Man looks into the Abyss, and there’s nothin’ staring back at him. At that moment, man finds his character, and that’s what keeps him out of the Abyss.
Lou Mannheim (Wall Street)
I first heard the quote from “Wall Street” as an 11 year old sitting beside my father at the local theater. Like most of the film’s plot line, it didn’t mean much to me at the time. However, the movie’s settings, the characters and the magical feel of the NYC backdrop forever left an impression on me. Before long, I was religiously watching Louis Rukeyser’s Wall $treet Week and following a handful of stocks in the newspaper. At 16 years old, I traded in some hard earned lawn mowing savings to buy 91 shares of Bell Atlantic. It was fun to watch the value of these shares continue to grow during my finance focused undergrad studies. I even managed to add on a couple more stock positions before beginning work at a boutique investment bank in Chicago. Eventually these savings were re-invested into my tuition for a full-time MBA at the University of Chicago. This education proved my ticket to Wall Street. As a Midwestern state school kid, I finally turned my 20-year dream into a reality.
New York was everything I imagined it to be. Fast paced, powerful, and intimidating. My skills quickly got stretched beyond boundaries I didn’t know possible. I was fortunate to work for one of the top ranked investment banking groups in the country. Speed and precision were not rewarded, they were expected. It was a culture of success. The lessons I learned would prove irreplaceable.
Adhering to my conservative upbringing, I kept my head down and worked hard. I tried to pump out error-free work without causing any ripples. This duck-and-weave approach generally worked well through my Associate years. As I got to my VP years, however, I began realizing that it was horribly wrong. This was not the type of leader that the powers that be were looking for. I was no longer in the Midwest. Instead, I realized that the obnoxious “grab it out of their hands” attitude is almost required in order to get ahead in Wall Street banking. It demonstrates confidence. It sells work.
Realizing that I need to step up my approach, I pushed to become more aggressive. I tried to maximize my role on executing deals and become the day-to-day quarterback. I turned up my volume, wore more expensive suits and tried to make my presence known. Although this probably bought me an additional year or two, I still couldn’t penetrate the inner circle. More importantly, it just seemed phony. I realized that my hard work and execution skills may be able to lift me to the Director level, however, I was not liked well enough to ever make Partner. I also felt insecure about my origination abilities. Frankly, at the time, I didn’t feel I had any edge in this regard. My personality, my network, my image … none of it seemed like a natural fit for the head seat. I had to consider my other routes forward if I were to stay on Wall Street.
Concurrent with my advisory work, I began studying value investing. Buffett’s letters made a significant impact on me. Finding $0.50 dollars really resonated. The theories of compounding and returns on incremental invested capital took on new significance. I spent nights and weekends practicing my studies by building my own portfolio. I really enjoyed it. The more I studied, the better my portfolio did and the more I yearned for a full-time career as an investor. It just seemed more meritocratic, a world where performance was measured based on returns, not others’ opinions. It was time to try to make it over the wall and into the buy-side.
The job search proved a lot more difficult that I had originally envisioned. I knew it would be hard, but this was ridiculous. It took many late night hours and kissing many frogs to finally land a couple initial meetings. From these encounters, I quickly realized that delivering succinct investment ideas that could automatically be turned into winning trades was the only way to push conversations past an initial few minutes. No one cared about my past. The only thing that mattered was whether I could generate interesting ideas that worked. Eventually I got the technique down pat. I pitched good ideas and they worked. I crushed case studies. An offer soon followed. I was ecstatic and I accepted it right away. In hindsight, perhaps I was a bit too hasty. I did receive some well-intended warnings about going to a short-term trading shop. I ignored them however. After months of interviewing, I was just relieved to get over the wall. I’d make it work. Whatever.
The hedge fund world proved 180 degree different from investment banking. There was a much broader range of personalities. It was fast and loose. The hours were a lot more intense. Overall, it was stressful making the transition but, in many ways, it felt like I had made the right move. After just a few months, I had substantially improved my understanding of how industries and companies worked. My early trades performed well, I was learning a ton and I was building relationships. I was trying to have fun with it. In the far back of my mind, however, the short-term nature of the decision making was beginning to bother me. The biases and the behaviors that long-term investors caution against were prevalent around me. I chose to push this aside as “just noise”. Even as empty seats suddenly appeared where PM’s sat just days before, I ignored these warning signs and just remained focused on making it work.
After a couple years of working as a Sr. Analyst on the distress and special situations desk, I had the opportunity to lift into a full PM role on the hedge fund’s long/short multi-manager trading platform. This required that I specialize in an industry. Since I had spent a lot of time on the housing space, I chose to design an investing universe that included the whole value chain of residential housing – home builders, building products, materials, apartment REITs, etc. I was given a small $50M book and a month to fully ramp up.
My initial book performed well despite its sophomoric composition of high quality longs vs. low quality shorts. I tried to take a long-term view while overlaying shorter term trading around earnings. Inexperienced as a PM without much history in my space, I figured this was an approach that should work well under any market conditions. Throughout my first year, I dug into company after company and really learned the housing sector well. I eventually dove deeper into macro in order to position better around rate moves. My approach seemed to be coming together fine. I had a good year with seven straight up months from May through December. I felt emboldened and confident heading into 2018. My book was now over $200M, real money. Maybe I was overthinking the merits of long-term investing after all. See, I was making it work!
