Really, what do they teach them in business schools these days?
I have just wasted one whole evening going through various MBA-droid resumes that Jimmy the Kid has seen fit to inflict upon me, as part of his ridiculous scheme to ‘professionalize’ the company. That’s four hours of my life that I will never get back.
The general-management resumes are bad enough. These are dudes with no clue about assets, markets or asset markets; but they have plenty to say about proactively incenting stakeholders to architect transformative strategies which will then harness holistic synergies across our business regime. Or regimen, as the case may be.
At least the general-management resumes are easy to identify and toss into the trashcan. Ah, for the good old days when all MBA resumes were of that ilk! But no. Thanks to the recent bubble in everybody’s favorite industry, an increasing number of B-school weenies have decided to specialize in finance. Heaven help us all.
This new breed of jobseeker doesn’t talk about integrated tactical paradigms. Instead, they’re all about hidden Markov models and affine curves and Gaussian copulas and other strange beasts. But the basic idea is the same: hide your lack of expertise or experience in a flood of jargon.
It never works. Here’s why.
Either your prospective employer understands the jargon himself, or he doesn’t.
If he does understand the jargon, then he also understands the fact that most models are junk. Affine curves are not so fine in practice. Markov isn’t hiding; he’s dead. Gauss too.
If on the other hand he doesn’t understand the jargon, then do you think he’s going to hire you? Why would any manager risk putting himself out of a job by hiring a better-qualified subordinate?
You would think business schools would do a better job of teaching their graduates this elementary political calculation.
Oh, and the saddest part of the whole business? I have gone through over fifty resumes this evening and not one of them – not one! – has mentioned the one technical skill which is truly essential in our industry. I am talking, of course, about Microsoft Excel.
Really, what do they teach them in business schools these days?
Tuesday, March 23, 2010
Wednesday, March 17, 2010
A True Maestro
Markets rarely make sense. Last week we had some good economic numbers and stocks went down; this week the economic news is bad and stocks are going up. It’s enough to drive a man to drink.
Funnily enough, the best trader I ever knew was a habitual drunkard. He claimed that he functioned best when his blood alcohol level was above a certain (high-ish) threshold. Having watched his profits mount up over the years, I was hardly in a position to disagree with his methods, and neither was management.
Alan was based in our Tokyo office. He would stagger bleary-eyed into the office at 10am, punt Japanese stocks and bonds till 3pm in a desultory kind of way and then head out to the bar. By 6pm he would be pleasantly sloshed and ready for action, just in time for the London market to open. He would wander back into Sopwith at this time, and start placing trades, drinking all the while. By midnight New York would have come online as well, and Alan would be on a roll. He’d continue trading till 2 or 3am, then close out his positions (usually at a hefty profit) and totter home.
Alan was a superb trader. Apart from one infamous occasion where he actually passed out and hence forgot to unwind one of his trades, he almost never lost money. (He told me later that the passing out was because a hated cross-firm rival had convinced him to mix his drinks, which he normally never did. “Stick to scotch and you’ll be fine”, were his words of wisdom to me on the occasion). Short term, long term, stocks, bonds, currencies, commodities – they were all grist to Alan’s mill. I think his drunkenness allowed him to understand the market’s irrational mood swings much better than could sober rationalists like me.
And mood swings there were in plenty. Like all the best traders, Alan was notorious for changing his mind on a dime. I remember a junior trader sidling up to him one day and timidly asking him for his opinion on the oil market. Alan said, (and I paraphrase only slightly), “Up. It’s going up. Up up up. Oil’s going super high. No question about it. Yup. Up. That’s the word. Up. Buy all you can.” At this point, Alan got up from his chair and broke into an impromptu jig, with both arms pointing skyward.
Convinced, the junior trader went out and bought oil. Over the next few days, oil crashed by 15%. Aghast, he went back to Alan, and said accusingly, “I thought you said oil was going up!” Alan blinked, and replied, “Did I? Hmm. I changed my mind. Actually, I went and sold oil. Made about 15% too. That was a nice trade. You should have sold some oil too.”
The hapless junior trader, of course, was shunted to our Moldovan pension desk or some such backwater, while Alan banked a hefty bonus for his troubles.
