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Life Lessons From A 30-Year Wall Street Veteran

  
Analysis, Education
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Talking to a journalist a few days ago I realized that I can now add “30-year Wall Street veteran” to my list of epithets.  It’s not as catchy as “wily Odysseus” or “wine dark sea”, but then again my life on the Street doesn’t really qualify as Homeric either.  Rather, it’s been more like watching an old school Broadway musical, complete with lots of big personalities whose stories are often best told with small anecdotes.

Along the way those people have taught me everything I know about a career in New York finance.  They all bubble up to what sound like clichés, but only because they are true.  But below the surface… Well, how you learn those clichés is never boring.

Lesson #1: Set expectations and then beat them.  Everything on Wall Street carries with it the weight of expectations, from careers to asset prices.  In both cases, their values only change when outcomes differ from what was expected.

The best example I ever saw: Years ago I worked with a wily investment banker who played the expectations game better than anyone else I ever saw.  He knew that the success of an Initial Public Offering or secondary share issuance often came down to perception.  Did the institutional buyside think he was marketing a hot deal, or a cold one? (more…)

You Are Finished If You Keep Missing Good Trades

  
Analysis, Education
  • I take the point of view that missing an important trade is a much more serious error than making a bad trade.
  • If you make a bad trade and you have money management you are really not in much trouble. However, if you miss a good trade there is nowhere to turn. If you miss good trades with any regularity you’re finished.
  • For example, let’s say the market moves rapidly through your buying zone and you miss it, you miss your buy signal and instead wait for a retracement to maybe buy cheaper. But, the market just keeps going higher and higher and never retraces. Now what do you do? There’s a great temptation to reason that now it’s too high to buy. If you buy it now you’ll have an initiation price that’s too high? No, the initiation price simply won’t have the kind of significance you suppose it will have after the trade is made. You can’t miss these trades.
  • If you miss a good trade, you have nothing to protect you-that is, nothing in the system will assure that you eventually get in. Also, missing a good trade can be demoralizing and destabilizing, especially if you’ve been in the midst of a losing period. And like so many bad trading decisions, it ends up costing you more than just the money lost or not made on the trade. Missing a major trade tends to have a reverberating effect throughout your whole trading strategy. Sometimes it can be weeks before you get back on track.
  • Trading systems force discipline to make sure these trades are not missed.

CHANGE IS ESSENTIAL

  
  Education
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The stock market, just like life, can change on a dime.  In the market, just as in life, we must learn to adapt to change.  What separates the great trader from the rest of the crowd is his or her ability to change based on current market conditions.  In other words, NO EGO ALLOWED.  Mark Douglas, in his first book entitled The Disciplined Trader writes,

“There must be a difference between these two types of traders-the small majority of winners and the vast majority of losers who want to know what the winners know. The difference is that the traders who can make money consistently on a weekly, monthly, and yearly basis approach trading from the perspective of a mental discipline.  When asked for their secrets of success, they categorically state that they didn’t achieve any measure of consistency in accumulating wealth from trading until they learned self-discipline, emotional control, and the ability to change their minds to flow with the markets.”

We trade the current market conditions as they unfold with a plan to trade one way or the other.  To do otherwise would be to fight an undefeated foe.

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