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09/28/2010

Confidence Men: Talking with Brett Steenbarger and Stuart Schneiderman


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Illustrations by Mark Andresen

In October 2008, on one of the most volatile days in market history, I stepped to the podium during a program at the New York Society of Security Analysts. Looking out at the audience, I saw the eyes of deer in headlights. My listeners’ faces showed the stress that had been palpable in the room all evening. I felt much the same.

With seismic transformations underway in the economy and markets, with many having lost their jobs, and with many more suffering anxiety about the security of their careers and their futures, we’re all feeling the need for practical, sage advice. For that I turned to Dr. Stuart Schneiderman and Dr. Brett Steenbarger.

Schneiderman is a prominent executive coach in New York City with thirty years of experience counseling those working in the finance industry, and is the author of the edgy blog Had Enough Therapy? Among his books are Saving Face: America and the Politics of Shame, which Publishers Weekly called “accessible,” “provocative,” and “shrewd,” and Jacques Lacan: The Death of an Intellectual Hero, lauded by the New York Times as “brilliant and confident.”

Steenbarger is a clinical psychologist with a thirty-year career as a trader in financial markets and as a coach for professional traders. His books, The Psychology of Trading: Tools and Techniques for Minding the Markets and Enhancing Trader Performance: Proven Strategies from the Cutting Edge of Trading Psychology, are touchstones for traders and managers seeking concrete methods of winning in markets. In an April 7, 2008, “Best of the Bunch” feature, BusinessWeek named his blog for active traders, TraderFeed, one of the top financial blogs.


ADAM STERLING: Financial professionals are confronting the most volatile market environment in decades. This new market regime makes delivering expected returns challenging and also brings with it worries about employment security. What methods can we use to clearly identify the job-related and personal risks we are facing and thus begin to productively address the stresses these various risks provoke.

BRETT STEENBARGER: We don’t know the future, but we can prepare for alternate futures. One psychological technique that has proven quite helpful in managing stress is called “stress inoculation.” The idea is akin to an inoculation that you might receive to prevent an illness: by exposing yourself to a mild pathogen, you can arouse your body’s defenses and ward off future disease.

Thanks to human imagination, we can create a variety of stressful scenarios via imagery and rehearse various forms of coping and planning in response to these. Such stress inoculation enables us to prepare for a spectrum of alternative futures, making it less likely that we’ll be surprised, overwhelmed, and unprepared should events take further nasty turns.

At a broader level, such mental rehearsal builds a psychological sense of control and mastery, which is essential to stress management. It is difficult to overreact emotionally and physically to scenarios that are familiar. Stress inoculation is one way of making the unknown known, and thus familiar. One by one, we construct alternative scenarios, vividly imagine how we would plan and cope with those, and repeat these visualizations until they no longer summon the body’s “flight or fight” response. In short, we use imagery to turn emergency into urgency, replacing worry with constructive planning.

It is human nature to want to avoid unpleasant thoughts, feelings, and possibilities. Such avoidance prevents us from achieving a state of cognitive mastery. The first step in overcoming the stress associated with rapid and unforeseen change is to be willing to actively face that change and its possible implications. Hope is comforting, but ultimately is not a particularly effective coping strategy. Military leaders in the battlefield, successful corporate heads, professional sports coaches, and those who coordinate disaster relief efforts all engage in significant “what-if” contingency planning. We can learn from their examples.

STUART SCHNEIDERMAN: People who do best in challenging circumstances are usually the ones who are best at adapting to the new realities. They will manage their stress by working on what they can control and not becoming frustrated trying to change what they cannot control. They will accept that they will be developing new skills to manage a new reality.

Henry Paulson knew how to run an investment bank, that is, to make the system run at optimal efficiency. Then he found himself putting a broken financial system back together. These are not the same jobs. They require different skills. A great banker is well qualified for the new challenge, but still, he is facing a radically different set of problems.

If you’re not performing well as an analyst because you have made an error in judgment, you will know how to correct it. No one succeeds in business without knowing how to correct a mistake. And if you erred because you relied on inaccurate or misleading information, you will know how to rectify the situation. In both these circumstances you have some control over your work product.

Now, what happens when you do a great job, only to see your buy recommendation sell off violently? In a time of extreme deleveraging the good is sold off with the bad, often indiscriminately. While we normally assume that suboptimal performance means that we are doing something wrong, in these circumstances that need not be the case.

