on the way. And so it's no surprise that jokes like "What's the capital of Iceland? Answer: $3.50." are flooding the Internet.
One equity sales trader in New York had this to say about the sort of toll that this crash is exacting on her: "I'm eating like a pig. I'm crying in the bathroom. I'm not sleeping, and I hate life. And how are you doing, Mrs. Kennedy?"
Ari Kiev, M.D., the author of Mastering Trading Stress: Strategies for Maximizing Performance, said the physical and mental toll can be most dramatic on younger traders who never have experienced a serious bear market before. "Guys who've been around for 20 years are saying, 'I'm keeping my powder dry. I know we'll recover, I just don't know when," Dr. Kiev says. As for the younger traders, he says, "They're bewildered. The inclination is to hold on to losers because they don't want to miss out on a rebound." The newbies have the potential to be the most shaken up because "all their prior work doing fundamental analysis isn't holding up."
A Chicago futures trader in the S&P futures pit said that "last week I had my biggest day, then my worst day ever in my career, in terms of sheer magnitude of emotions," and that the traders there joke that every day is "like putting on your armor and your helmet." What kept him level last week, he said, was some advice a much older trader gave him more than 20 years ago when he first started: "Kid, the crazier the markets become the, the saner you must become."
One Wall Street commodities trader, a younger man who discovered two weeks ago via Reuters that he and his department were getting the sack, said that during the day, he and his coworkers "play lots of music" and "make a lot of crude jokes." And after the market closes, he says, they "go out and have a few drinks and laugh at the ridiculousness of it all."
"We just got the details of how long the company wants to retain us," he says. "And so we're talking about that. Whether we wanted to stay on longer or get over as quick as possible. Sort of venting our frustrations, drinking and gambling." He and his cohorts particularly like to play dice games at bars, something they started doing about a year ago but now is "a way of distracting yourself from the problems of the moment." Asked if he's up or down at dice, he said that most recently he had "lost five bucks." It's "not exactly high stake gambling," he admitted. "We don't exactly have the money to spend."
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October 4, 2008
STOCK MARKET
Investors, banks shaken up
Huge swings force some to sidelines.
By Walter Hamilton, Los Angeles Times Staff Writer
October 4, 2008
Less than an hour after the stock market closed Monday with a record 777-point drubbing in the Dow Jones industrial average, financial planner Mark Wilson got an anguished call from a longtime client.
The client, a woman in her late 50s who was nearing retirement, had become so frightened by the market's wild swings over the last month that she instructed Wilson to sell all her stocks.
"She said, 'I can't take the volatility. Get me out of the market,' " said Wilson, a planner at the Tarbox Group in Newport Beach. "She was fed up."
The continuing fallout from the mortgage meltdown and housing downturn has made the stock market jumpy all year.
If the rest of 2008 follows the first three quarters, it will be by one measure the third most volatile year since the Great Depression.
In the last few weeks, as the financial crisis has intensified, the price changes have grown especially jarring.
"I've been doing this 17 years, and I can't remember a time when you've come in and seen the market up or down so much so many days in a row," said Kevin Kruszenski, director of trading at KeyBanc Capital Markets in Cleveland.
After its plunge Monday, the Dow leaped 485 points Tuesday only to sink 348 points Thursday.
Even on Friday, when the blue-chip average fell "only" 157 points, share prices swung furiously during the trading session.
The Dow rocketed more than 300 points before the House's passage of the $700-billion financial-system bailout bill -- then gave up nearly all of that gain within 30 minutes.
"Last week I thought was nuts, and this week was worse," said Anton Schutz, head of Mendon Capital Advisors in Rochester, N.Y.
The volatility reflects investors' Jekyll-and-Hyde emotions, which have seesawed between fear over the flailing economy and the collapse of major financial institutions to enthusiasm at the notion of the rescue plan spurring a recovery.
"You come in one day and everything's good, and the next day everything's bad," said Paul Hickey, co-founder of Bespoke Investment Group in Harrison, N.Y.
"From day to day, the market has completely different takes on things."
The sprawling fluctuations have even been tough on Wall Street traders, who normally love volatility because it brings opportunities for quick profits.
The market's violent moves have made it "almost impossible for anybody to catch the turns," said Jordan Kimmel, a New Jersey hedge fund manager. "For most people, it's a very tough environment to make money."
That's translating into loads of emotional distress on Wall Street, said New York psychiatrist Ari Kiev, whose specialty is teaching hedge fund traders how to control their emotions.
"More people than not are in a state of frustration, of high anxiety," he said.
The broad-based Standard & Poor's 500 stock index has risen at least 1% on almost 20% of trading days this year and fallen by that amount 25% of the time, according to Standard & Poor's Corp.
