Great Traders Are Made, Not Born

#117: Susquehanna's Todd Simkin: Great Traders Are Made, Not Born

Estimated read time: 1:20

Summary

In episode #117 of the AlphaMind podcast, Todd Simkin, Associate Director at Susquehanna International Group (SIG), discusses the art and science of trading, emphasizing the belief that great traders are developed through training and experience, not born with inherent skills. Throughout the podcast, Todd shares insights on the importance of mindset, the evolving nature of trading environments, and the critical role of education and mentorship in developing successful traders. The conversation delves into the psychological elements affecting traders and the structured, supportive approach SIG uses to foster talent.

Highlights

Trading success is largely about making positive expectancy decisions. 🎯
Mock trading and mentorship are key components of trader development at SIG. 🏆
Understanding biases and heuristics is critical for trader training. 🧠
The complexity of trading has increased with the digital age, offering both challenges and opportunities. 💻
Diversity and open communication within teams improve decision-making. 🌈

Key Takeaways

Great traders are cultivated through learning and experience, not innate talent. 📚
The trading environment is constantly evolving, driven by technological advancements. 🔄
Senior traders play a critical role in mentoring and educating new traders. 🌟
Mindset and adaptability are crucial for navigating the uncertainties of trading. 🤔
Effective communication and a supportive culture are vital for trading success. 🗣️

Overview

In this engaging podcast episode, Todd Simkin, a seasoned executive from Susquehanna International Group, unpacks the intricate components that make up a successful trader. With a career spanning various roles in trading, Todd emphasizes the ethos that traders are crafted, not born, through rigorous training, experience, and the right mindset.

Todd shares valuable insights into the evolving landscape of trading, highlighting how technological advancements have reshaped trading environments, yet the core objective remains the same - to make sound risk decisions. He underscores the importance of mentorship from experienced traders, portraying it as a cornerstone in the development of new talent.

At the heart of SIG's philosophy is the belief in continuous learning and adaptability. Through mock trading, practical exercises, and an open culture that champions diversity and communication, SIG fosters an environment where emerging traders can thrive, learn from missteps, and grow into proficient market players.

Chapters

00:00 - 00:30: Introduction The introduction discusses the concept of making 'positive expectation trades' in the trading world. It highlights the inherent noise and uncertainty involved in trading, where good decisions can still lead to losses, and poor decisions can sometimes result in gains. The chapter implies that outcomes do not always reflect the quality of the decision, akin to how a star's behavior is independent of our observation, whereas stock movement is closely tied to trader actions.
00:30 - 02:00: Concept of Trading and Risk The chapter 'Concept of Trading and Risk' explores how individuals' perceptions influence stock movements. Once someone forms an opinion about a stock, it prompts them to take action. Others observe these actions, incorporating them into their own strategies and models. The constant, ever-evolving nature of the stock market is highlighted as a significant challenge, particularly for highly intelligent people accustomed to being correct but find themselves frequently wrong in this unpredictable environment.
02:00 - 05:00: Evolution and Mindset of Traders The chapter 'Evolution and Mindset of Traders' discusses the importance of mindset in trading, emphasizing the need for flexibility and adaptability. It highlights the challenge of transitioning from an A+ student mentality, where getting things right is prioritized, to the uncertain world of trading, where errors are frequent. Traders excel at identifying gaps in others' logic, indicating a critical analytical skill crucial for success in trading.
05:00 - 10:00: Challenges in Trading Decisions The chapter discusses the challenges of making informed trading decisions, particularly highlighting the impact of cognitive biases and heuristics. It mentions the difficulty individuals face in self-analyzing their decisions and recognizing these biases. The chapter underscores the importance of understanding these cognitive pitfalls to improve decision-making in trading contexts. A student discussion is mentioned, and the speaker reflects on their personal experience in casinos, emphasizing the practical insights gained from putting capital at risk.
10:00 - 15:00: Todd Simkin's Career Journey The chapter focuses on Todd Simkin's career journey, highlighting his expertise in poker. It discusses a conversation where Todd reflects on his skill level and the concept of the Dunning-Kruger effect. Todd expresses confidence that his experience and understanding of poker will keep him ahead of new learners for a long time.
15:00 - 20:00: The Essence of a Good Trader In the episode of the Aine podcast hosted by Mark Randle and Steven Goldstein, sponsored by the Society of Technical Analysts, Todd Simpkin from Sasana International Group (SG), a prestigious trading firm in Philadelphia, shares insights. Todd, an associate director and experienced trader at Saskara, discusses his vital contributions to the firm's development.
20:00 - 25:00: Importance of Decision-Making The chapter titled 'Importance of Decision-Making' delves into the challenges traders face regarding behavioral decision-making and highlights the essential skills needed to succeed in an environment of increased uncertainty. Todd, who presents these ideas, offers profound insights and explains complex topics with remarkable clarity, which captivates the listeners. This underscores the critical role decision-making plays in trading and business, particularly under uncertain conditions.
25:00 - 30:00: Noise and Adaptability in Trading In this chapter, the collaboration between a globally renowned educational institution, the Society of Technical Analysts, and the program is highlighted. The institution has been instrumental in refining the technical analysis skills of traders, analysts, and system developers for over 50 years. An exclusive benefit is being offered to listeners, providing a 100 British pound discount on their home study course, which includes a comprehensive curriculum and the option for an internationally recognized diploma.
30:00 - 40:00: Role of Education and Mock Trading The chapter titled 'Role of Education and Mock Trading' delves into the importance of education in trading and investment. It is designed by leading experts in the field of technical analysis to significantly enhance the skills and knowledge of the reader. The chapter explores a wide array of price action techniques and methods, offering invaluable knowledge to traders, investors, analysts, quants, and system developers. It provides fresh perspectives for deciphering and interpreting price action, sentiment, liquidity, and the underlying human behavior associated with trading and investment activities.
40:00 - 50:00: Teamwork and Diverse Perspectives The chapter discusses the importance of teamwork and diverse perspectives in professional settings. It mentions a podcast episode featuring Todd Simkin, who started his career as a floor trader at the Philadelphia Stock Exchange. The emphasis is on leveraging diverse options in a market setting and the value that different perspectives bring to the table. Additionally, it provides information on visiting a website for further details on related topics.
50:00 - 55:00: Trader Development Process The chapter discusses the trader development process, focusing on the experiences of an associate director at Sasana Holding who has extensive years of experience in various roles. A significant part of their responsibility is firm-wide education and the development of the trading teams, which is a crucial theme for the podcast's content. The chapter sets the stage for Todd's insights into trader development and educational strategies at Sasana.
55:00 - 59:30: Conclusion and Reflections The chapter titled 'Conclusion and Reflections' begins with reflections on the early days at the Philadelphia Stock Exchange. The experience there provided a solid foundation for the speaker's career trajectory. The speaker expresses gratitude for the opportunity to share their story and notes the significant differences between past and present trading practices.

