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?