The combined 45%, if it holds up, would make this the eighth most volatile year since 1928, and No. 3 since 1938.
Last month tied January as the most volatile month of 2008.
For the Dow, triple-digit moves -- once a notable occurrence -- are now the rule.
The index has risen or fallen at least 100 points more than half the time this year, compared with fewer than a third of trading days in 2007.
Another closely watched gauge -- a measure of expected volatility implied by trading in stock-index futures -- is at its highest level in more than a decade.
"The market is like Sybil -- multiple personalities," said Howard Silverblatt, a senior index analyst at Standard & Poor's.
That's creating nightmares for even the heartiest individual investors.
Brad Morris, a 26-year-old Tampa resident, had an $800,000 stock portfolio a year ago. But the market's wild swings led him to gradually move more than half of it out of stocks.
"The market doesn't move 50 points a day anymore. Now it's 200 points up, 200 points down, 300 points up, 300 points down," Morris said.
"After living through the dot-com bubble, you think you've seen it all, but this is a lot worse."
Traders on the floor of the New York Stock exchange wait for the passage of the rescue package in the House of Reps. in Washington D.C. on Friday.
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Selon Thami Kabbaj, le jeune financier ayant fait perdre cinq milliards d'euros à la Société Générale est loin d'être une exception.
Pierre-Alexandre Sallier
Mercredi 17 septembre 2008
Rubrique: Supplément spécial
Un homme - jeune, ambitieux, intelligent - devait symboliser en ce début d'année tous les excès de la finance: Jérôme Kerviel, simple trader ayant pu mettre en péril l'équilibre financier d'un grand groupe bancaire français, la Société Générale, employant 134000 salariés. Et reflétant tous les ressorts psychologiques à l'œuvre dans le monde du trading.
«Ce qui m'a tout d'abord surpris est la réaction des médias, des professionnels de marché et du grand public; tous considéraient Jérôme Kerviel comme étant victime d'un complot de la part de ses supérieurs hiérarchiques, alors que celui-ci n'a jamais nié ses actes», relate Thami Kabbaj. Pour ce dernier, le trader de la Société Générale est tombé dans le piège d'un biais psychologique classique: l'excès de confiance. «Il pensait être un génie des marchés et il s'est mis à prendre des risques de plus en plus importants», explique cet expert, qui a lui-même travaillé comme trader à la City de Londres.
La perte de contrôle du jeune financier sur ses décisions - les pertes colossales enregistrées dans un premier temps l'ont poussé à prendre des risques importants - se retrouve également au cœur des travaux de Daniel Kahneman, Prix Nobel d'économie en 2002: les pertes sont en général bien plus douloureuses en valeur absolue que la satisfaction retirée pour un gain de même ordre. Conséquence, «l'investisseur refuse de perdre et préfère augmenter son exposition, voire prendre plus de risques, plutôt que d'accepter la perte et de couper sa position», résume Thami Kabbaj.
Inefficacité des contrôles
Pour ce dernier, «les agissements de Kerviel peuvent également s'expliquer par de graves défaillances sur le plan organisationnel» au sein de la banque française. Comme la formation insuffisante des employés du back-office, chargés de l'exécution des ordres de bourse, du règlement et du reporting, pour déceler les erreurs de trading. Ou le partage des bonus, les collaborateurs du back-office bénéficiant d'une rémunération liée à la performance des traders qu'ils sont censés contrôlés. Ou encore la rotation du personnel très importante au sein de ces services de contrôle, «qui n'ont pas bonne réputation, surtout dans le système de caste caractérisant les banques françaises, avec d'un côté les diplômés des écoles les plus prestigieuses obtenant les postes du front office et de l'autre les employés du back-office simplement issus des universités publiques». Kerviel était une exception, puisque, bien qu'issu de l'Université de Lyon, il avait débuté au sein des métiers du contrôle avant d'accéder au poste tant convoité de trader.
Ainsi, à en croire Thami Kabbaj, au-delà du secteur financier, le problème de la Société Générale «reste un problème franco-français lié à un élitisme basé sur le prestige des mathématiques et plus précisément sur le parchemin de certaines grandes écoles». Un élitisme qui en vient à terme à scléroser le monde de l'entreprise. Ces spécificités sont cependant loin de faire de Jérôme Kerviel une exception française.
«Cela peut surprendre, mais ce dernier représente un comportement très répandu dans le monde financier; la plupart des gérants et des traders ne sont pas très disciplinés et tombe souvent dans le piège des biais psychologiques», poursuit le spécialiste. Les banques en ont cependant conscience et ont instauré des règles extrêmement strictes de gestion des risques, surveillées en temps réel.
