Saturday, 1 August 2015

Who wants to be a rock star?

20:59 Posted by The Thalesians (@thalesians) No comments

Please forgive me. I am going to quote some lyrics from Nickelback's hit "Rockstar" below. I realise these Canadian rockers do not occupy a position in that rarefied space called "cool", but they do have a knack for the occasionally snappy riff and memorable, and somewhat catchy lyrics (this view might not be one shared by you the reader).

'Cause we all just wanna be big rock stars
And live in hilltop houses driving fifteen cars
- lyrics from Rockstar by Nickelback

The rest of the song continues in a similar vein, espousing the benefits of being a rock star. But do we all want to be big rock stars and drive a car like the one above? I suspect many of us wouldn't scoff at the notion (myself included). In my case, I can't sing, I can't play the guitar (although I can play the violin, to what I would term screeching standard), and I can't write music. I like to write, so perhaps I could write a few lyrics. Unfortunately, being a lyricist is not the same as being a rock star. So perhaps the delta, to use option trader lingo, of me becoming a rock star is close to zero.

When it comes to finance, we also have the notion of being a rock star, albeit it doesn't involve catchy riffs or singing. A rock star is the trader who makes the big call and profits from it. A rock star is the strategist who makes the big call and gets the market's adulation when he or she gets it right.

So do you want to be the financial rock star? I certainly don't want to be! I don't want my entire portfolio to be beholden to the whims of one massive trade that could make or break me. Even if your success rate is exceptional (say 55%), that means there's a 45% chance you could be utterly ruined. To me those type of probabilities are not acceptable, whether or not I am trading my own money or anyone else's. By all means make a big call... but if it's too big, you need to think about the consequences of it all going wrong.

I don't want to be the exciting rock star trader, the one with all the adulation. I want to be the "boring trader", the financial equivalent of the bass player in a rock band. The "boring trader" is one who takes many views, in many assets, diversifying my risk as much as possible. True, no trade will make me a "rock star", but hopefully, the downside from every trade will be sufficiently small to prevent too much harm, if any of them go wrong. Slow and steady, rather than quick and aggressive profits.

Maybe it might be better to be the bass player or the lyricist, rather than the rock star out in front, playing lead guitar and singing the lead vocals? What do you think? Do you still want to be a financial rock star, now? I worked at Lehman Brothers. That proved to me that sometimes boring is better than exciting, when it comes to trading.

If you're on the US East Coast, I'll be in Washington DC 27 Sep, NYC 29 Sep-3 Oct and Boston 5 Oct if you'd like to meet me and hear more about systematic trading! If you're in mainland Europe, I'll be in Frankfurt 7 Sep and Zurich 8 Sep.

Like my writing? Have a look at my book Trading Thalesians - What the ancient world can teach us about trading today is on Palgrave Macmillan. You can order the book on Amazon. Drop me a message if you're interested in me writing something for you or creating a systematic trading strategy for you! Please also come to our regular finance talks in London, New York, Budapest, Prague, Frankfurt & Zurich- join our group for more details here (Thalesians calendar below)

22 Jul - London - Paul Bilokon - Stochastic Filtering
07 Sep - Frankfurt - Saeed Amen/Yves Hilpisch/Thomas Wiecki/Jochen Papenbrock/Miguel Vaz/Adrian Zymolka - Quant Evening (Thalesians/Quant Finance Group Germany)
08 Sep - Zurich - Saeed Amen - How to build a CTA? / interactive Python demo
23 Sep - London - Stephen Pulman - Multi-Dimensional Sentiment Analysis
01 Oct - New York - Saeed Amen - How to build a CTA? / interactive Python demo (tbc)
21 Oct - London - Robert Carver - Lessons from systematic trading


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