The Screening Room – Million Dollar Traders, Part 1

Available on YouTube here (link correct as of 7th January 2020):

HEEEEERE’S LEXXY! (please don’t sue me Lex, your show was great and I want to invest in your hedge fund)

Lex Van Dam strikes me as an interesting guy. In 2008, he took a reality TV idea to the BBC, proposing to put up a big chunk of money for a bunch of randoms to trade with. All the participants would come in from vastly different backgrounds with Van Dam’s intention being to replicate the Turtle Trader experiment from the 1980s (a fascinating social psychological test aimed at turning a bunch of randoms into million dollar investors and traders – He would front the cost of training the individuals, funding their trading room and providing the investment neccessary.

“This is Lex Van Dam. A man who’s about to make the biggest gamble of his life. He’s bet 1 million dollars of his own money that he can turn 8 ordinary men and women into successful city traders.

From everything I’ve found, Lex’s reasoning for why he decided to run the experiment has been inconsistent. Given the show wound up filming as the height of the financial crisis hit, it’s certainly possible that the rationale changed to fit the marketing of the TV show. Either way, the three-part show providing a fascinating look at the world of hedge funds, small time trading and the total and terrifying lack of respect that the everyday person on the street has for money.

Once all the introductions are done (and for the most part, we learn that the contestants largely know absolutely nothing with a few exceptions, and that they’re really boring vapid people), we get the first real bit of meat – Lex and his trading floor manager Anton (more about him later) are not fucking around. Seriously not fucking around. Lex does not want to lose money. If he loses money “it’s a disaster” and the look in his eyes when he says it gives me the impression he’s going to get all Freddie Kruguer on his biggest losers. Meanwhile Anton doesn’t care if you’ve been in this game for a day or 25 years – He smashes the team for a laissez faire approach to their first day despite the fact they’ve never traded before.

On some level I see what he’s saying – where’s your research, where’s your plan, where’s your hedge etc etc, but at the same time they’ve thrown this lot straight into live trading. Not even demo. It’s as deep end as you can get, and I can’t imagine a real hedge fund or bank operating like this with a brand new trader (or to be fair, even pushing a new hire straight into trading without prior experience).

The team has the instruction to trade individually, on their own opinions, but that they won’t succeed as individuals. The success of the fund relies on everyone combined making a profit. Obviously, we know from that alone, straight off the bat, that they won’t succeed. The deeper we get into the individuals, we see this more and more. Ohi, a student, finds himself reading the paper instead of trading, panicking about “performance anxiety”. Emile, a fight promoter, has information overflow and can’t seem to discern between the good and the bad. Simon, a retired IT engineer, talks about statistical models, how he can apply them to his portfolio, and why they work and shows not a single inkling about why that approach is going to lose him money.

It’s no surprise when he goes balls in with a maximum position size on the first trade of the group and instantly loses money. Talk about buying at the top. This trade hits a stop loss within a few days, along with a few others he makes, but all he seems to care about when the market opens is eating breakfast. Inexplicably, he then gets funny with Anton for no reason.

As the first week continues and the team add more and more positions, emotions and standards start to creep in. Caroline, entrepreneur and single mum, has major misgivings about shorting. I get this as she’s owned a business and wouldn’t want to see anyone in any market place suffer, but there is a lack of steel for her investments. Sam, who is hilariously just listed as “Environmentalist” on the show’s Wikipedia (is that even a job?), doesn’t want to put the trigger on anything that isn’t ethical which keeps him on the sidelines of a great many markets, and revisiting Emile briefly – his strategy isn’t even a strategy. He just invests in brands he likes willy-nilly without any semblance of investing their underlying business.

I’ll be honest, if I was Lex watching this, I would be absolutely frozen in fear. Personally I’ve blown bank after bank trying many different and terrible ways of trading, and almost everyone here is exhibiting the same lines of fear, emotion and poor analysis that every newbie trader has felt.

Double top, Cleo. Double top.

A breaking news story about Iran launching a missile (how ironic given current real world events) gives everyone a potential in. Cleo, a vet, shorts British Airways thinking “AHHHH OIL” which is the first actually smart move of the show. My issue here is – did she see the potential double top and resistance zone or did she react purely on news? When she proceeds to celebrate being 1p in profit, I’d probably argue she didn’t see one of the most basic fundamentals.

Thankfully, the team largely start to pick it up in terms of their professionalism. Simon remains an issue, but the communication is good, they’re playing cautiously, and they’re getting their news analysis in.

Mike, a retired soldier, is picked up for not making trades. His explanation is waiting for the right time seems pretty solid to me, especially as a new trade, but Anton is considerably less forgiving. I’m not really clear on why – timing is something that comes with real trading experience, and yes, you do have to jump in and make your first mistake, but equally isn’t Mike safeguarding Lex’s money? I don’t know.

