Trading Limits – December 2023

Written on December 4, 2023. Posted in Reflections.

I had two reasons for taking a job at the Chicago Mercantile Exchange after college. The first was the irreverent atmosphere of the trading floor that I found compelling. The second tied to the fact I needed a job and had no other offers. After a few years of clerking I took out a loan to try my hand at trading. The physicality of the pit suited me then and I found that I was good at making quick decisions in the raucous setting. If an option was cheap, I bought it and if another was over-valued, I sold it. But always, a determination was made about relative worth to the rest of the market. When I did this well, my account showed a credit and when I didn’t, the result was a loss. I was Pavlov’s dog being trained with financial biscuits.

The education continued after I left the floor. The company I started has many of the same valuation aspects, specifically pertaining to real estate. Trading turned out to be a useful skill but like everything, it comes with certain limits.

It turns out, no one who leaves the trading floor ever owns anything for the long-term. Remember those stories about people who bought Amazon stock at the IPO and never sold them? That was me except I was “prescient” enough to trade out of it after it doubled in value rather than hang around for it to double five hundred times more. Oops. Warren Buffett always talks about owning good companies forever. Nice idea but entirely inaccessible to a trader who is jittery about every position and is always waiting for the world to fall apart.

Jesus talked like a trader at times and once said that it made sense to trade in the stuff we have here on earth for the better stuff in heaven. The reason being that the stuff here rusts and decays while the other things last forever. Stocks, bonds, and real estate? Sell! Faith, hope and love? Buy! It’s a classic trade underwritten by relative valuations. I have found that the challenges lie more in the execution of the trade than in understanding it. It’s not difficult to identify what is lasting and what is temporal. But when I recognize it, I often fail to act.

While I never set out to cultivate this perspective, I’m gradually learning how to live with it in a healthier way. My house, for example, became a non-tradable asset early on in marriage, after recognizing the need to provide my family with a modicum of security. I am learning to be less impulsive with decisions that affect others who don’t share my perspective on relative valuations. Finally, trading is a bad thing when it is rooted in discontent and the need to always get something bigger or better. I have benefited from the newly developed discipline of holding things lightly while pursuing what endures.

I speak regularly to an old pit friend I’ve known since my time on the floor and he has a great perspective on world markets since he an international firm that trades everything. When I asked about his plans for a particular asset in his portfolio, he dismissed my reference to it as a long-term play. “Everything I have is always for sale at a certain price. It’s just stuff.” Our shared instinct for what is temporary is the easy part. The part about what endures—the rest of the trade. That’s the hard part.

By now I know that I will always be a trader. Rather than try to reengineer how I’ve been trained, I focus instead on becoming a better trader. I’d like to learn to treasure relationships and hold things lightly. I hope to get rid of regret and cultivate gratitude in its place. I don’t want to be a hoarder but instead, want to give freely of myself and my things. Limits notwithstanding, those are all pretty good trades.