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Stock Ideas Top Headlines Why The Golden Child of Credit Got Sacked
Stock Ideas Top Headlines Why The Golden Child of Credit Got Sacked 
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Home to the kangaroo, the Sydney opera house, and one of the most beautiful harbors in the world, the “land down under” is getting rich. Australia is the sixth-largest country in the world in terms of land mass -- and yet the entire Aussie population is on par with greater Los Angeles. |
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| Why The Golden Child of Credit Got Sacked |
| Tuesday, 16 October 2007 | ||||||||
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Richard "Chip" Bierbaum, age 26, was fired last month from a French bank. It's tough to get fired from a French company. But Chip showed us how it's done... He was fired for "alleged unauthorized trading" that led to a $350 million loss for his bank, Credit Agricole. Chip was trading derivatives linked to credit-default indexes. When the Fed cut rates, credit-default swap contracts tanked. Chip, in his defense, says he did nothing wrong. "I was the golden child of credit trading in New York," he said in an interview. The French bank says it's taken the appropriate corrective measures. We hope it puts in a measure to keep 26-year-olds from risking hundreds of millions of dollars. Morgan Stanley just reported that the traders on its quantitative trading desk lost $390 million during a single day in August. The group lost a little less than half billion dollars in total for the quarter.In the book Fooled By Randomness, author Nassim Taleb says he only gives money to guys with grey hair because they've survived. "We tend to think that traders make money because they're good," Taleb writes. "Perhaps... we consider them good just because they make money. One can make money in the financial markets totally out of randomness." In the book, Taleb lists the traits of traders fooled by randomness: - They overestimate the accuracy of their strategies. - They tend to "get married" to their positions. - They have no precise game plan for how to deal with losses. - They have no stop losses, or they revise them on the way down. - They suffer from denial.
How do you stack up? Longtime subscribers know that in my newsletters, we never hesitate to exit a losing position, and we religiously follow our stops. Unfortunately, most others don't... Taleb describes how "older people have been exposed longer to the rare event and can be, convincingly, more resistant to it." The rare event hit in August. One young trader cost a French bank $350+ million. A young department at Morgan Stanley cost that company half a billion.My latest recommendation in Sjuggerud Confidential is a fund run by a manager who apprenticed under Peter Lynch at Fidelity and has since run his current fund for more than a decade. Good investing, Steve Source Excerpted : Daily Wealth
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