I still remember Alan’s “interview” for a position at Sopwith. Now, you have to realize that when a star trader like Alan considers joining a particular firm, the interview is a mutual process: we have to like him, but equally important, he has to like us. After all there are plenty of other firms that would leap at the chance to hire an established money-maker. So senior management pulled out all the stops in convincing Alan that Sopwith was where he was meant to be. Their ace in the hole was yours truly: I was trotted out as an example of Sopwith’s forward-thinking, technologically-advanced, analytically-sophisticated, quantitatively-superior investment style.
We went out to dinner at a nice (read: expensive) French restaurant, and talked high finance with Jimmy the Kid, Professor Fortescue and our head of IT, the Redneck Geek. Alan asked me what I thought about long-dated European bonds; I told him that it all depended on events in the Danish mortgage market. He nodded sagely and said, yes, that’s a very perceptive analysis. I asked him what he thought about the New Zealand dollar; he said it all depended on the Japanese domestic savings rate. I nodded sagely and said, yes, I agree with you completely.
Later I found myself standing next to him in the men’s room. I turned to him and said, do you really believe what you said about the Kiwi and Mrs Watanabe? He grinned and said, no, not really; it just seemed like something to say, to pass the time. He then asked me, do you really believe the Danes matter, outside of Legoland? I grinned and said, nope, it’s just that Danish mortgage bonds are the flavor of the month with various investment bank analysts. He grinned even wider, and asked me, so, what’s it like, working at Sopwith? I said, to be honest, it’s not bad. Just play your cards right and you can do whatever the hell you want. I certainly do. All that tech mumbo-jumbo is just cover; I’m having a whale of a time.
It was, if I say so myself, a beautiful sell. Alan joined us a few days later and wasted no time in hitting the cover off the ball. For a few glorious months, Sopwith’s investors were treated to the sight of a trader who actually made money for them.
Of course, it couldn’t last.
Contrary to what you might think, Alan did not go down with all guns firing, losing hundreds of millions of dollars in a vodka-fueled blaze of glory. Instead, he was done in by that old bugbear, office politics. Alan had the temerity to suggest to Jimmy the Kid that he, Alan, was a better trader than the Big Boss himself. Jimmy, who didn’t like Alan, promptly reported this conversation to the Big Boss. And from then on Alan’s days at the firm were numbered. I was sad to see him go.
After leaving Sopwith, Alan spent a few years shuttling between various investment banks. Then the financial crisis hit, and Alan was in his element. He made a truckload of money shorting the housing market before the crash. Then, typically, he turned on a dime and made a boatload of money going the other way, riding the post-crash rally. It was a performance worthy of a maestro; I often wonder what would have happened if Alan had been in charge of the Federal Reserve instead of his namesake.
Ah well, a man can dream, can’t he?
Funnily enough, the best trader I ever knew was a habitual drunkard. He claimed that he functioned best when his blood alcohol level was above a certain (high-ish) threshold. Having watched his profits mount up over the years, I was hardly in a position to disagree with his methods, and neither was management.
Alan was based in our Tokyo office. He would stagger bleary-eyed into the office at 10am, punt Japanese stocks and bonds till 3pm in a desultory kind of way and then head out to the bar. By 6pm he would be pleasantly sloshed and ready for action, just in time for the London market to open. He would wander back into Sopwith at this time, and start placing trades, drinking all the while. By midnight New York would have come online as well, and Alan would be on a roll. He’d continue trading till 2 or 3am, then close out his positions (usually at a hefty profit) and totter home.
Alan was a superb trader. Apart from one infamous occasion where he actually passed out and hence forgot to unwind one of his trades, he almost never lost money. (He told me later that the passing out was because a hated cross-firm rival had convinced him to mix his drinks, which he normally never did. “Stick to scotch and you’ll be fine”, were his words of wisdom to me on the occasion). Short term, long term, stocks, bonds, currencies, commodities – they were all grist to Alan’s mill. I think his drunkenness allowed him to understand the market’s irrational mood swings much better than could sober rationalists like me.