Le piège des émotions
Autant de contraintes déjouées par Jérôme Kerviel dont l'exposition maximale a atteint jusqu'à 50 milliards d'euros, alors que celle de son desk n'aurait pas dû dépasser 125 millions.
Humains, trop humains traders, dont seule une infime minorité réussit à maîtriser ses émotions et à générer des performances de manière régulière. «La discipline impose une bonne maîtrise de ses émotions et pour cela un travail conséquent doit être effectué; or cette dimension psychologique est souvent négligée dans les formations financières», souffle Thami Kabbaj. Et ce dernier de souligner que «ce n'est pas pour rien que Steve Cohen - le célèbre gérant de hedge fund - a recruté un psychologue, Ari Kiev, pour surveiller et pour coacher les traders opérant au sein de sa salle de marché». Faudra-t- il bientôt installer un divan à côté de la machine à café de chaque salle de marché?
© Le Temps, 2008. Droits de reproduction et de diffusion réservés.
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By CANDICE CHOI and ELLEN SIMON
AP Business Writers
15 September 2008
16:07
Associated Press Newswires
NEW YORK (AP) - Steve Levy left Lehman Brothers in 2005 but called his former secretary there on Monday to offer his support. She burst into tears after answering the phone.
She wasn't the only one.
The financial hurricane that whipped through Wall Street Monday suddenly made the Street, long a source of fabulous wealth, look uncertain and scary. In New York, where a half-million people work in finance, nearly everyone was shaken, from hedge fund billionaires to secretaries from Queens.
Lehman, the fourth largest investment bank in the U.S., filed for Chapter 11 bankruptcy reorganization Monday, the same day Merrill Lynch was bought by Bank of America Corp. in a snap deal for roughly $50 billion. Meanwhile, American International Group Inc., the world's largest insurer, and Washington Mutual Inc., the nation's largest thrift bank, were rumored to be close to ruin.
"How did this mess get so big?" said Levy, who worked at Lehman Brothers Holding Inc. for seven years before leaving in 2005.
The roughly 25,000 workers at Lehman, as well as many of the 60,000 at Merrill, face a double whammy: Many will lose their jobs and the companies' plunging share prices likely wiped out much of their net worth.
At Lehman, stock and options could make up as much as 60 percent of an executive's pay and share awards vested over five years. For most employees, stock and options were about 40 percent of pay, with the same vesting schedule.
On Monday, groups of grim-faced employees walked into Lehman's million-square-foot headquarters on Seventh Avenue, many of the men wearing Lehman-green ties and the women in green shirts. One woman wore a green dress.
Lehman's doors were flanked by security guards, one with a black guard dog. Employees walked past reporters and gawkers lined up behind metal barricades, as bystanders took pictures with their mobile phones. They brought gym bags, shopping totes and Lehman travel bags to cart home personal files and pictures from their desks.
Lehman workers called professional friends up and down Wall Street to give them their personal contact information. Analysts, afraid the company's server might go down, wrote farewell e-mails to clients, signing off with their cell phone numbers and personal e-mail addresses.
News trucks were camped out outside the building and reporters were there at dawn, waiting for employees. The media had worn out their welcome: A coffee truck by the company's office put up a cardboard sign last week saying, "No coffee for Lehman reporters."
In brief interviews, workers in New York who requested anonymity described themselves as shocked and devastated.
"We really didn't see this coming. We thought some bank would buy Lehman," said Duo Ai, who worked in research in Lehman's London office. "Any other option would be better than this."
The consensus in finance was that this would just be one more in a succession of grim days following the mortgage bust.
"It's like a bad flu," said Steve Schlussler, a director at CapitalSource, a smaller financial firm near Lehman. "You have to get violently ill to get better."
"The Fed can't bail everyone out," he said.
For workers, the year has brought waves of layoffs -- some announced cuts of thousands of jobs, some quieter culling of hundreds. Wall Street firms have slashed the ranks of contractors and hacked at expenses like car service and business travel.
"The Wall Street that we knew was gone when we woke up this morning," said Anthony Conroy, head trader for BNY ConvergEx Group, who said he worked a 12-hour day Sunday and arrived at his office Monday at 5 a.m.
Bad times in finance mean bad times in New York City, because the sector is an outsized proportion of the city's total payroll.
While finance and insurance account for only 7 percent of the jobs in Manhattan, the sector accounts for one-quarter of total pay, according to the Census Bureau. The Street's bankers, techies and messengers brought home a grand total of $93.1 billion in 2006, the most recent data available.
Outsiders said the Street's veterans would rebound.
"If you're a trader, 40 percent of the time, you're wrong," said Ari Kiev, a New York city psychiatrist who treats financial sector workers and author of "Mastering Trading Stress."
"Part of job is learning how to ride out downturns," Kiev said. "You have more experience dealing with disasters than the ordinary person."
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