Oh Look, A Shiny Object!

There is, right this moment, a man in my office having a mental breakdown.  I don’t even know his name – he’s some engineering manager in a function I rarely deal with.  I have no idea what caused the breakdown – merely that he’s sobbing at the top of his lungs from his office “I don’t know what my fucking problem is!” and similar vaguery.  Thankfully a co-worker who’s better at this sort of interpersonal relationship thing than I am has closed his office door and gotten him a tissue.  I say thankfully not because his breakdown is resolved but because I no longer have to listen to him.  Harsh?  Maybe, but read on.

Meanwhile, another guy across the office is having an argument with his wife about buying the expensive backpack at REI vs the cheap one at Walmart.  He’s in favor of the Chinese cheepie.  She’s in favor of the gold plated one from REI (which for all I know may also be from China).  Given the tenor of the conversation, I fear his marriage is not long for this world regardless of which backpack they buy.  But mostly I just want him to shut the fuck up about backpacks or at least use his indoor voice.  Personally, I’d be embarrassed to spend half an hour arguing about a $50 consumer goods purchase and wouldn’t want anyone to hear it.  But shame doesn’t seem to be a major gating factor here.

Now, given my current circumstances, you want to guess how much work I’m getting done right now?  If you guessed “not a damn thing” you win a prize.  That prize just happens to be a co-worker who’s a little cheap on the backpack front ;)  Theoretically I’m putting some effort into writing this article, but it’s pretty half assed.  Thanks to all the distractions, I’m sort of losing my train of thought.  I’m going to have to stop and come back when it’s quieter.

<TIME PASSES>

Ok, where was I?  Oh yeah, I was going to write about trading and distractions.  But I got, well, distracted.  Before we can talk about the trading implications, it makes sense to take a look at what happens to the human brain in general when you’re distracted or multi-tasking.  And the research is pretty much unanimous on this point: any time you try to do two things at once or one thing while distracted, you’ll do a crappy job.  There’s about a million studies that show this, but I’m only going to link to one because its results are even more incredible: Clifford Nash’s discovery that people who consider themselves skilled multi-taskers perform worse on nearly everything, even when they’re not currently multi-tasking.  They’re distracted, low-functioning wrecks pretty much across the board.  In other words, multi-tasking actually damages your cognition for longer than just the duration of the distraction.

While I don’t know that science has gone there yet, I’m going to make a very small leap: some people bombard themselves with multi-tasking and distraction much more than others.  There’s a certain tweaky, ADD-lite segment of the population (of which I’m sadly a part) that naturally gravitates to doing three things at once.  And frankly it makes us stupid, or at least substantially stupider than we’d be if we just did one thing with solid focus.  It may not surprise you that trading, which is basically the occupation of staring at blinking lights on a screen, attracts this short attention span crowd.

Objectively, trading while distracted is insane.  Who, when faced with betting a meaningful fraction of their net worth on anything, would intentionally distract themselves from that important decision?  Certainly not a person who likes money.  Yet traders, both retail and institutional, do it to themselves every day.  The conventional Wall Street trading floor or “pit” is the most insanely distracting environment anyone could devise.  Tens or hundreds of yelling people, phones ringing, flashing screens.  And in that environment the cognitive damage Clifford Nass warns against occurs.  Attention spans devolve from hours to minutes to seconds as careers progress.  The traders try to fight this decline, but unable to get rid of the distracting sights and sounds they go for the next best thing: alkaloid stimulants like caffeine, amphetamines (usually in the form of the ADD drug Alderall) and cocaine.  All of those drugs have basically similar neurological effects, and all of them in the words of Alderall studies “improve focus”.  And as with all CNS stimulants, tolerance and at least soft addiction become problematic.

So now you know a little Wall Street secret – all the coke dealers and pet doctors who mysteriously diagnose nothing but adult ADD (and of course prescribe Alderall) aren’t really there to get people high.  It’s not just about decadence.  The drugs are an ineffectual antidote to spending 10 hours a day in a room with 20 people yelling.  This is the horrible downside of the institutional trading environment   While trading floors are great at teaching people to trade by osmosis, they’re horrible at keeping them sane.

Given that, you might think that retail traders all alone in their home offices would outperform the big boys.  But we know that’s not true, and it’s interesting to think about why.  Part of it is that retail traders don’t get the osmosis learning that their institutional opponents do.  I’ve talked about that a bit before.  They certainly lack access to the cheap capital that facilitates so many arbitrage strategies.  Those are unavoidable consequences of trading retail.  But unforgivably, many small traders recreate their own “trading floor” of distractions even though there’s absolutely no need to do so.

I’ve been horribly guilty of this in the past, and despite the fact that I’m now very conscious of the problem it still bites me from time to time.  I’ll have too many charts and feeds open, the TV on one of the finance channels, and since there’s nothing tradable right this instant I’ll browse the web (5 tabs, of course).  All this equates to a task switch (aka distraction) every few seconds.  And as Nass would tell me if he were handy, it turns my brain to mush.  In short order I’ll find myself taking trades that, by any sort of dispassionate analysis, are just wrong.  In a few notable instances it got to the point where I was so distracted I clicked “buy” when I ment “sell” or vice versa.  All that multi-tasking rendered my brain unable to do simple tasks like clicking on the right button.

Over the past year I’ve declared war on distractions and multi-tasking.  You should too.  It’s a tough war, and I can’t say I’ve really won it.  But since I want a trading career of some length I’d say it’s one I need to win.  And since I like my liver, it’s one I should try to win without chemical weapons.

Take Nass to heart – multitasking at any time hurts your performance all the time.  Whatever you’re doing right now, do that until done (if at all possible) and do only that one thing.  Really try to do it well.  Do this even when the task isn’t trading-related.  Don’t think about trades while driving.  Don’t check your Twitter feed while blogging.  Don’t ponder statistics problems while having sex with your wife (OK, you didn’t read that…).  Shut off the little voice in your head.  Just do what you’re doing and do it the best you can all the time.  Spend hours of time on problems that deserve it.  Just like Nass describes the vicious cycle of damage done due to distraction, there’s a virtuous cycle you can benefit from where improved focus and attention span begets deeper and better work.  You owe it to yourself to tap into that.

6 thoughts on “Oh Look, A Shiny Object!

  1. Somewhat sidenoted, the first three paragraphs are my favorite bit of writing thus far on the blog.

    Hope the arbitrage discovery is still alive for you.
    Alex

  2. Sounds like you had the normal day at the office like I use to. I am in favor of a schedule that allows me to focus on one thing at a time and moving to the next. People talk about how good they are at multitasking but for me I would rather finish something up and then start on something else. I dont know how many times I have heard I didn’t get a chance to finish that yet they have already started something else. My favorite line – “Don’t ponder statistics problems while having sex with your wife”

  3. Hello,
    I’ve just found your blog and love it. I’m looking forward to reading all your posts from the beginning! I’m just starting to get into investing myself. Thanks for the interesting topics and points of view.

Leave a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>