While You Were Working - July 6

When a “hot streak” for a trader becomes a bad thing

This piece by Gillian Tett at the FT delves into some of the timely work John Coates is doing about the “winner” effect and how it relates to tennis (hello Wimbledon) and trading.

I first encountered Coates at the CBOE Risk Management Conference a number of years ago in Carlsbad, California. Suffice to say, Coates’ work is eye-opening. He is a former trader who has transitioned to studying neuroscience. One of Coates’ most poignant warnings centers on how risk managers should deal with traders who are on a “hot streak.” While the conventional wisdom – and common practice – focuses on taking steps to extend the streak and greater empower the trader, Coates argues for cooling them down. Whether it is pre-determined trading barriers or mandatory vacations, Coates says the benefits of keeping a winning trader in check are in everyone’s best interest. Otherwise, behavioral science suggests the traders will take bigger and bigger risks in a desperate attempt to keep “winning.”

It is hard to know how many firms already deploy some of Coates’ cooling tactics, but it seems like the markets never go too long without some story breaking about a firm that hasn’t and has seen a trading position blow up in its face.

Crowd-sourcing as an investment strategy

At first blush, the idea of adopting crowd-sourcing as the driver of your investment strategy seems like just the next natural progression of social media making its way into financial markets. But then you have to step back and ask, shouldn’t crowd-sourcing be the opposite of what one wants to use to drive investment strategy. I mean, don’t you want to put your money into an investment before the masses think it is great instead of after?

Perhaps the most memorable takeaway for me from that article is that Twitch, which is used to facilitate the crowd-sourcing of investments, is a live-streaming service that enables people to watch other gamers play games. People spend their time watching other people play video games? Ugh.

The post-Brexit euro clearing kabuki dance continued

I have said it once and I am sure I will say it a thousand times: When it comes to Brexit negotiations, the bankers are gonna win. No matter what. While sticking to their guns on keeping euro clearing in London, major bank and exchange execs are now “conceding” that euro clearing will be regulated by officials from Europe. Even the regulators in the UK have the bankers' back on this one.

What is also worth noting is the language thrown about when people in the City talk about Brexit. Words like “sudden” and “abrupt” are everywhere. The vote was a year ago. There is still more than 20 months until Brexit might take effect. How is that sudden or abrupt?

Well, jeez. It’s about time.

Amid all the worry about opioid addiction, it looks like some doctors have come up with a novel way to do something about it – like not prescribing opioids in the first place!

And speaking of the opioid epidemic … isn’t it kind of funny how the same law-and-order policymakers who have always wanted to build more prisons and implement mandatory minimums to solve the marijuana/cocaine/meth problems are suddenly all about treatment when it comes to opioids? The current health care debate in Washington is literally being swayed by lawmakers from states hit hardest by opioids. They are clamoring for funding for treatment, not prisons. Is that because Big Pharma and doctors are the distributors of opioids instead of international drug cartels and street pushers? Or is because today’s opioid addict looks a wee bit different than the stereotypical crack head? Hmmm…

WYWW Appetizers