Episode Transcript
Speaker 0 00:00:00 Hi everyone, it's Jane here Today we're bringing you in episode from another podcast. Our team produces hedge fund huddle host Jamie McDonald. Formerly a portfolio manager at one of the world's top hedge funds has teamed up with Refinitiv to take a deep look at what hedge funds are all about and how they're changing. In recent episodes, they've tackled crypto hedge funds, alternative data, and even done a really interesting postmortem on why one hedge fund failed. But today, we're bringing you an episode that covers the Psychology of trading Hearing from two longtime experts who work with traders to help them optimize performance on the desk and off. If you're a fan of the TV show billions, then basically they're like the real life Wendy Rhodes. So, if you like this episode, go ahead and follow hedge fund huddle and I'll be back next week with a new sustainable growth podcast. Enjoy.
Speaker 2 00:00:56 Hello and welcome to Hedge Fund Huddle. I'm your host Jamie McDonald. And today's episode is a particularly interesting one for me. It's something I've focused on a lot in my trading days. It's something I studied at university, and it's really the psychological aspect of trading and I guess a little different to previous episodes we've had in this series. I think this episode is gonna be extremely interesting and useful for whoever you are, really, whatever field you work in, because it's about approach, it's about psychology, and it's about, uh, it's about basically performance. So the great news is that we have two longtime experts in the field to talk to. Today we have Dr. Richard Peterson and Dr. Den Casson. For those of you who study this area, you'll, those names will be very familiar to you, but for those of you who don't know them, uh, what I am gonna do is say, welcome to Richard and Alden and, uh, Richard, why don't you start first and just give us a little bit of an introduction about your background and, uh, in particular what area of area you focus on.
Speaker 3 00:01:56 Thanks, Jamie for the intro. I'm a psychiatrist by training, but have long been involved in financial markets. I, uh, originally was a quant actually developing systematic models and became very interested in how do we understand the human interaction with financial markets. And in doing so, realized, well to do that, to really understand deeply about people. I've gotta study that in more depth. So I went to medical school, did a psychiatry residency, and since then have been coaching, uh, head show managers, portfolio managers, analysts over many years now, and doing research on how can we optimize performance in these uncertain, chaotic environments like financial markets. How do we optimize the decision making process? So that's really what I've been focusing on over many years. And in the mean meanwhile, I've also continued on the quant side and work in the data industry, uh, producing media-based sentiment data, uh, using natural language processing on media flow. So also trying to understand how information flow impacts trader and human decision making and financial markets, but on the other side systematically so that it can be used in quantitative models.
Speaker 2 00:03:00 Thank you, Richard. And, uh, olden.
Speaker 4 00:03:02 Thanks for having me Today I got my start in this whole Wall Street sector as a clinical psychologist. In 1999, I actually did one of the first clinical investigations on the mental health of financial professionals in the last 50 years in the United States, and looked at a lot of the coping skills and some of the things that are affecting people's performance from a clinical perspective and how they cope with stress and whatnot. I did this in 1999, so since then I, that kind of landed me in the Wall Street fishbowl. And I've been doing a lot of work with portfolio managers, analysts, hedge fund traders, prop traders on a global level, just helping them achieve optimal performance, develop conviction in their trading thesis, uh, develop a very solid process by which they believe in every day despite any kind of setbacks or uncertainty in the marketplace. Uh, and I've just basically parlayed that into both sports trading and anyone who's trying to achieve better performance during stressful times. That's basically how I marry clinical psychology with performance coaching. Great,
Speaker 2 00:04:09 Thanks. So Alden, I'm gonna jump straight to you if you don't mind. Bit of a left field question to you, but what are the kind of things that you do in your own life to de-stress? Remain objective, not get too emotional. Uh, this is one of those questions where it's, uh, judge your man by, by what he does, not by what he says. So I'm just interested and, and Richard, if you don't mind, I'd like to ask you the same question. What are, what are a few things that you do in your own daily life to stay grounded and to ultimately to optimize your own performance?
Speaker 4 00:04:37 Well, I'm a big fan of this question because I really do practice what I preach and every day I start my mornings very proactively the same way. I'm a very ritualistic guy and most of my traders are ritualistic as well. And I think that's very important to developing strong work habits that start in the morning cuz the morning sets the table for how you perform in the afternoon. So I really believe in that. I do that myself. So every morning I, after I send my kids to school, I get on my Peloton tread, run three miles listening to my, my music that I listen to, to get fired up in the morning, have my coffee, breakfast, get myself mentally prepared to start the day. And on the weekends I always play some kind of sport. So I, I'm involved in a touch football game with guys probably 15 years younger than me that actually focuses it, it's to me, playing football or softball with younger people actually allows me to remain competitive because just like my clients are, they're very competitive individuals I am as well. And playing sports, it allows me to turn my brain off for, for, for a couple of hours
Speaker 2 00:05:48 Or at least activate maybe a different part of the brain. Well,
Speaker 4 00:05:51 It allows me to, it allows my hand eye coordination to just take over and to, and my whole body mind connection to flow more synergistically than it normally is cuz I'm totally locked in for 50 hours a week listening to people, coaching them, directing them, having to take in all that data and spinning out results immediately. And f when I'm playing sports, I'm reacting to the environment around me. When a guy's coming after me and playing football on a Saturday morning and it's 20 degrees, I'm not thinking about anything that I've just thought about for five days. I'm actually just in that moment living it. I'm not thinking about anything that's stressful other than to get, as a quarterback, just getting that ball to that wide receiver and finding out who's open and getting around the defender. It's just reaction. And to me that is freeing cuz I'm so locked in during the week. And I think that that's a great way for people who do things like meditation. They do boxing, they do CrossFit. They do all these classes to get away and turn their brains off for an hour. And that's part of one of the techniques I use with my clients is to help them. Uh, I have something called a mental highlight reel that helps them turn their brains off as well for 15 minutes.
