Trading is hard enough. Many times the margin separating success from failure is reed thin. A winning trade is often dependent on a strong gut, an intuitive feeling. It's what ballplayers call "a good bounce of the ball" or what others might say is just plain luck. Even trading veterans can go from stars to bums and back again very quickly.
Maureen McCarthy, a managing director and head of position trading for Nasdaq and international equities at San Francisco-based BancBoston Robertson Stephens, has learned that many times in a highly successful, yet, at times, rocky career in trading.
A few months ago she almost re-learned this star to burn rule when a trade nearly went bad. It could have easily destroyed a career that had been distinguished by success after success even though she had not been prepared to become a trader.
McCarthy unexpectedly got a try out on the firing line in the early 1980s when in her mid-20s. Thanks to her sister, who was a broker, McCarthy was able to get in the door. She obtained an internship at the now shuttered Kidder Peabody while still in college.
"I made a lot of mistakes in the beginning. But I was lucky to have excellent people helping me," she said. "Frankly, I wasn't ready for trading, but I was able to survive."
McCarthy had mentors who prepared her to learn from failure. After that, good luck had combined with intelligence and persistence to provide her with success. Quickly, sometimes through luck, she was able to move from "chief lunch gal" to positioning and trading stocks at Kidder.
"When I got a job as a trading assistant right out of college, I knew from the start that this is what I wanted to do. I didn't want a nine to five job. I was attracted to the excitement of trading," she said.
Thirteen years later, trading has been the only kind of work she has done in her adult life. It was easy for her to dedicate herself.
She studied and became an expert in biotechnology stocks in the 1980s, in part, because few position traders were interested in this exotic area. "People really didn't understand these stocks. They thought they were all dogs," McCarthy said. Studying them, she saw the potential of biotechnology.
Biotech stocks took off, as did her career. She had moved into gaming stocks in the early 1990s when competitors thought they were dead. Again, she had chosen well. Her superiors noticed and she began to move up.
McCarthy, 36, grew up in Canton, Illinois. She started at Kidder Peabody in San Francisco right out of college in 1986. She moved to cross-town rival Montgomery Securities and then on to her present firm about three years ago. In the process, she jumped from a Nasdaq trading assistant to becoming a principal at Montgomery Securities to a trading executive at BancBoston Robertson Stephens, where she is in charge of the firm's position trading for Nasdaq and international equities.
Despite her success, McCarthy had another lesson recently in how fickle, how tenuous success can be, how even the mighty can fall quickly in this business.
Skating on Thin Ice
On the first day of a recent trade at her desk in San Francisco, McCarthy quickly dug herself a big hole on a position. She was down by a few hundred thousand dollars. The red ink quickly piled up. Soon she'd find herself and her BancBoston Robertson Stephens trading desk down by $1.2 million.
"I started to doubt myself. When you start to doubt yourself terrible things can happen," said McCarthy, who once entertained thoughts of becoming a professional golfer, but her doubts led her to put that dream aside ("I had a seven handicap. I just wasn't good enough," McCarthy said). But doubts are what destroy the effectiveness of many traders, she said. Once again, she felt these doubts recently.
The temptation to pull out of this seemingly disastrous trade and stop the bleeding was strong. Disaster loomed. McCarthy, who prefers neither to name the customer nor the stock, could have lost a big account. Her career might have crashed along with the stock.
But McCarthy had the strength of her convictions. She believed this was a stock that would come back. The strength was backed up by her friend Don Zimmer, a Nasdaq trading executive on her desk, who counseled patience, which is easy to counsel when it's not your reputation on the line.
McCarthy held on.
McCarthy doubled up as the stock was flying (some might say crashing) down. Four days later, a seven-figure disaster had become a six-figure. McCarthy got out with a $120,000 profit.
"We were expecting a unique event and expecting that this was going to happen and that it would help the stock. It finally happened," she said.
McCarthy was no longer in danger of becoming the bum of the week. She was a star again.
"I got to keep my job," McCarthy quipped.
Finding the Talent
These days McCarthy's reward for her history of successful trading is to supervise most of BancBoston Robertson Stephens' huge trading desk. (The latter is now in the process of being acquired by Boston's Fleet Bank. The trading desk, which has grown in recent years because of its BancBoston connection, is expected to have more resources soon. More traders will be added).
McCarthy, now completely committed to her executive role, already misses the days of making the big trade, of risking so much. But now her job is to evaluate other traders. So what makes a good trader?
