Speaker 1: But knowledge to work and grow your business with c
Speaker 1: i T from transportation to healthcare to manufacturing. C i
Speaker 1: T offers commercial lending, leasing, and treasury management services for
Speaker 1: small and middle market businesses. Learn more at c i
Speaker 1: T dot com put Knowledge to Work. Hello and welcome
Speaker 1: to another episode of the Odd Lots podcast. I'm Joe
Speaker 1: Wish and I'm Tracy Allow. Tracy, you know, it was
Speaker 1: one of my favorite things that you've written. There's so many, Joe,
Speaker 1: I mean, it's hard to choose because they're all my favorites.
Speaker 1: I really liked your review of the show Billions when
Speaker 1: it first came out, did you. I thought I thought
Speaker 1: we were a little bit opposed on that one because
Speaker 1: I wasn't a big fan of it. But you like it, right,
Speaker 1: I do like the show, but it's that's irrelevant whether
Speaker 1: we agree or disagree on the show. I thought your
Speaker 1: review was very funny and made a lot of a
Speaker 1: lot of good observations, such as, uh, oh, you know
Speaker 1: some things you said about the dialogue and all that stuff.
Speaker 1: It was it was pretty spot on. Well, the thing
Speaker 1: that amazed me was the like, I guess the amount
Speaker 1: of male testosterone on that show and just how like
Speaker 1: blatantly manly some of the trading environment is. But one
Speaker 1: of the things you did point out was some of
Speaker 1: the attempts there were to sort of have some role reversals.
Speaker 1: And I forget exactly who they were what you pointed out,
Speaker 1: but there were some sort of like alpha type characters
Speaker 1: who are women. That's sort of, you know, trying to
Speaker 1: make it a little more interesting. And I think one
Speaker 1: of the sort of most interesting characters on the show
Speaker 1: is uh, Wendy Rhodes, the trading psychologist for ex Capital
Speaker 1: right at the Hedge Fund. So she's basically employed by
Speaker 1: the hedge fund to help the traders in various ways
Speaker 1: yet into top psychological form. And one thing that's that's interesting,
Speaker 1: and a lot of people might not know this is
Speaker 1: that that role kind of actually exists in real life.
Speaker 1: It wasn't just made up. There are people whose job
Speaker 1: it is to help traders get in the top psychological
Speaker 1: you know, psychological performance, right, some of whom have been
Speaker 1: employed at large hedge funds, real life hedge funds like
Speaker 1: Bridgewater exactly. So to cut right to the chase, we
Speaker 1: have Wendy roads On, we don't have Wendy roads On
Speaker 1: We don't have the actors who played Wendy Rhods, but
Speaker 1: we do have someone who actually is kind of Wendy
Speaker 1: Roads in real life, real life trading psychology. Real life
Speaker 1: trading psychologist. Isn't that cool? That's even better. So so
Speaker 1: we're gonna talk about what this job actually entails and
Speaker 1: hopefully learn a few things about how you know, one
Speaker 1: day when you and I Tracey launch our own hedge fund,
Speaker 1: which will happen eventually, I'm sure how we can trade
Speaker 1: with a top psychological performance. Do you think there's like
Speaker 1: a Freudian or a Union interpretation of trading behavior? You better,
Speaker 1: you better ask that question with us. Today we have
Speaker 1: a Dr Brett Steinbarger. He's a political Associate Professor of
Speaker 1: psychiatry and behavioral Sciences at Sunny Upstate Medical University, and
Speaker 1: he is the author of four books on trading psychology.
Speaker 1: He has worked at various hedge funds. He uh advises
Speaker 1: different funds. Still today he trades index futures himself. So
Speaker 1: perfect guest for this topic, Brett steam Barger, thank you
Speaker 1: very much for joining us. Well, thank you for having me.
