A White Belt’s Theory of Everything.
Good decisions come from experience.
Experience comes from making bad decisions.
Bad decisions make for good stories.
If you’re a regular listener, you’ll know we’ve made plenty of shitty decisions in our time. On the other hand, we also gained an understanding of action and consequence; how to deal with folks in the big city; some feeling for how the world actually spins.
As a result of that, in the real world, people often ask us for career advice.
Now I can’t tell them what to do, only they know that, but I can help them figure out what they know.
This is because, at the most basic level, what most of us need is just to refine our target… then we need to put that target up on a wall and start throwing shit at it to see what sticks.
One technique I use to help people focus is simply ask them what sorts of companies they most respect. Then I tell them to list these firms in a spreadsheet. Finally, to rank them in some sort of order of preference.
On average, I’d estimate candidates can name two or three companies the first time I ask them this question. But remember the financial sector is 10 percent of the US economy; there are many, many firms out there.
And so your first task is just that - go out and make a focus list of where you want to build a career. Then refine that list.
Now, if I was new on Wall Street I might start throwing out names like Goldman, JP Morgan, that sort of thing. These are Tier One firms. And good ones. But if you’re early in your career, that’s the wrong list. All things equal, if you want a job in finance, you should aim for the top of the second tier: Cowen, Evercore, Raymond James, Piper Jaffrey.
Why? Because, you’re probably never going to move the needle at a firm like Morgan. And also because you have to fish in the best waters - where the opportunity lies.
But this isn’t a self-help podcast, so let’s transition as always, into a story. You be the judge whether it proves our point or not.
During some recent travels, I caught up with one of my favorite colleagues. I’m going to call him Charlie.
Charlie’s mother was a stockbroker and started teaching him about the market when he was ten.
Charlie was also fortunate enough to go to the same school as a senior executive at McDonald. “Mick-D” was not a place to flip burgers, but a brokerage that has since been acquired by Keybanc. He pitched the firm on an internship and got a foot in the door. Eventually he was hired for a full-time position and assigned to cover the Southeast, because back then there were no important clients in that region… took a 20-thousand-dollar commission pad and turned it into $600k in five months.
By the age of 26 he’s the head trader.
So how did he get there? I don’t think even Charlie could tell you that. But he might venture that it was by making ‘small-c conservative’ choices.
You see, Charlie’s next-door neighbor worked for a bulge bracket and had a T&A budget close to 2 million a year. One time Charlie went around to a house party of his and saw cups of cocaine on every table. Hookers all over the show. Everyone is doing drugs he’s never seen before. Later in the night, he walks into a room and a bunch of women are trying to put a football up one of their friend’s vaginas.
He thinks this is pretty funny. Eventually the night regresses to dirtbikes and fireworks.
The next morning he wakes up and it’s like Jonestown in the living room; bodies lying everywhere. He packs his shit right up and leaves for his hometown to get married, put his head down to work, and to stay out of trouble.
Two years later? Head trader.
Isn’t that a nice story? Our hero sees all the bad behavior going on, avoids womanizing and drugs, chooses the Path of Light, and goes out and achieves success.
But having written that, I realize that’s not necessarily the point I wanted to make. Charlie’s experience, while instructive, proves nothing other than he’s a good example to his overachieving children.
No, we need another leg to this stool.
So let’s shift gears again.
I’ve recently gotten into jiu-jitsu and unfortunately probably spend an equal amount of time talking people’s heads off about it. Easy enough when you’re blabbing away to someone in person with a beer in your hand. Harder to put into writing.
But doing hard things can be constructive, so let’s try. I train three or four times a week, which is as much as my body can handle so far. I also started to study it and recently listened to a podcast where Lex Fridman interviewed an American hero named Dan Gable.
Turns out he has a book.
That seemed interesting, so I bought the book.
What I learned is, wrestling is hard.
As a competitor, Dan Gable’s goal was to train until he collapsed unconscious. He never achieved this, even though back then they’d deliberately keep the athletes away from drinking water, make them endlessly climb ropes, run miles in bad shoes, that sort of thing.
Later as a coach, one of his students was so devastated at losing a match that he tattoo’d the school mascot tearing out his own heart.
So yes, grappling with people is difficult.
That’s why it’s meaningful.
Fighting is intimidating - yet on a primal level all of us thrive on violence. Jiu-jitsu reconnects us to that, in a controlled situation. That’s why it helps with one of the most common problems in life, which is anxiety - it teaches you to find comfort in uncomfortable situations; the ability to solve problems with potentially bad consequences under stress.
