23rd July 2012: Barton Biggs

Money manager Barton Biggs died last week. Biggs worked at EF Hutton, Morgan Stanley, and helped to found several hedge funds. He personified the old Wall Street tradition of research analysts and institutional money managers who were ‘big picture’ thinkers — the forerunners of today’s scenario planners and strategic foresight analysts. Biggs’ memoir Hedgehogging was an enjoyable, insightful entry into the world of hedge funds. I learned from Biggs how hedge fund managers read Barron’s, The Economist, and other publications.

We Are All Traders Now?

Mark Pesce pointed me to Bernard Lunn’s article which contends netizens now live in a real-time Web. Lunn suggests that journalists and traders are two models for information filtering in this environment, and that potential applications include real-time markets for digital goods, supply chain management and location-based service delivery.

Lunn’s analogy to journalists and traders has interested me for over a decade. In the mid-1990s I read the Australian theorist McKenzie Wark muse about CNN and how coverage of real-time events can reflexively affect the journalists who cover them. As the one-time editor for an Internet news site I wrote an undergraduate essay to reflect on its editorial process for decisions. I then looked at the case studies on analytic misperception during crisis diplomacy, intelligence, and policymaker decisions under uncertainty. For the past year, I’ve read and re-read work in behavioural finance, information markets and the sociology of traders: how the financial media outlets create noise which serious traders do not pay attention to (here and here), what traders actually do (here, here, and perhaps here on the novice-to-journeyman transition), and the information strategies of hedge fund mavens such as George Soros, Victor Niederhoffer, David Einhorn, Paul Tudor Jones II and Barton Biggs. This body of research is not so much about financial trading systems, as it is about the individual routines and strategies which journalists and traders have developed to cope with a real-time world. (Of course, technology can trump judgment, such as Wall Street’s current debate about high-frequency trade systems which leaves many traders’ expertise and strategies redundant.)

Lunn raises an interesting analogy: How are journalists and financial traders the potential models for living in a real-time world? He raises some useful knowledge gaps: “. . . we also need to master the ability to deal with a lot of real-time
information in a mode of relaxed concentration. In other words, we need
to study how great traders work.” The sources cited above indicate how some ‘great traders work’, at least in terms of what they explicitly espouse as their routines. To this body of work, we can add research on human factors and decision environments such as critical infrastructure, disaster and emergency management, and high-stress jobs such as air traffic control.

Making the wrong decisions in a crisis or real-time environment can cost lives.

It would be helpful if Lunn and others who use this analogy are informed about what good journalists and financial traders actually do. As it stands Lunn mixes his analogy with inferences and marketing copy that really do not convey the expertise he is trying to model. For instance, the traders above do not generally rely on Bloomberg or Reuters, which as information sources are more relevant to event-based arbitrage or technical analysts. (They might subscribe to Barron’s or the Wall Street Journal, as although the information in these outlets is public knowledge, there is still an attention-decision premia compared to other outlets.) Some traders don’t ‘turn off’ when they leave the trading room (now actually an electronic communication network), which leaves their spouses and families to question why anyone would want to live in a 24-7 real-time world. Investigative journalists do not generally write their scoops on Twitter. ‘Traditional’ journalists invest significant human capital in sources and confidential relationships which also do not show up on Facebook or Twitter. These are ‘tacit’ knowledge and routines which a Web 2.0 platform or another technology solution will not be the silver bullet for, anytime soon.

You might feel that I’m missing Lunn’s point, and that’s fine. In a way, I’m using his article to raise some more general concerns about sell-side analysts who have a  ‘long’ position on Web 2.0. But if you want to truly understand and model expertise such as that of journalists and financial traders, then a few strategies may prove helpful. Step out of the headspace of advocacy and predetermined solutions — particularly if your analogy relies on a knowledge domain or field of expertise which is not your own. Be more like an anthropologist than a Web 2.0 evangelist or consultant: Understand (verstehen) and have empathy for the people and their expertise on its own terms, not what you may want to portray it as. Otherwise, you may miss the routines and practices which you are trying to model. And, rather than commentary informed by experiential insight, you may end up promoting some myths and hype cycles of your own.

How Keynes Gained Self-Mastery To Influence Global Leaders

The global financial crisis has refocused commentators on the life of intellectual/vipra John Maynard Keynes. Hedge fund manager Barton Biggs devotes the closing chapter of a recent book to Keynes’ aesthetics, investment style and economic influence. Ex-World Bank investment manager Liaquat Ahamed zeroes in on how Keynes became so influential in the first chapter of his new book Lords of Finance: The Bankers Who Broke The World (Penguin Press, New York, 2009):

As I began writing of these four central bankers and the role each
played in setting the world on the path toward the Great Depression,
another figure kept appearing, almost intruding into the scene: John
Maynard Keynes, the greatest economist of his generation, though only
thirty-six when he first appears in 1919. During every act of the drama
so painfully being played out, he refused to keep quiet, insisting on
at least one monologue even if it was from offstage. Unlike the others,
he was not a decision maker. In those years, he was simply an
independent observer, a commentator. But at every twist and turn of the
plot, there he was holding forth from the wings, with his irreverent
and playful wit, his luminous and constantly questioning intellect, and
above all his remarkable ability to be right.

Keynes proved to be a useful counterpoint to the other four in
the story that follows. They were all great lords of finance,
standard-bearers of an orthodoxy that seemed to imprison them. By
contrast, Keynes was a gadfly, a Cambridge don, a self-made
millionaire, a publisher, journalist, and best-selling author who was
breaking free from the paralyzing consensus that would lead to such
disaster. Though only a decade younger than the four grandees, he might
have been born into an entirely different generation.

Ahamed offers several lessons here on self-mastery strategies for intellectuals/vipra who desire to influence the objective universe. Keynes mastered a repertoire of roles which developed his intellectual strengths through a boostrap process. Although an establishment outsider, Keynes influenced the frames and contexts of economic decision-makers and political leaders, and in doing so, created the Keynesian school of economics.

Keynes used luck, timing and dramatic situational contexts such as the Treaty of Versailles negotiations in 1919 and the Great Depression in 1929-33 to protest against the establishment, create a reputation for asking difficult questions, and to envision solutions. Through each of these exogenous shocks he used his repertoire to gain influence and public notoriety, despite financial and health setbacks. From his initial antinomian commentary, Keynes’ scale and scope of his solution design expanded to its zenith: the co-design of the Bretton Woods system for international fixed exchange rate and monetary policy management, which lasted from 1944 to the Nixon Shock in 1971.

For consultants and foresight practitioners who wish to cast their influence into the world, Keynes’ career path and strategies illustrates one model of how to achieve this.