To control current stress one needs to know whether the problem is systemic and out of anyone’s immediate control, or whether it can be ameliorated by a personal-course correction. To manage stress in a radically changed reality, people will need to use trial and error. Everyone will be trying different approaches—some good, some bad—before finding those that work.

STERLING: I’m struck by Brett’s phrase, “Hope is comforting, but ultimately is not a particularly effective coping strategy,” and Stuart’s emphasis on flexibility, adapting one’s skills to the new market environment. On the one hand I hear Brett saying, “Don’t go with your gut,” and on the other, Stuart saying, “Try different approaches.” Isn’t it gut feelings that will influence the approaches one tries?

SCHNEIDERMAN: The current financial crisis has produced a crisis of confidence in many successful financial professionals. What if, as I mentioned before, you have been doing a great job and, through no fault of your own, are not performing up to your usual high standards? What if your job is threatened by poor performance somewhere else in the firm?

High stress produces intense emotions. Surely these emotions are telling us something. The question is what they are saying and whether we should follow their lead. After all, doesn’t Warren Buffett like to say that he makes investment decisions by following his gut?

The problem is that emotions can easily mislead us. Often the more intense emotions are the most deceptive.

Emotions can mislead us in two ways. They will lead some people to try to win back all that they have lost as soon as possible, usually by taking excessive risks. Think of the gambler who keeps doubling down. Other people will be so stressed that they will begin to doubt themselves. They will become gun-shy and will refuse to take any risk at all.

Both of these are incorrect. People will best learn how to work effectively within the new reality when they work slowly and deliberately. First, they need to get their bearings; then, they need to reaffirm the value of the skills that have brought them success in the past; finally, they will work to develop new skills. That allows them to begin recovering their confidence and their capital.

This does not mean that you should ignore your gut. The gut feelings you can rely on are the ones that have come from a great deal of hard work.

Insight follows from hard work; it does not precede it. Warren Buffett did not become rich by blindly following his gut.

STEENBARGER: Not all who are “into wishin’” are those who rely on intuition. Falling back upon vague and vain hope as a coping strategy is not at all necessarily the same thing as relying on one’s “gut.” Indeed, these ways of dealing with uncertainty may be directly opposed.

Cognitive neuroscientist Antonio Damasio’s research suggests that feelings—especially those subtle, felt tendencies that are attributed to the “gut”—play an important role in normal thought processes. We can logically divide the pros and cons of a course of action into columns on a piece of paper, but our felt responses to those entries will weigh heavily in our eventual actions. High frequency traders in the financial markets are well acquainted with the role of their “guts” in their trading decisions. Similarly, analysts take pains to visit firms and talk to management directly, because they know that their “feel” for what and how something is said (and what is not said) provides valuable information.

The problem occurs when we confuse a source of information (intuition) with its source of validation. Information is fallible; the notion of contrary opinion is based upon the observation that our guts routinely confound us during rapid market movements, turning us bullish or bearish only after markets have completed much of their moves. Other times, our intuitions are some of the first clues that something is amiss in our environment. Once our guts speak, our brains must process the information; feelings provide data, but reason must still validate and weigh the data. Wholesale advice to either follow or ignore the gut misses the roles of emotion and reason in decision making.

I would argue that many investors, traders, portfolio managers, and analysts knew in their guts that something was amiss in recent markets and in the financial industry. That awareness can be threatening, and it is understandable to defend ourselves against the uncomfortable feeling by retreating into a vague hope that we will revert to familiar means. Hope can be a defense against the gut, a way of not listening to our own dis-ease. Coping with uncertainty requires an embrace of uncertainty, which is what we accomplish with methods such as the stress inoculation mentioned earlier.

STERLING: Portfolio managers, traders, and analysts have lost jobs during the recent downsizing or failure of funds and financial institutions. Many are professionals with successful track records and long years in the business. Others are recent graduates beginning their careers during uncertain times. More than ever, how one designs a job search and then conducts oneself during a precious interview are critical skills. What advice can you give to people in both situations about how to survey the employment landscape, marshal their forces, and conduct the job search campaign? Equally—if not more important—what advice can you offer about how to prepare for and conduct the interviews one is lucky enough to get?