#117: Susquehanna's Todd Simkin: Great Traders Are Made, Not Born Transcription

00:00 - 00:30 you're making positive expectation trades that the trading that you're doing should lead to uh to good outcomes but there's a lot of noise in it right there there are lots of times where you can make the right decision and lose there's also times where you can make the wrong decision and win that you can have good outcomes even though you should not have had the position on that uh that you had on the way a a a star um you know behaves has nothing to do with whether or not we're observing it but for a Trader the way a stock moves has
00:30 - 01:00 everything to do with our perception of the way that stock should move once we have an opinion about it we then go out and do something differently and somebody else can see what we did and they're building that into their system and their model of the way the world work so so dealing with this constant change I think is is the biggest surprise especially since we're bringing in really highlevel smart people right we're not bringing in people who are used to being wrong and we're putting them in a world where they're going to be wrong a lot
01:00 - 01:30 having the right mindset to say this I think is correct for now but it might not be correct tomorrow is a is a a new experience for for a lot of these people again who are accustomed to to being you know A+ students to to to getting things right and we're putting them in a world where they're not getting a lot right we are really really good when somebody else tells us what they're thinking about at seeing where the holes are right we're really good at saying oh gosh you certainly weren't thinking
01:30 - 02:00 about this important aspect or you know you're you're you know in the language of of biases and heuristics you're getting anchored or uh this sounds a lot like hindsight bias or whatever it might be we're really bad at doing that analysis on ourselves and one of the students and and and this is the game that I've played most often in casinos by the way so I've played most of my real hours putting my Capital At Risk in this game which means I've really had a reason to think through how to do this well and the student student said okay
02:00 - 02:30 like I've I've played a little hold on before now that you're teaching against this game I guess it'll probably take a session or two before where's good as you are I said there's a there's a chance that that's true you might be right about that but I don't think that's going to be the case I'm pretty sure that I'm going to keep my Edge for a long long time because there's so much in here that you don't even understand matters this is the Dunning krugger problem right because you know so little about this you don't even know how much you have to learn about
02:30 - 03:00 welcome to the aine podcast hosted by Mark Randle and Steven Goldstein and sponsored by the Society of technical analysts the STA the world's leading body for the advancement of price action and Market timing education in this episode we were honored to sit down and talk to Todd simpkin an associate director at sasana International Group SG one of the world's most respected trading firms which is headquartered in Philadelphia Todd has been a Trader himself for saskara and has played an integral role in development of their
03:00 - 03:30 superb firmwide Trader development program Todd has some fascinating and wellth thought out views about challenges facing traders in relation to behavior decision making and the development of the key skills and abilities needed to thrive in a world characterized by heightened uncertainty we were captivated by the depth of Todd's wisdom and the clarity with which he shared some relatively complex themes and we feel you will be too before we get into the podcast long-term listeners to the fman podcast will be aware that we have very highly valued partnership
03:30 - 04:00 with the Society of technical analysts who are a globally renowned education institution that has been at the Forefront of helping Traders analysts and system developers hon their technical analysis skills for over half a century thanks to this collaboration we are thrill to extend an exclusive benefit to our listeners who can obtain a 100 British pound discount or its equivalent in your local currency on their superb technical analyst home study course this comprehensive course has an option for an internationally recognized diploma and has been created
04:00 - 04:30 by some of the leading experts in the fields of technical analysis the course is designed to profoundly enhance your skills and knowledge and deles into a wide array of price action techniques methods and aspects the knowledge can prove invaluable to Traders investors analysts quants and system developers offering fresh perspectives for deciphering and interpreting price action sentiment liquidity and many of the aspects around those including the underlying human Behavior which goes
04:30 - 05:00 into these aspects you can visit our website at alpha-m mind.net and scroll down to the Society of technical analyst section to find the link with more detail how to take advantage of this offer now on with the podcast well a very warm welcome to this week's Alpha mine podcast and we're delighted to have Todd simkin with us Todd at the start of his career Philadelphia Stock Exchange flaw Trader and uh very options Rich Market from my own knowledge of that and through 25
05:00 - 05:30 years of experiences over that most of the time in in sasana and is now associate director of sasana holding a variety of roles including and I think this is really important for for the drift of the content of the podcast is responsibility for firmwide education and Trader development of of the trading teams so Todd welcome to the show and perhaps starting off in those long off
05:30 - 06:00 days of the Philadelphia pits um yeah that must have gave you a real good base to start to uh drive your career forward from uh perhaps tell us a story of of you across that period of time till the present day yeah well first uh thank you guys for for having me it's great to be here I really appreciate the opportunity to chat with you so my time starting on the floor of the Philadelphia Stock Exchange was looked very different than what trading looks like today and I I feel like I'm
06:00 - 06:30 giving a history lesson and and talking about you know the the days when dinosaurs roam the Earth but it was it was a a unique opportunity to to learn trading in a very Hands-On way that that you were very much part of the mechanical aspect of the trade so not only were you making the decisions about risk allocation and you where you would want to buy or sell uh these derivative assets but you are also uh physically writing and circling um uh tickets that
06:30 - 07:00 were then getting stapled together with the with the trade on the other side and dropped through a physical slot where uh where a key puncher would put the trade into a system and eventually it would show up on a uh on an electronic report so that other people could see the trade but you were at the the the touch point of of where the the buy met the sell you know where the where the two people agreed to um to this risk transfer for some for some amount of money and I think that for for me that's really helped now that we're in this electronic
07:00 - 07:30 environment where trades are instantaneous and and happen at faster than human speed so uh you know the machines are meeting machines and and there is no uh no longer uh somebody pulling out a stack of tickets and circling September and writing in the the strike price to um to consummate a trade but the the underpinnings of the of the agreement to risk exchange for a certain amount of money are the same as they were when I was on the floor of an
07:30 - 08:00 exchange when I had to wait for a broker to walk in and represent an order and then shout buy or sell and and and have the the trade match up that's still what's happening today it's just happening in a different modality and understanding how we got from the open out cry very high touch aspect of trading to where we are today with a a very low touch electronic um uh Anonymous uh connection between between people I think has helped uh in helped
08:00 - 08:30 us teach our traders that what they're really doing is still agreeing with somebody else that that whether or not it feels like a negotiation there is sort of an implicit negotiation around pricing that then leads to um to to a trade which like I said is is this risk transfer which is um which is ultimately the service that financial markets provide right we're not just doing this because it's a fun game although it is a very fun game we're doing it because ultimately it's supports a very
08:30 - 09:00 important function in the capital markets which is to to allow the the person who can best stomach risk either because of diversification or because of of the um offsetting risk that they have in other areas to price it appropriately and somebody who is who does not want to hold risk to to be able to sell it um and and reduce their exposure so um that that transition from where I started on the floor to where things are today in
09:00 - 09:30 electronic markets I think is very similar to the experience that the markets uh uh in general have and and the way we train people to think about that risk transfer mechanism and and do you sense that the the pressures changed at all is it do you think it's become easier to make these decisions in this this the world we now or do you think it was easier back when you could actually T in a tactile way be part of the flow
09:30 - 10:00 yeah I I love the idea of of easiness here because it's not real clear what's easy right it is certainly easier to affect a trade right now right is it it is not difficult at all for me to put my hands on a on a keyboard and within seconds have executed a very large uh quantity uh trade that doesn't go through as many checks and balances as it may have in an open outcry uh market so it's very easy for me to trade right now now
10:00 - 10:30 um the the other thing that's easier now is that there's I feel like better access to cleaned data so so not just not just sources of dat not only do we have more sources of data now but we have better processes and better uh and a better ability to to filter that data to um to show us what we want to see and filter out all the all the noise that we don't want to see to make a decision that said I think that in the open cry World there were other things that were
10:30 - 11:00 a lot easier there you know for one thing because of physical constraints I could only stand in front of a pit that had say 20 different names traded there and as much as I might be interested in in other Securities that were traded around the corner or in a different pit I just couldn't be in two places at once and the only thing I could do was know those 20 names intimately know know them um uh in and out and be entirely familiar with the story behind them and
11:00 - 11:30 know where I wanted to position myself in terms of forward volatility or Delta or whatever it might be now it's a whole lot harder because I have access to 5,000 names right I can I could trade uh anything from the exact same system uh that I'm sitting in front of um even if I only if I want to concentrate on one name or 5,000 everything looks the same for me in terms of setup and and access so so some of those things which which I think is incredibly intimidating by the