In my mind, the worst part of fighting on the ground is in a position called half guard. In half guard, your opponent is on top of you and all you have is a single leg of theirs trapped. It’s a miserable place to be. Unlike other positions, you have very few ways of submitting your opponent; instead it’s seen as a more transitional phase.
In theory, the way to transition out of half guard is by getting your free leg up as a knee shield and then to charge in for a sweep. On the other hand, perhaps it’s a better idea to be more defensive - to maneuver your way back into full guard.
And that is the essence of jiu jitsu - it comes down to a series of 50/50 decisions with immediate realworld feedback. The narrower the margin of error the better you are doing.
One observation I have been able to make is the better you breathe, the better you are doing at jiu-jitsu. Breathing is the one thing everyone can do that is mastery over self. Once you learn how to control your oxygen intake, you can ramp yourself up, or bring yourself down; you can understand your own headspace, an important step to understanding proper technique.
For instance if something feels like a life or death decision, all you should do, as always, is stay calm and try to come up with a counter move. There’s always something to do, because jiu-jitsu (and life) is a complex puzzle that will never be solved.
So yes, jiu-jitsu comes down to training and patience, but how is that different from every other thing?
Jiu-jitsu keeps you honest. It allows you to stop worrying about things that don’t concern you and dedicate yourself to the things that matter most. It compels you to face your fears, requires you to connect to another human being, and forces you to face the consequences of your decisions today.
So that’s my advice. If you are worried about what is next in life, the first thing you should do is make the mental physical. And the physical mental. Exercise will help you do that, while also being a metaphor for life, a metatask, a path that teaches you to be accountable and humble while still being brave and tenacious.
Everything you want to know about your career and your life and yourself is somewhere to be found in jiu-jitsu, if you’re brave enough to look.
A few years ago we were at a function at the University of Colorado. It had been set up by an ex-mortgage trader and among the speakers was Dick Fuld of Lehman Brothers fame.
Dick was a big Hillary supporter and made this super-bearish speech about how Trump would crash the markets as soon as he took office. After he was done he fielded questions from the audience, which was a mixture of CFAs, professors and local students.
One student asks him, how did you promote diversity at Lehman?
And he answers that he invoked executive authority to hire 50 minority interns. After doing so, he then took top management aside and said,
“If the first minority student quits, your bonus gets cut by 25%.
Second one that quits your bonus is cut by 50%.
Third one quits… you’re fired!”
Now obviously Fuld just made the whole thing up to impress a bunch of douchebaggy college kids. But let’s put a pin in that for now and move on.
In the years before the Great Financial Crisis, the system lent too much money to people who could not afford such debts - primarily in the US and the UK, mostly for mortgages. This continued over a long period of time because easy money drove up prices, making us all feel richer than we were. Meantime the mortgage providers had less reason to worry about the risk of default, because they could sell their loans to investment banks like Lehman, which then chopped them up and repackaged them into ever more complex financial products. Asset managers were keen to buy them because central banks were keeping rates low and these new instruments offered better returns. For protection, the funds relied on the insurance giant AIG. In turn AIG trusted the credit rating agencies. As time went on the products became more complicated but the triple-A ratings kept coming. Meantime banks like Lehman kept some of these on their balance sheets or hid them in so-called “offshore tax havens”. The accountants failed to see these, or thought it was fine, or looked the other way, as did regulators and politicians.
Eventually it became clear that millions of Americans would not meet their financial obligations and the financial products that contained their mortgages began to lose value. Investors had to take big losses, but banks too had kept these products. The products had become mind-bogglingly difficult to value, as had the “vehicles” where the banks had placed them. The question was whether the banks’ buffers would be big enough to protect them. At Lehman they were not and when they had to announce bankruptcy other banks and institutions stopped lending to each other. The system was gripped with fear until central banks pumped unprecedented amounts of cash into the system and guaranteed the banks.
In the middle of this shitshow, Lehman called a big meeting at the Sheraton and there was a big contingent of former Neuberger Berman people there. Those guys were a class act, but sold with a 5-year lock on their shares. So a fair amount of wealth was being washed down the toilet at the time.
Dick Fuld is droning on about what good value the stock is right now and how everyone should buy more shares to support the price and show confidence in their company. So one Neuberger guy says to Fuld, ‘Hey! Show some leadership!! Why don’t you buy 30 million in stock if it’s such a big opportunity? ’
And Fuld replies that he’d have to ask his wife… to sell some art.
Now everyone already hated Fuld because he’d overruled the board on casual Fridays. He’s an easy target. Not necessarily a bad person; just horrible judgment, no limits and no consideration of others. Instead, I have a couple of other executives in mind for this story.