In January, housing stocks continued their linear upward accent. After spending a few days immersed in conversations with both companies and other analysts at the annual building product convention, I felt confident that the good times would keep rolling along. I continued to bet heavily long on housing stocks vs. the REITs and other stocks with less exposure to new residential construction. That’s when the music stopped. The 10 year yield suddenly snapped upwards towards 3% with the 30 year mortgage breaking above 4.7%. This rate move quickly cooled off housing stocks. A handful of my longs fell double digits within days. Tricked by the momentum-based ‘just buy the dip’ mentality that worked throughout 2017, I erroneously leaned further into my longs instead of flipping my book short. Consequently, I experienced a heavy 300 bps draw-down in just a few weeks, by far my largest loss as a PM.
Although stressed, I largely shrugged off my losses as temporary. I had the whole year to make up this draw-down. If history were any guide, I’d be heading back positive within a couple months. I still had a couple hundred basis point buffer until my capital got cut in half. Plus, my “housing mafia” peers seemed to be in the same boat. My Director of Research (“DOR”) and Risk would definitely understand, right? I’d still make this work.
Fast forward a few months later. After the steep drop earlier in the year, most housing stocks got stuck in a sideways holding pattern. This ‘drop’ then ‘chop’ movement made it practically impossible to make money either long or short. Every month, I just kept bleeding. Seven straight down months! Very painful. I had not even believed such a thing was possible, until it was.
As my book slowly sank, I came to fear my DOR meetings. For days in advance, all I could think about was the berating that I would get for constantly losing money. I felt like I was stuck in a spider web, every move I made just made my performance worse. The more I traded, the harder I sunk. I was now finding it almost impossible to stay focused. The simple exercise of reading through a filing seemed to take multiples of the usual time. I had to keep reminding myself there was still a bit over four months left in the year. Just make it work. Get through the meetings, try to keep focused.
The earnings season was finishing up. Home Depot’s call was one of the last but one of the most important. I was having a hard time paying attention though. I kept watching the stock go further down despite a “hit it out of the park” print. Just my luck. I would not make any money during Q2 earnings. This was really bad. It felt like the world was positioning against me, nothing I could do was right. Many questions swirled around in my head. How would I ever get back to break even? Even if I were at break even by year-end, would it be enough? When would they do year-end firings this year (last year was the morning after the holiday party, first week of December)? A few seconds later, with a simple tap on the shoulder, I would immediately receive the answers to all of these questions.
The head of the group lead me into a conference room. My heart was pounding, my head swirling. I knew this was the end. He looked at me and told me he was letting me go and that my book was not scalable, yadda yadda. I couldn’t look at him. I just starred down into the table. While, it seemed obvious that this guy memorized Brad Pitt’s firing script from “Moneyball” verbatim, somehow his words lacked even less semblance of emotion than in the movie. It felt almost as if he was just checking off a quick ‘to do’ item, the way a store manager would fire some high school kid, not someone who spent 31 years building a finance career. I was getting jettisoned in the same flippant way a trader tosses an under-performing stock from his portfolio.
Adding insult to injury, I had to box up my stuff from the trading-floor desk right then and there, smack dab in the middle of the morning. How fucking humiliating in every way possible. That moment, I really felt like I began to stare into the Abyss.
The day after I got fired, I was a bit surprised on how relieved I felt. The cognitive dissonance that I had been carrying around for five years seemed to have evaporated. I had tried making a career in this short-term focused world of trading. Deep down however, I always knew it was not me. For some reason, I was more of a believer in a longer-term fundamental approach. Maybe it’s my Midwestern upbringing. Maybe it’s all the Buffett that I’ve read. Maybe that is just how I’m wired. Whatever it is, it felt good to unshackle from the short-termism of trading. I never would go back, even if some hedge fund would accept me with my broken track record.
It’s now two weeks later. I’m still excited to figure out how to gain access to a longer-term focused career. However, the stress and frustration have definitely set in as well. I always knew that a hedge fund career could blow up at any time so, yes, I had some poorly designed backup plans. They were nowhere close to reality though. As Mike Tyson put it best: “Everybody has a plan until they get punched in the mouth”. Now that I’m unemployed with just weeks of income left, a family to support in a terribly expensive city, and no irons in the fire … yesterday’s plan B’s got knocked on the floor when I got punched in the mouth.
Which all brings me to the here and now. Why this blog? Well, as the fear of failure grew during the last few months, I found myself searching certain phrases on the internet such as “careers for fired portfolio managers” and “careers for blown out hedge fund managers”. I found that many people have asked various forms of this question before but no one really responds with a decent answer. As for the other PM’s (and Sr. Analysts) I knew that got blown out, a couple chose to retire early, a couple pursued entrepreneurial activities, one has been unemployed for a couple years, the few with ‘ok’ track records ended up resurfacing at lower quality trading funds, and the rest kind of drifted off into the darkness. So, thus far, I don’t really have a good answer either. Therefore, I plan to blog about my own adventure in the hope that it gives some better flavor to what alternatives are left. I simply don’t know at this point what lies ahead.
Hopefully, with the detailed information above, someone can match their background against mine. I hope they can gain a couple insights for their own career. Maybe I can deter a person from making a mistake or two. Perhaps I can turn on a light bulb in helping someone make an important decision. Who knows. If anything, even if nobody ever reads this, it’s a way for me to journal a rather important time in my own personal development as I hopefully cross the bridge to a more suitable career.
As you can probably tell, I am a huge movie fan so get used to many movie references.
Two of my favorite classic movie scenes keep creeping into my mind since the day I got fired. Luke Jackson and Tyler Durden from these two scenes parallel well with my own inner struggle since getting fired.
The Luke voice is telling me to just keep standing up and try winning the fight, if there is one left. i.e., spend the time and effort to fight it out for one last gig on Wall Street
The Tyler Durden voice is telling me to move on and focus on figuring out what is a longer-term and perhaps more sustainable career.