Some time a bit ago, a Seattle pastor posted this challenge question to Facebook: “To whom will you bring comfort today?”
It was early morning on the West Coast, which meant I had been working about five hours already. I thought back over my morning spent with clients discussing a stock that was selling off that day. My clients and I commiserated. We looked at what we got wrong. We looked to see if we could offset at least some of the blame to the management team. Some clients ranted and raged. Some were quiet and steady. All needed a confidential and trusted place to go over their thinking and decide what to do next.
What do you do when things go horribly wrong? When the amount of money being lost has more zeros than the average person can fathom?
You process it, you manage the cortisol pulsing through your blood stream to get to a place of rational thought, and ultimately, you have to decide on what to do next: Sell the position or double down at this lower level?
To whom was I bringing comfort? Hedge fund managers.
My position was a privileged one. For seven years, I studied the intersection of fear, greed and anxiety through thousands of conversations with extremely bright people. It was all very human and very fascinating.
Sometimes, we had the craziest high-five thrills I’d ever experienced. “Love that money! Woo!” – Ricky Bobby, Talladega Nights
Other times, it was vomit-inducing stressful.
Welcome to Wall Street.
If you manage assets* for a living, then I want you to know that part of the reason why your job makes you so anxious is because it is supposed to. People pay other people to manage their money for them as way to outsource financial anxiety.
People on Wall Street are paid to worry.
There are few industries where constantly anticipating what could go wrong is not the result of paranoia, but is actually part of the job description. (Military and tactical law enforcement are others.) The mental health profession says hyper-vigilance is a symptom of PTSD. On Wall Street, it’s a symptom of a job well done.
What’s that? It’s Thursday and you haven’t seen your kids since Sunday night, you’re fantasizing about moving away to a Greek island (or Florida), you have a vacation planned that will probably get eaten away by unforeseen events, and you find yourself taking your first deep breath of the day after market close?
No, you’re not crazy or doing it wrong. That’s your job.
Now go check your bank account. Ahh. Isn’t that better?
Also fun: Failure is never an option.
There is one way to be right: Beat the market.
There are infinite ways to be wrong.
Do you know what science calls it when there are infinite ways to have disorder and one way to have order? Entropy.
“Your job as an investor is nearly impossible: to make great decisions with incomplete information, while reducing uncertainty,” says Marc Balcer, a former hedge fund founder who now runs his own mindfulness coaching practice. He coaches people on how to manage high stress situations. Like me, he works with many Wall Street clients.
I’d like to share some observations that I believe affect the entire economy — from how publicly traded companies manage their businesses on a quarterly basis, to how capital is allocated, to the risk tolerance of ourselves, as a society.
And here, I’m just talking about stocks. I’m ignoring the gigantic, can’t be overstated how big, world of bond investing.
Investors – and people like me on the sell side who served them — are expected to predict future events and predict how a stock will react to those events.
Every quarterly earnings season is go-time in the world of stock investing. Do or die, the final accounting of our predictions in the quarter. Companies report out their financial performance and asset managers score themselves on their bets and then report out to their own clients on how the fund is performing.
Earnings season is The Reckoning. A typical portfolio of 12 stocks is going to have 48 reckonings per year. Plus, all the peers will report and those also move the market — and maybe the fund should have invested with one of them, instead. During earnings season, free time disappears and decision making rules the day.
Everyone is on high alert. Everyone is stressed. Decision fatigue becomes a real thing. It’s tough to manage constant reckonings. Everyone is constantly scored on the manifestations of their hard work, and performance is critiqued by colleagues, competitors, and clients.
Generally, the faster the money moves in a fund, the more stressed everyone is. The hierarchy of stress starts with the long-term mutual fund managers at the bottom (still paying attention but not as frantic) and increases until you get the fast money long-short funds at the top of the stress heap (huge amount of pressure to change positions rapidly and make decisions in the face of incomplete information.)
I knew of several portfolio managers who were red-faced screamers. I worked with them as well as the analysts who reported to them. In every case, it was a fast money fund and the portfolio manager, though behaving horribly, in my view had a lot of public face on the line: In every case, he was managing the assets of people in his own social group. It’s one thing to lose your own money. It’s quite another to lose all your friends’ money.
(And while I think there is never a good excuse for treating someone wrong, I know during the most intense periods, I was not always the kindest -ahem- to my own junior analysts. Reputation, ego, perfectionism, winnersville versus losersville, tight deadlines, seconds mattering — it all played a role. I was not above completely losing my shit over a misplaced decimal point in a financial model. And unlike the buy side, I never actually had any money on the line.)
Here are some sample ways to be wrong:
- Be sort of right and sort of wrong = Wrong.
- Be right on what happened, but wrong on how the stock reacted = Wrong.
- Be right on how the stock would react, but too early on the timing = Wrong.
- Be right on how the stock would react, but failed to convince the portfolio manager to adjust the position = Wrong.
- Be totally right on the events that would happen and how the stock would react, fail to trim the position and lock in the gain, the next day something crazy happens and the gains are wiped out = Wrong.
- Be totally right on the events that would happen, trim the position to lock in the gain, the next day it gets even better and the stock’s up another 15 points = Wrong.
- Freak out and sell the position when its down 20 points, and it moves upward another 15 the next day = Wrong.
- Be completely right but lose the trust of the PM and nobody acts on your recommendation = Wrong.
- Be right but fail to pound the table hard enough = Wrong.
- Learn from that mistake, next time make a high conviction call and pound hard, and this time, get it wrong = Wrong.
- Have a great year but still under-perform the general market = Wrong.
- Be right on nearly minute detail but fail to anticipate that demand for copper in China is going to compress the gross margins of this US industrial by 2 points, causing the company to miss EPS by $0.01 when the Street was expecting a beat and raise = Wrong.
You see? Infinite ways to be wrong. Entropy.
It’s never dull. It’s all-consuming. People use all of their energy to not go nuts. And everyone is dropping fucks like dollar bills
Most hedge fund employees I know — from the folks at the top to the n00bie analysts — take the job seriously. They want to do the best job they can, make a good living, and go home and kiss their kids at night. (Or, if they’re single, party.) They love the money (who wouldn’t?), appreciate the meritocracy, crave the intellectual stimulation, and treasure having some power. There are cheaters and losers as in any industry. I never met anyone shifty or dishonest — that’s my honest truth.
The deeper I get into being a coach for executives and high-performing professionals, the more I learn about the importance of being calm and differentiated — of knowing where one person stops and where another begins, and of the importance of a confidential and trusted space to think. I realize that in many ways, it is what I’ve been doing all along.
You’ll never eliminate anxiety — you’re paid to be anxious.
But, you can manage your anxiety and with enough self care and awareness, channel that energy into making better investment decisions.
*For non Wall Streeters reading this blog, asset management refers to the profession around managing money. That money is managed in sums so large that it’s not even called money any more, but rather, assets, or capital. Thus, when we say the capital markets, we generally mean the stock market and the bond markets, where large sums of capital change hands every day.
If your retirement account is held in a managed fund, then there’s someone on Wall Street managing your money — either working for a mutual fund, a pension fund, or a hedge fund. And, since many pension funds outsource some asset management to hedge funds, there’s a chance that your retirement account is influenced by the hedge fund community.
The PM acronym is for portfolio manager, the person who has the job of making buy or sell decisions, and the one who usually bears the brunt of the credit, blame, and stress.
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How a year on Wall Street changed his world view
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Down with gravity; up with entropy!
Applying Wall Street logic to your life