So where do we begin?
At the beginning.
Lehman was founded all the way back in the mid-nineteenth century, in Montgomery, Alabama by Henry Lehman, an immigrant from Germany. Originally just a dry-goods and general store, eventually Henry's brothers – Mayer and Emanuel – joined him, giving birth to Lehman Brothers in 1850. Skip forward to when this story takes place, let’s call it the mid-2000’s, and it’s the fourth largest investment bank in America. Lehman was on a roll; an exceptional place to work.
The first time I was in their new office, it was after two traders, let’s call them Dale and Brennan [ref], invited me to their annual St Paddy’s celebrations.
Dale was the Master of Ceremonies for St Paddy’s at Lehman and the sort of Wall Street character who doesn’t exist anymore; a real old-time Irish gent. Funny as hell but a rough sort of bloke. The sort of guy who would push you into the urinal if you didn’t have a hand up against the wall. Legend has it he once had a neighbor's house aluminum-sided as a practical joke.
Back then it wasn’t unusual to have an Irish-Catholic running risk; obviously that generation has long since been replaced by something smarter like an Asian or a computer [deadpan]. But Dale loved St Paddy’s - used to bring an Irish band in full guard through the trading floor. Just that level of effort impressed me, but in no time hip flasks are also out and his partner Brennan is pouring whiskey into red cups.
This is supposed to be an investment bank! A cornerstone of the financial system and everyone is losing their minds.
The only obstacle to chaos was a new MD from Morgan, but turns out he’s a lunatic too. An idiot savant. The sort of person who would reach over and take food off your lunch plate. Guy should have been selling Lamborghinis in Long Island but instead he has a silver cart bringing tea and cookies to him each day.
Anyway, Lehman had an MD-only café on each floor. Even if it was empty, you couldn’t go in there. Sort of like the private Bear Sterns elevator, except it didn’t smell like weed. With some of the other MD’s absent, Brennan sets up and starts passing out long pours of various miscellaneous booze and in no time we’re all wrecked.
Amongst the chaos, Dale’s phone rings off the hook.
I think this is odd, but Brennan says everyone knows not to call Dale on St Paddy’s Day.
An hour later the phone is ringing again. I nudge Brennan; surely it’s important? He rolls his eyes, staggers over to the phone, has a brief conversation and then comes back to the group. Dale glares at him, asks what they wanted.
“Kettering says sell a hundred Euros.”
Got it, says Dale. Wait what?! FX or Fixed Income?
Brennan tells Dale they say they didn’t say.
Dale thinks fuck that, it’s St Patrick’s Day.
An hour later someone is wearing a football helmet and we are testing water bottles on it. Throwing shit from the trash at anyone who has it on at the time, that sort of thing. Eventually I get out of there and I see Dale and Brennan arguing out by the elevators.
Voice 1: You don't know anyone named Johnny Hopkins anyway.
Voice 2: It was Johnny Hopkins, and Sloan Kettering. And they were blazin' that shit up every day.
Voice 1: Haha, That's so funny the last time I heard that, I laughed so hard I fell off my dinosaur!
Voice 2: You and your traders are hillbillies. This is a house of learning doctorates [sic].
Voice 1: You're not a doctor - you're a big fat curly-headed fuck
Voice 1: I’m warning you, if you touch my helmet again, I will stab you in the neck with a knife.
Voice 2: I was doing that because I love you. Fuck you.
Voice 1: I teabagged your turret.
Voice 2: Oh yeah, well my turret is a guy, so that makes you gay!
Voice 1: Hey, you know what's a good trading strategy? If you lick my butt-hole.
Voice 2: I'm gonna fill a pillowcase full of bars of soap and beat the shit out of you!
Voice 1: That client over here is going to eat your dick.
Voice 2: Client better not get in my face, cos I'll drop that motherfucker.
Voice 1: This office is a fucking prison!
Voice 2: On planet bullshit!
Voice 1: In the galaxy of “this sucks camel dick”!
Voice 1: Hey! I got an idea… Boats 'N Hoes!
Voice 2: Boats and hos, boats and hos
Voice 1 [singing] Boats and hos, boats and hos,
Voice 2: Gotta have me my boats and hos!
A simple way of looking at life, and your proper place in society, is just to follow The Rules of Stupid; Don't go to stupid places during stupid times with stupid people and do stupid things.
Yet it’s fair to say that my colleagues and I on Wall Street have been largely immune to the consequences of our stupid decisions.
