This post is by Jeff Carter from Points and Figures
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Long blog post today because I have a lot to say on a subject. Thank you for being patient. Part of it is cathartic to write.
Unless you were on the floor, it’s almost impossible to describe what it was like. You can see the photos and videos but there is nothing like cramming yourself in between two people larger than yourself and sweating like you are running a marathon at 7:20am. Oh, and don’t forget, your cash is on the line. Not other people’s money. If you think email and text messages are distracting, try trading in a pit. Just the farts will distract you not to mention the noise, the constant conversation, and the stress.
“It’s not the smell, it’s the burning of my eyes”-George Carlin
There is nothing else that I have ever done that resembles it except maybe, and this is a slim maybe,
in a competitive athletic game. Not a practice, not shirts and skins, not open gym. A game with real officials, a time clock, uniforms, cheerleaders and bands with people in the bleachers.
Steve Werner was in the CBOT US Treasury Bond Pit. It was a mass of humanity. He plied his trade there for 19 years. I traded the other end of the yield curve for 16 years in CME’s Eurodollar pit before I switched to Lean Hogs in 2004. The pit was an organism. To give you a sense of scale, we had about 700 people (clerks, traders, support staff) crammed into the Eurodollar pit which was the size of a tennis court. It was the busiest futures contract in the world.
In 2000, the bond pit started to flip to electronic trading. It took a bit longer in the Eurodollars. It flipped in 2003. We were ousted by technology. Not dissimilar from any other job. Our seats plunged in value so pardon me if I don’t have a lot of empathy for people that bought taxi cab medallions. Taxi companies didn’t see Uber coming and floor traders were cocky enough we thought we could beat electronic trading. We didn’t know the exchange was going to give them an artificial edge with co-location.
In this video, Steve talks about what happened to him. I had similar things happen to me. You might get a sense of what the floor was like when you listen to his video. I love his line about how shitty people can be on the “outside”. I have heard that almost universally from traders. People take advantage of you. They lie to you. Their word isn’t their bond and they aren’t transparent. I have been hurt by these things in my life too financially, professionally, and personally.
For traders like Steve and I, we weren’t in our 20’s or 30’s. We were in our late 40’s and early 50’s. I’ll be 57 this year. It’s much more difficult to start a new career and pave a path for yourself at that age than it is when you are younger. It’s not that I was afraid of risk. It’s that the outside world doesn’t put any value on my skills. It’s also hard to tell the outside world what your skills really are since they are so intangible. Plus, I had no network to really help. My network was a bunch of guys like me. Being a trader was our identity and it was gone.
I called and wrote a bunch of people in entrepreneurship circles that on the surface play the “I help” card. Not my experience. I called a head hunter once and she told me I wasn’t qualified to do anything.
How do you explain that you know how to win? I don’t know how to talk about it any other way. The floor was about winning. Because the alternative, losing, meant dying. That meant the real world.
My wife and I were talking about it the other day. She’s lived in fear of spending money our entire marriage. The joke on the floor was as soon as you spent a bunch of money on a car or house, you’d lose a bunch. She had no control over the outcomes, and everyday I walked on the floor could mean total destruction of our family finances if I didn’t keep my head together.
From 2009-2018, I bet I lost close to $1.5MM trading. Just couldn’t make the jump to the screen despite the fact that I was an awesome floor trader and took a lot of risk. I made money every year I traded from 1988-2008, except for 2003. Up $750k in May, down $250k in December. 20 years that got better each and every year. I wasn’t much of a market taker or card flipper on the floor. I took risk. My wife and I still have trouble spending money, but at least we squirreled enough away so we can retire. A lot of people I know can’t say that. I could retire tomorrow if I wanted and that really helps with your mental health.
Meanwhile, I was investing in startups. Not exactly a sure thing. I invested a lot of money from 2007 until today. Every day all I did was see my savings go down. Total panic and fear gripped me. The thing with startups is you lose all your money early too. That wasn’t helping either my financial or mental condition.
My mental health wasn’t so great from 2010-2016. Neither was my financial health. My seat crashed in value by 50%. CME stock went from $714 per share at the end of 2007 to $155 in 2009. I couldn’t make money. Instead of making a minimum of $1000 by showing up to work, I’d lose a minimum of that. It was six years of fear and it was totally brutal living through it. Thank goodness I sold my Lake Shore Drive co-op. One in my building just like mine sold for less than half what I sold it for five years later. I am relatively certain if I hung onto it, I wouldn’t be writing this right now.
When your money drops by leaps and bounds, it hurts. But, what really hurts is the death by a thousand cuts. Especially when people take advantage of you in the process.
I earned an MBA from the #1 business school in the world, Chicago Booth, couldn’t get a job and couldn’t find a soul at Booth to really help me. One Booth alum who was supposedly a “career counselor” and could find me a gig took $1500 from me. When she didn’t do anything, wouldn’t give it back. I almost was in tears on the phone with her. I would never do that to someone.
I was stumped and stymied. I’d started one of the most active angel groups in the United States in an area of the country where there was very little going on and had a very good investing track record, helped turn around CME from a backwater to the most valuable exchange in the world, and traded successfully for most of my life. But, I was a schmuck to the outside world. I guess I feel like I have a good sense of what Job went through. There’s a reason I cry at the end of It’s a Wonderful Life every time I see it. I feel like I know George Bailey really really well.