And mood swings there were in plenty. Like all the best traders, Alan was notorious for changing his mind on a dime. I remember a junior trader sidling up to him one day and timidly asking him for his opinion on the oil market. Alan said, (and I paraphrase only slightly), “Up. It’s going up. Up up up. Oil’s going super high. No question about it. Yup. Up. That’s the word. Up. Buy all you can.” At this point, Alan got up from his chair and broke into an impromptu jig, with both arms pointing skyward.
Convinced, the junior trader went out and bought oil. Over the next few days, oil crashed by 15%. Aghast, he went back to Alan, and said accusingly, “I thought you said oil was going up!” Alan blinked, and replied, “Did I? Hmm. I changed my mind. Actually, I went and sold oil. Made about 15% too. That was a nice trade. You should have sold some oil too.”
The hapless junior trader, of course, was shunted to our Moldovan pension desk or some such backwater, while Alan banked a hefty bonus for his troubles.
I still remember Alan’s “interview” for a position at Sopwith. Now, you have to realize that when a star trader like Alan considers joining a particular firm, the interview is a mutual process: we have to like him, but equally important, he has to like us. After all there are plenty of other firms that would leap at the chance to hire an established money-maker. So senior management pulled out all the stops in convincing Alan that Sopwith was where he was meant to be. Their ace in the hole was yours truly: I was trotted out as an example of Sopwith’s forward-thinking, technologically-advanced, analytically-sophisticated, quantitatively-superior investment style.
We went out to dinner at a nice (read: expensive) French restaurant, and talked high finance with Jimmy the Kid, Professor Fortescue and our head of IT, the Redneck Geek. Alan asked me what I thought about long-dated European bonds; I told him that it all depended on events in the Danish mortgage market. He nodded sagely and said, yes, that’s a very perceptive analysis. I asked him what he thought about the New Zealand dollar; he said it all depended on the Japanese domestic savings rate. I nodded sagely and said, yes, I agree with you completely.
Later I found myself standing next to him in the men’s room. I turned to him and said, do you really believe what you said about the Kiwi and Mrs Watanabe? He grinned and said, no, not really; it just seemed like something to say, to pass the time. He then asked me, do you really believe the Danes matter, outside of Legoland? I grinned and said, nope, it’s just that Danish mortgage bonds are the flavor of the month with various investment bank analysts. He grinned even wider, and asked me, so, what’s it like, working at Sopwith? I said, to be honest, it’s not bad. Just play your cards right and you can do whatever the hell you want. I certainly do. All that tech mumbo-jumbo is just cover; I’m having a whale of a time.
It was, if I say so myself, a beautiful sell. Alan joined us a few days later and wasted no time in hitting the cover off the ball. For a few glorious months, Sopwith’s investors were treated to the sight of a trader who actually made money for them.
Of course, it couldn’t last.
Contrary to what you might think, Alan did not go down with all guns firing, losing hundreds of millions of dollars in a vodka-fueled blaze of glory. Instead, he was done in by that old bugbear, office politics. Alan had the temerity to suggest to Jimmy the Kid that he, Alan, was a better trader than the Big Boss himself. Jimmy, who didn’t like Alan, promptly reported this conversation to the Big Boss. And from then on Alan’s days at the firm were numbered. I was sad to see him go.
After leaving Sopwith, Alan spent a few years shuttling between various investment banks. Then the financial crisis hit, and Alan was in his element. He made a truckload of money shorting the housing market before the crash. Then, typically, he turned on a dime and made a boatload of money going the other way, riding the post-crash rally. It was a performance worthy of a maestro; I often wonder what would have happened if Alan had been in charge of the Federal Reserve instead of his namesake.
Ah well, a man can dream, can’t he?
Friday, March 12, 2010
B-School Blues
Jimmy wants to hire an MBA.
He read in the Economist that thanks to the recession, business school enrolments are up and recruitment is down. He thinks that this means he can hire an MBA on the cheap.
This is a typical piece of Jimmy logic. He starts with an established fact, puts a unique spin on it, and reaches a conclusion that dovetails with his own wishful thinking. Of course, his conclusion is nonsense. A glut of supply in the MBA market simply means that the pool of available recruits is likely to be of a much lower quality, on average, than in previous years. And if we offer a slave wage, we are guaranteeing that we will get only low-quality job applicants.