11:30 - 12:00 way I think being able to trade 5,000 names means you probably shouldn't but being able to figure out um what you should be looking at is is a much harder problem now than it was when I was trading on the floor thank you Todd thank you listen can I just perhaps maybe just sort of reset uh this conversation back to perhaps starting with your own journey journey um from you know how you got into trading to begin with um those early experiences which You' talked about to kind of where
12:00 - 12:30 you are now what was your Evolution as a Trader what was your evolution of of your philosophy which we're going to explore a little bit as we go through this yeah and I think I I will start before I started trading with my education because it is unconventional for uh the path of a Trader so a lot of the traders in particular that we hire our approach is very quantitative and analytical so we tend to hire people with quantitative and analytical backgrounds people from Finance certainly but also physics Applied
12:30 - 13:00 Mathematics computer science all of those people tend to do well in our system of trading that said I was an interdisciplinary major as an undergraduate where I studied a combination of anthropology psychology Linguistics and education wow so I created my own major while I was in college that focused on on uh Deaf culture and language so American Sign Language and the deaf communities uh and um the way um deaf students are taught
13:00 - 13:30 so I was working as a sign language interpreter while I was in college and teaching an American sign language class and did not have any aspirations of moving into trading okay as I was graduating from college I figured I needed to do something I needed to find uh a way to use uh my skills and I looked into uh education so I thought about uh working as an educator uh in schools for the deaf um but didn't know that that would be fulfilling for me for the long term so I considered a bunch of
13:30 - 14:00 other paths as well and as I was thinking well I should probably get something that pays me uh let me look at the jobs that are available for somebody with my uh unique background and the opportunities that presented themselves were things like consulting which um as the more I dug into Consulting the more I thought I don't know how I without any business experience could give other companies advice on how they should run their business so that didn't feel like a great fit for me I applied to law school and got got a scholarship to uh
14:00 - 14:30 to law school and I thought that's a you know pretty reasonable skill set to fall back on and maybe I'll do that but as I was looking at it I also met a um a specialist on the floor of the New York Stock Exchange and I was visiting a friend of my fathers who was a broker on the floor of the stock exchange and the more I saw about uh stock brokerage the more I was sure that this was not the right role for me it felt uh like a a sales job where I didn't fully understand the product I'd
14:30 - 15:00 be selling I I just didn't didn't love brokerage but then when I started speaking to the specialist it was a role that I didn't even know existed and he was talking about making um Capital allocation decisions with imperfect information and the fact that they were providing two-sided markets um I thought that sounded fascinating and the more I looked into that the more excited I got about uh finance and thought this is something I could give a shot and he then also introduced me to the
15:00 - 15:30 concept of derivatives and and one of the big differences between the stock market game and the derivatives game was the positive sum or or nonzero sum nature of stock trading vers the zero some nature of derivatives trading that whatever one person won in derivatives trading somebody else lost which really appealed to me as as a competitive person as a game as as a former athlete
15:30 - 16:00 that sounded uh like an attractive world to be in because it would be you know regularly stimulating where um I was surrounded by other smart people that were that were also trying to figure out uh the best way to uh to achieve their goals and their goals like I said are zero sum so that uh that felt exciting to me and that's what led me uh to apply to and then you know thankfully receive a job uh with s and I've been I've been with Susana from the start of my career so I know at the at the start said most of the career has been spent at Susana
16:00 - 16:30 um a small tweak to that which is that it's been from the from the first day working in finance I've been working for uh for the same group but your role has evolved hasn't it you've been quite through quite a few different versions of yourself is that correct that's absolutely right yeah so um so I started off like I said on the floor of the Philadelphia Stock Exchange trading Equity options um I started off um as an assistant where I hopped around uh helping a couple of our different uh senior Traders uh there was uh one woman
16:30 - 17:00 I was I was trading or I was assisting one of our Traders I was I was working for who I I I still credit with the bulk of my education in um in how to trade you know it's sort of like uh when you're learning when you're learning to drive it doesn't matter how many times you read the manual you have to get behind the wheel in order to uh to understand what you're actually doing in the same way um this Trader that I was working for did a really good job of not only talking to me about the theory and the you know the expectations behind our models and and how our our theoretical
17:00 - 17:30 pricing worked but but really got me to understand the the Nuance aspects of of being in the driver seat of of really trading and making the decisions about about allocating uh Capital under conditions of uncertainty where you you actually have to do it right you actually have to uh to to put money at risk and and um then check your results so um uh so I worked as an assistant and then I've returned to the floor to uh to trade um options Dell D the computer
17:30 - 18:00 company which at the time that I joined the crowd was the most actively traded Equity option uh in the US so it was a very busy uh place to learn uh which was which was wonderful for me it was it was a a lot of opportunity to uh to a lot of repetitions at at making trading decisions which was great and then pretty soon after I started trading on the floor an opportunity came up to trade in an up upstairs trading environment so off the floor on one of
18:00 - 18:30 our trading desks uh to trade um American depositary receipts so this is an international Equity Arbitrage um American depositary receipts are receipts held by a depositary bank on uh on a um common stock listed in another country so you know Deutsche Telecom is listed on uh the the German exchanges and then um uh the Bank of New York owns a big block of that stock and sells
18:30 - 19:00 receipts on that on the New York Stock Exchange so there's a an Arbitrage relationship between them where if you can buy Deutsche Telecom at one price in the US sell it at another price in Germany um then and you can see what the equivalent price would be you can capture uh the difference in those prices but of course the only way to capture the difference in those prices is to then also lock in the uh the currency exchange because uh you when you buy in the US you're paying out
19:00 - 19:30 dollars when you sell it in uh Germany you're receiving well now Euros at the time I was trading in do marks uh but you're uh so you're um so you end up with a with currency exposure that you can then trade out of by trading the underlying currency so I traded uh this Arbitrage um or I traded these trades which were driven by this Arbitrage relationship which does not necessarily mean that we always traded the Arbitrage we actually frequently had positions for various reasons um and around that time we were
19:30 - 20:00 opening up our operations in Dublin Ireland so uh I moved to Europe to uh to help set up that operation continued trading the ADR uh trade for for some time but also started our single stock uh derivatives desk while I was in Europe um also traded a bunch of of uh products that were I would say more quantitative in nature so I worked very closely with our quantitative researchers to understand uh how best to
20:00 - 20:30 model non-traditional products that were that were traded um uh again mostly in Europe you know a lot in France and a lot in Germany uh at the time um and then after some time trading in in Europe I was asked to move back to the US to move from the trading side to the business side and help oversee our Global Business Development um our recruiting uh efforts our training efforts um
20:30 - 21:00 uh all of the matters related to Personnel so compensation uh Personnel moves things like that and worked really closely with our general operating officer and Chief Operating Officer to to help run the day-to-day business and it was important for the management that the people running the day-to-day business understood trading understood the way we talk about risk understood the way we talk about expectation and outcomes because it would be really bad if the person making compensation
21:00 - 21:30 decisions didn't understand the difference between somebody who was making three big bets a year that either you know paid off a lot or had had a big loss but still had you know some expectation versus someone else who's making a thousand bets a day that were all small um and uh and cumulative in time and therefore the the the variance of those of those bets would wash out a lot more over time um so I was in that Ro for for some time until um
21:30 - 22:00 uh we saw a lot of risk accumulating in our fixed income business so I think a lot of people know the story of of 2007 into 2008 and the and the uh financial crisis and a lot of that was a crisis uh around fixed income and uh the the decoupling of the fixed income securities from their derivatives that there was there was this big break between the two which ended up leading to massive Capital calls which ended up
22:00 - 22:30 leading to people having to liquidate other positions and and that was a big part of the story behind the financial crisis so around that time I moved into to oversee our fixed income trading at the firm right in order to again bring the decision processes that we had in other areas into uh into that part of the uh the trading world so what is your role today how would you describe your role today yeah so um a after after
22:30 - 23:00 getting our fixed income um world stabilized and and getting a a a new person in the in the head of fixed income seat that that really understood the the trading there very well and the risk very well I moved back to the administrative side of the business to to co-run our education and recruiting programs so I taught all of our Junior Traders along with my colleagues I taught them the basics of derivative
23:00 - 23:30 valuation and pricing uh option risk uh some Game Theory and decision science and how we apply that to to trading um we spend a lot of time playing games things like poker uh to model this this risk transfer that happens uh in a trading environment but ultimately the most important thing that we do on the education side is mock trade so we put them in the exact same position that they would be make that they would be in as Traders and they're making the same types of decision just without any Capital At Risk right so I did that for