Speaker 1: I always like to ask this in the beginning because
Speaker 1: I'm very nervous. But was that introduction of fair characterization
Speaker 1: that more or less you are a real life Wendy Rhodes. Well,
Speaker 1: yes and no. I think she's a little more dramatic
Speaker 1: and probably a little better looking than I am. But
Speaker 1: there are some similarities. I think one of the differences,
Speaker 1: and you were talking about this tracy in terms of
Speaker 1: the manliness of the environment, is that it's surprising the
Speaker 1: degree to which professional trading environments have become not so manly,
Speaker 1: have become geeky, and we see evidence of quantification throughout
Speaker 1: the investment world, and so working with traders is a
Speaker 1: little bit less dramatic than working with alpha types. There
Speaker 1: are many different types of money managers now who are
Speaker 1: active within hedge funds and other firms. More big bang
Speaker 1: theory than Wolf of Wall Street. Then, well put, and
Speaker 1: of course that is actually a tension that sort of
Speaker 1: emerges on the show as the as the firm X
Speaker 1: Capital has to sort of adjust to a new reality
Speaker 1: and try new strategies. In terms of the career itself,
Speaker 1: the job Wendy was at one firm, you work for
Speaker 1: several firms or sort of freelance and advised multiple firms,
Speaker 1: but in terms of these sort of okay, she sat
Speaker 1: down with traders and what looks like a very familiar
Speaker 1: clinical therapy type session talking through them. Is that more
Speaker 1: or less how this works? That it sort of looks
Speaker 1: like traditional therapy to people sitting across from each other,
Speaker 1: one person trying to dive in. Is that fairly accurate.
Speaker 1: That's a portion of the role. In other words, I'll
Speaker 1: have one to one meetings with people about their trading
Speaker 1: and about the challenges that they're facing in their trading,
Speaker 1: and so that will look a little more counseling and
Speaker 1: therapy like. Unlike traditional therapy, where you're working on ongoing problems,
Speaker 1: many times, the work of a psychologist in a hedge
Speaker 1: fund or trading firm is more like a coach where
Speaker 1: you're building on strengths. So the dialogue is going to
Speaker 1: be different than in a traditional therapy way. But in addition,
Speaker 1: the psychologist is often on the trading floor and is
Speaker 1: talking to people in real time about what's going on.
Speaker 1: So Brett I wanted to ask what exactly is the
Speaker 1: goal that companies have when they bring you in to
Speaker 1: do this, and how much guidance do you get from
Speaker 1: the people that hire you do they come to you
Speaker 1: and say like, oh, well this trader is good at this,
Speaker 1: but he's had some difficulties with that, and do you
Speaker 1: kind of help them achieve the company's goals? Yes, good question.
Speaker 1: So what will happen is it? I'll work with trading
Speaker 1: firms really in two roles. The first is the Wendy
Speaker 1: Rhodes performance coach kind of role. The other roles a
Speaker 1: little bit different. Where As a psychologist, I help firms
Speaker 1: with their recruitment processes, assessing, evaluating, and bringing on the
Speaker 1: right kinds of people that would fit within their teams
Speaker 1: and with their environments for optimal performance. So that's a
Speaker 1: little bit again different from a therapy like role you
Speaker 1: talked about in the beginning. The sort of changing nature
Speaker 1: of the investment firm. Uh, we're you know, the world
Speaker 1: of billions characterized by a lot of the sort of
Speaker 1: cliche alpha male type characters. As you put it, many
Speaker 1: of these firms are undergoing dramatic changes. The whole industry
Speaker 1: is undergoing dramatic changes to more quantification stuff like that.
Speaker 1: How does that affect their needs for someone like you,
Speaker 1: and how does that affect what you can bring to
Speaker 1: the table? Again, good question, and that gets it at
Speaker 1: something that you're asking us earlier. Sometimes it'll be the
Speaker 1: firm itself, the management that will come to me and say,
Speaker 1: can you help us accomplish X y Z? Can you
Speaker 1: help us build out more effective teams? Can you help
Speaker 1: this trader who's having difficulties? And other times the need,
Speaker 1: and I say most of the time is coming from
Speaker 1: the money manager themselves, saying I could use help with X.
Speaker 1: I'm doing well trading in this market. I would like
Speaker 1: to start to broaden out and trade other markets successfully.
Speaker 1: I'm in a draw down. My confidence is waning. I
Speaker 1: need some help with my confidence. So many times it
Speaker 1: will come from the performer him or herself. One of
Speaker 1: the things in the show Billions. And I know eventually
Speaker 1: we can get past referencing Billions, but I keep mentioning
Speaker 1: you just because you know, it's a frame of reference
Speaker 1: for people um internal tension. So a trader might be
Speaker 1: frustrated with how they're being treated by you know, Bobby
Speaker 1: excel Rod or colleague, or they feel uh, someone else's
Speaker 1: disrespecting them and that influences their psychology. Do things like
Speaker 1: that come up once in a while, it's it's actually
Speaker 1: pretty rare. At least of the firms where I work,
Speaker 1: the management is pretty sophisticated as far as um people
Speaker 1: and people's skills, and so I don't encounter huge amounts
Speaker 1: of frustration. Once in a while, within teams and within
Speaker 1: a firm, there will be some conflicts, and yes, I
Speaker 1: do help people manage those conflicts in a constructive way,
Speaker 1: just like one would do, let's say, in couples counseling.