Besides which, we are a trading firm. Our very existence depends on our ability to find value and acquire it at a low price; or to find excess and sell it at the top. There is no way we should be hiring people who think it makes economic sense to invest two years and two hundred thousand dollars on a content-free degree in the middle of a recession.
But this argument won’t cut any ice. Jimmy has had enough of the motley mix of math, science, econ and finance geeks that make up our workforce (with degrees ranging from community college to Ivy League Ph.D.s). He thinks this variety of experience is messy.
And he can’t understand what these rocket scientists are doing anyway; therefore it must not be very useful. No; it’s time for a ‘professional’ workforce, and that means hiring MBAs.
Actually I can’t say I’m surprised. MBAs are shallow, self-congratulatory, pompous and conformist. Just like Jimmy in fact.
Still, there’s one saving grace. Jimmy has put me in charge of the hiring committee. This will be fun.
Postscript: Later -- much later! -- I found out the truth: this was all done in order to impress the alumni relations committee at Jimmy’s alma mater. Jimmy wanted nothing more than to be able to swagger back into his old school, disbursing largesse in the form of a plum hedge fund job. Small man, small victories.
He read in the Economist that thanks to the recession, business school enrolments are up and recruitment is down. He thinks that this means he can hire an MBA on the cheap.
This is a typical piece of Jimmy logic. He starts with an established fact, puts a unique spin on it, and reaches a conclusion that dovetails with his own wishful thinking. Of course, his conclusion is nonsense. A glut of supply in the MBA market simply means that the pool of available recruits is likely to be of a much lower quality, on average, than in previous years. And if we offer a slave wage, we are guaranteeing that we will get only low-quality job applicants.
Besides which, we are a trading firm. Our very existence depends on our ability to find value and acquire it at a low price; or to find excess and sell it at the top. There is no way we should be hiring people who think it makes economic sense to invest two years and two hundred thousand dollars on a content-free degree in the middle of a recession.
But this argument won’t cut any ice. Jimmy has had enough of the motley mix of math, science, econ and finance geeks that make up our workforce (with degrees ranging from community college to Ivy League Ph.D.s). He thinks this variety of experience is messy.
And he can’t understand what these rocket scientists are doing anyway; therefore it must not be very useful. No; it’s time for a ‘professional’ workforce, and that means hiring MBAs.
Actually I can’t say I’m surprised. MBAs are shallow, self-congratulatory, pompous and conformist. Just like Jimmy in fact.
Still, there’s one saving grace. Jimmy has put me in charge of the hiring committee. This will be fun.
Postscript: Later -- much later! -- I found out the truth: this was all done in order to impress the alumni relations committee at Jimmy’s alma mater. Jimmy wanted nothing more than to be able to swagger back into his old school, disbursing largesse in the form of a plum hedge fund job. Small man, small victories.
Tuesday, March 9, 2010
Broke and Broker
There is a pecking order on Wall Street.
We hedge fund dudes are, of course, at the top of the totem pole. Slightly below us (because they have to work much longer hours, the poor slobs) sit the private equity gang. Below them come the bulge bracket investment banks, in rigidly defined order: Goldman leading the way, Merrill bringing up the rear. Lower yet are the money center banks (snigger). And then, right at the bottom, is that vast and unexplored swathe of Middle America known to us only as ‘retail’.
Somewhere in the middle of this hierarchy one can find a curious tribe: the specialist brokers. These guys service, and simultaneously compete with, the market-making desks of various investment banks. It’s a thankless job, with razor-thin margins, intense production pressure and negligible job security.
Brokers typically have none of the advantages (capital base, risk appetite, cross-platform networks) of their investment-banking competition. So they have to rely on ever-more desperate measures to drum up business. And what, I hear you ask, might those measures be?
The answer is obvious: freebies that are even more lavish than those disbursed by their dealer counterparts. I have lost count of the number of gewgaws I have received from my broker friends: everything from gym bags and squeeze balls to golf trips toting free Blackberries.
(Aside: one particular broker even paid my monthly phone bill for the aforementioned free Blackberry. I think the rationale was that I could use the device to execute trades – not just phone them in, actually execute on the broker’s main electronic platform – and hence it was a legitimate business expense. Hey, if a broker can set up a special execution keyboard with a dedicated line connecting me to their servers at their expense, why not do the same thing wirelessly?