Then, naturally, the credit crunch hits. Wolf Blitzer appears on our screen to tell us about Freddie Mac and Fannie Mae and absolutely no one has a single fucking clue what to do as every trade turns red. Errr, short the market maybe guys? Anton more or less says this both to us and to the team and yet they just sit at their terminals and… do nothing. Sam buys shares on Alliance and Leicester after Santander agree to buy them. Unbelivable trade, but hey, it worked. Simon copies his trade idea by going in on Bradford and Bingley (on what basis?) and gets utterly fucked.

Cleo sells off everything in a panic and then has a paddy. Anton is very clearly getting pissed off in his office on the phone to Lex which is quite funny – they clearly think they’re the two smartest guys in the room, and actually they are. Again, why the hell are this lot not shorting everything on price action alone?

Anton pulls them up on their professionalism again and tells them not to have lunch (fair enough, that’s how the City works). Both Simon and Cleo both start to have meltdowns as a consequence, with Simon still arguing with Anton for no reason and Cleo having a total confidence freeze. You get the sense that it’s been a frustrating first week across the board for all of them. Mike is finally starting to trade though, although he’s going in with a crazy hedge based on a right share and underwriting between two separate banks. Nothing wrong with that kind of trade if you know what you’re doing, but again, Mike is a novice. Predictably enough, his hedge stays static whilst his main position crashes straight into a wall. Anton very slyly thanks him for his effort whilst telling him he’s an idiot. Although that might be because Lex tells Anton that Mike’s an idiot.

The BBC proceed to ham up the impact that the financial crisis has had by showing us footage of a homeless man with a huge bushy beard just one week into the crisis. I guess he really got hurt bad on the Monday! Back in the office, Cleo who has survived so well up until now without turning on the waterworks, finally cries and believe me, this will now become a regular feature. Anton tells her she needs to not be a perfectionist and just go for it.

She makes a pretty good point to camera before shitting all over herself. She feels like she’s being pressured to have positions just for the sake of having positions (absolutely true, that’s entirely what’s happening and it’s not right when you’re trying to keep someone else’s money safe), but then tells us she doesn’t want to trade when the market is so volatile. Volatility makes money and she doesn’t understand how important it is. Again, I can’t state this enough – SHORT. EVERYTHING.

Simon doesn’t know if he’s long or short, totally miscalculates his pip values, positions, probably his own bank account, probably don’t know if he’s actually married or not and from what the footage would suggest he basically opens a trade and instantly closes it for loss before reopening the trade. At this point you have to wonder if he’s there to deliberately sabotage Lex. Maybe he’s an agent of the Big Banks? Mistakes happen in trading, don’t get me wrong, but you can trade out of them, hedge them, try and turn them into a positive position. You don’t just crap out the other way straight away.

Anton knows where it’s at and the more I see of him, the more I like him. Lex chides him for being off the floor for an hour and a half to deal with Cleo’s shit and Anton tells him straight in return “A person who can cry for an hour and a half is a person who has never traded before.”

He’s absolutely right. He knows exactly what he’s talking about, and he’s getting increasingly frustrated with the whole experiment.

“Yes Lex. Yes, I know, they are all fucking stupid.”

Finally, FINALLY, the group decides to short when banking share news comes out. I mean, it’s a bit late, they don’t hedge anything, and if they’ve waited until clear share news to do it, you can guarantee everyone else is doing it and a bounce is inevitable as a result but hey, you can’t teach an onion to walk, or something. The smart money comes in when the news turns out to not be as bad as expected and takes the shares back up. All the traders have been eaten for breakfast, Lex is pissed off again, Anton fires a rocket up everyone’s ass and I’m left asking myself again, why didn’t they short a week ago?

That’s where episode 1 ends (the preview of episode 2 shows Simon and Anton arguing again over nothing). I was going to do the whole show in one post but to be honest the lessons you can learn from this show as well as the entertainment value is too much to be contained in one, so I’ll be back for more later. What I will say is this – the valuable lesson to take from this show is so simple. It doesn’t matter how much training you’ve had – you can’t go and trade live straight away and expect results. You’re not going to understand market conditions, nor are you going to have seen how quickly things move and bounce around. There’s no substitute for experience, and no way of simulating this without seeing it live. The best thing to do is go demo at least for a couple of weeks. Don’t use a demo account to confirm whether your algorithm is going to work, but do use it to get a grip on the why/what/where/when of how market works.

Oh, and also – if the economy is crashing and you’re in stocks, SHORT. EVERYTHING. IMMEDIATELY. I mean seriously, what’s wrong with these people? Why on Earth wouldn’t you do that?