Speaker 2 00:07:03 It, it's so interesting you say that and a few of, I mean, in moments of madness, some of my friends come to me for advice even. And uh, the first thing I say is, you've gotta be exercising. And if they're not doing that, they, they need to be doing that. But, but even more specifically, what you just hit on, and some people have have used rock climbing actually as something because you just need to, in that moment, you need to be so focused that you can't think about anything else. Yeah. So it's not just a sport like running where you actually constantly thinking, but a sport where you are actually Oh yeah. Forced to focus on something else
Speaker 4 00:07:32 Reacting. Mm-hmm. <affirmative>.
Speaker 2 00:07:33 Well that's very interesting. We, uh, Alden, thank you very much. So, so Richard, how, how about you, how do you, uh, uh, how do you go about your daily routine to make sure you get the most out of your day?
Speaker 3 00:07:42 Yeah, Jamie, that's a, that's a great question. I like how you do the practice, what you preach approach. So as you pointed out, exercise is key, so is diet. So I do hot hit or hot yoga four times a week. I do cold showers, like really cold. So, uh, I don't have the plunge pool yet, but I'm, I'm in that direction. I find that's really, really helpful. I do little meditation script every morning. I have a, a routine, as Alden said, a routine is important. So I have a routine, but I don't do the full say 20 minutes of meditation. I'll do about three minutes of meditation. I do about a one minute visualizing my best possible self, which is visualizing who you want to be that day, how you can be your best self that day. And, and if you have some challenges coming up, you know, rather than yourself, is there a role model or somebody you can visualize and live through or imagine yourself being in their shoes in that situation.
Speaker 3 00:08:33 So I'll do that for a, a couple minutes and then, um, some days not, not every day I'll, I'll do a gratitude list and that whole routine can take me 10 minutes. Uh, so it's pretty, pretty quick in the morning, but I do find it makes a big difference. So that's the whole routine of the best possible self meditation and gratitude. And then I used to have a much longer one, but, you know, it's gotta be flexible and it's gotta be realistic with your life. Uh, and so if you have little kids, uh, as I believe Alden does, and I do <laugh> you, you can't really spend 20 minutes necessarily every morning doing that unless you're gonna take a big cut outta your sleep. So you've gotta be flexible with these, find what works for you. So that's what works for me. And then the exercise works really well.
Speaker 3 00:09:14 I like the, the temperature variation from really hot, you know, exhausted, sweaty to really cold. I find that that's been really useful to, uh, maintain kind of a, uh, there there's literature that shows that that maintains a, a balance your ability to be resilient in the face of stress or, you know, anything that comes up. Oh, and I take supplements too. I take certain, uh, supplements. I'm not sure I wanna endorse anything <laugh> on this podcast <laugh>, but I certainly, uh, you know, have my little supplement stack that I take every day. I omega three fish oil as one, of course I take a couple grams of that every day.
Speaker 2 00:09:46 Let me jump into sort of bigger picture question, because when I was trading, I was at S sac and I, I, I know we have all have a, a, a mild connection with S sac and feel free to go into it, but if you look at any professional sport and, and you know, and, and you guys are talking to some of the best investors and traders in, in the world and trying to get them, I mean, we're talking such small margins here, I feel like it's, you know, running the, the a hundred meters, like every single little thing counts in terms of squeezing out performance. You know, uh, golfers have a caddy to walk them around to make sure they, they have the right decisions and people have, uh, coaches for technique and then skill and then their own fitness. But in many large firms, people at the top of their game, they don't seem to at least, you know, I'd love to get your opinion. They don't seem to have people like you, performance coaches who just seem so necessary to turn and squeeze out that extra bit of performance. So is there still resilience to hiring people like yourselves, or what's the state of play in that world?
Speaker 3 00:10:41 I certainly see that there is interest at the higher levels. So people who are experienced in the field, often there is interest at the same time. They're limited in how much resources they can spend on this. Many of them do, you know, they, they want more flexibility in their time. So they might listen to podcasts or read specific books about how to enhance their performance. But there's definitely limitations in time and resources. Often the newer people are just really trying to catch on to how do I trade the Polish latte? Or, you know, how do I get interest rate spreads in Korea? So the, they're really focused on the nuts and bolts. They're not necessarily focused on the psychology, and that really tends to come later in the career. So that's one issue is it requires some experience and understanding maturity as when this matters.
