FROM THE ARCHIVES: Chicago Vs. Boston

I’m still on vacation until the 27th.  Enjoy this post from the archives.

The market is just a collection of people all trying make money or hedge risk.  Their collective difference in outlook, bias, resources, knowledge, risk tolerance and account capitalization is what creates market dynamics.  Since the first day I started trading I have felt that there are two distinct types of trader mindset.  They represent polar opposite non-overlapping ideologies towards financial markets and how to profit from them.  The two outlook and view of the world are as different as the cities I imagine they represent.  Chicago and Boston.

On the surface, the cities are pretty similar.  Both are great northern port cities, one on a lake and the other an ocean.  Both have great pro sports franchises.  Both have heavy concentrations of Irish immigrants.  But we’re not talking about sports, geography or ethnic makeup.  We’re talking about trading.  When it comes to trading Chicago is famous for the pits and Boston is famous for academia.

In his book, “The Black Swan,” Nassim Taleb humanizes these two psyches as Fat Tony (Chicago) and Dr. John (Boston).

On Fat Tony:

Tony has this remarkable habit of trying to make a buck effortlessly, just for entertainment, without straining, without office work, without meeting, just by melding deals into his private life.  Tony’s motto is “Finding who the sucker is.”  Obviously they are often the banks: “The clerks don’t care about nothing.”  Finding these suckers is second nature to him.  If you took walks around the block with Tony you would feel considerably more informed about the texture of the world just “tawking” to him.

On Dr. John:

Dr. John is a painstaking, reasoned, and gentle fellow.  He takes his work seriously, so seriously that, unlike Tony, you can see a line in the sand between his working time and his leisure activities.  He has a PhD in electrical engineering from the University of Texas at Austin.  Since he knows both computers and statistics, he was hired by an insurance company to do computer simulations; he enjoys the business.  Much of what he does consists of running computer programs for “risk management.”

Boston is alma mater to every book-learned Dr. John of the last 200 years.  Chicago has birthed some of the most street-smart traders the world has ever known.  No matter where you live, chances are you gravitate to one attitude or the other.  Chicago thinks the market is a bit of scam and there is an “angle.”  Boston thinks it’s a random walk.  Scalpers and volatility sellers are pure Chicago.  Global macro and special situation funds are all Boston.

The biggest difference of all is that generally speaking, Chicago trades their own money, and Boston trade other people’s money.  Boston blows up and it hurts everyone, the traders, the investors, the counter-parties, and taxpayers.  When Chicago blows up it only hurts him or his organization, and maybe his clearing broker.  Chicago believes in personal responsibility and correctly assessing risk, Boston believes in too big to fail, and the computer models that support it.

Chicago traders and their outlook on the world are a dying breed, literally.  In the old days (15 years ago), it was a fair fight.  Chicago had the smarts, the money and the advantage of running the game.  Boston literally had to send orders through Chicago to get things done.  So, Chicago could blow up Boston, and every once and a while Boston blew up Chicago and the game continued.  Things are much different now.  Look at the population of S&P pit in Chicago in recent years.  Every year Boston gets more money under management.  Every year new exchanges decide to allow more and more direct access to robots owned and programmed by Boston.  Every year Chicago’s edge gets a little thinner and their ability to blow up Boston and keep the game in check is reduced.

The world changed.  Boston is winning big-time, and as a market participant, you have to play the game that’s available.  It means we all have to get a little bit more Bostonian in our outlook.  Too bad, though.  I like Fat Tony a lot better than Dr. John.

Original post: Chicago vs Boston (Dynamic Hedge)


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