STEENBARGER: My general experience is that investment professionals are relatively knowledgeable about tapping into their networks and designing searches. It’s the conduct during the interview that can make the difference in the hiring outcome. In the work I’ve done with financial firms to help them with their hiring processes, I’ve learned that two interview behaviors tend to be the undoing of many applicants:

Performance anxiety—It’s always hardest to look for a position when you need a job. The pressures to look and sound good detract from spontaneity and can seriously undermine a candidate. Research tells us that an interviewer tends to gain an impression of a candidate within the first minutes of interaction, and that impression plays an important role in the final recommendation. Loose and engaging is difficult when you feel performance pressure, but it’s what works in most interviews.

Lack of homework—It never fails to amaze me that candidates, even for senior positions, just don’t do their homework on the firms they visit. Interviewers will be looking not only for your fit with the position, but for your fit with the firm overall. If you don’t know the culture and history of the firm, you’re at a serious disadvantage. Conversely, if you can talk knowledgeably about a firm’s recent initiatives and your enthusiasm for those, you make an immediate impression. Playing it safe can be the worst strategy: canned answers to questions and a lack of thoughtful, prepared questions are a major red flag.

In short, know your strengths, be prepared to show (not just tell) how those strengths fit with the firm, and be yourself. The best interviewees create engaging, compelling narratives that command top-of-mind awareness.

SCHNEIDERMAN: Many highly successful people never spent their time looking for jobs. They didn’t have to. They got recruited. When they were being recruited, the firms were trying to impress them. They didn’t need to impress anyone. Many of them did not even have to look for new business. Knowing how great they were, the world beat a path to their doors.

Today, when successful people need jobs, it feels awkward, even stressful. Many resent having to do it. Being in finance, they have always allowed their numbers to speak for them. As a result, many didn’t spend their time honing their interpersonal skills. It’s time to work on those.

An interview situation requires you to make a quick connection with another person. The interviewer is not merely looking at your record; he or she is also evaluating your manners and negotiation skills.

If the experience is unfamiliar, you will be stressed about it. You can overcome the stress with preparation and practice. It may seem too trivial to note, but preparation involves writing things down. This clarifies and organizes your thoughts.Start out by doing a personal inventory. As you rewrite your resume you should also evaluate your strengths and weaknesses. Know what you are good at and, especially, what you are great at. Then try to figure out a way to show it off without sounding like you’re bragging.

Next, write down a few mistakes you’ve made. Practice telling how you corrected them and what lessons you learned. Then try rehearsing with an advisor or a coach, a friend or a spouse. Rehearsal will help you to be informal, but not familiar; congenial, but not cloying; personable, but not personal. You become less self-conscious, focusing less on yourself and more on their firm.

In short: don’t sell yourself—buy them.

STERLING: Financial professionals are sensing greater risk in all areas of their lives. The stress of uncertainty at work or having lost a job cascades from office to home. Pride many have taken in being the heroic provider for loved ones is being battered and perhaps turning into shame. What guidance can you offer that will help people through this complex maze and help mitigate the negative outcomes we often see in marriages and families when once-secure material well-being dissolves?

SCHNEIDERMAN: Shame is the most painful human emotion. It signifies either a loss of status or a loss of your place in a group. It accompanies all mistakes and failures, and needs to be addressed immediately before it demoralizes you.

If your circumstances have changed because of someone else’s mistake, you should feel angry, not ashamed. Otherwise, you know how to deal with a mistake. You accept it, admit to it, apologize for it, and move on. The sooner the better.

Shame is so painful that people who have fully experienced it often use it as an impetus to make consequential changes in their lives. I have rarely seen anyone turn his or her life around without having experienced shame.

Trouble arises when you refuse to admit to failure. Then the shame mutates so that, for having refused to admit to one mistake, you begin feeling that you always make mistakes, that you have never gotten it right, that you will always get it wrong.

At that point, you might withdraw from society, hide from your friends, and renege on your obligations. Then shame will become depression. If there is nothing you can do to make things right, you think you will be doing the world a favor by doing nothing, staying at home, and not talking about it.

When the shame becomes a depression, there is only one right way to deal with it. You should force yourself to do the opposite of what your emotions are telling you. If you feel that there is nothing you can do, do something. If you feel that you should stay home, force yourself to get up and get out, renew old contacts, and make some new ones. If you feel that you do not want to talk about it, begin speaking to those who are nearest and dearest.