Speaker 1: But I'd say that's the exception. I think the larger
Speaker 1: issues are the more common issues that money managers face
Speaker 1: when they want to trade in a certain way, but
Speaker 1: the risk management guidelines of the firm um rain them in,
Speaker 1: and so there's a conflict between how they would like
Speaker 1: to manage money and how the firm would like them
Speaker 1: to manage money. I'd love to be a fly on
Speaker 1: the wall for group therapy sessions at like Bridgewater to
Speaker 1: all right, we are going to take a short break.
Speaker 1: But knowledge to work and grow your business with c
Speaker 1: i T from transportation to healthcare to manufacturing. C i
Speaker 1: T offers commercial lending, leasing, and treasury management services for
Speaker 1: small and middle market businesses. Learn more at c i
Speaker 1: T dot com. Put knowledge to work and we're back, Brett,
Speaker 1: I'm wondering, I'd love to just drill down before we
Speaker 1: move on to other things, in to the exact problems
Speaker 1: that traders tend to have, Like, I know you mentioned
Speaker 1: confidence as one of them. So give us some more
Speaker 1: examples of the issues trader as my encounter and how
Speaker 1: you might encourage them to rectify those problems. Yeah. So,
Speaker 1: I would say there are three major classes of need
Speaker 1: that bring a money manager to a performance coach like myself.
Speaker 1: The first is if they're having difficulties with performance because
Speaker 1: of their trading and investing. Something is going wrong with
Speaker 1: how they are managing capital. Sometimes it's because markets have
Speaker 1: changed and the trader has not adapted very well. Sometimes
Speaker 1: it's because emotional factors, frustrations or maybe over confidence. Maybe
Speaker 1: they've gone on a run and so out of over confidence,
Speaker 1: they're making some impulsive decisions, suboptimal decisions that are now
Speaker 1: causing them to lose money. So those are all situations
Speaker 1: in which performance is hurting and the money manager will
Speaker 1: reach out to a coach. How do you differentiate though,
Speaker 1: between someone just being a bad trader and putting on
Speaker 1: bad trades and their performance being affected by emotional or
Speaker 1: psychological issues A good question, yes, uh, And that is
Speaker 1: more of an issue if you're working at a firm
Speaker 1: that employs beginning traders. At the funds where I work,
Speaker 1: the minimum portfolio size is hundreds of billions of dollars
Speaker 1: and you need a multi year successful track record just
Speaker 1: to get the job. So the issue of them just
Speaker 1: being a bad trader and not knowing what they're doing
Speaker 1: is less of an issue than if you were working,
Speaker 1: let's say, at a proprietor harry trading firm where someone
Speaker 1: could be trading for the first time ever. So you
Speaker 1: do have to differentiate in that latter situation when it's
Speaker 1: a matter of skill or lack of skill, and when
Speaker 1: it's a matter of just situational emotions getting in a way. However,
Speaker 1: what I'm also bringing up is there's a third possibility,
Speaker 1: which is that markets themselves have changed, and that as
Speaker 1: a result of different volatility, different trend to shift in
Speaker 1: the market now creates situations where what worked or what
Speaker 1: used to work in the market now is not working,
Speaker 1: and that leads to frustrations, and that leads to drawdowns.
Speaker 1: So sometimes emotional issues trigger trading problems, but sometimes changes
Speaker 1: in markets can trigger emotional Let's some talk about let's
Speaker 1: get into some specifics. So imagine Tracy and I are
Speaker 1: going to launch our hedge fund one day odd Lots Capital,
Speaker 1: which is actually a pretty good name, which is pretty
Speaker 1: good name for our hedge fund. Um. Let's imagine we
Speaker 1: already we already know we're pretty good. I don't know
Speaker 1: how we would establish a track record, but obviously it
Speaker 1: would be pretty good. We're sort of abstracting that a way,
Speaker 1: but we're in a bit of a rut. What are
Speaker 1: you know, let's talk about what can Tracy and I?
Speaker 1: How would you start to figure out how we'd get
Speaker 1: into peak performance? How what are the things that you
Speaker 1: would start to look for, the techniques that we could
Speaker 1: use to get into a good mental state. Well, let
Speaker 1: me step back. It's a great question, and let me
Speaker 1: step back and mention. Something I've done at several trading
Speaker 1: firms to help with their peak performance is to conduct
Speaker 1: research projects where we intensively study their peak performers. So
Speaker 1: we take a look and investigate the personality factors, the
Speaker 1: skill factors, and the cognitive strengths that differentiate their best
Speaker 1: traders from average traders. And so we look at what
Speaker 1: makes for success in that particular fund or in that
Speaker 1: particular firm, and that then can inform the types of
Speaker 1: qualities you want to coach for, but also the kind
Speaker 1: of qualities you would look for in your recruitment processes.