Speaker 3 00:11:25 And then once you get to that level, you've really gotta draw on multiple expertise. So I have a certain approach that I generally use. Alden has an approach, I imagine we try to be flexible, but we are who we are and we've done what we've done and I've worked with hedge funds that then say, well actually I want like a Tony Robbins. And you know, sometimes they do literally bring in Tony Robbins. Uh, sometimes they bring in people like him who are pump up the troops. Maybe they don't have a, you know, clinical expertise like Elton and I have, but they have some ua, Viv or some, you know, hutzpah that really just gets everyone pumped for the day. So it depends on what's happening at the firm as to what approach they need as well. And we all try to be flexible and, and do the best we can for what's appropriate at the time. But it's just like you said, markets are complex, markets change and the needs of firms change as well.
Speaker 2 00:12:12 So, uh, Alden, before we come onto you, so Richard, would you mind just giving us an example? Perhaps we'll stick with a financial one. You know, someone who's a trader or a portfolio manager who seeks your help to say, listen, I'm, I'm on a bad run, I'm on a bad streak. How do I remain objective? How do I improve by performance? What's the sort of starting point for you? And then maybe you could give us an example of how you take them to, to being a sort of better version of themself.
Speaker 3 00:12:36 So it depends on where they are in the site. So there's essentially a slump process that happens. We call it a slump. If they are at the beginning of that process and going through a lot of acute stress, then we, there's exercises for acute stress. There are, uh, muscle relaxation techniques, breathing techniques of course hit training or vigorous exercise interval training can be really good for relieving that immediate stress that they have. If they're farther down in the slump, then there might be something they need like to actually get away from the markets, uh, take a one week vacation and learn a new skill like, uh, a new language or take a Thai cooking class in Thailand or something like that where it's just completely different where they turn off their phone and they get away from the markets. So it really depends on where they are in that se sense of self-doubt and that slump process, usually they come to us when they're pretty far down the, down the rabbit hole.
Speaker 3 00:13:24 And so then we start by helping them disengage from markets, take that vacation, but before they take the vacation, we talk about, or I talk about how are you going to structure your return? How are you going to be objective about this? How are you gonna wipe the slate clean so that you feel like every day is a new day? Because part of the problem of a slump is you, you get into a high cortisol state where you develop a sense of loss aversion and risk aversion that then carries through day after day. And it also tends to, to lead to both a withdrawal from the markets, but then when they get reengaged, they're more impulsive and rapid in their decision making, so they're not as thoughtful as they used to be. So we have to make sure they, they don't make any impulsive decisions, but also that they reengage slowly and methodically with a, with a disciplined process. So that's, we set that up before they go off at their vacation and then get them back into it when they come back,
Speaker 2 00:14:14 Hit the reset button,
Speaker 3 00:14:15 Hit the reset button if, if they're far down on the swamp. For, for most people, if you're just having a bad day, there are other things like take a walk in nature, um, you know, take a hike for the weekend with your, with your dog and your family, you know, ways to kind of re recalibrate. If it's not a severe slump, it depends. But if it's gone out for more than, uh, a few weeks, then people actually biologically change and you have to do a biological reset. So den
Speaker 2 00:14:38 Perhaps you can start with a bigger question of how are you engaging with some of the bigger firms and how that landscape is changing. And, and then again, like, uh, like Richard did maybe talk, give us a few examples of, of specific cases you, you, you've been through obviously the
Speaker 4 00:14:50 TV show, billions has really kind of normalized coaching or performance coaching in the workplace. And I think that this is, this is not only taken shape in the hedge fund world, but you know, I've been reached out for business with private equity funds, uh, rock bands in Nashville, Tennessee. I've had to do interventions for because of the exposure of that show of how important it's to have a performance coach in your room. So
Speaker 2 00:15:16 Just for me to ask the, the sad questions, but what kind of pickup did you see in business post that show? I mean, was it almost immediate and quite material?
Speaker 4 00:15:24 It was definitely, definitely immediate and material. And I actually grew up in the, in the same neighborhood with the star of the show, Wendy Rhoads, uh, as we grew up in the same neighborhood, ironically. So that's, that's a funny thing about that.
Speaker 2 00:15:37 Did she reach out to you for some, uh, some tips, some advice on like how she should act? Well,
Speaker 4 00:15:42 There was definitely some sharing of my book on basically some of the basic concepts of cognitive behavioral therapy as it applies to trading. That's in my book. But it was definitely, there was a lot of interest that has come from that show that has really given a lot of credence to what Richard and I have been doing for many years prior to that show's existence. But we were kind of under the radar and people like Dr. Ari Kiev that you knew very well, he was one of the pioneers of this type of role within a company. But I think it's spread all over, it's in law firms now, but the big 10 corporate law firms have these performance coaches as well. So this is, this has become more normalized. There is a little bit of hesitancy amongst employees of hedge funds and any company to have an in-house coach.