For example, leading up to the financial crisis Goldman advised Greece on how to cover up their debts with derivatives. When everything inevitably fell apart, they then showed hedge funds how to profit from the chaos. Afterwards they got consulting work from the Europeans on how to fix the whole catastrophe.
That’s fine I guess.
Not long after that same crisis, JPMorgan discovered one of their employees had run up around $6 billion in losses from an errant trading strategy. They asked the executive, also known as ‘The London Whale’, how he intended to get them out of this mess and his answer was “Sell the forward spread and buy protection on the tightening move, use indices and add to the existing position, go long some risk on some belly tranches especially where defaults may be realized, buy protection on high yield in rallies and turn the position over to monetize volatility”.
When the Senate summoned JPMorgan’s executives to explain what this meant, nobody could do so. And yet JPMorgan is considered the best risk manager in the world.
That’s fine too I guess.
What astounded me through all of this was the astute way banks navigated the hostile political environment at the time. As our friends at Dealbreaker have noted; regardless of what you think of the government, a good rule of thumb is that if you are regulated by an agency, you probably don't want to go out of your way to unnecessarily anger them. In fact, to play it safe, you might want to just show complete and total deference, whether you're violating its rules or not.
But then you have Sheldon Maschler. The former head trader of Datek Online, who in 2003 paid a $29 million fine and was banned from the securities industry; well, he took a different approach.
For instance, one day he showed up to court in a T-shirt that read ‘NASDAQ SUCKS!’. The judge threw him out, telling him to come back in a different shirt the following day. Maschler did as ordered; this time wearing a T-shirt that read ‘NASDAQ SUCKS!’ in different colors. [short pause]
Regulators were soon crawling all over Maschler's office.
One day, a typical one in the market for Datek, traders sat staring at screens in Maschler's basement. Suddenly, they noticed an odd presence in the room: men in suits looming over the stairwell door.
"Who...the FUCK...are YOU!"
"We're from the SEC. We're looking for Sheldon Maschler."
"Who the FUCK let you in?"
"Ah, the door was open."
"If my fly was open, would you suck my dick?"
All the Datek traders crack up at that.
"Now get upstairs and RING THE FUCKING BELL!"
The two SEC officials crept back upstairs and rang the bell. Maschler then presses the intercom button.
"Hello, who is it?"
"Um, it's the SEC."
"Come on down, fucking assholes”
Now I’ve worked for a big hedge fund. And I’ve worked for a small one. There are pluses and minuses to both, but if you like having banks bend the rules for you, then working for a big firm is more fun.
I’ve seen heliskiing trips in Colorado. Fallen into pit seats at the Montreal Grand Prix. I’ve witnessed brokers buy a bottle of Blanton's that was so old it didn't have a letter on the cork, then leave it forgotten on the table as we all moved onto another club. All of these pushed the line with regulators but were ultimately small beer. They were tiny acts of rebellion, out of the public eye and fairly meaningless.
Sheldon Maschler on the other hand blatantly thumbed his nose at the big banks and the government… and was drummed out of the business by them. But it’s not exaggerating to say he and Datek democratized investing at the turn of the century; They’re the ideological heirs to today’s Robinhood, providing access to wealth creation that used to be the province of a lucky few.
He also stood up straight and fought back with a smile on his face - it’s my contention that there’s value to society in that. But let’s put a pin right there and circle back in a bit.
A British statistician once demonstrated more children were born in towns with storks, than in towns where there weren’t many.
That doesn’t prove storks deliver babies; there are just more storks in towns with a lot of chimneys, because that’s where they build their nests. A lot of chimneys means a lot of houses, which means a lot of humans, which means more newborns.
And yet adults are quite happy to tell children that storks deliver babies.
People will always choose a simple lie over a complicated truth, because the truth has to stick to what actually happened, whereas the lie just has to be easy to believe.
The simple lie in society today is the government cares about your safety.
The government does not care about your safety. For better or worse, the government is a vehicle for control of society.
Many of us believe our government has far exceeded its historical role; A massive expansion of the administrative and security state. Shutting businesses. Locking people down. Mandating vaccines regardless of risk profile. Masking two-year-olds in school.
All of these would have been unconscionable when we were told “fourteen days to flatten the curve” and yet in many states the regulations now seem almost normal.
As individuals we feel it’s time to push back.
How to do so?
A wiser man than me noted that one way of conceptualizing yourself is that you’re one speck of dust amongst seven billion. And when you conceptualize yourself that way, you might think, well what difference does it make what I say or do? And that’s actually quite convenient for you, because if it doesn’t matter what you say or do, then you don’t have any responsibility and you can do whatever you want. The price you pay for that is a bit of nihilism, but if you don’t have to shoulder any responsibility that’s a small price to pay.
