Evaluate Traders by Their Stories

Emanuel Derman relates a Fischer Black observation on trading from 1994 that is worth pondering:

All opportunities have stories. When prices are funny, and we can tell a good story about why they are funny, we should take big positions. But stories about trends or monetary policy are usually not good stories. When we evaluate traders, it’s crucial to judge the stories they trade on. Looking only at their profit and loss statements is a recipe for disaster.

Wise words. In trading it’s as much how you got there as the results you obtained.

Related posts:

  1. More NYSE Floor Traders Getting the Axe
  2. Options Traders and Mary Hart
  3. Traders on a (JetBlue) Plane, and the Drudge Report
  4. Day-traders Redux
  5. Traders and IM Usage

Comments

  1. worth says:

    I was going to post a smart aleck remark about how great of a story LTCM must have had in order to suck him in and subsequently blow up – but then a quick check on my recollection of the minds behind it reminded me that he PASSED on LTCM due to the unwieldy nature of the risk involved, while Merton and Scholes dove in. I guess he really was quite the genius, as his actions pass the test of 20/20 hindsight.

  2. Phil says:

    FISHER BLACK WAS THE MAN!!!
    HE ALSO SAY SOMETHING LIKE,
    “MAYBE TRADERS JUST LOVE TO TRADE.”
    TX FOR THE QTE… SORRY ‘BOUT THE CAPS ;-)

  3. Quote from Liars Poker I recall some thing which says. Traders are not better than story tellers. How good a story teller you are how good your reputation.