I
was privileged to "speak" recently with Tim Rayment, an independent trader and
freelance journalist who has written articles for the Sunday Times of London.
He has written articles on a wide range of subjects, including
a recent one about the nature of hedge fund managers and a
fascinating piece of investigative journalism in which he examines a confidence
scheme.
I
particularly like his ideas about involving former professionals (hedgies and
bankers) in journalism to inform and educate the public about the true nature
of our financial economy.
By
the way of context, the first question relates to an anecdote Tim shared with
me about informally advising an actress on when to swap currencies while she
sold a house in France and bought one in England, and the moments of euphoria
and despair that she experienced while that trade was happening.
And
now on to the interview...
To look at the example of
the actress that you mentioned, it seems as if there doesn't seem to be much of
anything that can get her to look at news rationally except for somehow making
her into some form of trader. Is doing this as simple as involving former
bankers and hedgers in the news media, or are there other steps that you would
recommend be taken?
Turning
her into a trader wasn't difficult. I told her how she would feel before she
felt it. I explained that the panic she would experience in a few days' time
was part of the process by which markets work, and that she had to endure
feeling sick with anxiety before she could be rewarded with higher prices --
and that there was another actress, or at least another human being, who was
going through the same emotions in mirror image while trying to achieve the
opposite transaction, i.e., one who wished to sell a house in England and to
buy one in France, while our actress wished to buy a house in England and sell
one in France. The actress panicked when she was supposed to, despite being
prepared for what would happen. But she trusted the explanation enough to wait.
Each day I gave her price levels that would mean all was well, and price levels
that would mean all was not. She watched the markets on her laptop, not daring
to go out. In the end, I think she actually enjoyed the experience, because it
gave her an understanding and a feeling of control. And she got her price.
As a follow up, how might
one avoid the "Cramer Problem", where a former hedge fund manager
makes the transition to being a journalist, but gives wide-ranging advice that
is more designed to entertain than enlighten? Do journalistic organizations
seeking to overcome this problem simply need to ignore the "Mad
Money" audience? Can they do this and remain solvent?
I
can't speak for CNBC, but in British broadsheet newspapers, the desire to entertain
has been met in more wholesome ways. The Money section of The Sunday Times, for
example, probably gives as much space to publicising the scams of banks and of
financial companies as it does to investment themes, so that the reader is
"entertained" by being made to feel angry. Arguably there is a strong
public-interest justification in these stories. This is not a phenomenon of the
credit crisis, by the way: the Money section, which -- unlike the Business
section -- is aimed at a general audience, has always been quite
sceptical. It's probably one-third to one-half investment advice, and one-third
consumer advice, while a sixth of the section entertains readers by, for
example, interviewing a celebrity about the most satisfying moments and the biggest
mistakes in their personal finances. There's also a columnist who is mean with
money, and happens to be married to someone he loves but regards as profligate.
He's always saving cash; she's always spending it. It's quite funny.
Coming from the standpoint
of protecting investors from hazy information that they might receive, could
you support conceptually the establishment of a test to see who was capable of
trading individual stocks and bonds (as distinct from vanilla mutual funds)?
Can you think of anything that you would want to put on such a test?
Such
a test might have perverse consequences. If you require people to pass a test
before they can trade, you drive them into the arms of professionals, who might
perform no better (but charge fees for the privilege). For those who pass the
test, the danger is false confidence. Where would you draw the line? Would you
ask a tenant to pass a test before allowing them to buy a house, for example?
I
can see a case for requiring a test before trading on margin, however. It's
leverage that destroys lives.
Is improving the quality of
financial journalism more a question of improving the quality of reportage at
the highest levels by involving experts or instead one of improving the level
of discourse at the lowest level to educate a greater number of market
participants? If you were the editor of a business section and had to choose
which of these two to emphasize, which would it be? Why?
It
would be both. I'd start by hiring reporters who understand companies,
economies and the markets. Without that, you've got no business section and
without a business section you don't have a proper newspaper. So, an editor has
to give that priority. Then I'd establish a separate section, similar to the
Sunday Times Money section, to educate the widest audience. By having two
sections, you can publish material for a sophisticated audience in the Business
section without intimidating the general audience. The two
constituencies are equally important. Finally, I'd save some money from my
budget to hire hedgies and ex-bankers as business columnists. These are
columnists, not reporters. If there were no money left in the pot, I'd persuade
them to do it for nothing (but they would not be allowed to "talk their
book"). Their job is to educate the sophisticated audience (in the
Business, not the Money section) with real-time analysis from a trader's
viewpoint, because traders think differently from reporters.
When you were a
"budding" trader, how did you navigate the transition from amateur to
professional? What resources did you utilize? Are there ways you can conceive
of to make these resources publicly available?
That's
a long story. There are thousands of legitimate ways to trade, and
would-be traders face a quest to find what is right for them. In the end, I
took some academic work from the 1930s, which I came across by chance, and
combined it with profit-driven work on technical analysis in the 1990s. Then I
adapted both to suit the way my mind works. Much of the trading literature
remains useful for generations, because it is not really about trading at all.
It's about human nature, which does not change.
Trading
is mostly control of your own psychology. And I've spent thousands of hours
working out how to reduce the subjective to the binary, so that decisions can
be as objective as possible.
I've
also been very lucky in that I have good mentors. My advice would be to
find good mentors and to do your best to outgrow them. At the same
time, try to remove all ego from the trading process.
There's
valuable work in the trading literature, but you need to overcome human frailty
to use it. That's a lifelong task