23:30 - 24:00 about a decade um and and that was a a big part of my contribution I think to the growth of the firm currently I am overseeing a new business venture for us so we have moved into reinsurance uh so we have a Bermuda based uh reinsurance company and I am the CEO of that group uh in addition to to looking at some us Insurance Brokerage which we're developing currently right okay okay and I think one of one of the themes that we because you spend a lot of time with
24:00 - 24:30 educating Traders I know you're very passionate about that and you've got some really well-developed thoughts about that and you know one one of the angles that we we work on um when we do these podcasts and that we we do it oursel in our own work is trying to help people improve their performance um and what is quite a crazy insane job most of the time this dealing with uncertainty dealing with complex to um dealing with a lack of knowledge
24:30 - 25:00 um of what's really happening out there sometimes and um this this sort of Randomness that sort of we we we or people as Traders are just just sitting in the middle of trying to make sense of um and I know that's something you're passionate about and you know you've talked about the idea that Traders are not born they're made um so I I guess we just want to hear you
25:00 - 25:30 know a little bit about um where that where that came from what your your ideas about that are what your philosophy is and and you know how you know what what are the principles you apply that tries to get Tres to help Traders become made in a sense yeah so uh it's that's very much something that that we as a company as a have as part of our cultural fabric I I I want to be
25:30 - 26:00 clear that this was not my addition to the the approach that the firm took but very much from from day one uh the way the firm saw training and and and the the ability to find smart people and if you have smart people you can teach them the fundamentals of trading so understanding what that looks like really requires you to understand what we think it is to be a good Trader and being a good Trader means that you are doing a good job of making positive
26:00 - 26:30 expectancy decisions so you're making decisions that in the long run should work out so that they uh have a a better return than uh than not um and uh and in order to do that you have to understand both the um structurally sort of what uh what the products are but you also have to understand the information embedded in uh the trades that people want to do the understanding structurally what
26:30 - 27:00 the the trades are is is very easy thing right uh well I take that back it's a difficult thing but it is a a very straightforward um uh thing to be able to teach that I can teach you what a put option is that it is the right but not the obligation to sell a certain security at some time in the future as at a um at a given price and and you know and then I can teach you mechanically how to go about pricing
27:00 - 27:30 that this is this is what you would find in a finance textbook right if if you were to if you were to buy the um you know the John Hall uh options and derivatives book this is what you'll get out of that is functionally what what are these products what are these risk products that you're trading but that doesn't teach you the the more important part of what we think goes into this which is how do you make decisions about where you want to buy and where you want to sell that you are trading some
27:30 - 28:00 version of Future Truth right you're you are trying to position yourself so that if some outcomes arise that you're in a position to uh to win to that that that you're making positive expectation trades that that that the the the trading that you're doing should lead to uh to good outcomes but there's a lot of noise in it right there there are lots of times where you can make the right decision and lose there's also times where you can make the wrong decision and win that you can have good outcomes
28:00 - 28:30 even though you should not have had the position on that uh that you had on so being able to decouple the outcome from the decision is an important part of the trading approach or the training approach that we have to trading so that we can then talk about the decision process separate from the outcome in the long run with enough plays with enough uh exposures the outcome is going to look a lot like the expectation of the outcome right that's the law of large numbers is that if you're making enough of these decisions
28:30 - 29:00 that have some type of positive expectation then you're going to realize that positive expectation likewise if you're making mistakes over and over again you're going to end up bleeding out that money over time and you're going to see that in your results that your results are going to be negative because your decisions were negative but looking at each individual decision you're going to have um a lot of a lot of times where you made the right choice where you made a you know a great a great decision where you were 60% % to win uh so you know 60% to win is you
29:00 - 29:30 know only 40% of the time do you lose well that's that happens a lot that you know that that's that's still you know 40% of of uh of your days are uh you know constitute a good chunk of your year right there there are gonna be lots of days where if you're making that fantastic decision that you're going to end up with losers over and over again and being able to appropriately look at the decision process is uh as separate from that outcome is uh is where we
29:30 - 30:00 spend a lot of our time and and and that leads us to talking about heris and biases it leads us to talk about uh naturalistic decision-making which I know um is something that uh that you've talked about before on your show um that we're looking at um at how risk actually gets um uh priced appropriately in the marketplace and we can't tell that only by looking at one outcome or even a handful of outcomes interes it's it's it's fascinating is
30:00 - 30:30 it's like we say we talk about like as easy easy language there's a whole different language spectrum that goes with these um with the whole education you know it's it's teaching people the language goes with the fact that there this learning I'm very interested to understand that from your experience with these with these cohorts of traders that are going through this experience within the business that what aspect of trading did did the students as as called them what I have most difficulty with is it the entry is it the exit it's
30:30 - 31:00 the once the risk is on there's there's the turmoil what was what's proved to be most difficult for them to cope with I think the most difficult aspect not just for our students but for our experienced Traders as well is handling that noisy uh outcome handling the noise that comes after the fact um I I mentioned before the types of people that we tend to hire are people from computer science or physics or
31:00 - 31:30 Finance backgrounds among you know thankfully people with Deaf culture and language Majors uh but uh but a lot of those people are come from places where ultimately if you can figure out a system then that is then you've defined it and you can move forward uh biologists are are very much in this Camp right if you can describe the way biological systems interact no matter how complex they are one once you've described them then you can just build
31:30 - 32:00 on that and you've got a description of an underlying process you know germ Theory comes once germ theory is developed everything that you can sort of bolt onto germ Theory ends up being correct because germ Theory itself is a is a good underlying description of of the interaction of of these um of germs and and and health right but in our world once you've figured out the way a system works it's going to change the way you behave and once you behave differently the system itself changes
32:00 - 32:30 fundamentally so we are in this in this world of of constant of constant change and part of the change is our own impact on it right for astrophysicists the way a a a star um you know behaves has nothing to do with whether or not we're observing it but for a Trader the way a stock moves has everything to do with our perception of the way that stock should move once we have an opinion about it we then
32:30 - 33:00 go out and do something differently and somebody else can see what we did and they're building that into their system and their model of the way the world works so so dealing with this constant change I think is is the biggest surprise especially since we're bringing in really highlevel smart people right we're not bringing in people who are used to being wrong and we're putting them in a world where they're going to be wrong a lot and not wrong necessarily in um in the direction of the of the trades they make but certainly wrong in terms if they
33:00 - 33:30 only evaluate on the outcome but even wrong in terms of having to change their mind frequently and being open and willing to change your mind and and and having the right mindset to say this you this I think is correct for now but it might not be correct tomorrow is a is a a new experience for for a lot of these people again who are accustomed to to being you know A+ students to to to getting things right and we're putting them in a world where they're
33:30 - 34:00 not getting a lot right all the time we're going to return to this fascinating podcast shortly first we want to tell you a little bit about ourselves at Al for mind well we strongly advocate for the principle that the most valuable investment a Trader can make is the one they make in themselves and for businesses it's the ones they make in developing their people and their talent our services are centered around Trader performance coaching leadership and Executive coaching team coaching on our impactful high performance trading Workshop
34:00 - 34:30 programs if you're Keen to learn more about our work and how we can assist you or your business we invite you to explore our offerings at alpha-m mind.net or reach out to us at info@ alpha-m mind.net now let's get back to this fascinating podcast so how how are you um helping those um students to adjust in that in that situation and context you describe because I mean it it sounds like you're talking about a
34:30 - 35:00 very reflexive experience is what's happening for a lot of them there are a few ways that we do this one like I said one of the major things that we do is eventually get them to the point where they're mock trading so where they're making decisions where they're not actually putting Capital at risk and we get to really talk about both the information available and the decision the decision that was made and the way more experienced people would make that same decision so we surround
35:00 - 35:30 them with experienced senior Traders as their mock trading and they might say you know somebody came in to sell this asset so I moved the price down because I want to make sure that I'm balancing supply and demand we could say okay but look at it in the context of all of these other things that are happening at the same time even though that seller came in that is inconsistent with the rest of the fabric of the trading that we've seen up to now this is actually a good time to say that these pieces of information are mutually exclusive here's a time where you could take a
