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Cohan, Money and Power

  
  Education
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Goldman Sachs is not exactly the number one brand in the world. Admittedly, it’s hard to beat Apple these days in popularity contests. But Goldman doesn’t even come close: on the contrary, it’s a firm that people love to hate. William D. Cohan’s Money and Power: How Goldman Sachs Came to Rule the World (Doubleday, 2011) provides fodder for the Goldman haters, exposing among other things a long history of conflicts of interest.

Cohan’s long book is not, however, the stuff that tabloids (or Rolling Stone—think of Matt Taibbi’s piece, later expanded into
Griftopia) are made of. It’s carefully researched, with well-crafted portraits of Goldman’s leading players, definitely worth reading.

Since Cohan’s book has been extensively reviewed, for this post I decided to extract some lessons for individual traders from Goldman’s successes and failures. And Goldman, lest we forget, had a lot of failures.

One lesson is to exploit the weaknesses (or laziness) of others. For instance, a Goldman trader recalled that his boss always called Friday “Goldman Sachs Day,” the rationale being that traders at other firms were goofing off on Friday. If the Goldman traders came in on Friday intent on actually doing something while others had their guard down and were less competitive, their focused energy could make a big difference. (more…)

The agony of waiting

  
Economy, Education
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Alex Stone in the New York Times recently had an interesting article up on the psychology of waiting in line. He notes how Americans spend 37 billion hours a year waiting in line and how it exacts a psychological toll on all of us. Traders are in a very real sense waiting in line for trades that meet their criteria for valid setups. It should not be surprising then that traders have a tendency to jump the gun looking for things to do to relieve the stress of waiting for viable trades. Stone writes why it is we as consumers are vulnerable to distractions from our waits:

The drudgery of unoccupied time also accounts in large measure for the popularity of impulse-buy items, which earn supermarkets about $5.5 billion annually. The tabloids and packs of gum offer relief from the agony of waiting.
Our expectations further affect how we feel about lines. Uncertainty magnifies the stress of waiting, while feedback in the form of expected wait times and explanations for delays improves the tenor of the experience.

Unfortunately traders don’t know what the “expected wait times” will be for their next trade. The ongoing challenge for traders is to avoid impulsive actions that don’t fit with established trading checklists. Brett Steenbarger in a vintage post from TraderFeed walks through an example of how he was jumping ahead of certain trades and paying the price for them. He was able to turn things around but he notes how even experienced traders are still a work in progress.

It is a bit of cliche to say that traders need have patience and discipline. A better understanding of the psychology of waiting can help keep traders a bit more grounded while they wait for better opportunities down the road. As for your wait at the DMV that is a whole other issue entirely.

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