Athletes and Traders Collide

WSO has plenty of traders and former athletes among its users, and I'd be willing to bet, there's a good amount of crossover. The competitive attitude I see from traders mirrors my experience back in college athletics; they seem to be pretty similar people. So, it should come as no surprise that traders, according to Bloomberg, are taking a page from athletics's playbook in order to improve performance: Get coaches. Former athletes all recognize the importance of great coaching. At the elite level in sports, most have world class genetics and all have world class drive, but fewer have access to world class coaches, and the difference is dramatic. But, coaching athletes has been around for a long time while coaching traders is a little newer, begging the question: How do they do it?

Coaches in the financial world are borrowing techniques from as far afield as sports, Eastern philosophy and neuroscience to improve their clients’ returns. In addition, a new crop of software companies has sprung up to provide reams of statistics that the companies say can help investors and their coaches uncover hidden strengths and weaknesses.

Last year, Clare Flynn Levy founded Essentia Analytics Ltd., based in London’s Notting Hill neighborhood, to build that kind of software. A former money manager at Avocet Capital Management Ltd. and Deutsche Asset Management, Levy, 40, points to an array of metrics projected onto her office wall.

As Levy puts it, "Moneyball stats". This doesn't necessarily mean digging as deep as possible into the P&L, Levy looks at other metrics as well as decision making:

She says one key metric is hit rate, the percentage of times an investor is right about an investment’s direction, such as predicting that Twitter Inc. shares will rise over the next three months. Another is payoff ratio -- the money made on successful investments divided by the amount lost on unsuccessful ones.

Levy says software can aid in that: It can determine whether a fund manager does better with long- or short-term investments, with large-cap stocks or small caps, with long positions or shorts. It can spot money-losing behaviors, such as bailing out of positions too early when a portfolio is underwater.

In my experience, this is the major benefit to having a coach in an athletic setting. If you're a tennis player working on their serve, a coach will tell you what you're doing wrong, and let you know if you're continuing to make the same mistake. The whole, "practice doesn't make perfect, perfect practice makes perfect."

Eventually, [Levy] says, her software will be able to send an alert to a money manager who’s in danger of repeating old mistakes, prompting the client to pursue a better course of action.

Coaching isn't all about software and tracking, however, some coaches noted in the article go beyond the data and into psychoanalytics.

New York–based Denise Shull, another ex-trader who became a coach, says unconscious patterns often rooted in childhood strongly influence how an investor responds to the market. She says she has assisted investors who stubbornly cling to positions because they need to prove how smart they are.

“Fund managers are supposed to use conviction to guide their investment decisions,” she says. “But how much of that conviction is about the here and now and how much of it is about wanting their father or mother to say, ‘Good job. I’m proud of you’?”

According to the article, there are some mixed feelings about this particular aspect of coaching for high finance, but approaching a traders mental state is catching on more and more.

The link between mind and body represents the next frontier for investment coaching, says Steve Ward, a London-based trading coach with a background in sports psychology. He advocates using biofeedback and meditation, long practiced by elite athletes, to help traders regulate their emotions.

Ray Dalio, founder of the world’s largest hedge-fund firm, Westport, Connecticut–based Bridgewater Associates LP, credits Transcendental Meditation with contributing to his success. Ward says traders can use meditation and other mental exercises to achieve flow -- a period of immersive focus that many traders associate with improved returns, similar to athletes’ sensation of being “in the zone.”

Investment Intelligence says it’s integrating its software with biometric data from wristband monitors made by Basis Science Inc. These devices track heart rate, caloric consumption and sleep patterns, among other things. The goal is to find correlations between, for example, a steady heart rate and astute investment decisions.

From where I'm sitting, the good coaching - in whatever form is appropriate - that traders (really, all workers) can get, the better they'll be at their jobs. Of course, that begs the question, "how good is the coaching?" What do you monkeys think? Anyone here have a coach?