Even if you don’t have all that, you can still make it. Even if you are in your fifties or sixties, you can make it. There is hope. Ask Ray Kroc or Colonel Sanders.
One of the reasons I am an ardent fan of the free market, pulling yourself up by your bootstraps, and independence is I lived it my entire life. People think traders were lucky. The only lucky thing about trading was the fact that we could do it every single day.
It was the most competitive environment anywhere on earth; yet strangely one of the more ethical. Your word was your bond. It meant something. The rest of the world isn’t like that. There are no excuses for mediocrity and not trying.
By the way, this isn’t a new thing. I just watched Michael Strahan on Henry Louis Gates “Finding Your Roots”. If you watch it, see how Michael Strahan lights up when he talks about entrepreneurship and self-determination. It gives him swagger and it will give you swagger too. Traders were entrepreneurs, which is why most of us had some swagger.
You can have swagger too. Believe in yourself.
His family was oppressed horribly by slavery. Freed in 1865, by 1867 they had $250.00 worth of cash and land to their name. They built businesses, and built a community. It’s an amazing story and one that is told time and time again in America. If they can do it, anyone can. So, spare me “the government needs to do something” and the Democratic Socialist is the “one true path” bit. Socialism has never worked, and it’s not going to work this time. Neither has central government planning.
Here is a short story about what it could be like in the pit. This happened in about 90 seconds. Put a stopwatch on your reading and processing of the paragraph. You will get a sense of how fast 90 seconds can be.
I was in the hog pit. I had wandered over there to trade because the Eurodollars were dead. I was trading really small because frankly, I didn’t know what the hell was going on. I wound up long a four lot. $16 per tick. Hogs could move quite a bit in a day so the money could add up. You can make a good living in the meats trading five lots. Different pits enforced Rule 510 differently based on the etiquette of the pit. Unbeknownst to me, in the hogs when you said buy or sell without a number, you got them all. Gillie Goodman (GMG) hopped in the pit and yelled “Half Bid”. I was long and wanted to sell. I yelled, “Sold” and at the same time ANTO said “Sold” too. GMG said, “Fifty and fifty”. I was suddenly short 46 contracts at $4 per clip. Another trader in the pit, WYO, sensed that I was in trouble and since I was a newbie, he ran the market against me and fast. Within seconds, he shouted, “60 bid on 10, 70 bid on 10, 80 bid on 10, 90 bid on 10”. I was out $7360. I turned to John Connelly and said, “I guess I learned my lesson.” Then I turned to Bobby Henner (HNR) who was a friend of mine and said, “What should I do with these?”. He told me to write up an order. I did, time stamped it, left it blank and Bobbie did what you should never do; he spread em off. By the close of the day, I was up $1250 on them and covered the trade.
Do you think I pick up the phone when Bob calls me to this day?
That’s one story out of a zillion about what the pit was like. There are a lot of lessons from it. Bob didn’t need to help me out. But, the community can lift you up if you have the network in place. You can take a pig’s ear and turn it into a purse. Bob got karma points for helping and karma was big on the trading floor because you never knew when you would need to tap into your karma account. GMG followed the ethics of the pit, and I didn’t learn them prior to entering like I should have. I was in the wrong, took my lumps and kept my mouth shut about it. You have to admit your mistakes quickly, and recover. Fear flowed through my veins because I didn’t know a lot of things. But, I swallowed it, got some good advice and wound up better on the other side.
Entrepreneurship can be a lot like that too. There are karma points. No one can know everything about everything. There is a lot of fear in entrepreneurship and not knowing how to handle it or what to do can cause a lot of problems. That fear can lead to panic in the entire organization. There are organizations that can help. Being a part of a place like FinTank can help you over the humps if they have the network there that is willing to do that. Having a good investor can help you as well. Being honest with yourself about what you did to cause the predicament you are in is a must as well. “Your word is your bond” with other people, but you have to be honest with yourself-even when others fuck you over. You never know how the ball is going to bounce and it can be incredibly unsettling to not feel like you have any control over what your outcome will be.
There are similarities between analyzing a seed stage startup business and trading that are so clear in my mind it’s almost impossible to distinguish between the two until you start to look at liquidity.
One thing I have learned is that it’s painful to sit still. You feel helpless. Everything envelopes you and you feel like nothing can go right. Timing is everything. Hedging yourself against adverse outside forces you cannot control is smart. It might cost you a little money, but the money is well spent and the cost is sunk. However, when your gut is telling you it’s time to do something it generally is and it might be painful to move on that gut feel. Data can’t always tell you everything. If you are wrong, just make sure the action you take doesn’t put you in a spot where you can’t come to work and fight another day.
It’s a good thing we have started talking about mental health and entrepreneurship. I see some stories. While they identify the issue, there isn’t a lot of actionable talk about what to do about it. Traders knew what to do for the most part. When you were down, there was a community to pick you up. They might even help. This is why it is important to have more than one founder on the startup team. Steve talks about his journey here. You can learn more at Hour of Champions.
As I have said previously on this blog, on podcasts, and in person; I saw a lot of lives wrecked by the onslaught of technology. I know what it’s like and what it can do to you. Steve gives you advice in this video that is a way out. Much better than a pill, a drink, or a gun. But if we ever meet up and you buy me a bourbon, I can tell you a lot of funny stories from the trading floor.