Speaker 4 00:16:30 In my experience, as much as, uh, I, I have been asked to do it, there's a huge uptick in my own private practice of people who come on their own outside of the firm because they want complete confidentiality and they want there to be no awareness that they need to fix something. And I think that there's still that little stigma in Wall Street, no matter whether you're a trader in private equity or a broker that you don't wanna show weakness or show your bosses that you need extra help or support, that's probably not a good thing in the culture. But nonetheless, at least the option is that people can come to people like Richard and myself and, and get this support outside of the fund and improve their performance before it actually becomes a problem at work or before they get pointed out as having an issue. This
Speaker 2 00:17:17 Rings a lot to us. Brits actually, us Brits are the worst. We're, we're the, we seem to be the worst. They're coming forward and actually admitting that we might need some sort of help in terms of performance coaching. Right. And perhaps you could go a little more into specific examples like, uh, who would be your typical client, who comes your way and, and how'd you go about sort of assessing what to do next? Well, I
Speaker 4 00:17:36 Get a lot of portfolio managers that have had great careers and actually it's from junior traders, junior junior portfolio managers to analysts all the way up to seasoned veterans who have just really kind of fallen into a bear trap for a quarter or six months maybe. And they're starting to like get nervous about, you know, the, we've seen different types of markets in the last year than probably we did in 2013. And traders are, some of the younger traders have never experienced a market like this. So they're trading without a plan and they're trading amidst a lot of uncertainty, a lot of gray ambiguity in their daily jobs. And they're falling into a lot of the trading biases, which are impairing their ability to make good decisions, execute trades, and deliver a disciplined process every day. You know, uh, it, which also affects the risk reward balance on any trade.
Speaker 4 00:18:33 And I'm really helping them slow down their process, break down their mechanics, and they can actually see it in slow motion. Much like a baseball player, like you know, when they're in a slump with hitting, you kind of have to break them out of that slump by breaking down like head, they go on it, they start hitting off a T and you could see where their mistakes are. I kind of do that. I sit down with these guys and I explain to them how we can meet their bottom line of improved performance, reaching that optimal performance zone if they slow down and develop a consistent disciplined process that they believe in and become more objective. One of the things I of often do outside of the initial things that what Richard says is, okay, take a deep breath. Let's turn off the noise in your brain that's slowing you down, that's preventing you from seeing clearly, you know, we have all kinds of progressive muscle relaxation exercises that we do, thought exercises.
Speaker 4 00:19:27 I have something called a thought monitoring log that I do with them, that I train them in how to understand what are the negative underlying thoughts that are preventing them from actually taking risks from actually seeing things more clearly and not emotionally. Um, they're making a lot of emotional decisions. So I help them really understand how emotion plays into this. Not to avoid emotion, but to understand what part of the emotion is helpful and adaptive and which part is maladaptive and self-defeating and allowing them to really develop a, you know, what I do is often create, have people slow down their process by creating a checklist of all the things that have ever worked for them in their type of trading, what in their specialty. And to really like create, almost like you check off these boxes, if the trade meets that criteria, all of the criteria that has made you successful before, you don't think about it. You just execute. And again, all the risk parameters are in there. You're looking at a trading plan and you're thinking about a longer term perspective and that helps people feel more comfortable and less overwhelmed in the moment when they can slow down, take deep breaths and actually develop a process that is disciplined and repeatable on every trade takes. It takes emotion outta the equation. It's
Speaker 2 00:20:45 Interesting you say that cuz it was something I tried to do in my day all the time. Is it as simple as the more you can take emotion out of it, the more likely you are to see success? And the reason I ask that is I used to come in every day and I used to try and say to myself, if I had a blank piece of paper, would these be my trades? It's very difficult cuz when you have a position on, you naturally have a bias, you naturally have a confirmation bias and it's very difficult. And I, and I, I remember when I used to get in, if I was long, some sort of stock, whether it's, I dunno, Johnson or Johnson, I would just naturally gravitate towards reading a by note on Johnson and Johnson just to make myself feel better. Right.
Speaker 4 00:21:24 A positive analyst note. Yeah,
Speaker 2 00:21:26 The but actually the thing to do is to find a cell note on the stock and, and read that and see what the others are saying. So I should also say that people listening may not be professional portfolio managers and they may just be getting started in the world, but how do you advise people to try and take emotion out of it and to take biases out of it?
Speaker 4 00:21:44 So what I, what I do, again, with that checklist, not only does the trade have to meet certain criteria for you have put it through in the first place, but once you do that, I have them do something called a conviction sheet. They take that original trade and they write down all the variables or data points that made them have strong conviction enough to put that trade through. They monitor that trade. So if it's a a mid-level trade that could last a week or two or a month or two, they might do another checkpoint of that same exact trade in a week and they're gonna go through all the same data points. Do they still exist? Do I like it the same? Do I still have the same amount of conviction based on, oh, we just lost two data points or this new negative data point came in, do we still like it the same?
Speaker 4 00:22:28 Should I now take off some of this? Should I take, should I hedge a little bit now? Um, and reduce my risk because we just lost these two data points. Uh, or do I hate it now? Does it go from a five of conviction to a two? I'm outta this trade, I'm not gonna allow me to have any kind of sentimentality bias towards this trade anymore because I just lost three data points. So it's focusing on actual data, not allowing emotion and nostalgia of being right or needing to be right. It takes that outta the equation. This is part of a process. And if you actually stay disciplined to this and you're, and you're knowing, okay, well this is a trade, I'm gonna look at this conviction sheet in a week, there's a date on this sheet that I have them do, and they're gonna cons continue to look at it. And sometimes I have traders who have an intraday trade that they're using this conviction log every 25 minutes to see if things have changed.
Speaker 2 00:23:21 That's great.
