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January 3, 2006

A Trader's Value

By Michael Scotti

Malcolm Gladwell, author of "The Tipping Point," could have been easily talking to a group of traders during his speech at the SIA's recent annual gathering. Gladwell said decisions made using our instincts are often more accurate than those decisions we make using extensive data and research.

Gladwell described how the Getty Museum quietly spent 14 months analyzing the authenticity of a seemingly rare ancient Greek statue. Based on the conclusions of scientific experts, the museum bought the piece for $15 million. When Getty officials proudly unveiled the statue to antiquities scholars, these experts laughed in their faces. They concluded within seconds the statue was a fraud. In short, two seconds of intuitive judgment proved more accurate than 14 months of study.

"In the heat of battle, we make instinctive judgments," Gladwell explained. "This is at the core of what it takes to be successful in your work," he said. "Our reputation rises or falls based on our decisions."

It's fairly common to hear traders say they instinctively know when a trade is a good one. This benchmark isn't foolproof, obviously, but it's a reasonable guideline. That doesn't mean that quantitative measures like pre- or post-trade cost analysis aren't valuable or even necessary. They are tools that measure the trade and the trader, but the trader's judgment is still the driving force.

This may seem counterintuitive, but Gladwell said decision-making actually improves with less information. Traders usually don't have that luxury. Their abilities to multi-task and make semblance of what is seemingly disorder were also explained by Gladwell: "We have the intuitive ability to zero in on what's important."

One trader I spoke to agreed with Gladwell's assertions. There are certain patterns that the subconscious recognizes. These patterns aren't obvious, but the trader acts on this information intuitively. That's a trader's value.

I wish I could share this letter with an absent friend, Ann Hartwell, who recently died. I know she'd enjoy it. Ann headed trading at MFS Investments, where she spent 36 years. Ann was a trailblazer in a male-dominated industry. Ann was a terrific person, someone who gave back to the industry at the National Organization of Investment Professionals, TraderForum and numerous advisory boards. One broker recalled her being "firm but fair" and having a "gracious wit." The Ann Hartwell I recall at TraderForum was always a soft touch to lead a breakout session or to be on a panel. I couldn't name a more motivated or involved member than Ann Hartwell during my five years there. Her sharing and openness set the standard. Ann will be missed as both a professional and a friend.

Michael Scotti,

Editorial Director