35:30 - 36:00 position and comfortably know that you'd be able to trade out of that risk through the other opportunities that are present in the market you don't have to necessarily move out of the way and in fact if you do somebody else is going to step in and fill in that liquidity because of the rest of this picture so we get to have the modeling of the senior Trader and their thought process articulated for the junior Traders so that they can hear how they might be thinking about a problem incorrectly the other thing that that we're doing that that's um that's
36:00 - 36:30 helping is really not just encouraging but really forcing communication that that one of the approaches that that I've always taken uh is informed by um a educational philosopher named Le votsi I'm not sure if you're familiar with Le voty but but one of the one of the um philosophical educational principles that voty had is this idea of the more informed other that if you can and and
36:30 - 37:00 voty really focused on Child Development and and the development of education at the at the earlier stages but I was really thinking about it in the exact same context than later stages and you mentioned before zone of proximal development that if you can get somebody into an area where they're not quite comfortable with the decisions that they're making they don't really know what they're doing but they can get there with some help that's where you want to put them in order to uh to to get to this educational experience that you're talking about that's where they're going
37:00 - 37:30 to feel the discomfort of not having the the security in in and being in their zone of zone of Mastery the the area that you know where they know everything very well but instead they're in this area where with some push with some help from a more knowledgeable Mentor they can end up applying things that they've seen in other contexts to this new context and and feel more comfortable that the approach that they're taking is the appropriate one that's why we have
37:30 - 38:00 these senior people in the room with them as they are learning to trade we don't just want them up against a system trying to develop their own uh their own approaches because frequently that's going to lead to um to bad habits that develop that they don't even realize are bad habits because it works in a small context but not in a in a broader context instead we want them to to develop a thought process an underlying approach that they can apply to these uh contexts that's
38:00 - 38:30 informed by the experience of more uh of more seasoned Traders and their own personal experience as well right so that they get to marry um uh the information that they can glean from the market with uh an approach to how to think about new information and how to think about things like Paradigm shifts uh in the marketplace which which you anything that that uh that could be programmed into uh an algorithm we want to program into an algorithm right we
38:30 - 39:00 want we we know that the algorithms are going to be more consistent they're going to you know apply principles uh consistently and and and appropriately given all the information available to them but we also know that they're going to be wrong because they're not going to be able to take in the totality of the the quality of the information that they're getting uh or the volume or whatever it might be and that's where we need people sitting in the seats to make decisions and figure out when to change the parameters behind those systems uh
39:00 - 39:30 when to uh when to take a different approach in the market here's a question for you so in terms of if you were to to pick sort of a a bunch of Ideal what you would consider ideal candidates to go through a training program okay you mentioned that smart is important I I get it but there any other qualities or ingredients to to them that you think actually if if you had these attributes
39:30 - 40:00 actually you would have a very very good chance of actually not just going through the program but coming out of it flourishing do do you have a sense of what they may look like yes we this is something we've given a lot of thought to and and have had uh tons of conversations around is uh and if I'm talking about an individual I will say that there is a a combin of the three legs of the stool are strong quantitative and analytical
40:00 - 40:30 skills which is um orthogonal to strong interpersonal skills so not negatively correlated with but uncorrelated with so we're looking for people who are strong on sort of both of these Dimensions so quantive and analytical skills interpersonal skills so the ability to communicate with others whether that's brokers in terms of being able to um you create a relationship where you're developing order flow or really also with their peers in the trading World um so they
40:30 - 41:00 can talk about um so they can learn from others and teach others which is an important part of our our culture and then the the third dimension um which feels a lot like it could be a combination of the other two but I think it isn't a separate skill uh the third dimension is gambling skills so once you have the information about uh what is a fair value and are are able to to draw the the order out of the Market are you appropriately taking risk are you able to identify what risk looks like uh and
41:00 - 41:30 are you um um taking it in the right way so so the individual that we're looking for sort of a high performer on all of those dimensions and and we have found that being a super high performer on one dimension does not make up for low quality on the other two Dimensions that we have found people who are great gamblers but just have terrible interpersonal skills and they don't do well with us in the long run we found people who are incredibly analytical and
41:30 - 42:00 they are wonderful at things like quantitative research but then they can't pull the trigger when it comes time to uh to actually put money at risk in the trading market so so their gambling skills are low um but their math skills are high that's not good that doesn't work um and it's and it's because they you know they end up not trading so so figuring out the right balance between those three legs ends up being pretty important for us you know that that's really truck Accord with me because it's um um and I've spoken about this on
42:00 - 42:30 podcast before but if if I go back to my my trading career which was think close to 25 years um I was working in the investment banking world but I I I would probably you would have described me more as a prop Trader more more of a position taker rather than someone who who traded flow perhaps in the early days I was a a flow guy I was doing a lot more Arbitrage but in my latter years I moved to this more directional
42:30 - 43:00 aspect but I kind of had a bit of a crisis of confidence roughly halfway through my career um I would say I lost my way a little bit and those three things which you you you talked about there so I was very strong analytically okay I wouldn't necessar necessarily say quantitively but I I could look at at a market I could analyze markets I could bring together lots of research uh my own intuitive
43:00 - 43:30 sense of what was happening my own analysis using technicals um and the fundamentals and I could construct a story and find Value in the market um I had strong interpersonal skills I I communicated a lot with other people I talk with Brokers regularly I took with other Traders um so I think I I had two out of three but at this halfway stage of my career and it was actually going through a
43:30 - 44:00 process with a coach that made me realize that I wasn't a good risk taker okay I i' I'd been okay to a point obviously you know I'd been sitting on a prop desk at a major Investment Bank but it occurred to me that I wasn't good at taking risk um and at that point in my career I I kind of once I reinvented myself I suddenly realized you know Steve you're you're not going to last
44:00 - 44:30 much longer unless you can develop your risk taking piece and I had to develop that in line with my personality you know we've all got different risk personalities so there was there was I was never going to be the the the big guy who took a huge position for six months but I did have and find a way of taking risk that suited who I was and who to you know suited My Philosophy um to take him and looking at markets and really enabling me to monetize the value that I was pretty
44:30 - 45:00 good at finding and I I think you know you you you've really hit the nail on the head there are there are those three areas but they're all mut mutually exclusive if you're good at two of them you know you you you can probably develop the other one that's what I believe it's interesting when you you you you you said on you know the interview we heard you had was the one with Shane Parish um of the knowledge project and I think you said in that you know Traders are
45:00 - 45:30 are made not born um is is that still something you subscribe to H absolutely and and one of the things that you just said that that that I wanted to follow up on was that you said that you needed to develop your risk taking that that what you didn't say importantly was that you needed to go take more risk right it wasn't the ACT that you needed to do it was the education that mattered you needed to to work on it and think about it
45:30 - 46:00 differently or think about it um more completely one of the things that that I see frequently from the outside talking to non-traders talking to non- finance people about our role is they say man what you're doing looks really risky and what they mean frequently is what you're doing looks really Reckless right they are they do not make a distinction between measured risk and the the ability to uh to see where um where you're taking appropriate
46:00 - 46:30 risk for the amount of capital that you have or the amount of uh information available in the market vers saying you're doing something that is going to have a big outcome one way or another that's risky but I can take tons of positions that look risky that are just really just Reckless right that really just means I haven't given anything enough thought and therefore this is uh this is a not a smart risk for me to take or I likewise I can take positions that have huge
46:30 - 47:00 outcomes bigger outcomes than than what we would normally see but it's because I've got much better research and much better information and much better handle on what the risk looks like and where I can offset that risk with Hedges or where I already naturally offset that risk with other positions that we have and then I'm not doing something that's reckless in fact I'm doing something that is reducing our risk of ruin that is that is better for us but it looks riskier to people who don't understand that underlying concept and being able to talk through that with somebody and
47:00 - 47:30 develop their education around that I firmly believe that I can get anybody to understand it if if you give me enough time with them and I can really talk through different examples and different scenarios with them and that's exactly what what our approach is to developing Traders as opposed to looking for Natural Born Traders I don't need somebody who comes in you know Wild West style slinging their guns ready to uh uh you to to take on gigantic risks where they don't have good underlying information that's reckless that's not
47:30 - 48:00 what I want but I can take somebody who is not inclined to put on risky positions and explain why this ends up working out best in the long run and get them to feel that this is not a risky Endeavor just because they take on a position that has volatility but in fact has positive expectancy and and and we can talk through the the appropriate um balance so I believe that on any of those three dimensions on on the risk-taking on the quantitative and analytical skills and on the interpersonal skills that that with