STEENBARGER: From what I can discern in my conversations with analysts and portfolio managers, it’s not losing a job (or the shame associated with being laid off) that’s the primary stress: it’s the fear of losing a career.

People fear losing their jobs when their employers retrench; people fear losing careers when they perceive that those jobs are unlikely to ever come back. It’s not shame that portfolio managers and analysts experience when an entire industry is downsizing; it’s the trepidation that the downsizing may well be permanent in an era of reduced leverage and growth.

The winners in this scenario will be those that define their core competencies broadly, not as skill sets limited to particular settings or job titles. Had Apple limited its identity to that of a computer manufacturer, it would have never experienced the success of the digital music revolution. Apple perceived that its expertise was in hardware and software design; that enabled it to reinvent itself by moving from one market to another.

A credit analyst I recently met with was depressed about the illiquidity in his markets and the absence of foreseeable opportunity. As we surveyed his skills, however, it became clear that he had much to offer in areas of the business that were still functioning well. His core competency was not his understanding of particular credit markets; it was his process in analyzing data from a variety of sources and synthesizing findings into actionable conclusions. After consulting with management, he is reinventing himself: applying his skills in a new arena and adding value to his organization.

It takes a rare ability to let go of the old, embrace change, and remake ourselves. Bringing spouse and family into that process turns uncertainty into shared opportunity before career stress becomes household strife.

STERLING: Let’s close our discussion on an upbeat note that will inspire our readers to face the new market regime with optimism about the future.

STEENBARGER: Analysts, portfolio managers, and traders are experiencing levels of personal and career uncertainty unprecedented in recent memory. Losses of jobs, declines in personal accounts from falling markets, and drops in housing values are creating a trifecta of stress for professionals and their families.

Through these challenging times, the important thing to keep in mind is that our doing is affected by our viewing: how we process life events influences our immediate emotional reactions to those events and our eventual long-term responses. Researchers in psychology emphasize that stress is “transactional”: it is a function of both person and environment. It is inevitable that we will be stressed by the wrenching adjustments in the financial environment; what will determine whether the stress becomes distress is how we process the challenges ahead.

There is an important difference between catastrophizing and facing worst-case scenarios with a constructive, problem-solving mindset. As we know from the experience of traders, the former feeds distress, narrows perception, and leads to impulsive decisions. The latter can prepare us psychologically for future stressful events and help us cope effectively if and when they occur.

Those who look ahead to challenges and use these as catalysts to redefine themselves will be best positioned for tomorrow’s opportunities. They also will be in a position to face crises as a team—as a supportive, cohesive family unit—rather than as stressed out, isolated individuals. Viktor Frankl’s triumph over a long internment in a concentration camp bears witness to an important psychological truth: we can deal heroically with the most stressful todays once we’ve fixed our sights on promising tomorrows.

SCHNEIDERMAN: Financial professionals are like Theodore Roosevelt’s “man in the arena.” They are on the front lines, struggling to make the system work in a new reality.

When reality has changed, you cannot expect to get it right the first time. As Roosevelt said in a 1910 lecture delivered at the Sorbonne, the man in the arena is the one “who strives valiantly; who errs, and comes short again and again, … who at the best knows … the triumph of high achievement, and who at the worst, if he fails, at least fails while daring greatly, so that his place shall never be with those cold and timid souls who know neither victory nor defeat.”

In my reply to your first question I evoked Henry Paulson, a man in the arena, a man who, with Ben Bernanke, struggled to keep the financial system running. Paulson, among others, should stand as a good example of striving valiantly, at times getting things right, at times not.

The point I would make is this: how you deal with a crisis, whether personal or systemic, also depends on whom you choose to emulate.

Whether you evoke the example of a mentor or a historical figure, you can increase your effectiveness by emulating someone who has dealt with a great crisis productively. Examine that person’s mood, his or her capacity to make and implement decisions, and attempt to do the same.

Important decisions can be large or small; they can concern the United States Treasury or your own household. As Teddy Roosevelt said, “in the long run, success or failure will be conditioned upon the way in which the average man, the average woman, does his or her duty, first in the ordinary, every-day affairs of life, and next in those great occasional crises which call for the heroic virtues.”

–Adam Sterling is a trader in New York City.

Illustrations by Mark Andresen.

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