Jan

12

 On December 20, 2011, at 9:38am, Jeffrey Buckalew, a successful investment banker and pilot, departed Teterboro, NJ bound for Atlanta in his Socata TBM 700 turboprop along with his wife, their two children, a business associate and the family dog. By 10:05, they were all dead.

The NTSB declared the probable cause(s) of the accident to be:

The airplane's encounter with unforecasted severe icing conditions that were characterized by high ice accretion rates and the pilot's failure to use his command authority to depart the icing conditions in an expeditious manner, which resulted in a loss of airplane control.

Happily, I wasn't working that morning, but I worked that sector for 25 years and the controller who was working the aircraft when it went down is a friend of mine.

The accident highlights a couple of issues that are highly relevant to trading. First, the threat of complacency which can lead to a failure to recognize that a dangerous situation is developing, and second, the need to take action to correct the situation immediately. We must be vigilant and nimble.

This excellent video by AOPA's Air Safety Institute gives a thorough discussion of the accident and its causes. I was particularly keen on the last two minutes or so (transcribed below) and it's insights. In the first paragraph, replace the word aircraft with "systems" and aviation and flying with "trading" and you can see what I mean.

Sometimes experience harms more than it helps. Rather than making us more vigilant, it can lead to a sort of comfortable complacency, not only about the dangers we face, but about our own capabilities and those of our aircraft. Complacency is arguably aviation's most common vice, and one of the hard truths about flying is that it's sometimes punished with extraordinary severity.

The pilot of N731CA was in the clouds for a total of approximately five minutes. Roughly two minutes passed between his first indication to ATC that icing was a problem and the beginning of the final plunge.

It takes time for the human mind to spin up when suddenly confronted with a problem. It takes time to recognize that things have changed and process the idea that an extraordinary response is called for. All during that time, part of the mind is fighting against the new reality, arguing "stay the course".

Two minutes isn't much time, but it's enough time. Enough time to make a decision, declare an emergency and reverse the climb. Or, just push the nose over and worry about ATC later.

Or at least, that's what we'd like to think. The truth of the matter, which is that two minutes really isn't much time for someone who is surprised, conflicted and almost certainly frightened, is decidedly less comforting.

Anatoly Veltman writes: 

Yes, there is an adage that biggest losses come immediately following biggest gains. It's also possible that big gains may follow big gains. My explanation is that what brought the initial big gains was the increase in volatility.

Gary Rogan writes: 

So if either big losses or big gains follow big gains what is one supposed to do after big gains?

Stefan Martinek adds: 

Theoretically, we should de-leverage and adjust for volatility (I assume our initial position was volatility normalized). Practically, doing nothing and ignore some vol. spike usually does not hurt as much as believed especially for long vol. strategies. Exit/adjustment is therefore different if strategy does well in storms or if it is killed by storms. Some trading storms are good.


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