48:00 - 48:30 training anybody can get to an appropriate point where they're able to to do a good job of this we as a firm are very big subscribers to the growth mindset right that nobody comes in with a fixed set of of of characteristics but instead you know in in a very much Carol dck uh uh type Way Carol D the uh the uh educ who really focuses on has has brought the uh the term growth mindset
48:30 - 49:00 to uh into common parlament uh that if you have the idea that that people can be different later than they are now which seems you know on its surface like who could possibly disagree with that but once you accept that then you can say okay well then I can teach people how to do something that they're not necessarily comfortable doing today whether that's taking risk whether that is getting better better educated in the underlying um quantitative models uh or even if that's on how to inter interact
49:00 - 49:30 better interpersonally with other people can I guess go a little bit deeper onto the uh the inner personal question because I can kind of understand Quant education um and I can qu kind of understand gambling skills education and the poker stuff and the the um you know the practice marketplaces you can create people to interact with but but what are you doing around the um the interpersonal what what does that teaching look like and what aspects do you really focus upon yeah so as part of
49:30 - 50:00 our education program there are two aspects of that that I think uh really come through one is communicating with um with Brokers or with um with outside the firm communicating with people who are not part of your team right so uh I don't want to say adversarial Communications because I firmly believe that every negotiation is col collaborative and not um collaborative and Cooperative because um
50:00 - 50:30 otherwise you don't reach an agreement right but but with people who do not necessarily have the same aligned interests that you have that's one form of communication that I'm talking about and then the other is with people who are aligned with you who who do have the same goals and are uh um internal to the team and the way we do this is Again by modeling it in our mock trading environment Where We Are acting as external Brokers or external sources of order flow and and bringing orders to
50:30 - 51:00 the um to our uh junior Traders where they have to interact with it and think about how their Communications um impact whether or not they're going to get the trade or whether or not they're going to get additional information about the trade whatever it might be and we stop and talk a lot about how to have those types of communications and the other piece which I think is actually the more important piece is really encouraging and forcing people to talk frequently about their thought process that we are really
51:00 - 51:30 really good when somebody else tells us what they're thinking about at seeing where the holes are right we're really good at saying oh gosh you certainly weren't thinking about this important aspect or you know you're you're you know in the language of of biases and heuristics you're getting anchored or uh this sounds a lot like hindsight bias or whatever it might be we're really bad at doing that analysis on ourselves right we're really bad at at when we when we're going through a thought process of recognizing you know right
51:30 - 52:00 now I'm I'm falling into the the Trap of confirmation bias so if we can really encourage people to say their thoughts out loud talk about their thought process then somebody else can say Mark that sounds a lot like you're falling into the Trap of confirmation bias and once we have the common language around what these biases look like you can say oh gosh yeah no I can see that now I think you're right and maybe I should start thinking about uh about this in a different way um and again that's done by modeling so in this voty way of
52:00 - 52:30 having um better mentors that are able to show you how to do this um but it's again also very much part of the culture that that that we are in that that people are sitting on a trading desk where all day long they're hearing people around them talk about um why they are making the changes that they're making to the models and somebody else gets to challenge them on it and nobody is ever feeling like they being personally challenged because we all have the same goal which is finding
52:30 - 53:00 truth that there's some ground truth that we're looking to effectively uncover when we're when we're entering trades if we knew the future state of the World Trading would be super easy and as we approach that that um that task of trying to find that truth we get to attack ideas violently because we're not attacking the people who have those ideas those people have the same goals that we do they want to attack their ideas also because the goal is the same which is to end up uncovering truth so we've created a culture where it's
53:00 - 53:30 totally appropriate to challenge what somebody else thinks whether that person is the you know the junior Trader who's been on the desk for four days or the founder of the firm who's been uh who's been at the helm for 40 years either way it's totally appropriate to say that doesn't sound right to me and here's why and it's okay if you're wrong in your criticism but but by encouraging this communication we end up doing a better job of getting toward that truth I'm I'm
53:30 - 54:00 laughing because I uh I wish I'd have known this a few months ago I I I've this is a chance for me to do a little plug as well I've got a book coming out in January it's called mastering the mental game of trading um and and and we you know we're both our business Alm we're big advocates for performance development um managing yourself better through the trade being more structured having a process seeing the risk process as something far more than just you know
54:00 - 54:30 Finding value or finding an idea but actually you know improving how you ex you know execute it and monetize it which of course has there's so many different aspects to it including you know realizing the reflexivity within markets um but I I I I'm aware the industry does a really bad job of this it does a really bad job of educating people in trading the this there's still through I think 99% of the industry this
54:30 - 55:00 kind of sink sink or swim mentality you either have it or you don't one of the reasons why I was laughing is I've written towards the end of it that there's I I don't know any firms perhaps other than Bridgewater that put this real emphasis on developing their people constantly and now I'm hearing you talking I'm thinking there is another firm and I you know so I I apologize for you in the book you should have if I had have known that Sasa would have been in there but it sounds like this is really a it's a big part of your secret Source
55:00 - 55:30 maybe there's an opportunity to put us in the uh the uh Arata of the book the uh the addenda or you know a new footnote which is uh just one more but it is it is I think the yeah perfect right we we'll be in volume two um I I think that that it is the one of the fundamental strengths that we really have is this philosophical approach to thinking that
55:30 - 56:00 Traders can be made that forces us to say if someone's not a good Trader it's not their fault it's our fault the the burden lies on us to do a better job of training them there's um this is tangentially related but hopefully I'll be able to bring it back are are you familiar with the the classic uh um problem of the the ball in the bat costing A110 do you know this yes yes it's part of a lecture that I give I I will I will
56:00 - 56:30 uh um I'll I'll State the the entire problem so that your listeners can uh can think along but uh the question is a ball and a bat cost A110 together and the ball costs a or or the sorry the bat costs a dollar more than the ball how much does the ball cost I'll pause for a second so people can think about it and the classic result of this is
56:30 - 57:00 that people give a quick intuitive answer that is incorrect and the intuitive answer here that is incorrect is to say that the ball costs 10 cents when in fact that does not satisfy the criteria because if the ball costs 10 cents then the bat would cost a dollar more than that which would be a1ar and10 cents and the two together would cost a120 cents which is too much we want them to be A110 cents together therefore the ball must cost 5
57:00 - 57:30 cents so far so what right all all we've said so far is that that people answer intuitively and there's not all that much that's all that interesting about it um until you start digging deeper into it so so recently um just just this past week I saw the research uh come out I'm not sure when the research was conducted but um uh Andrew Meyer and Shane Frederick went back back and asked I think it was 93 variations on this problem and they had um uh um a bunch of
57:30 - 58:00 different um people that they were able to ask these variations to so they had thousands of people in their sample from from Google surveys to um uh to Mechanical turque to a couple different uh areas that that they're able to look at this and my favorite outcomes from this were one that they still found uh exactly what the original research found which is that the majority of people give the intuitive answer and not the reflexive answer but the more interesting pieces of of information I saw was one variation they said you know
58:00 - 58:30 the ball costs um or the bat cost a dollar more than the ball uh how much does the ball cost consider whether or not the ball could cost five cents so they're tell they're prompting people with you know like take a beat here on reading this sentence and think about whether or not this could be the case and in fact that doubled the number of people that said five sense is the answer but it only doubled it to 31% of respondents the majority of people still
58:30 - 59:00 got it wrong but my favorite variation was another one where they asked the question in the same way and then in bold underneath of it it said the answer to this question is 5 cents on the blank below write five cents and that got 77% of people to write five cents is the answer which means that even when you're told here is the answer answer this is what the right outcome should be 23% of people still don't get it right so coming back to you
59:00 - 59:30 know sort of how this feeds into to what we're doing as Traders is that there are some people that are uh in what what uh Meer and freder call the Hopeless Group which is even when you tell them the truth they just can't get it they're just not going to believe it they're just not going to share it but there's a good number of people that are in uh in this um this other group I forget exactly what they called it in their research but it's basically if prompted they can think about things in a better way right these are the people who when said think about whether
59:30 - 60:00 or not 5 cents makes sense are able to say oh yeah it does that yeah okay I see that I I made a leap there but on on prompting with education with help I can get to the right answer that's what our approach is in our education program is is making sure that we are giving people enough context that they can improve their decision process yes that that's fascinating so I I just very quickly when when I ask that question on the I I I deliver a lecture every year on behavioral Finance for the