Speaker 3 00:23:22 Yeah, it's really, it's really key on conviction. There's, there's a couple of companies that look at portfolio management patterns and they say, they looked at your trading patterns and then they say, okay, we've found that those who have low conviction in a trade who hold that low conviction trade, those, those particular positions have much lower performance than the high conviction positions. The other thing is with conviction. That's interesting. When people get into a position that's much easier than getting out, right? So, so to your point about biases, we are very good at buying, people spend a lot of time on the buy decision or the, the entry decision, but they don't spend enough time on the exit decision. So you've really gotta have this type of checklist, as Alden said, where you know, the criteria that got you in, but then importantly, when are those criteria violated and then it becomes black and white, I need to get out rather than having this sort of emotional morass. Well, you know, it's sort of good. Maybe I'll read a positive note about it. So the key is, again, having that type of checklist, which eventually becomes internalized. So I know for a lot of portfolio managers it's annoying at first to have to sit there with a checklist. It interferes with the process, it doesn't feel good and they often don't like it, but over time you internalize that discipline and that's the key of these types of exercises. So I just wanted to emphasize that as well.
Speaker 2 00:24:39 It's kind of this, this checklist becomes second nature. It's it, uh, yes, exactly. It's something that you just sort of mentally go through every time. So Richard, maybe sticking with you, how important is sizing for the people who come to you for advice? Because you don't have to be in or out maybe going through that checklist if the conviction goes from a an eight to a five. Do you tell people that like, use the size to your advantage, like be flexible, you know, increase and decrease size?
Speaker 3 00:25:05 Well, there's two, there's two aspects to that. One is, uh, as you pointed out, emotions change your conviction at time. And so people really have to learn to distinguish between the positive emotions that are helpful, as Alden pointed out. And those where you're getting greedy or you're, you're biased in your emotion, some days you'll come in and say, just j and j is up 2% and another positive note came out about J and j and now your conviction is even higher because you're reacting to the marketplace. But when you go back and look at your checklist, did anything fundamentally change about j and j? Um, if not, then maybe your conviction should actually be lower because the now your thesis has been realized by 2% mm and maybe you should be slightly lower in your conviction. So do the criteria that you set up actually were they met the emotion that you feel?
Speaker 3 00:25:51 It shouldn't be a reactive emotion, it should be a proactive emotion, something that's responding to the cues that you see around you that haven't been manifested in the marketplace yet. So distinguishing that proactive from reactive emotion is key. And that's where exercises like meditation help. And essentially what Alden and I do face-to-face is help people get into a state where they're reflecting on their emotions, but we accelerate that type of meditation process and help guide it and direct it so that they can distinguish those two types. So again, it's a way of just like the checklist becomes innate and internalized, so does the recognition of which emotions are positive and which ones are negative to your decision making, that also over time becomes internalized. So that's, that's one aspect. The second one is with low conviction trades. There was study, I believe by novis or Essentia research that shows that those low conviction trades lead to over 200 basis points.
Speaker 3 00:26:46 I think maybe about 300 basis points of lost performance annually in portfolios. Whereas the high conviction trades have about the opposite effect somewhere around 200 basis points outperformance. And so what they say, the conclusion of that research is that PMs don't overweight their high conviction trades enough. They're sort of keeping a farm or a stable of small ideas, placeholders that they want to keep track of that are usually small positions. And those actually are the ones underperforming dragging down the entire portfolio's performance. Sometimes people just can't let them go. And so what I coach people to do is clear out the bottom 20% of your positions, just clear them out. You don't want them occupying your attention because one of the other biggest biases that portfolio managers have is distraction, uh, and cognitive load. And this can be manifested by, uh, social events like getting a divorce or getting married, even having children.
Speaker 3 00:27:39 All of these occupy our minds moving a house and they have been documented to impact performance because they erode the quality of our decisions because of just the virtue of distraction. And then the other one is cognitive load. And we see that a lot with analysts where by the end of the day, if they're, uh, expected to make recommendations on the stock, their buy, sell, hold recommendations have lower quality by the end of the day or by the end of earning season simply because they've been so occupied with a few other more pressing companies that are more urgent to them. So you see cognitive load distraction actually impacting people a lot. And so it's very important to reduce that bias to clear out some space and some time in your own schedule to reflect. And you see this with some CEOs like, uh, uh, Dorsey at Twitter when he was there, he would schedule at least half an hour. I believe it was half an hour a day or maybe an hour a week where he had nothing scheduled and he could just sit and reflect. So having that reflection time is key as
Speaker 4 00:28:35 Well, Jamie, that that, that was a, that's a very important point that Richard's talking about with distraction and, and how valuable it is to have people who have actually clinical backgrounds around these individuals who are trading with large sums of money because a lot of the real life, the personal life does sneak into their trading and, and the emotion that comes with real life, it cannot be ignored. And you know, one of the things that I, I actually phrased it within my practice, it's called lifestyle portfolio management, where we focus with my traders on all those different elements, diversifying their energy and focus into a bunch of different buckets. Not just trading because they're, they're also very much focused when they come into my office to let's get to the bottom line, let's make me make money again, let's get me back to optimally performing. And I'm like, I have to slow them down and focus on their marriage, focus on their kids, focus on sports and recreation, focus on, as Richard said, meditation or finding a hobby that helps 'em turn their brain off and all of this stuff taken together, it reduces slippage in the workplace. And I think that that's a very important point he mentioned, cuz it, I think it does take a toll on people and they don't deal with their actual real life outside of their work and, and they're all married together. I almost
Speaker 2 00:29:54 Think of like a, an investor or a trader as a bit like a sort of well oiled machine like a car and just one thing can go wrong, which means that you can't have a a, a car that's like functioning perfectly and it could be a lack of sleep or as you say, some something that's happened in, in a sort of marital way. So I, I guess those are things that actually you, you just have to focus on as well. Well,
Speaker 4 00:30:16 As you said before, it, you know, the margin for success in this industry is so small. Every inch matters when it comes to being successful in this industry. So that's why focusing on all those diverse areas in your life and all those little buckets are so meaningful and significant in actually helping you reach that, that threshold into the profitability zone. Every inch matters.
