Are ‘Masters of the Universe’ Born or Bred?

CNBC.com Are traders made or born?

Gordon Gekko may have decreed that “lunch is for wimps”, but the people at financial training company 7city Learning clearly understand that the way to a journalist’s heart is through his stomach.

A free meal and a chance to become the fictional master of the universe for an afternoon lured me, along with a handful of peers, to a trading competition. The results were illuminating.

The flashing quotes, virtual headlines and need to make markets while entering into short and long positions gave us a new-found appreciation for the mental and psychological rigours of trading. One journalist became so flustered that she managed to lose more than her fictional capital in just a couple of hours. Jérôme Kerviel, eat your heart out.

But we learned that plenty of rocket scientists coming out of top business schools believing they have punched their tickets to Goldman Sachs

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[GS  Loading...      ()   ] also struggle in simulations.

“They’re highly gifted, highly quantitative, they can price complex options out of their backsides, but they don’t necessarily understand what makes markets move,” says Gil Christie, one of 7city’s founders.

The realisation can be jarring, says Mr Christie.

“We’ve all seen "Wall Street" – we’ve probably seen "Boiler Room". I’ve seen people in tears – everyone wants to come to Wall Street and be a trader.”

So are traders made or born? In the 1983 comedy "Trading Places", two brothers who run a brokerage bet whether or not homeless hustler Billy Ray Valentine (Eddie Murphy) can be taught to trade just as well as their star employee, blue-blooded Louis Winthorpe III (Dan Aykroyd), whose own downfall into destitution they engineer.

That same year truth imitated fiction as two successful traders, Richard Dennis and William Eckhardt, made a similar bet, placing a newspaper advertisement seeking novices they could train and set loose on Chicago’s futures pits with their money. Although some faltered, “The Turtles”, as they were nicknamed, were fabulously profitable as a group.

The best of the bunch, Curtis Faith, recently published his third book, Trading From Your Gut, and insists certain personality types have what it takes.

“If you gave me 20 randomly selected people, I could probably tell you which would be more successful just by speaking with them for 10 minutes,” says Mr Faith.

Confounding our stereotypes of traders, one bad trait is materialism. Those who view profits as virtual chips in a casino rather than buying power have an edge.

“If you really love the money and you see Ferraris going up and down you won’t be a good trader,” says Mr Faith. “A good trader can disconnect from their emotional state.”

But he says there are no true naturals such as the fictional Valentine who can prosper without guidance and he also cautions against viewing trading generically.

He splits it into three types: short-term scalping (such as 7city’s brief simulation), long-term trading and swing trading, a hybrid of the two.

Scalping favours those with supreme confidence rather than mathematical types who rely on their left brains. Some 30-40 per cent of the population simply lack the innate decisiveness to make money this way, says Mr Faith. “If you second guess yourself, that’s fatal as a trader.”

Longer-term trading is the opposite, punishing impulsiveness. Journalists, says Mr Faith, might actually be well suited to this type with the right quantitative knowledge.

“You’re always trying to get to the bottom of why things happen.”

Which brings us to the part of the column where I pat myself on the back for winning the competition.

Full disclosure: I spent a decade in finance before journalism. Further disclosure: the best overall performance came from an employee of the company that organised the public relations for the event. Further evidence that flacks are smarter, or at least more savvy, than hacks?

Perhaps, but I took great pride nonetheless in bringing glory to the Financial Times. Suck my kneecaps, Advanced Trading magazine!