As it happens I don’t think I ever made a call, let alone executed a trade, on the Blackberry – I never could get used to its bulky form factor. I lost the phone when moving countries a few years ago, but I never informed the broker, and they never asked. For all I know they’re still paying the monthly bill. )
But the freebies were only part of the deal. The other part, inevitably, involved dinners on a scale that would put Roman emperors to shame. It’s no coincidence that every single broker salesman I know is morbidly obese. I don’t mean common-or-garden-variety overweight, I mean seriously, debilitatingly, grossly fat. Eating New York sized steaks four nights a week will do that to you.
Consider my broker friend Bill. Bill was the Platonic ideal of a frat boy: easygoing, friendly, not overly burdened with intellect, happy to have a good time, all the time. He liked nothing better than to head out, sink a few beers, try (and fail) to pick up any cute female bartenders, then drown his sorrows in chicken wings (or, if he was feeling ritzy, barbecue ribs). Bill was also fairly athletic in his youth: he played football for a well-known southern school.
Last I saw him, Bill was nearing 350 lbs, and he’s not more than 5’7”. He told me he was having difficulty sleeping at night because of stress- and weight-related breathing problems. He then suggested we go out to dinner at Babbo.
The amazing thing is that Bill was convinced he was living the American Dream. He was young, unattached, and making six figures in Manhattan: what more could a good ole boy want? That’s the essential perversity of Wall Street: it doesn’t just chew up your life (and other people’s money); it chews up your life (and other people’s money) and convinces you (and the aforementioned other people) that you wouldn’t have it any other way. Amazing, and sad.
(Postscript, September 2005: a miracle! Bill escaped the living death of being a broker salesman, and got a job on the buy side. Unfortunately, said job was as a mortgage trader. I heard the news and immediately doubled my short in TOL. What can I say, I’m a hedge fund dude. )
We hedge fund dudes are, of course, at the top of the totem pole. Slightly below us (because they have to work much longer hours, the poor slobs) sit the private equity gang. Below them come the bulge bracket investment banks, in rigidly defined order: Goldman leading the way, Merrill bringing up the rear. Lower yet are the money center banks (snigger). And then, right at the bottom, is that vast and unexplored swathe of Middle America known to us only as ‘retail’.
Somewhere in the middle of this hierarchy one can find a curious tribe: the specialist brokers. These guys service, and simultaneously compete with, the market-making desks of various investment banks. It’s a thankless job, with razor-thin margins, intense production pressure and negligible job security.
Brokers typically have none of the advantages (capital base, risk appetite, cross-platform networks) of their investment-banking competition. So they have to rely on ever-more desperate measures to drum up business. And what, I hear you ask, might those measures be?
The answer is obvious: freebies that are even more lavish than those disbursed by their dealer counterparts. I have lost count of the number of gewgaws I have received from my broker friends: everything from gym bags and squeeze balls to golf trips toting free Blackberries.
(Aside: one particular broker even paid my monthly phone bill for the aforementioned free Blackberry. I think the rationale was that I could use the device to execute trades – not just phone them in, actually execute on the broker’s main electronic platform – and hence it was a legitimate business expense. Hey, if a broker can set up a special execution keyboard with a dedicated line connecting me to their servers at their expense, why not do the same thing wirelessly?
As it happens I don’t think I ever made a call, let alone executed a trade, on the Blackberry – I never could get used to its bulky form factor. I lost the phone when moving countries a few years ago, but I never informed the broker, and they never asked. For all I know they’re still paying the monthly bill. )
But the freebies were only part of the deal. The other part, inevitably, involved dinners on a scale that would put Roman emperors to shame. It’s no coincidence that every single broker salesman I know is morbidly obese. I don’t mean common-or-garden-variety overweight, I mean seriously, debilitatingly, grossly fat. Eating New York sized steaks four nights a week will do that to you.
Consider my broker friend Bill. Bill was the Platonic ideal of a frat boy: easygoing, friendly, not overly burdened with intellect, happy to have a good time, all the time. He liked nothing better than to head out, sink a few beers, try (and fail) to pick up any cute female bartenders, then drown his sorrows in chicken wings (or, if he was feeling ritzy, barbecue ribs). Bill was also fairly athletic in his youth: he played football for a well-known southern school.
