Today I am taking a break from writing about the markets. Lately I have noticed some traders pushing too hard on trades that aren’t working. The ‘legendary’ Dennis Gartman recently issued a mea culpa where he described the difficulty of this week’s trading:
[W]e are reminded of a day many, many years ago when as a member of the Chicago Board of Trade we had come home, beaten and thoroughly exhausted as the bond futures had traded both limit up and limit down only to have closed the day unchanged. The trading activity was violent; random and huge, and our wife at the time… with whom we are still very good friends… having seen on the television that the bond market had closed unchanged on the day greeted us at the door by saying “It must have been a boring day.” It was anything but boring! It was almost life changing. To many on the floor with us, it was life threatening; to very, very few it was life affirming. To everyone it was frightening.
I just don’t see it. Sure markets are moving, but think back to the dark days of 2008. Or the crazy summer of 1998. Those were trying times. This is child’s play. My guess is that Dennis, and many other traders are pushing too hard.
Sometimes when you are too eager, the market gods punish you for your enthusiasm. Some of you will chalk this up to superstition, but anyone who has traded lots knows this feeling all too well. “Wanting it too bad” is often the kiss of death for a trader.
Instead of recounting a few anecdotes about traders who pushed trades too hard when they were out of kilter, I will tell the story of a game we used to play with the traders on the desk.
I was introduced the game “Birds” shortly after taking my job on the Institutional Desk at RBC Dominion Securities in the early 90s. Back then, DS was the best investment dealer on the street, and so when I was fortunate enough to be offered a job and they asked me how much I wanted to make, I answered “I just want an opportunity to contribute.” Right answer for a pimply faced kid looking for a chance to make it on an institutional desk, but that didn’t stop them from signing me up for the bare minimum. “Great. You will make $26,000 and start next Monday.”
A couple of weeks into my job, my boss (who at the time seemed so old, but was actually just turning 30) asked me if I wanted to go out with the boys for some drinks after work. I jumped at the chance. Next thing I knew I was in a dark packed bar just off Bay street, hanging around with a dozen different traders. It was heaven. There were bond traders, inter dealer brokers (and those of you who have been around know these guys are the most trouble) and a few familiar faces from our equity trading desk. The drinks came faster than a keg party in freshman year of University.
Sometime after 10 o’clock some guys had to go home, so they started stuffing $20s into my boss’ hand to pay for their share of drinking. Instead of just accepting the money, my boss (who eventually became one of my dearest friends), in his rambunctious intoxicating style shouted “Birds for the bill!”
A couple of the drunker guys yelled back “Hell yeah! Birds for the bill” while a few less enthusiastic traders merely nodded in agreement. My boss affirmed the bill would be settled with the game.
“Kev - you in?” my boss asked.
“Of course I’m in” I replied, too scared to look like a mope on my first month on the job.
The bill came and my boss announced the amount. Nine hundred and forty two dollars he calmly reported.
Holy f$ck! How much did we drink? At this point in my life I don’t think I had ever seen a restaurant or bar bill over $200. This amount seemed like there was something wrong. Was that the bill for the whole bar? And what exactly is “birds”?
Next thing I knew my boss had arranged us all in a circle and reminded us of the rules. Each one of us would commit to putting either zero, one, two or three coins in our hand. We would then make a fist over the coins and push it towards the middle. One by one we would all guess how many coins we collectively had in our hands, with no two guesses allowed to be the same. After everyone had guessed, we would reveal how many coins we had put in, and they would be added up. If you had guessed the total amount, you were out and did not have to pay the bill. This would repeat until there was only one guy left. This poor soul would be stuck with the bill.
Gulp. My mind raced. I am making $26,000 a year. This bar bill was an entire pay cheque. Not only that, I don’t think I have that much in my bank account. Well no matter, no going back now. After all, there are 8 of us. What are the chances I will lose?
The game commenced and I quickly realized there was a lot more than luck involved. How many coins should I put in my hand? What do my opponents bids mean? Do I want to go first? Or last?
Over the years I realized the best “birds” players used a lot of strategy. Bluffing and double bluffing littered the better games. But at the time, I was flying blind and barely keeping up with the speed at which the game was progressing.
I don’t know if it was my poor playing, or maybe it was just bad luck, but next thing I knew, the game was down to two people - me and my boss. Damn. Why couldn’t I have gotten out early?
With trembling hands I chose zero coins, closed my fist and put my hand out. It was my boss’ turn to go first, so I had the advantage. He stared at me with a big smile, obviously enjoying the game. All the booze was rushing to my head and my stomach felt like someone had pumped in a canister of helium.
“Four” he grinned.
Relief swept over me. With zero coins in my hand, I knew I wouldn’t be losing this round (with a maximum of three coins allowed, I knew our total could not add up to four). But what did my boss have? Unless he was bluffing, he had at least 1. What was he betting I had?
Up until this point I hadn’t had a chance to think about the ramifications of my precarious position. If I won, I would be beating my boss. Not something you want to do a few weeks into the job. If I lost, I would be unable to pay the bill and would have to embarrassingly ask that same boss for a loan. Which was worse? Shit, how did I get here?
Taking a big gulp, I made up mind. My boss was betting I had three coins in my hand. He chose 4 because he had one. Sticking my boss with the bill was much better than begging for a loan.
“One” I responded.
The crowd went silent as we both opened our palms. I showed my empty hand. My boss uncurled his fist to reveal a single coin.
Thank f$cking God was all I could think.
Across my boss’ face emerged a big smile as he said “Well done!” He drunkenly tousled my hair (which I had back then) and said “welcome to the desk kid.”
My boss was a gracious loser, but over the years I learned not everyone was so classy. After too many years of playing “birds for the bill” I learned those who were most keen to play were usually the ones who lost. It’s like they wanted to gamble too badly.
My boss had been the one to suggest playing “birds for the bill”, and he had lost. This was a pattern that played out time and time again. Whoever was keenest to gamble, more often than not, ended up on the losing end.
To this day I am still willing to pay “birds for the bill.” You just won’t ever hear me suggesting it first…
Victoria Day week end
This Monday is Victoria Day week end in Canada. There will be no MacroTourist.
The weather has finally turned nice here in Ontario. Lately it has been brutally cold, and in fact it snowed last week end at my daughter’s soccer game. Like an idiot, I was wearing shorts and a toque. I am pretty sure someone ordered up the bad weather to make sure any Americans fleeing which ever candidate they hate most know what they are getting into by potentially moving north.
This holiday is in honor of Queen Victoria. Although the picture below is of her grand daughter, I thought Rudy E. Havenstein’s tweet was so funny, I had to alter it for our Canadian holiday.
Happy Victoria Day! Next update Tuesday.
Have a great week end,