The other way to look at it - and this is actually the accurate way of looking at it - is that you’re in a network. You’re a node in a network. And so, you can do a bit of arithmetic very rapidly and just see how powerful you are.
You know a thousand people. They know a thousand people. That means you’re one person away from a million people. And two persons away from a billion. You’re the center of that network. And the way networks work is that information propagates in a network manner.
So don’t underestimate the power of your speech. Don’t underestimate the power of truth. There’s nothing more powerful.
Now in order to speak what you might regard as the truth, you have to let go of the outcome.
You have to tell yourself, I'm going to say what I think; I'm going to state what I think as clearly as I can and I'm going to live with the consequences no matter what they are.
Now the reason you think that - it’s an element of faith; the idea is that nothing brings a better world into being than the stated truth. You might have to pay a price for that. But that's fine, you're gonna pay a price for everything you do and everything you don’t do.
You don’t get to choose to not pay a price. You get to choose which poison you're going to take. That’s it.
It’s not safe to speak right now… and it never will be.
But the thing you have to keep in mind is that it's even less safe not to speak.
It's a balance of risks. You either pay the price for being who you are and stating your motive being in the world. Or you pay the price for being a bloody serf; one that's enslaved him or herself. That's a major price to pay; that thing unfolds over decades; you'll just be a miserable worm at the end of twenty years of that.
No ability to voice your opinions.
Nothing left but resentment because everyone’s against you.
Say what you think carefully.
Pay attention to your words.
It’s a price you want to pay if you’re willing to believe that truth is the cornerstone of society.
In the most real sense, if you're willing to take that leap... then tell the truth and see what happens.
Rules of Civility
As we’ve alluded to in the past, this is not really a podcast about a single person’s experience in the Big City, but instead a composite character derived from a group of us.
While we were lucky enough to be on Wall Street during the golden years, we weren’t privileged in the normal sense of the word. None of us went to ivy league schools, none of us were trust fund babies, all of us worked crappy blue collar or sales jobs before making it here.
When we came to this town we had nothing; poor in everything but spirit. My own first month in the city was spent on a couch in Crown Heights. I knew no one, had no business contacts, no financial backing; my monthly budget started with a metrocard and then I worked backwards to figure out how many lunches I had to skip each week.
Furthermore, I’m from a temperate state and was clueless enough to leave it in winter… What I most remember is just being cold all the time. It was miserable. I trudged around Manhattan introducing myself to recruiting firms and spent my evenings by an electric heater posting out resumes.
And then I was struck by lightning. Invited into one of the most prestigious hedge funds in the world... to do the shittiest job there.
But the founder had a genuine soft spot for the downtrodden. He had created an entirely unique corporate culture, one where your benefits at the firm - if not your total compensation - increased the lower your status at the office. A junior staffer would have the best healthcare, commuter benefits, 401K matching program, free food, even a clothing allowance if I remember correctly. By comparison, a bigshot fund manager didn’t even draw a salary and had to eat what he killed.
And that’s when I knew things were finally turning for me in New York - the day human resources left a metrocard on my desk and it dawned on me that my budget could now accommodate lunch; a meal I didn’t have to pay for anyway. I’ll always be grateful for that moment - it washed away a pervasive sense of pessimism that had been weighing on me since I landed in the city.
I hadn’t ‘arrived’, but my toe was in the door.
That day, my confidence raised a notch, I headed down to the N train. Instead of staring at my feet, I met other people's eyes; my head was a little higher, my shoulders a little further back, and my stance a little wider. Then, at 57th Street, someone came into the subway car who would change my life forever. Around my height, but certainly better dressed, he settled across from me and I couldn’t help but stare at some dark grit smeared all over his forehead.
New-confident me said, hey mate, you’ve got shit on your face.
He started, then shot back at me, ‘that’s not shit. It’s a cross.’
What, you put it on yourself? Without a mirror? That’s not a cross.
Turns out it was a cross. Made of ash. Catholics apply it during a morning mass, often along with a small blessing: "Remember that you are dust and to dust you shall return." It’s meant to represent a penance for their sins and ironically enough this degenerate had gone out drinking all day and forgotten about it.
As far as I knew, there were no observant Catholics in the town I grew up in. I’m curious and start asking him questions about himself. Wide-eyed and god fearing, if not exactly free of sin, it turns out he works on Wall Street too. He lifts weights, likes chasing women, dinosaurs, monster trucks, toxic masculinity - all good things, made further evident by the obvious disapproval of the hipsters around us.
