Trader Monthly November/December 208
As the industry soldiers on, how traders handle tense situations can be the difference between survival and devastation. Download the PDF here:
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There is a wide range of responses to stress which impact trading decisions, especially in volatile bear markets. Listen to the audio here
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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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