Stressed Out on Wall Street
Over the summer, hedge fund manager Nandu Narayanan found his temper growing short. At the height of the selling in August, the credit markets ground to a halt and many banks and hedge funds were forced to divest assets at steep discounts. Worry about the extent of risk in mortgage-backed securities reached a fever pitch, leading to a 10% correction.
"The situation we have been in for the past few weeks is the most stressful of times," says the 43-year-old Narayanan, who actually made money amid the turmoil (BusinessWeek.com, 8/27/07) due to his short positions. "For me, it is agonizing." The founder of the $100 million hedge fund Trident Investment Management was hardly alone.
This wasn't just any old correction. It was a financial crisis on par with the meltdown in the Asian markets in 1998 or the U.S. tech-stock collapse in 2000. Some parts of the credit market essentially shut down, making it nearly impossible for traders to value their assets or sell them at anything but a deep discount. The losses at Citigroup (C) hit $5 billion, and at Bear Stearns (BSC) two highly leveraged funds imploded (BusinessWeek.com, 10/11/07) amid the financial carnage. But those losses, however large, can be written off. In most cases, the investor or fund simply moves on.
Emotions Run High
But the personal toll from such events can be just as great, and even more complex. Such an episode creates enormous stress for asset managers, who may face personal financial ruin and the loss of their clients' money, not to mention power, prestige, status, and identity. It's a career-ender for some and a major test for others.
The psychic toll extracted by the market is seldom discussed outside the home or small circles of friends. "Wall Street is supposed to be a tough crowd, and most people just suck it up," says recruiter Alan Hilliker of executive search firm Egon Zehnder International.
Traders and bankers cope in various ways. Some drink heavily or use illegal drugs. During the go-go years of the 1980s, the atmosphere was looser and Wall Streeters' tempers ran freer. One hedge fund manager, who declined to be identified, recalled a 1989 incident when he was a trader at Salomon Brothers, the investment bank now owned by Citigroup. He says he looked on as a well-regarded analyst walked from his office to the trading floor, where he encountered a bond trader. The conversation between the two ended when the analyst picked up a computer monitor and hurled it to the floor in frustration, the former trader says.
While Wall Street still has its rough edges, the culture is far more straitlaced today than in past eras. "It's more institutionalized," says one hedge fund manager. It's no longer acceptable to deal with your stress by hurling a computer on the floor or by indulging in drink, drugs, or alcohol. As a practical matter, the threat of a lawsuit is much higher than before. And traders are generally a more professional group than in past decades. "There weren't as many Wharton MBAs on the scene during the 80s," says the fund manager, who spoke on condition that he not be identified.
Today, when drugs are employed against stress, they're more likely to be the prescription variety. Another hedge fund manager, speaking on condition of anonymity, says he has been taking antidepressants for years. While his work didn't cause his depression, it can exacerbate it. That can lead to a modification in medication or work habits. He once even closed a particularly troublesome fund at the urging of his wife, who said it was leading to severe stress that was affecting his behavior and disrupting their marriage.
That same hedge fund manager says he saw no problem with the prescription use of Ritalin, which is used to treat attention deficit disorder and help sharpen focus. "You use the drugs you need to achieve psychological stability and function at a high level," the manager says.
A Well-Banker Program
Today most big investment banks have better mechanisms for helping traders and bankers cope with stress. Goldman Sachs (GS), for example, has an extensive wellness program. "Wellness is increasingly important to Goldman Sachs," says spokeswoman Gia Maron. That's because employees want such programs, which are also attractive to companies for financial reasons. Employers want to avoid rising health-care costs and legal bills associated with liability.
Goldman's major offices include health centers staffed by a variety of doctors and nurses, a physical therapist, and a nutritionist. Mental health therapists are available, too. Employees can pop in for a flu shot or a Lamaze class. Facilities include a gym and a resting room, where a banker who has pulled an all-nighter can take a break.
Not all financial professionals have access to such benefits and perks. They must learn to cope with what they have on hand. "If I have a bad day trading, I try to go outside and ride my bike or work out, to keep my mind off the market," says Charlie Santaularia, 24, a managing director at Parrot Trading Partners, a $12 million hedge fund with offices in Denver and Lawrence, Kan.
A Healthy Distance
Asset managers often find they can't think properly when the anxiety gets too intense. "Stress impairs your judgment," says Narayanan, a "macro" manager with a PhD from MIT who makes bets on major trends in finance and economics. To minimize stress, he doesn't keep a live quote screen on his desk, so he doesn't have a constant reminder of whether his positions are up or down. If he wants to check a price, he walks onto the trading floor.
Narayanan also says he uses "stop-loss" orders to minimize his financial—and psychic—pain. A stop-loss order automatically sells an asset if it drops in value by a predetermined amount. "Getting out of a bad position is a big relief because it means you don't have to worry about it anymore. The worst thing about stress is that it takes energy away from coming up with new ideas that can make money," he says.
One veteran asset manager says stress levels are a function of a short-term investment horizon. "I have been doing this for the last 40 years. Wall Street has a quarterly focus, and if you watch CNBC, it is like watching a sports event, as they count down the seconds to the release of a government report," says Marvin Roffman, chairman of Roffman Miller Associates.
That sort of moment-by-moment mentality inevitably lead to high levels of anxiety. Roffman says he tries to maintain a longer-term focus, following the path blazed by legendary investors such as Warren Buffett. In Roffman's view, a longer outlook leads to bigger profits and "absolutely" a better night's sleep.