Last I saw him, Bill was nearing 350 lbs, and he’s not more than 5’7”. He told me he was having difficulty sleeping at night because of stress- and weight-related breathing problems. He then suggested we go out to dinner at Babbo.
The amazing thing is that Bill was convinced he was living the American Dream. He was young, unattached, and making six figures in Manhattan: what more could a good ole boy want? That’s the essential perversity of Wall Street: it doesn’t just chew up your life (and other people’s money); it chews up your life (and other people’s money) and convinces you (and the aforementioned other people) that you wouldn’t have it any other way. Amazing, and sad.
(Postscript, September 2005: a miracle! Bill escaped the living death of being a broker salesman, and got a job on the buy side. Unfortunately, said job was as a mortgage trader. I heard the news and immediately doubled my short in TOL. What can I say, I’m a hedge fund dude. )
Tuesday, March 2, 2010
Flying Blind
The core of Sopwith’s financial analytics is a system called RADAR. Once upon a time, RADAR was an elegant, efficient, robust and powerful system with a single well-defined task: to produce live risk-management reports (the very name RADAR stands for “Real-time Aggregation, Decomposition and Analysis of Risk”). But over the years, users have requested myriads of extensions to the original functionality, and programmers have responded with a multitude of quick fixes, each one uglier than the last. Today’s version of RADAR is a baroque monstrosity, a bloated mess of code that churns out dozens of wildly disparate reports every day: profit and loss accounting, risk management analysis, cash-flow and settlements information, trade valuation and hedge calculation, financing and liquidity projections, everything but the weather forecast. It’s a miracle that RADAR runs at all, but run it does.
Unfortunately, all the many hacks cobbled onto RADAR over the years have failed to address a fundamental weakness in its structure: its human interface. RADAR was originally designed to be used by programmers, and for good reason: its hideous complexity requires a huge amount of effort and technical skill to understand and manage. But any programmer with that amount of skill would simply hate working on RADAR: it’s a tedious, repetitive and utterly mind-numbing job. In point of fact, every single programmer we’ve assigned to RADAR has either quit or asked for a transfer within six months of the assignment. Even the person who created the system, the semi-mythical Original Programmer, chose to gracefully retire from the finance industry when faced with the alternative prospect of having to maintain RADAR indefinitely.
A rational company would have tried to find a long-term solution to this problem: either by redesigning RADAR so that it was less tedious for programmers to work with, or by simplifying RADAR so that it could be used directly by accountants and back-office staff, or by looking for (and paying) a programmer who could tolerate working with the existing system, or, as a last resort, by junking RADAR wholesale and outsourcing all our analytic needs. But Sopwith is not, and has never been, a rational company. Management decided that if six months was the upper limit for a programmer to work with RADAR, then that was that: we would simply higher a new programmer every six months (give or take a few) to fill the gap.
Enter the Sprouts. Encouraged by the success of an early hire from a famous engineering school, Sopwith instituted a policy of hiring a newly-minted engineer every year. Typically, this engineer would spend his first six months at the firm learning his way around RADAR, his second six months running and maintaining it, and his third six months passing his knowledge down to the next hire. After that he would be at a loose end, but since Sopwith was culturally incapable of firing anyone (other than the occasional trader), a job would be found for him: quantitative research, analytics, risk management, trading, somewhere. At one stage last year we had three junior traders, a junior risk manager and two junior quants, all spinning their wheels in the service of the firm, with no functional senior traders, risk managers or quants to guide them.
The current set of Sprouts, the fifth generation since fund inception, is in a bad way. By unhappy coincidence, the three previous Sprouts quit Sopwith en masse a few months ago, leaving the latest recruits with no immediate supervisors to learn from. And our IT department is currently without a head, or indeed, any senior personnel at all. (This is not unusual for the IT department. Although management is admittedly a rare commodity throughout the firm, the IT department takes the scarcity to extreme levels even by Sopwith standards).
