Tribes of Wall Street, pt. 2

This note is on the psychology of the Tribes – what it takes to succeed in trading, banking or sales. Some would say the preferred neuroses, but you can be the judge of that.

The Trading Tribe has always gotten the most attention in the wider world and the press, in part because they can “pull the trigger” with so much money. Traders need the unique ability to forget what happened ten minutes ago and be completely sure right now.

That’s not to say that traders don’t know history or pay attention to details. What they do need to do is forget the last trade as soon as it’s over. If they can’t, they’ll second guess themselves into a kind of paralysis.

Even though they can’t be right all the time, and most successful traders are right barely more than half the time, it’s still true that each time they make a bet, they believe in that bet. It can make them very difficult to deal with in a group setting, since the activity is so much a single ego activity, like tennis or chess.

There are some traders that work together.

We had a pair of traders at one shop that each got paid as a senior trader. I thought it gave us extra coverage when we hired them, but it didn’t work out that way. They went to lunch together, attended meetings off the trading desk together, and even took their vacations together. They even had the drawers in their desks removed so they could push their chairs right next to each other. It got so we called the two of them a single name made as a contraction of both their names.

Strangely enough, they proved the rule that trading is a solitary activity when the two of them “became” one.

In another unusual case, I knew two equity traders that worked together by having one of them do all the buying, and the other all the selling. I never heard what happened if the buyer really loved a stock, and the seller hated it. Did they alternate buying and selling until one of the two got tired?

The Sales Tribe has a unique job. In institutional sales where a single sale may have a million or more dollars in profit attached to it, the reality is that only a few sales per month will come through for each sales person. The successful ones will still make dozens of calls every day, convinced that each call will be a sale. If you looked at their actual “hit rate,” chances are that only one out of a hundred calls results in a sale, or even less.

Imagine having a job that involves being told “no” a hundred times in a row, yet somehow you keep up your optimism and keep making the calls. On the other side of the coin, a good sales person that makes a dozen or two dozen good sales a year on Wall Street can get paid a million dollars or more for that year of being told “No.”

One of the best salesmen I ever worked with had a unique ability to make the person on the other end of the phone feel good. This is harder than it seems, especially in the pressure cooker of a Wall Street trading desk. One day when I got home after a particularly grueling nineteen hour day, my wife asked me about that salesman. I told her he was very productive, and that I had happily turned over some of my best contacts to him for coverage.

She noted that, on those rare occasions when she called me at the office, if he answered, he always made her feel as if she was the only person in the world.

That fits with the hard sales lesson I learned on my first “real” job after college, when I sold equipment and supplies to plant engineers and custodians. I came to the conclusion that there were really only two things needed to make a sale.

First, you need to make the customer feel good about themselves at the moment they make the buying decision.

Second, you have to give them the information they need to make that decision.

It can be difficult to figure out what makes any given customer feel good about themselves. Fortunately, for most customers, what makes them feel good is liking you and feeling that you like them. Mercifully, only a few of them need to abuse you to feel good about themselves.

Knowing what information they need to make the buying decision can be harder. Sometimes it’s all technical information. Sometimes it’s knowing that other customers are buying. In one case, the customer needed to see that some other buyer (of one of the other bonds in the deal) was getting screwed.

One successful salesman I worked with was definitely not super-intelligent. He kept making the outgoing calls, and made his share of sales. Even though he didn’t have a clue how structured finance worked, he would still print sales tickets. He was very modest, a nice guy in a Casper Milquetoast kind of way. The only thing we could come up with as a reason for his success was that the customers knew he couldn’t trick them.

When I talk about the Banking Tribe, I’m really referring to the bankers that put together the documentation, structure and legal vehicles to do the deal. Some bankers also go out and bring in new clients, though I think of those that only bring in new clients as members of the Sales Tribe.

I call the investment bankers that put together deals “execution”, or “inside” bankers.

In my time at Pru, I used to joke that I never worried when one of the Susans was assigned to work on deals I structured. The reason – they did enough worrying for everybody.

Both were investment bankers (named Susan) with that characteristic that all the best “execution” bankers share, an incredible ability to focus on making sure every detail is completed correctly. This was especially important if the deal was being done for a first-time issuer. I recently looked through my collection of “tombstones”, the Lucite commemoratives given out when a deal closed, at least during the 1980’s. By the 1990’s there weren’t commemorative Lucites any more, because deals were a weekly event.

I noted that twenty-two of the tombstones were for first-time issuers, where you didn’t have any template from that issuer to work with. In addition to the specific details of the deal at hand, a new issuer needs all the documents written that set up corporate entities, trusts, pooling and servicing agreements, underwriting agreements between the investment bank and the issuer, not to mention some serious hand holding.

My time in the Banking Tribe was the most satisfying that I spent on the Street. Coming to it from the perspective of the Chief Architect of the deals made it so.

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5 Responses to Tribes of Wall Street, pt. 2

  1. Chris Drucker says:

    Most awesome blog post Howard. So does the sales tribe influence the structure of the deals being created by the banker tribe? Or do they not, and they just enter the picture after the structure of the deal is finalized to sell the various pieces of it?

    • hhill51 says:

      Chris –

      That is how it used to work. Once I get my book updated, I’ll be able to sell it online. I put in one chapter that follows the path of a deal structure being created, with close cooperation with several client types and the sales force.

      In the late 90’s, Wall Street discovered how to create its own customers with the “arbitrage CDO.” At that point, they could create bonds, and sell them to their captive CDO manager clients, and let the “real money” buyers decide whether to play or not. in 2003 through 2006, buyusiders often had to commit to bonds in minutes rather than hours, because all the deals were being sold three times over. In a sense, the bankers and traders took over, and left the sales tribe to work on getting allocations for their best customers, rather than selling.

      I think I’ll add another mini-chapter to the Tribes story this weekend.

      hh

  2. slade says:

    The ‘Susans’ had to worry about every detail because if something went wrong, who do you think would be blamed? Certainly not a ‘John.’

    The Military Clan and the Money Clan are notoriously for the boyz. Just look at Lynndie England. And why was a woman placed in charge of the prison in Baghdad?

    Every project in the Money Clan has a well-placed woman who is there just for ‘Blaming’ purposes.

    “What the hell do women know about money or killing?”

    Aside all that, I worked at Bache, Pru-Bache, Prudential Securites in the ’80’s…retail. The nightmares have dwindled to maybe once/year where I’m facing the end of the month and have sold nothing. Selling tangibles is easier, IMHO.

    • hhill51 says:

      Could be… but your comment did remind me of a CMO deal I worked on with one of the Susans when we walked into the pre-closing and document review (where all the real work gets done for one of these deals), and of the more than a dozen people in the room, I was the only one with a Y chromosome.

      I can’t recall which of the several names it had then, but the firm we worked for was the same one that gave you the nightmares.

      Small world.

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