Speaker 1: So um, in your research, I know it varies firm
Speaker 1: to firm, but are there some general characteristics that seem
Speaker 1: to make a strong trader. There are definitely some personality
Speaker 1: and cognitive factors that seem to go along with good trading,
Speaker 1: and it does seem as though different kinds of trading
Speaker 1: call upon different skill sets. So, for example, among day
Speaker 1: traders who are trading actively throughout the day, one of
Speaker 1: the most important things to look for is both fast thinking,
Speaker 1: fast processing of information and parallel processing of information, the
Speaker 1: ability to look at and process many things at one time.
Speaker 1: Much of what they are doing amounts to pattern recognition,
Speaker 1: and so they need to be able to rapidly process
Speaker 1: information to detect patterns. That's extremely different. Let's say from
Speaker 1: a macro hedge fund investor who is doing deep dives
Speaker 1: into macro economic statistics to figure out where there is
Speaker 1: greater strength and lesser strength in global economies and then
Speaker 1: formulating investment ideas on that basis, that's deeper thinking, not
Speaker 1: fast thinking, and so in the setting, the deep thinking
Speaker 1: is a big part of the investment success. That what
Speaker 1: you said about day traders actually makes me realize something
Speaker 1: years ago, after I graduated college, I actually applied for
Speaker 1: a job at a proprietary trading firm. Uh. And one
Speaker 1: of the things they had me do during the interview
Speaker 1: was play a video game, but then on another screen.
Speaker 1: While playing the video game, I had to occasionally, like
Speaker 1: answer a trivia question that had nothing to do with
Speaker 1: the video game. And so it's a combination of could
Speaker 1: I focus on X, but also be aware that X
Speaker 1: or why was going on at the same time. Um So,
Speaker 1: now I realized what they were going for, So thank you.
Speaker 1: I've always been that was That sounds like a pretty
Speaker 1: interesting screening going for fast thinking and parallel processing. We'll
Speaker 1: use that for our recruitment. Yeah, exactly. I also had
Speaker 1: to play ping Pong against the CEO during that interview. Well,
Speaker 1: that's testing your social skills to see if you let
Speaker 1: him win. All right, we just have a couple of
Speaker 1: minutes here left, but I want to get some really
Speaker 1: general things. So you've written some books about trading. So
Speaker 1: obviously a reader of those books you don't know like
Speaker 1: exactly the situation the reader is in. What are two
Speaker 1: or three basic pieces of advice you could give to
Speaker 1: a prospective trader that they could use to reset themselves
Speaker 1: and get them uh in a good uh good psychological state. Well,
Speaker 1: you know. Per my most recent book, The Trading Psychology
Speaker 1: two point oh, I make the point the trading psychology
Speaker 1: is about much more than just solving emotional problems and
Speaker 1: challenges right now, that the greatest challenge facing traders, investors,
Speaker 1: investment firms is the correlation among the performers. People are
Speaker 1: looking at the same things, putting on the same trades,
Speaker 1: developing the same investment ideas. That correlation doesn't allow trade
Speaker 1: leader or trading firm to truly stand out. They become
Speaker 1: part of the herd and it hurts their performance. And
Speaker 1: so what we see in trading psychology is that the
Speaker 1: best performers are cultivating creativity. They are developing ways of
Speaker 1: looking at markets in unique fashion so that they see
Speaker 1: things that other people don't see. They see opportunities that
Speaker 1: others don't detect, and that gives them some uniqueness to
Speaker 1: their returns. That ends up being very, very very important
Speaker 1: now because they have to look for unique opportunities in
Speaker 1: different markets, different time frames. What we see is that
Speaker 1: individual traders increasingly are building out teams. They are hiring
Speaker 1: junior people to work with them who have some of
Speaker 1: the skill sets and perspectives and expertise that they might lack,
Speaker 1: And so increasingly the good money managers are called upon
Speaker 1: to become good people managers, and that never used to
Speaker 1: happen before. So trading psychology has expanded. It's about enhancing creativity,
Speaker 1: it's about enhancing leadership and people's skills, not just about
Speaker 1: controlling your emotions. But if I could just um play
Speaker 1: Devil's advocate for one moment, you know, you mentioned the
Speaker 1: way that markets have evolved and changed over the years,
Speaker 1: and it does seem like the emphasis now is on
Speaker 1: quantitative trading, it's on systematic trading. So you know, how
Speaker 1: much does getting the psychology or someone's personality right actually
Speaker 1: matter when it comes to performance anymore. It's a great question.