60:00 - 60:30 um the Society of technical analyst diploma program which we we used to deliver at London School of Economics before the coid days but now it's online um so we don't get a chance to ask his question and see people's reactions but um when I asked that question I I used to present evidence or or data that said apparently less than half the students who were tested on that MIT Harvard or Princeton got that question right and um the failure rate apparently at other universities was over 80% and we we we
60:30 - 61:00 give that as an example of overconfidence over Reliance on intuition um which leads to these very simple errors um and there's a lot of other great examples of similar questions to this um it's almost so simple that you don't think about it is the problem yeah absolutely which which is very much describes a lot of trading and and a lot of really anything that that takes years of expertise to develop I've
61:00 - 61:30 heard you guys talk on your show before about uh you know the the expertise of of pilots and why they still use checklists and and you all kinds of other areas where um expertise grows with time I think back to one of the times when we were teaching Um poker to a new group of our students and I've been playing poker for years and years I've played tens of thousands of hours of poker at this point I've gotten uh pretty good at understanding a lot of what goes into the decision process
61:30 - 62:00 behind um how to bet a hand and we were playing A variation of the game that this student had never seen before so we were playing a a game uh called Omaha high low or Omaha eight or better and I don't need to get into the rules other than to say if you've played Holden before you're going to have a lot of bad intuitions and bad charistics that do not apply to to Omaha that Omaha you start with four cards instead of two like you would and hold them but and it's a high low game which means that the best high hand wins and the best low hand wins there's a bunch of
62:00 - 62:30 variations that go into this and I was introducing it to these students for the first time and one of the students and and and this is the game that I've played most often in casinos by the way so I've played most of my real hours putting my Capital At Risk in this game which means I've really had a reason to think through how to do this well and the student said okay like I've I've played a little hold on before now that you're teaching against this game I guess it'll probably take a session or two before we're as good as you are said there's a there's a chance that
62:30 - 63:00 that's true you might be right about that but I don't think that's going to be the case I'm pretty sure that I'm going to keep my Edge for a long long time because there's so much in here that you don't even understand matters uh that um but because this is the Dunning Krueger problem right because you know so little about this you don't even know how much you have to learn about this you can't even conceptualize of of how little you know because you don't know enough to know U how how deficient your current
63:00 - 63:30 skills are uh vers and I'm not I'm not talking myself up as the greatest Omaha 8 player of all time I'm just saying I'm pretty sure I'm better than somebody who's never played the game which doesn't feel like too big of a brag but still feels like a a comfortable position to be in yeah it's fascinating how poker has so many lessons and um I think the important the important story is that when I to have a commitment of wanting to learn and to fail and then to learn and to go through the
63:30 - 64:00 Journey that um I think the Steve said on on some of his um classic examples of you can't just decide to go boxing and decide to jump into the ring with Tyson as just sort of you know okay I'm a boxer you know you got youve got to go through the Journey you got to take the scrapes the hits the failures the pain um I guess the misery there something a misery Creeps in to to trading and of course you know you've shared the gambling skills one one of your three
64:00 - 64:30 pillars of course and that in your um particular World Poker Lin St but for the evolving world of gaming gambling skills could could mean something just slightly different to to Poker I mean I'm just putting that out there yes the the Gen Z's of this world may be looking at um the numbers of G in a very different way perhaps we have looked at in terms of what we go to see in a casino um and I think um they may be benefit from
64:30 - 65:00 understanding that that world is be going to World of alos and Ai and perhaps uh it's world that we're starting to understand but others that are more geny are probably much more understanding of what that means than and accepting of it um compared to ourselves but yeah this um the concept of the unbalanced stall is fascinating and how actually you know you try to trade off an unbalanced you're going to
65:00 - 65:30 be falling off of it it just it's a very interesting image of the need for balance um but but I guess the need for tenacity as well because if you're going to go on a journey that involved 40% failure 60% um um success then you can need to be pretty tenacious to carry on that journey and so the resilient side is important so I guess in the inner personal you must also have sort of
65:30 - 66:00 a work around resilience as well and how people can also look at that we talked at the very beginning about what's the most difficult part of the trade of Journey is that dealing with the noise be be that a junior Trader or a Seasons Trader I guess want to go back to the sort of the principles of the the interpersonal again there must be things that you also look at kind of give people perhaps a better chance of surviving that noise
66:00 - 66:30 um and and again I think a lot of it comes back to uh a lot of it comes back to that communication and the ability to talk uh to talk about you know not just doing the postmortem but also doing the premortem like talk about what things can go wrong and then uh and then um not being surprised when they do one of the things that I heard standup comedians talk about before is the fact that if you go to they're not always going to have
66:30 - 67:00 success right there are times where they're just not going to click with the audience and they're going to bomb even though they're telling the same jokes that were hilarious the night before right so it's the same joke delivered the same way some people just don't click with it and they say I've heard that if you hear nobody laugh and then a few seconds later like four people start cracking up those four people are the comedians friends who are laughing at them bombing that there's that there's this culture really appreciating the failure it is hilarious that this thing
67:00 - 67:30 that I know you do well is not going well for you tonight that's so funny to me in the same way when we put on a big bet when we have a trade where we think that we have a reason to um to take a position and it doesn't go well we're not thrilled with it right that means that we lost money and and we're unhappy about the outcome but just recently we had a position on in a security and the trader who had the position on uh was
67:30 - 68:00 very clear about why they put the position on and it went terribly it did not it did not work out and the reaction wasn't to you know sort of shamefully look away and not discuss it but it was to laugh about people on the trading desk were were having a you know a big laugh like Oh I thought this was a sure thing I thought that this is one that you want to that big you apparently this didn't work out so great and and having again a culture that can openly address the um the the failures as well as the
68:00 - 68:30 successes and talk about it in a in a big way then doesn't leave that person walking away hanging their head saying man I can't believe everybody was laughing at me for this terrible trade but instead lets them join in and say yeah that was again our goal is not to always be right it is to find better truth in the long run and we can do that by attacking bad ideas or even good ideas have bad outcomes so so it is it's modeled by the people around them um and it is it's a you know there will still
68:30 - 69:00 be people who are getting pretty upset when they have losing trades even if they thought they made good decisions uh that also keeps people looking for ways to improve in the long run but um but there's definitely very much a culture of being accepting of of of bad outcomes of laughing at the on the nights that the stand up comedian bombs yeah so humility is important totally yeah and and humility leads to transparency right if I'm
69:00 - 69:30 willing to accept that I could be wrong then it's fine for me to talk about what I'm doing and have somebody point out where I was wrong it's really really dangerous if somebody um is afraid to fail in front of their peers because then they're more likely to hide their errors and then their errors will compound either in a legal way hide them like just not talk talk about them or in an illegal way and like not show our operations Department what trade they did because it didn't work out for them
69:30 - 70:00 and they're going to try to get it back this is what led to the downfall for example of of uh of bearings bang I know that you guys um uh spoke to Nick Leon at one point I think that this was the structural problem that ended up leading to the downfall of bearings was just not being willing to say whoops I lost made a bad decision win against me and I'm and I've got to own that that I'll tell I'll tell you a very funny story about that very quickly so at the time I was working at credit s and one of my
70:00 - 70:30 colleagues had left about a year earlier to go to bearings on on the on the on the race desk he was doing the funding managing the the treasury book and um one of my uh one of my Futures Brokers just came down the line and said you hearing about any issues going on with bearings in in their one of their Asian offices on the Futures and I said no no and I said look let me just check out because we've got a guy who works there so I shouted over to my colleague you
70:30 - 71:00 know can you just check out with with Danny about uh make sure everything's okay over there at bearings um so he gave Danny a rings so Danny anything going on with you guys in the uh Asian Futures and he said uh no not as far as I know um and anyway about two years later you know we were out having a beer and he told me he remembered that story and he said you know what the funniest thing happened about an hour later after I asked I got called up to the Chairman's office no one ever goes up to
71:00 - 71:30 the Chairman's office ever okay he's on the top floor of this building in the city of London and you know you just never meet him and he said I got asked to go out there and the chairman just went to me um you asked whether we had any problems in in our Asian office I just want to let you that no we don't have any problems he said it should have occurred to me at that moment got problem that is a like I it's rare that people point out
71:30 - 72:00 that they've stuck their head in the sand and they do not want to pull it out and that sounds exactly what happened there right that's like we're not even going to look into it because I'm sure that it's fine yeah but it's it's just you know I mean that that's you know we talk about that lack of humility you know we talk about often people who are willing to ask for help you know people are willing to put their hand up you know everyone needs help at some point everyone needs support at some point you know I I know a lot of the darkest moments in my career as a Trader I had
