09.15.2012
By Terry Flanagan

Book Excerpt: Money at Work


I always thought to myself when I ran trading rooms that you were maintaining a constant balance between greed and fear. —Robert Rubin, former U.S. Secretary of the Treasury, former co chairman of Goldman Sachs, and chair of the Executive Committee of Citigroup I was talking with a hedge fund trader just off the trading room in a loft-style office in Manhattan. He was describing to me how he learned to dissociate his emotions from the monetary implications of the large trades he was making. Many of the hedge fund traders I talked with described the importance of learning to discipline themselves, both cognitively and emotionally, so that they could evaluate each and every trade on its own merits, irrespective of having a good or bad run of luck and irrespective of the sums of money that might be at risk (assuming overall firm risk was being monitored correctly). This is something the average person has trouble doing, as most individuals are affected by immediate past events or their sense of future events. This is how one trader described the cognitive process he had learned:

Let’s say you invested $100 and you know you have made $100. And then a trade comes, and you sit down and say, “Should I do this trade?” And what you really should be doing is saying, “Should I do this because I think it is a good trade?” But what will happen with a huge proportion of the popula¬tion is that they will start saying, “I am [now] playing with house money,” which shouldn’t come into it at all. It should be only, “Is this a good trade?” And if it is a good trade, you should do it, and if it is not a good trade, you shouldn’t do it.

I recalled this conversation a few weeks later as I was sitting in Bob¬by’s Room, the high-stakes poker room inside the Bellagio Casino in Las Vegas. I was there to interview a prominent professional poker player— one of a small handful of women who have risen to the very top of the high-stakes world of professional poker. Owing to the recent popularity of poker on television, she has found herself a bit of a celebrity now, but she has toiled long and hard over many years to develop into a top profes¬sional poker player. Sitting in Bobby’s Room, we talked at length about how the day-today experiences of playing poker had shaped the way she has come to view money. In particular, she described the cognitive processes and mental discipline that she had to learn through her work, a discipline that eventually led her to play in some of the biggest-stake games in Las Vegas:

You kind of have to dissociate yourself from that aspect of money when you are playing, because they are just chips. So you can’t think that you are throwing in $100,000 and then think, “What could that [amount of money] buy you?” Because it buys a lot. So you can’t think of it in those terms. It is just impossible to, or you would not take risks and do what you need to do to be a winning player.

Several of the poker players I interviewed used some variant of this statement: “The chips are just our way of keeping score.” This signature phrase serves to reinforce the necessary dissociation of the “chips” from the dollar values they represent. Similar to hedge fund traders, dissocia¬tion between the monetary value of money and the use of money at work to make trades or to place bets is required to be successful. Poker players and hedge fund traders both need to make wagers based on the odds in front of them, and they cannot be rattled by what has happened in any of the preceding hands or trades or by the size of the wager or trade. And both must learn with experience to become more comfortable with hun¬dreds of thousands of dollars passing through their hands on any given day or night.

But I also wondered whether they were ever completely successful at disciplining their emotions in this way. As Robert Rubin puts it in the epigraph at the start of this chapter, he felt that in running trading floors he was trying to find a balance between greed and fear. This implies that this process of dissociation may not be complete and that perhaps there is not an absence of emotion in hedge fund trading and poker playing but rather an unstable tension between two very strongly held emotions: fear and greed.

Just a Matter of Greed?

What happens to people through the daily work that they do that shapes the way they talk, think, and conceive of money? How do the day-to¬day practices of particular types of work foster distinct ways of thinking about money, and how do money cultures form in particular types of work? Hedge fund traders and poker players are two interesting examples of how the structural location of a job and the quotidian practices of two different jobs lead to interesting similarities in money thought and money talk. Here we see people exhibiting some highly stylized and patterned ways of thinking and talking about money that emerge from the activities they engage in at work and the money culture that surrounds those activities. What we need to explore is how this comes to happen. What is it about a particular job that shapes who we are and how we think and talk about money?

Why do hedge fund traders often engage in conversations about “how much money is enough”? After spending time with hedge fund traders, I think it is too easy to say that because making money is the driving force on Wall Street, conversations about making a lot of money are to be expected. This explains only in the most general way why money talk dominates social interaction on the Street, but it does not really help us understand why talking about money takes on the particular character that it does among hedge fund traders. I am interested in why hedge fund traders invoke the particular form, How much do you need to walk away? rather than saying, for example, How much money do you hope to earn? I think this particular way of talking about money emerges not simply from the “personalities” attracted to this type of work but from the daily structured experiences people have in this job and in the money culture in which it is embedded. In other words, there are specific aspects of hedge fund trading that lead to this conception of money.

The work done by hedge fund traders raises a set of cognitive dilemmas that must be grappled with. First, the temporal nature of the roller-coaster ride endemic to hedge fund trading creates significant emotional stress and leads to recurring conversations about how long the ride can last. People on Wall Street (and it is probably most extreme right now among hedge fund traders) are often asking, “Can I ride this wave to a million [or, often, much more] and get out in time?” The folklore of Wall Street is replete with stories of people who supposedly got out of a market just in time and those who failed to read the signs correctly. Therefore, the concept of timing becomes a major cognitive modality through which hedge fund traders think about money and wealth.

This concept of timing is deeply woven into the fabric of the work of hedge fund traders and, therefore, also into the rhetoric surrounding work. But the idea of timing is a complex one and is often treated in different—and even contradictory—ways on the Street. For example, there are ways to time the market, but these coexist with warnings that you should never try to time the market. For instance, there are complex models devoted to market timing as well as complex strategies and models devoted to the very opposite—developing the discipline to resist timing the market. Thus, the idea of time and timing are absolutely central to thinking about work and money on the Street, even while remaining always elusive.

Many hedge fund traders, in particular, try to exploit very small mispricings in the market. Using enough leverage, even the most minuscule mispricing can produce millions of dollars in return. However, a pricing discrepancy often narrows and disappears as more traders discover it and rush in with money. As one trader said to me, “Sometimes it is like shooting fish in a barrel.” But a particular opportunity won’t last very long, so you have to keep searching for novel opportunities to exploit. Thus, one quickly learns in this job that timing is everything.

Adding to the importance of timing, of course, is the stress and adrenaline rush associated with a job in which a lot of money is often on the line. Using a great deal of leverage also means that an entire hedge fund firm can come crashing down if the overall risk in a firm is not managed properly. The pressure to make money and to beat the market adds to feelings of exhilaration and exhaustion (emotionally and mentally) so that no one is quite sure how long they can keep going. So hedge fund traders are talking about how long they can ride a particular wave in the market at the same time that they are wondering how long they can keep up the intensity level under significant strain.

Hedge fund traders, however, sometimes chuckle and answer their own question of how much is enough by saying something like, “But most never really do walk away.” Usually, they simply invent a new thresh¬old or a new goal that they will have to cross before walking away (as in, “I used to think ten million is it, but not anymore”). Why is this tagline so often added? One can assert that it shows greed, but once again, I think this glib assertion misses a deeper process. I think this conversation is not only about how much money is enough to walk away. And it may not even be mainly about how much money is enough. Rather, it is a way that hedge fund traders talk to one another about work practice, work discipline, and dealing with the emotions that come along with the roller-coaster ride of markets and trading. In other words, this is partly a process of transmitting the money culture among hedge fund traders.

 

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