This leaves the junior Sprouts in a vacuum. There’s no one to teach them the basics of analytical finance, no one to allocate their time and effort, and (most importantly) no one to run interference between them and the rest of the company. As a result of the former circumstance they have to figure RADAR out for themselves, almost from first principles; this is an incredibly painful and time-consuming process. And the latter circumstance means that they’re always being interrupted by users who need minor fixes to their workstations, or their email, or their printers, or other trivial matters, leaving the Sprouts no time to embark on any sort of serious education or project work.
To their credit, the Sprouts make the best of a bad job diligently and uncomplainingly – they’re still too young to have become apathetic. Sprout One is the older and more experienced of the pair; he has almost a full year behind him, which means he knows (barely) what a derivative is. Sprout Two has just finished his seventh month at Sopwith, and hence has no such pretensions to knowledge. Between the two of them, and aided by a hefty amount of sheer doggedness, they manage to satisfy all the trivial user requests while somehow coaxing RADAR to run every day.
But it’s a balance poised on the edge of a knife. Every day brings a new crisis, and eventually the situation gets so bad that the Original Programmer is called out of retirement two continents away, and asked to teach the Sprouts how RADAR actually works. He gives it a shot, but learns quickly that getting two clueless newbies to understand a complex system long-distance is a losing proposition; instead of teaching the Sprouts anything, he simply fixes each day’s problems by himself.
Consider, if you will, the implications of this state of affairs. We have the very latest in risk management technology, capable of analyzing complex portfolio movements to immense (albeit spurious) precision. We have hundreds of thousands of dollars’ worth of hardware, and have invested millions more in our software. We have upwards of a hundred employees, all utterly dependent on their spreadsheets, their email, their web apps, their databases. And this entire edifice is being manned by two college graduates with a grand total of eighteen months of experience between them. Yet nobody seems to think this is a problem!
Our risk manager floats merrily along in his cloud of Olympian detachment: as long as the clauses in the official risk management policy are being followed to the letter he couldn’t care less if our IT department were run by a poodle. Our traders recognize that a new Dark Age is setting in, and have replaced their quantitative arbitrage strategies with simpler, more primitive trades: these days they merely make wild bets on the market going up or down, based on nothing more sophisticated than gut feeling. Our back office staff muddle along as they’ve always done; IT has never really done anything for them, so the lack of an IT department doesn’t faze them in the least. The Big Boss knows that the state of affairs is farcical, but he just got married to a model twenty years his junior, and he can’t be bothered to get involved. His emissary Jimmy the Kid is dimly aware that there’s a problem, but since he lacks the competence to solve it he’s ignoring it, in the hope that it’ll go away.
The only people capable of appreciating the magnitude of the danger and caring enough to do something about it are our investors. But in a truly delicious piece of irony, they remain blissfully unaware of the entire mess. These are people who stay up late at night obsessing about various real and imagined risks to our portfolio, who call us thrice a day to chat about every unfounded rumor that’s making the rounds, who think every dollar lost is a catastrophe beyond compare. Yet the biggest risk of all, and the one closest to home, is ignored.
I feel almost sorry for them.
Unfortunately, all the many hacks cobbled onto RADAR over the years have failed to address a fundamental weakness in its structure: its human interface. RADAR was originally designed to be used by programmers, and for good reason: its hideous complexity requires a huge amount of effort and technical skill to understand and manage. But any programmer with that amount of skill would simply hate working on RADAR: it’s a tedious, repetitive and utterly mind-numbing job. In point of fact, every single programmer we’ve assigned to RADAR has either quit or asked for a transfer within six months of the assignment. Even the person who created the system, the semi-mythical Original Programmer, chose to gracefully retire from the finance industry when faced with the alternative prospect of having to maintain RADAR indefinitely.
A rational company would have tried to find a long-term solution to this problem: either by redesigning RADAR so that it was less tedious for programmers to work with, or by simplifying RADAR so that it could be used directly by accountants and back-office staff, or by looking for (and paying) a programmer who could tolerate working with the existing system, or, as a last resort, by junking RADAR wholesale and outsourcing all our analytic needs. But Sopwith is not, and has never been, a rational company. Management decided that if six months was the upper limit for a programmer to work with RADAR, then that was that: we would simply higher a new programmer every six months (give or take a few) to fill the gap.