Speaker 3 00:30:39 A and that's the irony actually, as Alden pointed out too about when we're called into work with clients and accompanies is often when things have gone south, uh, and are in a bad way, and then we can make a, an impact for sure. But if companies would bring us in and make us part of their process early on, part of the culture early on, then we could certainly set up a culture that's high performing for the long term and where those, those downturns don't impact as quickly. I mean, there will always be downturns, but where they, where there's a much better maintained culture. That's the key. There's a lot we can do. It's, it's a shame that we're not used typically until it's almost too late in some cases.
Speaker 4 00:31:22 Right.
Speaker 2 00:31:22 So I was watching this, uh, interview last week and this lady who does her job very similar to you was, was really saying that, uh, the firm should be getting a nap room in their trading floors. And I know that the likes of big tech, whether it's Google or Facebook, have, have, have thought about ideas like this. Do you agree with that kind of thing? And are there any other things that firms should be doing today, which they aren't?
Speaker 3 00:31:43 I definitely agree and there are these nap pods they can buy for that. Yeah, I've advised many of my clients to take quick naps. There's actually research on napping that shows it increases your IQ quite substantially, uh, in the afternoon. So just even a, even as little as putting your head down on your desk, closing your eyes for one minute will measurably increase IQ in subsequent, uh, cognitive tasks. So 20 minutes is ideal or 10 minutes, 20 minutes, but yeah, absolutely, we completely support that. I also recommend exercise rooms depending on the size of the firm of course, or you know, if they're near a gym that people go out and get exercise in the middle of the day, that also gets the blood pumping again. So healthier cafeterias, I know some firms have their own in-house chefs, so changing the composition of the food that they eat at lunch, for example, uh, is important. More complex carbohydrates, less simple carbs, things like that are important.
Speaker 4 00:32:35 I have, uh, even a hap it's something called a happy light in my office that's, uh, it actually brings in vitamin D three. I I totally agree. Those are some of the simple things that firms can do to make things better, the environment better. I think there's a lot of need for even s some form of socializing that is pro-social in a a sense. Like I, I've, I've had been working with some funds that, you know, on, on actually having developing pitches for trade ideas, but making it more of a competition and making it more fun and light and, and helping people really understand this, this is better for the younger traders out there to get them through the process and learn from the older traders, but from a, like a lunch and learn kind of thing, but turning it into like, uh, who's got the best trade idea for the week? And it, and it, it's like how in the tech world they do hackathons and they have a keg of beer and, and some wings and pizza, and then they, they turn that into a fun night as a team. So there's a lot of good team building exercises instead of it being more individualized. How are you performing lately? I think that that is not a necessarily a healthy way to operate from a cultural perspective.
Speaker 2 00:33:45 Yeah, I I, I remember in my trading days, I, I remember feeling how lonely it could really be. I mean, obviously I worked for a firm, but it was a pod shop, so you are so in your bubble and it could be so lonely at sometimes that I, you know, more team building exercise like that. I, I know I would've benefited from Alden. I had another question for you. I think naturally I would put myself down as somewhat of a risk averse guy, which is odd considering I didn't do fabulously well, but I did okay in trading for, for, for quite a while. Can you meet with someone and tell that they would be a good type of person to be a trader or an investor? Is there a certain personality type that you think lends itself best to, to invest in?
Speaker 4 00:34:27 You know, I I've been using, uh, the profiling system on my traders for the last 20 years and what this looks at as actually is a person risk. There's certain elements or dimensions of this, of the scales that the disc uses that looks at a person's decision making, how decisive they are. And it also looks at how risk averse they are. I've seen people who have really profiled on this as really impulsive, decisive risk takers. I've seen profiles that look like risk managers extremely high on the client scale, which is like averse to risk and focus on detail to a an obsessive level, an highly analytical and slow to make decisions. So I feel like with each of those extremes, they've all been successful, but I've been able to work with each of them on, for the person who's extremely impulsive and quick to make decisions, I've helped them to slow down their process to reduce some slippage, which were mistakes that they made because they didn't think things through, they didn't assess their conviction, they were haphazard with their trading.
Speaker 4 00:35:38 They didn't think of an exit strategy in advance. And then the one who's more on the risk averse side, I've been able to get on and understand thoughts or preventing them from actualizing some risk and leverage, which would help 'em make more money when they're right on trades. Because again, conviction is key. And if you, if you have conviction of a five out of out of five on a trade, you should be going for the gold on that one. Not be risk averse on that one. Take 'em off if you're, if the data changes. But allowing a person to feel like they're more in control of that decision based on facts and data is important. But there's a way to actually make a more risk averse person take more risks. And that's, that's what I do. But I I use this report to actually uncover which one you are before we even get going. Yeah.
