Saturday, 15 September 2018

What I learnt from being fired

Robert Armstrong in the FT

The anniversary of Lehman Brothers’ bankruptcy has prompted lots of reflection on the damage done. But there were winners, too. I was one of them: I got fired. A decade ago I was an analyst at a hedge fund. We owned some stocks, and bet against others. At the end of 2008, after five years at the fund and with Wall Street flat on its back, I was let go.

Getting sacked is not the standard way to win in a market collapse. Some will argue that, say, John Paulson, who made $4bn personally betting against mortgages, comes away looking better than I do. This strikes me as a rather conventional take. In any case, the crisis taught me two key things and, more importantly, saved me a lot of embarrassment.

The first thing I learnt is that doing the right thing only goes so far. The two portfolio managers at my fund were smart and despised risk, and they were quick to recognise that something serious was going on. As they only owned stuff that was easy to sell, sell they did, and early on. Their clients lost nothing during the crisis and the fund survived. But the clients pulled their money anyway. They needed it and we, not having lost it, had it. So expenses had to be cut, and I was one of them.

The economy — or, if you prefer, the universe — is a big machine. No matter how smart or careful you are, you might get caught in the gears. Most people learn this eventually. I’m just glad I learnt it by losing a job rather than by, for example, getting struck dead by a meteor. 

Lesson two. In a crisis, nobody knows anything. The writer William Goldman made this point about Hollywood: until you get a movie in front of the audience, no one can say with anything like certainty whether it is good or not. Most of the time, by contrast, finance is a business where the important variables are predictable to within a certain range. But when a storm comes, finance is — no matter what anybody tells you in retrospect — as mysterious and fickle as a popcorn-gobbling rabble. Because that is what, in the final analysis, it is. 

At one point in 2007 I was working with two colleagues on a simple job: determine which of the big European banks have significant exposure to US housing. But the banks were, for some reason, hesitant to answer our questions in very clear terms. In some cases they seemed oddly unwilling to answer the phone.

Nor did the thousands of pages of disclosures from the banks contain anything helpful. The annual reports that had previously appeared to me to be precise quantitative descriptions of businesses looked, suddenly, like a brittle superstructure of certainty erected over a heaving morass of unknowns. 

It is reassuring to think of this like a freshman-philosophy Socrates. Knowing what you don’t know is the beginning of wisdom, and all that. That is a comforting thought when you are sitting in a lecture hall on a crisp autumn afternoon. When you are lost in the woods, knowing what you don’t know is just scary as hell. 

I should note that internalising these two points — that I am not in control, and don’t know much — has cost me money. It has made me much too conservative in how I have my savings invested, and I’ve missed much of the current stock market rally. At the same time, though, I think it has made me a better person and a clearer writer. It is a trade-off I can accept. 

That the effect of the crisis was to make me reflective and over-cautious reveals something else. I probably did not belong in finance in the first place. The low prices of stocks after the crisis made good investors greedy. They made me contemplate the vanity of all human striving.

That is how the crisis shielded me from embarrassment. As it was, I lost my job when a lot of other people did. No one was surprised then and no one asks for an explanation now. It was just one of those things that happens. If there had been no crisis, my guess is that somebody would have got around to firing me for being useless. Which would have been awkward.

Finance, like law, is a profession that attracts a lot of reasonably intelligent, hard-working people who rather like money. People like me. Most of us are not really suited to it, though, and that makes for a lot of unhappy careers. The financial crisis saved me from that, and I am grateful.

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