Just like that, now I have a job and a friend.
With those two things New York becomes a city where the improbable could be made probable, the implausible plausible and the impossible possible. This is because by yourself, you are literally an insane person. You need someone to laugh at your dumb ideas and encourage your good ones, moderate your madness but throw fuel on your better fires.
We all need another half to make one whole person.
Let’s call my new friend Tinker [ref]. Arguably Tinker had a poor ratio of intelligence to net worth. But we’re talking about an extraordinarily large denominator. This is because Wall Street was still paying 6 cents a share back then, while a recession had lowered stocks’ formerly-nosebleed nominal values.
Let’s pause there and explain exactly what I mean by that:
For the sake of argument, say the year was 2002.
Apple stock traded at $23.
If one of Tinker’s clients bought $10 million worth of Apple, not an unusual order for an institutional hedge fund back then, that was 434,000 shares.
434,000 shares at 6c is $26,000 commission.
Tinker ran a 40% payout, so a single trade like this would net him $10,000.
And Tinker traded a lot of Apple.
I was a buyside guy, even if I didn’t know what that term meant yet. Tinker was in sales.
He was the mirror image of me, saw the world differently and between us, over a long friendship, we both came to understand it better.
I tell Tinker I am poor and he says get over it. That New York is famous for rags to riches stories. He points out the Vanderbilt’s are actually descended from an indentured servant who sailed from Holland in steerage. He was known simply as Jan from De Bilt. Cornelius Vanderbilt built the family fortune and classed up the name a bit while he was at it. Good on him.
Tinker explains to me that most people think of life as a rambling journey on which we can alter our course at any given time, but for most of us life is nothing like that. Instead we have a few brief periods when we are offered a handful of discrete options. Do I take this job or that job? Chicago or New York? This circle of friends or that one? Does one make time for children now? Or later? Or later still? Or never? In that sense, life is less like a journey than it is a game of honeymoon bridge. In our twenties, when there is still so much time ahead of us, we draw a card and must decide right then and there whether to keep that card and discard the next or discard the first card and keep the second. Before we know it, the deck has been played out and the decisions we have just made will shape our lives for decades to come. Even if we wanted to retrace our steps and rekindle old acquaintances and opportunities, how could we possibly find the time?
I digress. Tinker was an early card and a well-chosen one.
We head off to Tinker’s local watering hole, a favorite amongst expatriates when they repatriate. An expensive place, but high end restaurants are the ultimate expression of ungodly waste, leaving you with the least to show for your money and therefore Wall Street loved them.
When I tell Tinker who I work for he has the good sense not to look greedy, but a few beers in he and his friend Lobster laughingly ask to touch my wallet for good luck. That’s when it really dawned on me I might actually amount to something on Wall Street. In any case, there would only be one way forward - because in New York you have no New York to run away to.
So I ask Tinker, what would he do if he was in my shoes?
And Tinker tells me I should follow a series of timeless rules. There are 110 of these, but in the interests of time he would leave me with five of them [ref].
Number One: Every trade you make in the market ought to reflect some sign of respect to those on the other side of the phone. Said differently, don’t cut your commission rates with people helping you make money.
Rule Number Two: When socializing at your firm, do not put your hands on any part of the body not usually discovered [sic]. Let’s class that one up a bit - if you’ve had a couple of drinks then stay away from the women you work with.
Rule Number Three: Try not to frighten your friends. You know that super-exciting, unique, adventurous idea you have? It’s actually stupid and dangerous. Bat it around in your mind for a while longer. Steelman it. Then strawman it. Only after you’ve squeezed all the dumb out, should you present it to your inner circle.
Rule Number Four: In the presence of others, don’t sing or hum, don’t drum with your fingers or feet. Stand up straight with your shoulders back. Look people in the eye. Don’t fidget, pay attention. Assume the person you are listening to might know something you need to know.
Rule Number Five: If you need to cough or sneeze, sigh or yawn, don’t do it loudly but in private.
These rules have served me admirably and indeed still do. I hope they serve you equally well.
I needed a little airplane reading recently and a friend suggested John LeFevre, best known for creating the @GSElevator Twitter handle. The account infamously satirized banking culture and accumulated enough press coverage that both Goldman and Citi launched investigations in an attempt to identify the source of the leaks. His book Straight to Hell is not Hemingway, but enjoyable. And believable.
Oddly, rather than inspiring any recollection of our own feats of obnoxiousness, it reminded me of one of my former CIO’s. Let’s call him The Abbot.
