Until recently, I had a limited understanding of how traders do what they do. I knew they executed trades but my vision of what that really looked like was stuck somewhere between the Hollywood stereotype of someone yelling with elaborate hand signals on a trading floor and over-caffeinated phone conversations, throbbing neck veins, and never ending scrolls of data on computer screens. Aside from that last one, a lot has changed over the years thanks to technology.
Three years ago Mawer implemented a 24 hour a day, 7 day a week trading desk. It was by no means a cheap or easy decision, but one made purposefully to gain real time coverage and engagement with markets across the globe. In an effort to better understand the benefits and realities of running an around the clock trading desk from two offices, I picked the brains of our traders: Jeff Wilson, Merv Mendes, and Michael Georges in our Toronto office, and Peter Dmytruk in Singapore. Collectively, they shared with me a clearer picture of what it is they do, some misconceptions, and how their trading approach differs from others.
All four traders come from varying backgrounds yet they foster a collegial, complementary team dynamic. As a former global small cap equity analyst, Peter (the “engineer”) is very process driven, Mike came from a risk background, Merv came from the sell side, and Jeff came from a large buy side firm. There is no “head trader” or “junior trader” on their team. Everybody comes in offering something different and their common humility, coupled with a respect for one another’s strengths, liberates this trading desk from any ego issues—an appreciation echoed by each of them.
What they do
Ask them what the job of a trader is like and you’ll get variations on common themes: challenging, unpredictable, ever-evolving, and at times exhausting. While technology may have helped to mellow the act of trading it can still be a very intense process. Their days are filled with micro decisions involving real money benefits and consequences. It’s a responsibility that none of our traders takes lightly. Boiled down to its essence, they see their role as trying to manage liquidity at the right price, at the right time, with the least amount of impact.
Peter Dmytruk likens trading to making any major purchase in your life—such as buying a car or a house or something expensive where you had to figure out how to make it work. That’s what they do as traders every day. Their job is to standardize the process so that it becomes repeatable, yet remains flexible enough to adapt. They continue to refine and improve this process over time, applying the same principles to trading that you’d use to try to get the best deal on a car.
Jeff Wilson likens Mawer’s trading desk to both an offensive and defensive line in football—he says it just depends which side of the ball they’re on. Sometimes they’re on the offensive where they have an order they’re trying to maneuver through the market and protect. They’re trying to maintain anonymity as they work; making sure they’re managing the market impact while doing their best to protect the quarterback (their order) or the movement of that trade and the investment idea it represents. When they’re on the defensive, they’re also trying to find the quarterback, which is the liquidity—they’re trying to push through all the noise in the market to find out what that liquidity looks like.
How their desk differs
The way this team behaves and interacts with the market is slightly different from other trading desks. They’re not simply trading stocks, and they’re not proprietary or hedge fund traders just trying to make a dollar. What they’re really doing is implementing trading decisions. Unlike some of their buy side counter parties who take trades and look at them on a short-term, day by day basis, our desk filters everything through an investment thesis, always looking for the “so what?” implications. As the front line for our research team, they function as unique hybrids—part traders, part desk analysts. So if research wants to take a 2% weight in a company, they’re not trying to get just the best price today, they’re thinking about a longer term cycle on how they can best implement that particular investment decision.
As front line gatherers of information with direct communication between asset class teams and portfolio managers, Merv Mendes says they benefit from a keen sense of what they’re looking for. Knowing the time horizon and exactly what kind of information is needed helps the traders figure out what to forward on to those teams and managers versus what they can cut off at the front as irrelevant. They don’t need to know the daily fluctuations of what some kind of short-term event or movement may be if it doesn’t impact the long-term thesis. Sitting in on asset class meetings and so forth not only helps them filter out the noise, it provides them with a fundamental understanding of the basis for an investment.
Having the rotation of four traders, instead of three, has had a huge impact on efficiency and execution. The biggest benefit is having the ability to react to live markets and invest globally. Now able to be fully present around the world, a “typical” day is 10-12 hours for each trader. In Singapore, Peter also covers a bit of India towards the end of his shift, and there is usually overlap amongst the team so they can have some kind of real time discussion. Communication amongst the team is constant and their desks are configured in a hub (Peter’s virtually) to accommodate quick conversations that often sound like: what would you do in this scenario; here’s what I was thinking; just curious what your thoughts are, etc.
Every Tuesday they have a meeting at 7:00 a.m. EST in Toronto, 12 hours behind Peter’s 7:00 p.m. in Singapore, so he often participates from home with his wife and baby in the background. Everyone agrees that when Michael came on board it made things better all around; now there’s another person to work overnight and they can split up Europe. Having this full rotation in place not only mitigates fatigue, it allows the desk more versatility in monitoring all markets and implementing strategic trade decisions.
A common misconception people have is that trading makes money. Our traders say maybe it does, maybe it doesn’t, but their focus is on transacting in the most prudent and efficient manner they know, given the context of the market, industry, or specific stock in question—all under the auspices of our investment philosophy. Another sentiment they hear from time to time is that trading is easy and somewhat automatic. To some extent it is, they say, until it isn’t. That’s where experience and the discipline to stay aligned with a particular investment thesis becomes more challenging.
Peter also challenges the notion that stock charts are useless. While many fundamental investors disregard actions in the market, he maintains that stock charts often tell a story that may reveal important information. For example, stock charts provide past information, such as: when a seller started selling; if there were any limits being used; and, when a buyer appeared and how aggressive they were. He can see general trends and then surmise if it’s the market that’s moving or if it is something specific to a particular stock. He stops at saying you can make investment decisions solely by looking at charts—because a lot of the technical methods used by people are not scientifically repeatable, and are therefore unreliable—but he does believe that it’s his job to use every tool at his disposal to make prudent decisions or to gain an edge.
A final misconception they’d like to debunk is that competition precludes cooperation with counterparties. On the contrary, they say they enjoy a great deal of trust and generally fewer conflicts with counterparties today than ever before. Their use of scuttlebutt is high, but scuttlebutt is only as good as the source, so it’s critical that they nurture trust-based relationships with people. As readers of information trying to filter through the noise, they rely on these relationships with counterparties to build a story around the information they receive. They can then follow up with pointed phone calls to trusted broker partners and other traders on the street, and this often leads to mutual benefit for all concerned.
They are quick to point out that they don’t work in a vacuum. As a team, they realize that you can’t test theories in isolation, so there’s a unified commitment to constantly evolve, learn, and challenge themselves, both personally and professionally.
When asked what they feel makes their trading desk truly unique they credit the camaraderie they have as a team, supported by a larger firm-wide team of people that share similar values: doing the right thing, personal and professional growth, and a commitment to buying good, well-managed companies at a discount.
It’s a little less dramatic than Charlie Sheen jumping up and down screaming, but they’re okay with transcending the clichés.