Enter the Sprouts. Encouraged by the success of an early hire from a famous engineering school, Sopwith instituted a policy of hiring a newly-minted engineer every year. Typically, this engineer would spend his first six months at the firm learning his way around RADAR, his second six months running and maintaining it, and his third six months passing his knowledge down to the next hire. After that he would be at a loose end, but since Sopwith was culturally incapable of firing anyone (other than the occasional trader), a job would be found for him: quantitative research, analytics, risk management, trading, somewhere. At one stage last year we had three junior traders, a junior risk manager and two junior quants, all spinning their wheels in the service of the firm, with no functional senior traders, risk managers or quants to guide them.
The current set of Sprouts, the fifth generation since fund inception, is in a bad way. By unhappy coincidence, the three previous Sprouts quit Sopwith en masse a few months ago, leaving the latest recruits with no immediate supervisors to learn from. And our IT department is currently without a head, or indeed, any senior personnel at all. (This is not unusual for the IT department. Although management is admittedly a rare commodity throughout the firm, the IT department takes the scarcity to extreme levels even by Sopwith standards).
This leaves the junior Sprouts in a vacuum. There’s no one to teach them the basics of analytical finance, no one to allocate their time and effort, and (most importantly) no one to run interference between them and the rest of the company. As a result of the former circumstance they have to figure RADAR out for themselves, almost from first principles; this is an incredibly painful and time-consuming process. And the latter circumstance means that they’re always being interrupted by users who need minor fixes to their workstations, or their email, or their printers, or other trivial matters, leaving the Sprouts no time to embark on any sort of serious education or project work.
To their credit, the Sprouts make the best of a bad job diligently and uncomplainingly – they’re still too young to have become apathetic. Sprout One is the older and more experienced of the pair; he has almost a full year behind him, which means he knows (barely) what a derivative is. Sprout Two has just finished his seventh month at Sopwith, and hence has no such pretensions to knowledge. Between the two of them, and aided by a hefty amount of sheer doggedness, they manage to satisfy all the trivial user requests while somehow coaxing RADAR to run every day.
But it’s a balance poised on the edge of a knife. Every day brings a new crisis, and eventually the situation gets so bad that the Original Programmer is called out of retirement two continents away, and asked to teach the Sprouts how RADAR actually works. He gives it a shot, but learns quickly that getting two clueless newbies to understand a complex system long-distance is a losing proposition; instead of teaching the Sprouts anything, he simply fixes each day’s problems by himself.
Consider, if you will, the implications of this state of affairs. We have the very latest in risk management technology, capable of analyzing complex portfolio movements to immense (albeit spurious) precision. We have hundreds of thousands of dollars’ worth of hardware, and have invested millions more in our software. We have upwards of a hundred employees, all utterly dependent on their spreadsheets, their email, their web apps, their databases. And this entire edifice is being manned by two college graduates with a grand total of eighteen months of experience between them. Yet nobody seems to think this is a problem!
Our risk manager floats merrily along in his cloud of Olympian detachment: as long as the clauses in the official risk management policy are being followed to the letter he couldn’t care less if our IT department were run by a poodle. Our traders recognize that a new Dark Age is setting in, and have replaced their quantitative arbitrage strategies with simpler, more primitive trades: these days they merely make wild bets on the market going up or down, based on nothing more sophisticated than gut feeling. Our back office staff muddle along as they’ve always done; IT has never really done anything for them, so the lack of an IT department doesn’t faze them in the least. The Big Boss knows that the state of affairs is farcical, but he just got married to a model twenty years his junior, and he can’t be bothered to get involved. His emissary Jimmy the Kid is dimly aware that there’s a problem, but since he lacks the competence to solve it he’s ignoring it, in the hope that it’ll go away.
The only people capable of appreciating the magnitude of the danger and caring enough to do something about it are our investors. But in a truly delicious piece of irony, they remain blissfully unaware of the entire mess. These are people who stay up late at night obsessing about various real and imagined risks to our portfolio, who call us thrice a day to chat about every unfounded rumor that’s making the rounds, who think every dollar lost is a catastrophe beyond compare. Yet the biggest risk of all, and the one closest to home, is ignored.
I feel almost sorry for them.
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