Now I always liked The Abbot, so I’ll say right up front that even if I knew anything damning I wouldn’t relay it here, but for whatever it’s worth… this is what I remember.
He was a good looking guy, super aggressive and most importantly understood markets. Respected them and loved working in the business. Uncomfortably direct at all times; If you asked about the financial sector, his answer might be, ‘who cares what I think? If the market goes up the banks will too. If the market goes down, so will they’.
That’s not the most sophisticated response, but happened to be the correct one at the time. And after all, there’s nothing stupider than a smart person who is wrong.
Once he was settled in the corner office, I set out to make a good impression and gave a lot of thought to our first proper interaction. At the time we had taken a large investment in Home Depot and I thought I had discovered something about their competitor Lowe’s. Something that mattered. I gathered my data, printed out the key points with supporting documentation, and finally carefully checked around the top analysts on the Street to make sure it was both on point and not widely disseminated. Then I gathered my courage, took a deep breath, and knocked on his door.
The Abbot’s voice boomed, “YEEEEES?!”
Hi, I don’t want to bother you but -
Well… that went well.
The next time we spoke I was just getting my things together to head home. Having new management in the office, I had been putting in extra hours rather than bailing right at the bell like normal. However, The Abbot was in London; it’s after 9 o’clock there and I suspected he liked his cups, so it should’ve been safe to make my exit. I’m walking off the desk and the trading line rings. Our overnight guy is literally jerking off somewhere, so I pick it up and The Abbot is already yelling,
“Hey, I’m in London with Nick and just heard about the Ruskie Wheat Fires”
‘THE. RUSSIAN. WHEAT. FIRES!’
"Godamnit, what kind of circus do you think we are fucking living in? Get an analyst on the phone right now and find out what the trade is!"
Now we had portfolio managers for almost every area of the business, each known as a ‘pod’. I doubletime over to the energy and commodity space and speak to one of the analysts there, let’s call him Luke.
Luke explains there's a lot of wheat in the world, no one cares about fires in Russia. Instead The Abbot should just buy cotton, because an enormous amount of cotton is traditionally picked by slaves. Modern day slavery is almost exclusively in China and the communists there are shipping their Muslim slaves, known as Uighurs, to a new area. This forced migration is a problem, since the Uighurs do all the cotton farming. He also points out that everything China does at scale causes inflation and generally turns poisonous for everyone involved. The play is to buy cotton, not wheat.
Got it I say.
Armed with my new sophistication in commodities I run back to the desk and call The Abbot. He picks up on the 2nd ring.
Hey, so I have your answer - we need to buy cotton
"Wow, you really need to be here."
You mean a transfer to the London office? That’s an incredible offer, I wa-
"No no, I mean at this bar. Art Laffer just punched someone in the face. It was awesome."
And then he whooped and threw the phone at someone.
Out of respect I’m going to leave The Abbot stories there for now. But thinking about him begs the question, what makes someone want to work for a person like that? Stockholm syndrome? What on earth would be the attraction??
Well, partly it’s because how easily offended you get is directly proportional to how stupid you are. I’m not stupid, so I wasn’t upset when he would speak to me in that manner. Mostly I’d put the phone down and we’d all just laugh.
Secondly, the presumption of friendliness is generally only found amongst people raised in the company of money and manners. I wasn’t brought up by parents who thought I was made up of fine china that would break at loud noises.
Thirdly, you don’t stop doing something because it’s hard, you stay because it’s hard. Most good things in life are harder than you want, but easier than you think.
However, there’s a final leg to this stool. Bear with me, because we’re going to go down a bit of an intellectual rabbit hole…
There’s a term called ‘sonder’ - the dawning realization that everyone around you has their own life, friends, backstory, and future. All of them are just as vivid and complex and remarkable and difficult as your own.
All of these lives swirl invisibly around you, an anthill deep underground, with elaborate passageways to billions of other souls that you’ll never know existed, in which you appear only once, as an extra sipping coffee in the background, as a blur of traffic passing on the highway, as a lighted window in the distance at dusk.
I think about that from time to time, especially while traveling, and it always feels like a bigger concept than I can grasp. Everyone protesting some perceived microaggression or flying a Trump flag, the homeless guy laughing on the corner or the frowning Upper East Side matron; they all have their own story too.
It’s a pretty earth-shattering concept. Thinking about it could help raise our awareness about the lives of other people. You are not the only one living with the weight of the world on your shoulders. All people's lives are unique, strange, chaotic, and complicated - just like yours. You're not alone. Reminding ourselves that a complex life story lies behind the faces of everyone we meet can help us connect with people in a more positive way.
