“Just ‘P’”

I’m going to “talk shop” with and for industry professionals today.  Other readers might enjoy the story, though.

In the institutional fixed income world that nurtured me in this business (so to speak), one great internal divide within the major investment banking firms was between traders – those who took positions on behalf of the firm and allocated the firm’s capital – and sales people – those who marketed the firm’s positions.  I was in the sales camp.  You can get a feel for this world by reading Michael Lewis’s terrific first book, Liar’s Poker.  Michael was also a sales guy.

To say that there was often tension between these two groups is to understate what went on.  A lot.

One summer afternoon, shortly after lunch, the market had gone quiet and some relatively good-natured smack was being talked between sales and trading.  Nothing unusual about that.  But there was always an edge to it, of course.

A trader was – yet again – mocking a sales guy on account of the inordinate focus and attention the sales guy gave to his perfectly coiffed hair.  On a trading floor where the best suits were de rigueur, where ties deemed insufficiently stylish (and expensive) could be cut off and hung from the ceiling, and where two shoeshine guys worked full-time, all day, every day, to keep shoes in pristine condition, standing out for one’s grooming habits was quite an accomplishment.  But this sales guy had clearly earned it.

Anyway, the trader was claiming that the sales guy cared way too much about his hair.  By any objective measure, the trader had an excellent point.  As usually happened, the discussion took on a trading connotation.  When the sales guy denied that his hair was any big deal (obviously false), the trader called him on it and noted that his hair-loving was such that no bid would get him to part with it.

The sales guy, feigning indifference but not very well, insisted that it was all no big deal.  Being very good at his job, the trader sensed that blood was in the water.

“I’ll give you a hundred bucks to shave your head.”

Sales people aren’t well known for thinking three moves ahead, but at this point the poor sales guy began to sense that he was in trouble.  He tried to shake it off entirely, saying in an attempt at dismissiveness, “It’s going to need to be real money if you want me to go through the trouble of doing that.”

The trader knew his win was inevitable at this point.  The only question was how things would play out.  So the trader leaned in for the kill.

“How much is real money?”

By this point, the trading floor – a ginormous room with a ceiling two stories up, holding hundreds of people and tons of equipment – was silent and hanging on every word and every nuance of this transaction.

Meanwhile, the sales guy looked like the prey in videos like this one, with the trader playing the tiger.

Desperately trying to look nonchalant (and failing miserably), the prey announced, “I dunno.  Maybe ten grand.”

The trader paused ever so slightly and a grin hinted around at the edges of his mouth.  “You’re done,” the trader replied, using trading language with unmistakable intent and meaning.  In the same way that “You’re done” establishes a binding trade, from which there is no escape, the trader had made it impossible for our hair-lover to undo the damage he had inflicted upon himself.  All the remained was settlement.

Surprisingly, the sales guy tried to weasel:  “If I’m going to shave my head, I’m going to need to see that ten grand, in cash.”

“No problem,” replied the victor, as he got up and left the floor in complete silence – the kind of hush only heard in moments like the last few seconds before the release of the NFP numbers on the first Friday of every month — his footfalls purposefully but quietly crossing the carpeted floor.

He wasn’t gone long. 

In the meantime, the sales guy tried to appear like there was nothing to be concerned about.  He failed utterly.

In short order, the trader strode back onto the floor confidently.  The young woman sitting next to me leaned toward me and noted that, “For ten grand, I’d shave every hair on my body.”

The trader walked over to the sales guy and silently placed a large stack of crisp new bills on the desk and returned to his own seat, smirking triumphantly.

The sales guy quickly got up and left the floor, followed shortly by his boss.  I learned later that the next move was carefully orchestrated so to try to save face.  The boss was insistent that getting “a Kojak” would be unprofessional, particularly to settle a bet with a trader.   So the sales guy caught a cab to midtown and paid a Broadway make-up artist to provide him with a professional skull-cap. 

A couple of hours later he returned to the trading floor sporting the new look while pretending that it had been a joke all along.  But none of us were fooled.  The trader had established his clear superiority within the ethos of the floor.  He kept his pile of cash and won in every way that mattered.

Such tension (and even conflict) between sales and trading was common.

Traders wanted to move their product at levels that were as profitable to the firm (and to themselves, since their pay depended upon their profitability) as possible.  We salespeople were charged with managing relationships with the firm’s clients.  Thus we had a major interest, at a minimum, in seeing the clients’ side of things.  We wanted them to buy and to keep buying. A client who perceives that s/he was hosed or taken advantage of on a trade is less likely to do more business in the future.

We liked to think that we had a longer-term perspective because we looked beyond the current trade.  And to an extent, that was true.  But our role was different from the traders’ and the pressures were different.

When negotiating with a trader over a prospective trade – which usually involved the sales person trying to get a better price for the client – the trader would often ask (in a disparaging and rhetorical way), Who do you work for?” Any concession gained for the client impacted the trader’s (and the firm’s) bottom line directly.  And since traders were paid based upon how well they did, the question brought the sales person’s quandary into sharp relief.  We could be fired if we didn’t sell enough and traders’ low evaluations would hurt too, but we wanted and needed long-term profitable relationships with clients.

The trader in the story above was a friend of mine and was a pretty thoughtful guy overall, especially away from the trading floor.  As he pointed out to me over a beer after work one day, a trader has to deal with his or her (but it was almost invariably his) “P&L” every trade, every day.  On the other hand, as a sales guy, I only had to deal with the “P.”  If a trade lost money or didn’t earn what it could or should have, the trader felt the pain directly.  As a sales guy, I benefitted in some manner from every trade, even if it wasn’t a good one for the firm.

Money managers face similar issues with clients.  They generally see their role as being to beat their benchmark (or, as a practical matter, to stay near their benchmark since that is what they typically need to do for their assets to remain “sticky,” as that’s the primary goal).  Clients feel the sting of the “L” part of “P&L” much more acutely because losses are real to them, even if/when the benchmark is beaten and the losses are less than someone else’s.

“Beating the index” is great and matters a lot when we’re “talking shop” among ourselves.  But it’s small consolation when the “L” is real and being suffered by real people.  Those of us in the business would be wise to remember that.

2 thoughts on ““Just ‘P’”

  1. After reading this article, I would like to point out that ‘most’ salesmen i have dealt with in my past as a Fixed Income Trader, and then later as a VP & Trading Desk Manager, is that they are NOT always looking for the “best price for the customer” but the best commission the sales guy can get. I know situations are different on different desks, but painting “Traders” in the light you have seems a little heavy handed.

    • I simply told the story the way it happened, Bruce. In the big firm institutional world, commissions were generally standard, so there wasn’t much “commission shopping.” Moreover, we were looking for the best price in part because of competition. Lots of firms (Goldman, Morgan Stanley, UBS, etc.) were trying to make the same trade. But thanks for reading.

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