"A good trader, first and foremost, is someone who has Wall Street in his blood. Unless you have a feel for Wall Street, it's going to become obvious very quickly and you're going to have a problem surviving," McCarthy said.
She wants traders who are very enthusiastic about the business. She describes trading "as a titillating experience." Traders must experience this same excitement if they expect to succeed, she argues. And they must develop lots of expertise, she added.
"A good trader also has a nose for a stock. The trader understands the stock in his or her bones. The trader can just sense where the best entry and exit points are," according to McCarthy.
McCarthy's philosophy of a good trader includes someone with persistence and someone who doesn't insist on too much specialization. A good trader, she says, is someone who is not wedded to any one kind of stock or industry. The trader is ready to move into any industry; to study any kind of new business. Who is ready for anything. The trader is ready to trade biotechnology stocks when they're unknown or gaming stocks when they're out of favor. The trader understands a lot of different areas.
Her experience has taught her that traders who specialize in one kind of stock or industry are taking great risks. In a dynamic market economy, with constantly shifting winners and losers, with industries rising and falling, who knows what companies and industries will be tomorrow's winners, according to McCarthy, a 1986 graduate of Vassar College in Poughkeepsie, New York. (She majored in economics.)
"Don't trade any one industry or one group of stocks. Learn several industries," she said. But, most of all, McCarthy said that a good trader is someone who is a survivor; someone who can get his customers through a bad market, a bad trade or a bad day.
"Anyone can scale a stock in a bull market. Does the trader have the temperament to stay calm when everything is coming apart?" she asked. McCarthy, wants traders who have the guts of a good pitcher on a bad day.
"Can he pitch through adversity and win on a day when he doesn't have his best stuff?" she asked. McCarthy, by the way, remains a bit of a jock. She still occasionally tees off, plays tennis and is ready to go one-on-one on the round ball court.
McCarthy's desk covers 528 Nasdaq stocks and 430 listed stocks. The business is primarily institutional and the rest is what she calls financial services, another name for high-net worth individuals. The latter group was a product of the BancBoston connection as was the addition of a convertible bond division. The desk is large and growing. The firm said it had recently traded 2.5 billion Nasdaq shares and 1.3 billion listed shares for the year. For the month of July, the firm traded about 423 million Nasdaq and 160 million listed stocks, according to the AutEx Group, a Thomson Financial company based in Boston.
"We were the ninth largest investment bank over the last two months," McCarthy said.
Rapid Growth
When she came to Robertson Stephens in 1996 as a senior Nasdaq market maker, there were 500 people in the trading operation. Today that number has doubled, she added. The number of Nasdaq market makers has gone from nine to 20. The desk has 20 sales traders and eight listed traders. On a daily basis, she said the desk is trading roughly 6.5 million shares on the listed side and 16.5 Nasdaq shares. At that volume, the listed volume is growing at a rate of 60 percent, which is about twice the rate of increase for the Nasdaq Stock Market.
The growth should accelerate with the Fleet Bank acquisition, she said, because that will mean the desk will have the resources of a bigger parent and access to Fleet's Quick & Reilly discount brokerage subsidiary.
"I believe we will compliment each other perfectly. They will bring a strong retail presence and we will provide the institutional strength," she said.
McCarthy mentions no specific volume goals for her desk. Rather, she is interested in broadening the desk's expertise and the numbers of stocks in which it can dominate. She doesn't want the desk to have a reputation of only having expertise in technology because of the Roberston Stephens' name.
"I don't have a specific goal but we must continue to dominate the stocks we cover and dominate more of them," she said. Even though she doesn't want her desk to be known only as technology haven, she said that Robertson Stephens' strengths will be used in the desk's attempt to "dominate" the market.
"I believe that we can use the growth of the Internet, an area in which we have a lot of strengths, to broaden our coverage. The growth of the Internet, over the next few years, should allow us to move into many areas as more and more companies and more and more business is pulled into the Net," McCarthy said.
McCarthy wants traders who are ready to survive anything. She knows that her recent trading challenge, which challenged her to use all 13 years of her experience in the business in order to survive, will happen again to other traders. And it will be her job to help them get through.
Trading is hard. Failure is easy. Big losses threaten with every trade. Disaster is around every corner. But McCarthy accepts that because success is "exciting." McCarthy has survived it all and loved both the ups and the downs. McCarthy has "trading in her blood."
