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Lessons From A Wall Street Trading Desk

I’ve been in and around the markets for nearly 25 years.

No age comments, please…

I’ve learned a lot over that time.

Some of my biggest lessons happened while I was on a Wall Street trading desk. It was many moons ago mind you, but I thought you might be interested in a few of those lessons.

• The markets are NOT rigged. It’s damned near impossible to manipulate liquid, freely traded securities… Unless of course, brokerages stop accepting trades on 1 side or the other… at the same time 😖… But that’s a story for a different day.
• Money managers don’t make money from making you money… they make money from gathering [and keeping] your money… That’s why AUM [Assets Under Management] is so important in the industry. There’s a big difference between 1% of 100,000,000 [$1,000,000] and 1% of 1,000,000,000 [$10,000,000].
• Many money managers don’t know what the hell they’re doing anyway… make sure you don’t have one of THESE folks managing your money.
• Banks are in the business of facilitating transactions… not making you money. Do you know how real estate agents in many states work for “the deal” as opposed to working for you? The folks in the middle are the same… your broker, their broker, the bank, the exchange, etc., all work to assure that transactions go through.
• The traditional “invest in a diversified manner” is NOT meant for regular folks… i.e. folks who need their assets to grow. Diversification is a risk management tool… not a growth tool. It minimizes both outsize losses as well as outsize gains by owning the market. Thus, those who are well diversified in their US holdings should see returns that track US GDP more or less. That’s fine for folks who are already multimillionaires… They just want to beat inflation so that they can maintain the spending power of the money that THEY ALREADY HAVE. But if you need your money to actually work for you…
• Regular folks can’t “invest” like Warren Buffett. Do you own an insurance company? The premiums received by Berkshire Hathaway put Warren Buffett in the enviable [if tricky] position of NEEDING to invest amounts over and above required reserves.
• Focusing on win rate [of the trades taken, how many are wins] is costly… and not a particularly useful metric at that.
• You can’t hedge away all risk… but you can [and should] minimize it.
• 10% return per year on average is an awful return for individuals. The ability to be nimble and trade smaller time frames should allow you to deliver returns far higher than that.
• Listening to investment advisors and the guru types can lead you to surrender one of your primary advantages as a retail/small trader… your nimbleness. Don’t underestimate this advantage… it can literally be the difference between hypercompounding your account… and, well… less.

There are a ton more as you can imagine… But those are the ones floating around in my head this morning, so I decided to share.

Hope it helps.