A friend of mine is a trader and the commander in the Royal Navy. He writes to his crew:
While you might occasionally feel the need to shield me from bad news, rest assured that I would far rather be involved early in any difficult issues or decisions. Therefore, if your instinct tells you that I ought to be fully appraised of a given situation or might learn of it from another quarter, act on that instinct and involve me early.
This is brilliant advice for traders. Get the bad news out fast, and get it all out. Don't allow your own worries about breaking bad news (or admitting that a trade has gone poorly) keep your from seeking out the advice and help of other traders who you trust. In the same way, if you've taken a massive or damaging loss, it's important to break the news quickly, honestly, and completely to all involved (this would include your spouse, for example).
If you've been reading about hedge funds in the last year, you have read about Brian Hunter's $6 Billion blow-up at Amaranth Advisors in 2006, or recent huge losses in Bear Stearns' hedge funds that invested in the subprime mortgage market. In both of these instances, and many others not mentioned, good analysis at the start, vigilant management throughout, and honest evaluation of the situation could have prevented (easily, really) these problems.
Comments
This goes back at least to "The Prince" by Machiavelli. He advised the prince to deliver bad news quickly and all at once so that people can confront it, deal with it, and move on. Good news should be trickled out so that people get a pleasant buzz every few days, keeping them happy for weeks.
Of course, he brought it up in part as a discussion of how and when to kill his opponents when he assumed office, but principle is much the same...
Posted by: Tyro | June 28, 2007 01:30 PM