72:00 - 72:30 someone around me who just kind of in a in a metaphorical way they put an arm around me they said look don't worry about this this is going to turn around you're okay and those moments were just so important and I think that's part of a a great trading room it's almost like you have a Band of Brothers mentality around there at sasana from the learning the development the support the whole way through that business yeah and actually you just brought up something
72:30 - 73:00 that uh that reminded me that that I felt I gave an incomplete answer before when asked what type of person we would want to hire to to be able to do well in this process and I talked about the individual and I didn't talk about the group that what we end up hiring is not um one person who's going to then do all the trading for the firm but we hire many people who are going going to end up working together and it's really important for me that we have diversity of thought in that group you mentioned a
73:00 - 73:30 Band of Brothers and immediately my thought was and sisters right like in my head in my head I'm standing here going damn I should have said brothers and sisters because it is so important to have that diversity within a group in many different forms and ways so yes right and I I want I want different socioeconomic backgrounds I want different um EIC backgrounds I want different you know racial backgrounds because all of this I think ends up doing exactly what we want to do which
73:30 - 74:00 is having different perspectives able to be um uh articulated and if we create if we do a good job of creating the culture where everybody feels comfortable communicating and searching for truth then people with different experience can ask different questions to to help drive it that truth um so so importantly for me I want the individual to be strong on those three dimensions I want the group to look different from each other to make sure that we have a robust enough um population that not everybody
74:00 - 74:30 that we don't fall subject to group think because we don't have you know the same type of person brought up in the same type of environment with the same type of philosophy and the same type of culture um uh but instead we we end up uh able to challenge each other the person that I spent most of my career working with is uh is she was my co-head of Education while I was the education department she's a a wonderful Trader a wonderful person and we have very different perspectives on a lot of the
74:30 - 75:00 things that go into you know what we should be hiring for uh and what's the best way to train people and how often should we be doing summative vers formative testing and you kind all these things that go into the evaluation and growth process and part of the reason that we worked really well together for so long it's because we had different thoughts on this that if we had the same thought on this we would be missing something very important but because we thought about things differently we were able to bounce off of each other uh and through our through our friction really
75:00 - 75:30 create uh something that was uh that was better than what either of us could do on our own the opposite side of that is it usually ends in a car crash somewhere totally so it's totally it's really really dangerous if you think you've got six different opinions when what you really have is one opinion voiced by six different people in the exact same way you think that you're doing more more deep analysis than you are and you get totally caught up in the confirmation bias the you know the sort of cheer cheering the the news that is meaningless and ignoring the sort of really important news because it doesn't
75:30 - 76:00 agree with you the sort of um and I think we we've all seen those sort of uh disasters happening so so this this this feels really big at SAS this kind of diversity you know gender diversity socioeconomic diversity um and almost sort of allowing room for that to breathe as well absolutely yeah this is um again I think I think part of our DNA is is is this idea that that uh that we
76:00 - 76:30 value we value argument and not argument for the sake of argument but argument again for the sake of finding Truth for you know let's let's really you know push on this a little bit to um to figure out how we could do it better yeah we end up again having much deeper thoughts about the about certain areas of interest that that collide really um beautiful ways in terms of our ability to to then parlay um all these different approaches and different thoughts into
76:30 - 77:00 um into better trading um ideas or Technologies or uh or models or whatever it might be so it it's very much a part of the fabric of of sasana yeah yeah listen St I suppose it's um time to start to to to wrap this up it is it is but there was one question which um perhaps not a question it was it was something which I heard again in your Shane Parish uh podcast and I loved it when you said it and I made a note of it
77:00 - 77:30 and I just thought our audience need to hear it and hear your thoughts on it is where you said the answer to every trading question is it depends yes yes and I just wanted you maybe just to elaborate on that for our audience yeah so um there are more there's more information available than we're ever going to be able to access right we're we're never going to be able to process uh everything and the right approach at
77:30 - 78:00 one time might be the wrong Approach at another time given you know a slightly different uh set of circumstances that that um where depends is or or the answer that that the the trade you know what to do next depends on something is a great start start of a new line of questioning what does it depend on and and in what way should you change your
78:00 - 78:30 answer depending on the on on the information that you find but if if if you stopped at you know what should you do here you know you should buy you know 10,000 shares when this happens it's like okay well you know if I change the if I change the the initial conditions just a little bit I'm going to change the outcome Dr dramatically if I change the way you behave in this situation just a little bit I'm going to change the way other people react to it so there's no
78:30 - 79:00 there's no set answer and to the extent that there is a set answer uh machines are taking care of that before you've ever been able to uh even see the opportunity for the trade so given that you're able to see a trade and make a trading decision the right approach is going to depend on a lot of things and all those things are going to require analysis and reflection right and and starting with at if you if you start at the point that that your answer is going to depend on something you're going to
79:00 - 79:30 start asking those questions and get the uh the right people to weigh in and the right information back another thing that that that's important is that very rarely is there one answer that is right in all cases just yesterday I was sitting on the trading desk uh and on the other side of the desk was one of our index traders who I heard talking to one of his Junior Traders uh and he I wrote down what he said because it was so great um and it's
79:30 - 80:00 going to sound simple it's silly that I'm even reading it but it was I'm not saying do this going forward I'm saying try this for today he was giving advice on on something to do and and importantly the point that he was making was look I'm not revamping the way we're going to approach trading forever but I am saying run this test look at this as an opportunity to get feedback from the marketplace about what would happen differently if we do something differently and sometimes
80:00 - 80:30 that's going to cost us we're not going to make as much money as we would have made if we had done it the way we did it before but sometimes it's going to give us information that's going to allow us to grow in a New Direction so I'm not saying do this going forward I'm saying try this for today I think that phrase is probably an important phrase for for Traders and that's the answer to it depends don't change what you do forever change what you do right now and see how that how that leads to a different impact and and how that's going to change
80:30 - 81:00 um your your participation in the market in some way yeah I mean I think you know I've sort of I've thought of so many examples and uh you know of how that worked I mean just just one example many years ago is is both uh there was two of us trading on the desk on a a rat business and we had completely opposite views on the market and over the next couple of weeks we both made money we completely opposite views on
81:00 - 81:30 the market because there's a million ways to express your views in the market um so so that you know that I just thought that's a great example of of it depends you know um so I just thought that was just such an amazing statement yeah it's just been fascinating talking to Todd and I guess giving Todd a bit of a platform to share the stuff that he's passionate about um and you know moving from Trader to educator uh and the sense of purpose
81:30 - 82:00 about educating is is really really important certainly to us as steveen myself educate us to some extent and and and what we do and I guess this the whole point of this podcast really it's thought leadership it's it's talking about other people's stories and understanding from the the biggest in the market just how they C librating their business and their and their assets you know to make the most out of chaos because we know it's chaos um I
82:00 - 82:30 love some of the points where you know talk about your thoughts out loud and and be open to the opinion of others you know as as as one of your key pillars because you talked about communication and you repeated just how important it was to communicate across the team and to be open to sharing these things um to debate your view and maybe for others to pick out the the fact you got some biases in there that you may want to pay
82:30 - 83:00 attention to um in terms of your decision making we laughed about it but sort of laughing at your failures in in in the appropriate sense of what that word means and having humility leading to transparency was also something um that was very important for me but I mean ultimately the whole sense of balance about these people that are coming coming through into this business having the balance around the quantitive the balance around the the skills of trading
83:00 - 83:30 itself but the balance around self uh and is critical so Todd we thank you for going deep into that with and uh we en enjoyed the journey and uh yeah just thanks that's been my absolute pleasure this has been great thank you guys very much thank you to for being such an amazing guest and uh thank you for listening to the Alman podcast today we also want to extend a thank you to our
83:30 - 84:00 podcast sponsor the Society of technical analysts do check out their brilliant home study course and you can see more about that at our website alpha-m mind.net and of course if you're Keen to know more about how alpha mind can help you please do also look up um further details of our services on our website or reach out to us at info at alpha-m mind.net that just leaves us to say thank you and we wish you the best of luck in the weeks
84:00 - 84:30 ahead