You see, too much empathy is a problem in and of itself.
Ask yourself - are people today more or less offensive than they were 20 years ago? Much less, right? And yet this less-offensive generation appears way more likely to tell on each other over minor issues to the highest authority they can find. Informing on each other almost seems like a sport for them.
Now that I’m on the wrong side of 40, there’s a lot that perplexes me when it comes to younger people, but I still believe they should go out into the world and make mistakes to learn from. They should be offensive. They should challenge perceived wisdom. They should get into fights. That doesn’t mean being offensive or getting into fights are necessarily good. But for me that was part of growing up. You did bad things, you made mistakes, you learned and grew.
By contrast, the young today have clearly been emotionally and developmentally stunted by two decades of helicopter parenting. They’ve been taught to wind up every little issue into the worst possible outcome. A sexist joke is almost immediately related to rape and by not calling it out you’re enabling sexual assault. Any cultural joke is immediately related to the Klan and by not calling out said-joke you’re enabling racism. A comedian making even the mildest fun of trans must be immediately censored and to not do so you’re somehow enabling violence against trans people.
The worst thing about this New American Religion is how many people have been put onto a cultural slippery slope wherein they think that it’s their job to police the thoughts and words of others and they think every infraction is on par with the worst possible thing anyone could imagine. Social media is the biggest contributor to this. It empowers perpetually-offended zealots to constantly complain about things that bother them and ruin those things for the rest of us.
But a culture doesn’t work if it’s being controlled by the most fragile, most litigious and most offended amongst us. A culture works when it’s a melting pot of ideas where the best fight their way to the top within an intellectual marketplace that is as wide as it is diverse.
In short, everyone seems so worked up over the smallest things lately.
This is because you should believe things according to the evidence and not the opposite. And the evidence is overwhelming that everything in our world is getting better faster than ever.
For the most part, this is because over the last 40 years the world has been abandoning suicidal socialist policies and embracing individual freedoms. The productivity of our increasingly-interconnected global economy has led to inequality and there’s a lot of political unrest around that, but overall the tide has been lifting all ships.
So, if you’re not an optimist, you should be.
If you doubt this, you should escape the indoctrination in pessimism you’ve been subjected to by the media and instead take a look at some of the work by Marian Tupy. His key points are as follows:
Less than 200 years ago everyone lived in a state of what we’d consider abject poverty, but now fewer than 10% of the world does.
Rather than being depleted, the world’s resources are more abundant than ever - a basket of 50 key commodities that would take an hour of work to own is now available to the average consumer at a third of that.
Rather than being overpopulated, the world’s population is expected to peak and actually decline in 60 years.
Agricultural productivity has advanced so much that global famines are almost unknown and a glance around indicates obesity may be a larger problem than food insecurity.
In the past 40 years our net tree cover has increased by 900 thousand square miles, an area larger than Alaska and Montana combined.
Representative democracies make up 50% of nations and autocracies only 10%, almost the mirror image of a century ago.
Interstate war is now a rare event.
Global warming fears aside, the chances of actually dying in a natural or weather-related catastrophe has declined a remarkable 99% over the past century.
What about the future? In the past 200 years the global economy grew a hundredfold, versus a population growth of around eight times. The numbers are so large as to be almost meaningless, but the world economy today is nearly 100 Trillion US Dollars. If we just continue our average growth rate since 2000, it will be over a quadrillion dollars by the end of the century. That’s right - a thousand trillion.
Let’s conclude; yes, we are spoiled. We can’t even conceive of all the ways. My car starts every time, my seat is perfectly comfortable, I have a bar of soap in my shower where clean water is readily available, I have this word processor in the cloud recording each word as I type, I can have a customized coffee in minutes, I can ask the phone next to me to play Bach, Mozart or Soundgarden, I can walk to the store with 100% assurance that they will have plenty of food for me and thousands of other people, I can flip over to Netflix or YouTube and watch anything I want – it’s mind boggling.
But growing ever-more comfortable is not just true now. It’s been true for a millennium. So perhaps we should go easy on the young; perhaps there is nothing wrong with being spoiled.
That said, what’s different now as compared with the past is that we are losing intellectual consciousness as to the source of our prosperity. How else to explain debates when one side of our political class cannot seem to utter a single word of credit to private enterprise for all its incredible achievements?
What’s inexcusable to me is the ignorance that drives us to take it all for granted, and that we utterly fail to appreciate capitalism as the source of all the greatness in our lives.
We should be very, very careful about abandoning the mechanisms that have enabled so much progress to emerge in the first place.