Flaws are personal.
Is the gap in your teeth charming or begging an orthodontic appointment? Being pedantic, all virtues and sin are relative. But a flaw is not an absolute judgement. It’s a splash of local color, with a range of impacts, depending on who, what, and when.
Flaws can be fatal of course, especially to Greek heroes with deeply embedded character traits. The flaw in a plan can be the unwinding of a villain’s coup de grace, or overlooked factor that flubs your million dollar strategy.
The more benign flaws are the paint chipped bureau that’s shabby to some, chic to others. For wine drinkers there’s a whole category of faults that are objectively defined but subjectively appreciated.
While it’s difficult to measure the level of brett (barny-ness) or cork taint, volatile acidity has a threshold definition of 1.4 g/l of acetic acid allowed in red wines from the United States. The line where your wine becomes vinegar.
Volatile acidity is slightly more complex than the single acid they measure - there are other esters that contribute to this experience. A high measurement typically indicates sloppy cellar practices, so it’s a well intentioned benchmark to monitor. Wines with too much volatile acidity also simply taste bad.
But context is key here, and the European Union has recognized that in their own rulemaking. The starting point is similar to the United States, but the limit climbs with alcohol levels, allowing higher strength and aged wines greater degrees of acetic acid.
At the right levels in the right wines, this “flaw” will provide lift and balance. Sweet botrytized white wines with large amounts of residual sugar demand that counterpoint, as do ripe high alcohol reds.
Other flaws in wine are even more personal. Eucalyptus taint is something the Australians battle with, as many vineyards are planted in close proximity to the plant. A moderate breeze will pepper the ripening grapes with the eucalyptol oils. This lends a medicinal freshness to the wine, with notes of mint, menthol, and eucalyptus leaf.
Wine drinkers start to consistently reject a red wine containing more than 27.5 ppb (parts per billion). Below that level, there’s a sweet spot where a little bit actually complements the big ripe grapes, and is chosen more often by tasters. But even at the “taint” threshold, 38% of consumers prefer the “bad” wine.
Don’t let someone else tell you what’s a flaw. Small doses of toxic traits lend complexity, even an edge.
Floor trading and the mano y mano connection of the call around market are appropriately called “high touch” to distinguish them from the automated, impersonal, “low touch” electronic executions. Order book queue tactics and blind auction strategy are replaced by a very personal connection with your counter party.
But unlike dating or making friends at the playground, the most remunerative relationships are laced with their own acidities, tensions, and flaws. The character traits that make someone unpleasant to share a beer with or unproductive in a collaborative meeting tend to generate more PnL.
Now for every aspiring trader who will take this as license to be a jerk - that’s not the full story. I know plenty of very successful people who are catching their flies with honey. If you head out with the idea of making a flaw your personality, there’s a very good chance you’ll overdose.
Tight lipped-ness is the high touch equivalent of volatile acidity. When a broker walks into the pit, a good market maker is a stone wall of information flow. They give no indication about the size or bias of their position. Even if they’re bleeding from deadweight open interest on the line, they mustn’t let the broker or other traders in the pit see anything that can’t be deduced from public information.
By keeping the counter party guessing, you preserve the ability to navigate the order, size up when appropriate, and fade quickly when not. There’s no leakage about the tools you’re using, or your opinion on what that order means. A poker face must hold whether you’ve got pocket aces or nothing at all.
In the wrong context though, this flaw becomes destructive. High touch trading might be the big jammy red that can handle volatile acidity and eucalyptus taint, but when interacting with colleagues on the same team we’re looking at a delicate white grape. Too much self interest means the support team can’t help you as easily and you miss out on the net positive effects of information trading with your peers.
The same holds true for many volatile characteristics that are required of successful traders or investors. A dose of contrarianism is powerful for identifying opportunities, but being stuck in a permanent haze of suspicion is blinding. ZeroHedge gets exhausting.
The overzealous risk manager that closes everything down, also cuts the tail on a lot of edge and potential. This is the fundamental problem with blindly using condors to collect the volatility risk premium - the leg you buy for defined risk is where the VRP tends to be best monetized.
I could go on. Letting winners run is also a failure to monetize. Conviction becomes stubbornness. Complexity is explanatory until it is obfuscatory.
It’s well known that CEOs tend to exhibit psychopathic tendencies at a far higher rate than the general population. The charm and ruthlessness have their place, but again too much creates a toxic culture and impulsive risk taking. None of this means you go hunting for your next chief in a psych ward.
Finding a personal style - as an investor or just an individual - is all about balance. Every trait has a toxic level, but there’s rarely a hard line of where that should be. Some folks like their Shiraz to taste like toothpaste.
“ZeroHedge gets exhausting”
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