Speaker 3 00:36:26 And yeah, on my side it's kind of interesting cuz we've, we've, since 20 years ago we've put uh, personality tests and cognitive tests online for our traders and investors and business people. And we've had over 30 or 40,000 people now take these tests online. They're free. Uh, they're at tests.market psych.com and what we found, uh, when we analyze the results is you can be on the personality side, you can have any complex person, you know, different traits on your personality and still be successful in investing or trading. There's no clear strong correlation there. Uh, and it, it goes along with what I've seen. I've worked with, uh, portfolio managers who are really nervous and, you know, excruciatingly a nervously even staying up late at night, you know, watching central bank announcements in Australia, New Zealand and Japan. Difficult sleeping week every two hours and yet, you know, they perform very well.
Speaker 3 00:37:19 On the other hand, people were very relaxed and trade the same instruments who also, uh, do very well. So you personality doesn't necessarily determine performance. What we did find that was interesting was on our cognitive tests, some people can very quickly identify opportunities, something that we call risk IQ or strategic iq. And uh, we have a particular test called the market cycle gambling task that measures that. And with those tests, what seems to be happening is people have learned patterns of opportunity versus risk. Like some people seem to be set up or maybe wired or have learned where there is, uh, better opportunities in the risk reward trade off. And those people, um, actually can't accelerate and learn even better if they look at other cases. So one of the exercises we have PM teams do is, and it's a social exercise too, is to review what are the missed opportunities recently, what are some of the captured opportunities that went well and what are some of the opportunities that didn't work out that they tried to capture?
Speaker 3 00:38:23 So what are some of the losses? And we'll have somebody junior on the team go through and review these, which accelerates their own learning and then try to come up with a new idea based on what they've learned that avoids the problems they saw and then captures some of the success patterns that they've started to learn about. And so this accelerates the learning of the juniors on the team and actually those who are senior as well. In medicine we call it a morbidity and mortality report. So when something goes wrong in the hospital, you know, everyone gets around and talks about what went wrong and why it went wrong. So the same thing should be happening in finance, but to make sure it's not dower and com too hyper-competitive, you should add in what went well and why it went well. So you can see those patterns also. And it's gotta be distinguished from the market regime. You know, sometimes tech stocks just go up and it's not that you were a genius cuz you picked Apple or Facebook, they all went up <laugh>. So you've gotta, you've gotta figure out how was I different? Why did my idea, why is it better than a similar idea, uh, in that space? So in any case, the, there's a few ideas about how to improve those.
Speaker 2 00:39:21 Yeah, I was, I remember it being very easy to, to look at luck and call it brilliant performance on yourself. And it's, you, you need to be very disciplined and honest with yourself. Uh, before we wrap up, Richard, I just wanted to ask on final question on Sure. Characteristic traits, uh, personality traits. You say you do a test on, on market psych to kind of assess personality characters. The one I'm more familiar with is, is Myers Briggs and I, I think I'm e n fj, but I know McKenzie use, uh, I think they use Myers Briggs before they interview people, just to get an understanding of, of who people are. Do you feel that, you know, could someone who's listening to this go on, and I know you were just alluding to it, going on and do a personality test and just see what kind of trader they should be, not whether they'd be better or worse than anyone else, but just what kind of risk appetite they have and, uh, are, are able to handle?
Speaker 3 00:40:08 They they can, and, and in our test we do give, you know, color coded responses of red, yellow, and green as to, you know, which traits generally correlate with higher success. But the correlation is weak. It's statistically significant because we have tens of thousands of people have taken the test, but it's, they're, they're generally pretty low correlations. So your R squared is, you know, like 0.03, 0.04. So it's not much. But we use the NEO test, which is like the ocean, the five factor model. Uh, the reason we use that, it's the research-based test, the Meyers-Briggs, there's a lot of controversy here and I'll, I'll get maybe angry emails about this, but when you look at it, if you take it in the morning and you take it in the afternoon, there's a 50% chance you'll have a different type. So if you take it later in life, there's a much higher percent chance you'll have a different type. It's not reliable over time. It is face valid in that what you say about yourself does get reported back to you. And then it feels like it's genius. But it's, it's just, you know, it's an interesting report about what you said about yourself similar to a lot of personality tests. Um, the DISC is a very good test that Alden mentioned, the disc and, and then the Neo, which is the neo is a bit more obvious, but it is research valid and that's why we use it.
Speaker 2 00:41:18 Guys. I honestly feel like I could chat you for the next two hours, but we, we have run out of time. Uh, but perhaps I can just start with you, Alden, to wrap up what kind of Yeah, and please feel free to, uh, mention some articles and literature you've written yourself. What kind of things do you advise people read, just to sort of make sure that they're sort of fine tuning their performance skills? Uh, any concrete advice you wanna give people out there? And also how can people get in touch with you if they wanna get in touch with you?
