Apr

29

 I was talking to an old friend of mine yesterday. He was a floor broker for Lehman Bros in the bond pit (he once sold me 500 calendar spreads while standing next to me at a urinal in the men's room). When he first left the floor he attempted to trade electronically and within a relatively short period of time went through all of his money. He had to take a job with the CME working at their help desk, and was eventually promoted to associate director of the Globex control center working the third shift from 3 a.m. to 11 a.m., and is now a senior director at the CME.

He told me an interesting story about his experience trading after he left the CBOT. It was about another ex-denizen from the floor. This individual, however, had worked as a clerk for a mutual friend of ours, who had been a trader. My friend went on to tell me how the ex-clerk had been making $1,000- $1,500 screen trading, per-day, like clockwork — averaging $25,000 per month for quite a period of time.

However, after my friend went through all his capital and stopped trading, he lost touch with this ATM of an ex-clerk. But serendipitously, ran into him the other day when he hopped into a cab. However, the ex-clerk was not another passenger, but the driver. Of course, there are quite a few lessons to take away from this story- not the least of which are:

- markets change and if a trader doesn't adapt, he'll be driving a cab
- becoming a successful trader is not easy, even if you're experienced
- core competency in one endeavor, does not guarantee competency in another
- working for a living sucks
- always be prepared to trade
- markets aren't the only thing that reverts to the mean
- not every cab driver in Chicago is from Pakistan or the Middle East

- never turn down an edge, no matter where you are, or what you have in your hand
- always wash your hands after making a bathroom trade

- success is fleeting, losing is forever

Leo Jia writes: 

Thanks Gary, for the interesting post.

I found your title (or the last lesson on your list) quite intriguing: "success is fleeting, losing is forever". Seems apparent in a lot of cases. But why and how is that true? Especially when we consider your other lesson: "markets aren't the only thing that reverts to the mean".

Anatoly Veltman writes: 

Isn't it true: even having made 5,000% on your money, once you lose only 100% - you got no money left. That is more like self-sabotage.

Leo Jia writes: 

Normally, if one wins/loses in percentage terms, one nearly never loses 100% - sure one may lose so much as to have not enough fund to continue trading.

Let's assume that he wins/loses 5% on each bet. To make 5000% in the fastest way, he needs 175 consecutive wins. From here, to lose all he has made and get back to his original amount (which is still enough for him to continue trading), he needs to go through 166 consecutive loses. If his wins/loses do not happen consecutively, which is normally the case, it might have taken him over thousands of trades on each way.

So in this process, even though losing takes fewer times than winning (166 vs. 175), winning and losing both take a long time. So the other lesson "markets aren't the only thing that reverts to the mean" could apply here: after losing some, one starts to win. I am not sure how one can conclude "success is fleeting, losing is forever".

In the worst god-given case where he has no edge at all and trades simply based on flips of a fair coin, he has equal chances of winning and losing.

The only case where "success is fleeting, losing is forever" is possible is when he always strives so hard to create a very large negative edge for himself.

J. Hughes comments:

 Interesting, but the distinction needs to be made, "he was a floorbroker", quite a different occupation than that of floor trader. It's easy to trade against an order deck.

Having done both job's, cabdriver, and trader, though for different reasons, I can state unequivocally, yes markets change and if traders don't adapt, they perish. But the bigger insights lie in how much cab driving is similar to trading. Both position risk capital upfront, the 3 G's, gates, gas and graft. Then there is risk control, it takes skill to size up an individual when one is traveling at 35 MPH and trying to cover the costs of the 3 G's. Then there is return on capital, I can say first hand, my return on capital as a cabbie, on a nightly basis, was far superior on a percentage basis and more consistent as a hack, than a trader. Although I am back to driving a computer once again, and there are times I wish I was back pushing a hack. Both positions are very much traders. It's a natural fit. The lesson is, "life is replete with vicissitudes."

Ed Stewart writes: 

The problem with making $ 1,000-2,000 a day is it is enough to provide a salve and decent quality of life that makes one feel like a professional, but this is not dentistry or a job at a federal regulator. IMHO the correct target is to get rich and become a real capitalist. How one does that, via trading, a service business, or a money manger (combining the two) does not matter so much as actually doing it by any means that is legal and ethical. Going for crumbs doesn't cut it.


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5 Comments so far

  1. Andre Wallin on April 29, 2014 8:00 pm

    yes indeed, prepare your emotions for the inevitable one way or the other in some aspect of your life.

  2. J.Hughes on April 30, 2014 1:28 am

    Interesting, but he distinction needs to be made, “he was a floorbroker”, quite a different occupation than that of floor trader. It’s easy to trade against an order deck.

    Having done both job’s, cabdriver, and trader, though for different reasons. I can state unequivocally, yes markets change and if traders don’t adapt they perish. But the bigger insights lie in how much cab driving is similiar to trading. Both postions risk capital upfront, the 3 G’s, gates, gas and graft. Then there is risk control, it takes skill to size up an individual when one is traveling at 35 MPH and trying to cover the costs of the 3 G’s. Then there is return on capital, I can say first hand, my return on capital as a cabbie, on a nightly basis, was far superior on a percentage basis and more consistent as a hack, than a trader. Although I am back to driving a computer once again, and there are times I wish I was back pushing a hack. Both positions are very much traders. It’s a natural fit.

    The lesson is, “life is replete with vicissitudes.”

  3. J.Hughes on April 30, 2014 1:29 am

    Insights from a cabbie and trader

  4. jeff watson on April 30, 2014 7:43 am

    Leo, there are many instances that come to mind where people lose 100% of their money or more in one shot. 1982 Mexican Peso devaluation where the market was offered limit down for a couple of weeks and one would have lost $19,000 on a $1200 margin.(I got nailed on that one) The big flash crash wiped out many individuals who were day trading the ES on a cheap day-rate margin from a disreputable firm. People who sold options the wrong way in front of a black swan event. People in this forum can add to the list I’m sure. There are endless ways the mistress will empty your wallet.

  5. Andre Wallin on April 30, 2014 12:44 pm

    listened to tao te ching and find that by wanting to win it all we lose it all. everyone must find an anchor in order to stabilize their emotions. it seems that religion serves the purpose of emotional sublimation. maybe faith can help investment returns in addition to empirical method. can think of faith helping one avoid many vices.

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