The Traders' Market Mind—Fear, Happiness, Depression, and Success

In these days of "Occupy Wall Street" and widespread visceral anger at the real Wall St. for ostensibly creating the nearest thing any of us have seen to a depression, I'd like to take you into the real minds of real traders.

First, despite what you read in the headlines, even money managers who trade a billion dollars are surprisingly normal people. Normal you say? How can someone who makes a few million or more be normal? Well for one, they experience at least the same fears, insecurities, bouts of despair and periods of contentment that most of the rest of us do. In many cases, these feelings are exagerrated and induced by events over which they have no control.

Second, many of them have bosses who reign with terror. One "shop" that I know of consists of guys who are afraid that at any moment the CEO will walk out onto the floor and tap a few people on the shoulder. (And he isn't inviting you out for a beer—just "inviting" you out the door!) He did this once and everyone wonders when it will happen next. With markets being markets, everyone who saw it, believes it could happen on any given day. Can you imagine this as any way to work?

Sure these guys have had good paychecks but like many of us, they tend to use every penny. They have homes, kids and maybe even second homes but that doesn't mean their bills don't add up to their limits and a hair beyond. It's called the hedonic treadmill and it means that many of us spend whatever we can even while we believe we would save more if we had more. In other words, you might have taken home 2 million dollars last year but you are still worried about what happens to your family if the government eliminates your job via "The Volker Rule" or other regulatory tangents.

I know that creating empathy for this gang is a huge uphill battle. Think about it though. Imagine sitting at a desk where your job is to constantly bet lots of other people's money (OPM as they call it) on something you have no real way of knowing everything you need to know. It's kind of like deciding to buy a house, get married or have a child every day all day—every day of the year. Plus as soon as you decide, the screen flashes a red or green light saying "bingo" or "boffo you idiot!" If you took it out of context, you would think it was some kind of a perverse video game!

Furthermore, did you know that a huge percentage of the money that these people trade comes from (drum roll)... your pension fund? Did you know that the only way the vast majority of pension funds are going to meet their obligations is by investing in hedge funds? In fact, did you know that pensions and university endowments created much of the demand for those evil sounding CDO and CMBS'? Back in 2006, banks couldn't create those packages of loans fast enough to meet the demand from people trying to fullfill a pension or contribute to a tuition.

Beating the market (or doing what your client expects) is the most competitive game in the world. Traders do it with their computers admonishing them essentially every second of every day. Some do it with CEO's whose reputations for volatility or demeaning outbursts make Jack Nicholson in A Few Good Men look almost kind.

It's easy to blame Wall St. for today's lingering unemployment but it really is much more complicated than that. History shows centuries of blaming the "money changers" and in this current case, the blame could also fairly go to either all of the people who took out mortgages they knew were beyond their means, your pension fund or even your beloved alma mater. But hey, that means we would be blaming ourselves or at least our next door neighbor and it is a ton easier to blame a faceless so-called greedy guy in the big bad sinful city of New York.

Sure there are bad apples in every business. But traders live most of their lives in fear, are often depressed because the market and the competition means you are only as good as your last trade and on top of it, everyone outside their industry hates them.

Would you want to live like that? For any amount of money?