Home

Daily Speculations The Web Site of Victor Niederhoffer and Laurel Kenner

Write to us at: (address is not clickable)

12/14/2005
The Weird Turn Pro, by Joe Hughes

A couple of things struck me reading the list in the past few days.

Namely, The Phat Fingered J-Com trade, an error I have made before, but from typing too fast, and was lucky/fortunate enough to trade out of it for a considerable profit. One never knows how Fortune will resolve things. The Japanese should look into a trading system that would allow such an error, as good programming would've prevented the trade.

Mr. Lackey's article on Pikers, a must read if one is struggling currently.

And "The Chair's" comments on his preventative measures to ensure against error.

The remarks set me to thinking about high-level performers, be they athletes, musicians, bookies or lowly speculators. How the very successful ones that I have encountered were all extremely fundamentally sound in their methodology. Precise in their technique. This fundamental precision propelled them when the pressure of performance was greatest. The routine in and of itself was settling in the madness. Professional golfers are an excellent example of routine.

Whether one is an active participant, or a lurker of Spec Site, you are either playing or trying to learn to play the speculation game at one of the higher levels. And to reiterate a point made by Mr. Lackey, it has nothing to do with trade size, but trade intelligence. Success with intelligence and lack of good fundamentals is a matter of random chance. Viva Las Vegas.

Captain Weird, as he is known to many, was a grizzled veteran of the OTC equity wars. He had worked at all the big houses on the sell side, experiencing all types of markets and weirdness. The Captain, or just Weird as most of us called him, had to have been Ichabod Crane's body double in a previous life. "If you remember the Sixties, then you didn't have a good time," the Weird would often say. On appearances, the Captain didn't look like he remembered much of that decade.

The Weird crossed my bow as a fellow employee initially. I was a young bond trader struggling to cut my teeth. Weird was an old dinosaur who sat behind me on the equity desk. Talked to himself a lot. Spit out the score of the Iran-Iraq war like a soccer match, back in the days when we were on Iraq's side. In the usual Monday morning weekly strategy meetings, Captain would read aloud the latest Hunter S. Thompson column when it was his turn to address the room. Not too many boring moments on the desk when the Weird was around. Then one day he wasn't.

I hadn't seen or heard from the Captain in some months. The bond market had become dreary, and the great equity rally was in its infancy stages. My outside line rang one day, and it was the Captain. He was the partner in charge of OTC trading at an aggressive firm across the street and would I... Yes I would.

This began my introduction to the equity trade under Captain Weird's tutelage. The Captain knew of my background as a fixed income trader, and an options trader on the floor. None of that mattered. I was about to be humbled. Captain promptly busted me down to clerk. All this experience and I'm fixing friggin' out trades. And they weren't even mine! Humility. It was some months before he allowed me to execute a trade, and even then he was on the other line, handset closed to make sure I said exactly the right thing, confirmed the transaction exactly the proper way. And it didn't end there, the tickets were to be filled out precisely correct. Our tickets on the desk were to be kept exactly the same. Our trade blotters were to be filled out in the same fashion. It did not matter to Captain Weird that I had already filled out hundreds of thousands of trade tickets in fairly complex bond and option transactions. What a pain in the ass he was. As crazy as it got for him at times, he never lost his sense of humor and was always in control, or at least he appeared to be.

Life for a sell side institutional trader is at best hectic. Typically a trader will have 30 to 100 stocks, most of which are "covered" by a firm's analyst(s). Victories are not measured as much by P&L, as by volume done in certain stocks, and extra points for doing volume with certain customers. Some issues trade easily, others by appointment with the inherent complications that customers, partners, analysts and relationships bring. The Captain oversaw it all, along with trading his own pad.

As the desk grew, the markets got busier. Amid the screaming, yelling and insanity, The Captain's desk ran like clockwork. I don't want to say never, but I will say I can't remember an out trade. And we averaged somewhere in the neighborhood of 7,500 trades a day in OTC block trading.

At one of the firm's famous Christmas parties, I asked Weird about his methodology. His answer was very simple: Control the possibility for error by the system. "I hate to lose our bonuses to the error account," said the Captain.

Weird's lessons: Bids are on the left. Black tickets on the left. Red tickets (sells) on the right. Do not rely on the computer for your position, that is what your clerk and blotter are for. Keep a trade blotter always keep the blotter current, because if you drop dead I need to know where you stand. Always initiate and confirm transactions as "I buy/I sell X nos. of XYZ at $." Same as Vic saying check. Always match your tickets at the close or before. Always know your exits -- for example, your direct line gets knocked out, what's the best phone number to get the contra-dealer on? No different, if your internet connection is knocked out, what number do you call? Have it somewhere prominent. And this isn't one of Weird's but one I know he would ask if he were here with me now, and that is how does your broker transact your trades with regard to order routing?

Fundamentals, technique and mechanics have been behind many a traders undoing that I have witnessed since the Captain and I went in different directions. Though his lessons were like having to eat my vegetables as a kid, they stood to serve me well when I ran an operation so large that my "primary pit" requirements were waived on account of my volume and I was a one man shop with a handful of indie brokers. And they stand to serve me even better today as a relatively much smaller speculator whose error account directly affects the dinner table fare. (Now there's an exacting correlation)

Captain Weird used to have another saying he would spit out, just when the insanity was crashing on the OTC desk and we were all yelling, screaming making money and swapping shares, the Captain would be standing a few feet behind his chair, arms folded, spectacles in hand, tie undone, marveling at the efficiency of his operation, the Captain would smile and swipe another line from Hunter, "When the going gets weird, the weird turn pro".

Thank you Weirdness, because of your training, insistence on paying attention to detail and routine, I never had an out trade.