Speaker 4 00:41:43 Well, um, you know, a lot of the things that, you know, I work on with clients is education and making sure that they're doing a lot of research and their homeworks every morning. But one of the things, as I said to you before, routines and rituals and all that, it's very important in the morning. There's a book that I've been giving to financial advisors, traders, bankers, everyone for the last 20 years is called World's Greatest Salesman. And I know it says world salesman in it, but the whole basis, even though this book is very, it's kind of a little hokey spiritual wise, but the lesson is, is that every day should be a disciplined decision. You have to have the sacred scrolls of success for the person and that follow it every day for 30 days and this is how you will be more successful in life.
Speaker 4 00:42:29 So that's, that's a book that I do give a lot of people, and again, based on what the world we're living in, I also have people read, um, manias Paddocks and Crashes is a famous old, old time book because I think all the stuff that's going on with crypto, it's important for the people to know how similar it is to what we went through in bubbles before and, and Think and Crashes before. And my own book, bullish Thinking, which is also aimed at teaching people using cognitive behavioral skills, how to be a better, more emotionally disciplined trader despite uncertain markets, uncertain trading patterns, and basically becoming more resilient over time. I think that if I had any more lessons to give, it would be that, you know, you have to learn how to trust your hands and the only way to trust your hands is to have a process you believe in.
Speaker 4 00:43:19 And that's repeatable. And that starts with good habits and, and good habits in the morning leads to momentum. And momentum leads to flow. And flow is when the mind and body operates very synergistically. Like I said, on the football field where you're just reacting to the present emotion doesn't have to be scary. It could be helpful, it could be useful. You just have to learn how to keep it, even keep it controlled and learn from the, the emotion that's meant to be adaptive is supposed to tell you get out of this. But then there's part of it that should be also just objective, which is, oh, it doesn't meet criteria on my checklist. I'm out, I'm not even getting into this trade, or my conviction is much lower, five hours later I'm gonna pull out 25% or I'm gonna take my profit right now. And, and it just simplifies decision making. Um, when you can keep emotion at bay, get
Speaker 2 00:44:16 The mornings right and the rest will follow.
Speaker 4 00:44:17 Yeah, and people can get in touch with me. I do phone, you know, work all over the world. Uh, remote work, lectures, group work, teamwork team building. And what's the,
Speaker 2 00:44:27 Uh, what's the best way for them to get in Touch Chef, email or Twitter or website? Dr
Speaker 4 00:44:32 Alden cas gmail.com. D rd e n c a s gmail.com and my website is dr alden cas.com.
Speaker 2 00:44:39 Awesome. Dr. Peterson, a few few takeaways from you. Yeah,
Speaker 3 00:44:42 I would say, Jamie, the, the book Tools of Titans, uh, by Tim Ferris has some great exercises and you can go, there's a few investors in that book and talk about what their rituals and routines are. So it gives you another perspective on that. And, uh, and then of course, Ray Dalio principles is great though. It's, it's a bit heavy reading and there's a lot, a lot to get through, but if you start on that journey, it's, he's done obviously a fantastic job with what he does, uh, running the world's largest private hedge fund. So certainly you can, you can get a few tips from there. And then of course, I've written a couple books also inside the investor's brain, which is a bit, uh, more depth, in depth if you want a lot of academic research about what has seemed to work historically than that's a good book.
Speaker 3 00:45:27 We wrote a simpler version called Market Psych, uh, which is also, I think, quite useful, especially if you don't want anything that's too technical or heavy. So yeah, those would be my recommendations. And obviously it's not an easy, uh, job that we have. It's not only about ourselves, it's also about the market. So you compared us to a car and fine tuning a car, but sometimes it depends on what road you drive that car on. If you drive a Ferrari on a mountain road, you're not gonna get the same performance as, you know, if you have some, you know, four-wheel drive. So it depends on what kind of car you are and what kind of road you're driving on. And then sometimes you just have no choice. You just go from A to B the road, you don't have the choice what the road is going to be, it might be flooded, et cetera.
Speaker 3 00:46:08 So you've just gotta figure out what to do. So understand that the markets are chaotic, uh, that optimizing ourself for these situations is important, but also that ability to look focus down and to step back and see the big picture are key. So it's, it's all gotta be understood as a big dynamic moving picture. And it's, it's not simple. Uh, we also find, I think Alden probably sees this as well, that as people get older, sometimes in the financial markets, they really appreciate the managerial positions more than the trading positions. You don't see a lot of traders over 40. So there are also, um, there's all sorts of dynamics, lifetime dynamics, et cetera. So yeah, I wish everyone luck. It's a, it's a challenging work workplace.
Speaker 2 00:46:49 Well, you're preaching to the converted. I I am over 40 and I now I do this. There you go, <laugh>. Uh, so, uh, Richard, if people wanna get in touch with you, what would be the best way? So
Speaker 3 00:46:58 Market psych gmail.com or r peterson market psych.com as well. It's the best way to reach me.
Speaker 2 00:47:06 Well, for anyone listening, if you've enjoyed listening to this, this episode, my, my bit of advice is to go back and listen to it again. There was some real pearls of wisdom in there and, uh, I want to say Dr. Peterson and Dr. Cast, thank you so much for your time. This really was great. Thank you. Thanks,
Speaker 3 00:47:20 Jamie. Good to see you again, Holden.
Speaker 4 00:47:22 Thanks for having us.
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