Traders Need to Be Like Oysters


Chief Strategist at Interactive Brokers

I recently sat down for coffee with a young reporter.  She asked a series of thoughtful questions about how financial media can add value to a trader’s decision process, and they spurred me to an unexpected analogy: traders are like oysters.  We filter feed.  We consume a significant amount of news, data, and opinions, keep the nutritious bits, and spit out the rest.  Just like an oyster.

I’m sure a bit of clarification would be helpful here.  I explained that both traders and investors are consumed with finding an edge – something that might give them a slight advantage over their peers – and that the best thing a financial reporter can do is provide something that can offer her readers an edge.  She was understandably concerned by that answer.  How could she reliably offer an edge to the readership; and if she could do that, shouldn’t she be a trader herself?  I assured her that she should instead be concerned with reporting stories that make the readers think, preferably about a fact or an angle that is new.  It’s up to the reader to figure out what to do with it.  Better traders and investors consume information more efficiently.

Here is an example from my career.  On an early summer day in 2007, I happened to arrive at work at the same time as our Chairman, Thomas Peterffy.  In the elevator, he asked “what’s new?”  I replied that I was very concerned about the story that two Bear Stearns hedge funds appeared to be in trouble and that their potential liability could be over $20 billion.  Thomas responded: “are you saying Bear could be bankrupt?”  I thought for a moment, and answered “yeah, I guess so.”  His terse retort was: “Oh s**t.  Get long Bear puts and don’t be net short any bank puts.”  I mentioned that it was already the case, but I then spent over a year making sure we maintained that stance, often with great difficulty, but quite profitably.  It took months, however, for markets to fully comprehend the peril in which Bear found itself.  Thomas’ was the most efficient interpretation of a piece of news that I can recall.

It is quite sobering to consider the volume of data that any of us consume on a given day.  I start my consumption shortly after waking up.  I have a routine that involves checking a watchlist of market indicators, reading through trusted news sources for both financial and general news.  Some, but not all, require subscriptions.  Logically, the more sophisticated and specific the data, the more likely it is to be behind a paywall.  Given the amount of quality data that is available for free, however, no one should ever have an excuse for being uninformed.

As the day progresses, I’m subjected to scrolling news from a wide range of sources and a parade of talking heads offering their opinions in financial media (I’m glad to be one of them).  I also check in periodically with social media to see what might be resonating on a given day.  It is crucial, though, for viewers and scrollers to be discerning with that content.  The less regulated the speaker or poster, the more likely they are to be “talking their books” – making statements that are designed to directly help their investments.  It’s rampant behavior on social media, but there are some shows on major financial networks that are hotbeds of that activity as well. 

One thing I didn’t fully address during my coffee is that the media’s definition of “actionable” can differ from that of their more sophisticated readers and viewers.  The classic definition of “actionable” is something that might spur the reader to buy or sell.  A solid recommendation might certainly do that, but a disciplined investor or trader is more likely to find long-term success from synthesizing a wide range of intelligent viewpoints.  Some may be subtle, some may be contrarian, some might simply be factual.  A dry but factual news item, like the one about Bear Stearns reference above, might prove to be far more actionable than a parade of self-interested talking heads offering recommendations about familiar stocks – especially if they admit to having put on the position just before discussing it on TV.  For the trader/oyster, that is the equivalent of junk food or a sugar rush.

Please recognize that that there are ways to stretch the trader/oyster analogy in the wrong direction.  One certainly doesn’t want to spend too much time hiding in a shell rather than trading.  If you don’t trade, you surely won’t lose money, but you just as assuredly won’t make money either.  There are times to be defensive, but too much time spent in defensive posture can be a trap.  Furthermore, oysters are immobile – traders need to be nimble.  And a friend suggested that just like oysters, traders have tough exteriors that once cracked can offer something amorous.  That’s just gross.  But if you carefully consider the types of information and opinions that you consume and how you digest them, the analogy between traders and oysters can hold water.

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