Speaker 1: And I work with some quantitative firms and so it's
Speaker 1: been very interesting for me to see the differences in
Speaker 1: how psychology is employed at one firm versus another. When
Speaker 1: a firm is more quantity, it is than a huge
Speaker 1: part of their work is research and development. They are
Speaker 1: really R and D firms. They are constantly researching, developing
Speaker 1: new ideas, almost like a pharmaceutical firm. And so work
Speaker 1: with them on enhancing their creative processes. Helping them work
Speaker 1: more effectively as a team becomes important, rather than working
Speaker 1: with them because they're becoming frustrated because the first two
Speaker 1: trades they placed in the morning didn't work out. Fascinating stuff. Uh.
Speaker 1: Dr Bret Steenbarger a real life trading coach and a
Speaker 1: professor of psychiatry and behavioral sciences, the author of four books.
Speaker 1: Thank you so much, really appreciate you coming on. Now.
Speaker 1: I want to download all your books to my Kindle
Speaker 1: and read them and so I know what I'm gonna
Speaker 1: do this weekend. Well good, and now I want to
Speaker 1: invest in the Odd Lots hedge fund. This is great,
Speaker 1: that perfect synergy. Thank you, thank you so much for
Speaker 1: coming on. Thank you. Okay, thanks a lot, and I I
Speaker 1: appreciate it so Tracy, I'm pretty excited about our hedge
Speaker 1: find No, seriously, we always joke about like different things
Speaker 1: we're gonna do. We're gonna go play to go to
Speaker 1: a casino and teach you play poker. We're gonna go.
Speaker 1: He tried catfish in Louisiana, and you know, we can
Speaker 1: achieve all those things in one go. We start a
Speaker 1: hedge fund in Louisiana where we have fried catfish for
Speaker 1: lunch and we test our potential employees by playing poker
Speaker 1: with them. Is perfect. No, But I did really enjoy
Speaker 1: that conversation. One. I just it's cool to like hear
Speaker 1: about what that job is in real life. And I
Speaker 1: really thought that was interesting, this idea. There's more to psychology,
Speaker 1: uh than just sort of emotional state, that perspective that
Speaker 1: it's one of the sort of ways you bring value
Speaker 1: to a firm or anything. Is not just falling into
Speaker 1: a groove and not just doing what everyone else does.
Speaker 1: And we as we know from humans being social animals,
Speaker 1: that's actually a really hard thing to avoid. Yeah, and
Speaker 1: it's like, I guess it's fairly obvious, but it seems
Speaker 1: it's interesting to me that one of the factors that
Speaker 1: can affect performances loss of confidence. And then I imagine Brett,
Speaker 1: you know, in a room with someone going yeah, you're okay,
Speaker 1: you can do this well. It's also it's when someone
Speaker 1: loses confidence, and I've seen that happen in different realms
Speaker 1: and life, and it's a really hard thing to because
Speaker 1: the skill hasn't changed well. And it's also because it's
Speaker 1: like it's kind of like telling someone who's to relax.
Speaker 1: You know, if someone's really anxious and you tell them
Speaker 1: to relax, it accomplishes the exact opposite. And so if
Speaker 1: someone loses confidence and the next thing you know, they're
Speaker 1: in a room, it's that's like it could be very
Speaker 1: hard to snap out of that. Yeah, and then you
Speaker 1: have the opposite problem of overconfidence, which I'm pretty sure
Speaker 1: is what a lot of the characters on Billions seem
Speaker 1: to suffer from. Yeah, I think that's I think that's
Speaker 1: well put. All right, should we leave it there? Let's
Speaker 1: leave it there. This has been another episode of The
Speaker 1: Odd Lots Podcast. I'm Joe Wisenthal and I'm Tracy Alloway.
Speaker 1: You can follow me on Twitter at Tracy Alloway, and
Speaker 1: you can follow me on Twitter at the Stalwarts. You
Speaker 1: can also follow our guest Bred Steenbarger on Twitter at
Speaker 1: steen bab and our producer Sarah Patterson at Sarah pat two. Teas.
Speaker 1: Thanks for listening, but knowledge to work and grow your
Speaker 1: business with c i T. From transportation to healthcare to manufacturing.
Speaker 1: C i T offers commercial lending, leasing, and treasury management
Speaker 1: services for small and middle market businesses. Learn more at
Speaker 1: c i T dot com put knowledge to work