Last week’s stock market plunge was apparently because all the traders who knew what they were doing were on vacation. Sure, a modest rise in interest rates announced by the Bank of Japan is often blamed for the collapse of the yen carry trade, but why the contagion?
Market convulsions that briefly wiped more than $1tn from Japan’s main stock index and sent shares in megacap tech groups plummeting have been blamed on a cocktail of factors, from the unwinding of the yen carry trade to fears of an impending US recession.
But for those managing the rout, the crisis was shaped by a seasonal workplace quirk: summer holidays. …Those left at their desks said a lack of liquidity — the volume of money shifting around world financial markets, slowed by thin staffing over the holidays — made the market ructions worse.
“It was a perfect volatility event at the worst possible time . . . If everyone’s away for the summer and you don’t have enough liquidity when something like that happens, you’ve got a big problem,” said Dan Scott, head of the multi-asset boutique at Vontobel. “Everyone was stuck in the same trades and then suddenly we had a change in the paradigm.”
…“One guy I know was going to see the field hockey at the Olympics, on the Eurostar,” said a merger arbitrage trader who asked to remain anonymous. “He went into the tunnel and he had no connection right when contagion was spreading. Eurostar’s WiFi or lack of it probably cost him millions of dollars.”
As Matt Levine puts it, “In August, every trading desk is staffed by junior people who don’t know what they’re doing” seems to be a reasonably robust fact of behavioral finance.”
You should still travel. But you should stay reachable while you’re on vacation. And you should norm on when you are truly needed.
When Archegos Capital collapsed under the weight of $36 billion in losses, their counterparties were left holding the bag. Credit Suisse lost $5.5 billion. Jefferies contained the losses.
Their CEO was vacationing in Turks and Caicos. He got a call that Archegos was ignoring margin calls. And he apparently issued an ultimatum to his staff from the swim up bar? “[L]iquidate them by the time my margarita arrives.” They got out reasonably unscathed.
Summer vacations are bad for health care too, with mortality rising when the best nurses and doctors go on holiday, replaced by newbies on the front lines. For now, most medicine is done in person. Bringing your smartphone won’t save as many lives. Surely that will change in the future.
The gamblers risked too much with debt , then got cold feet .
I’ve been actively trading stocks (and practically every other investment vehicle) for over 40 years. It has been long known that the summer is more volatile due to vacations. Then you add program trading that can feed on itself. Not fun to lose over $100,000 in a day (as I’ve done a couple of days in August) but used that for tax loss harvesting and trading options to make money on the rise.
Never schedule surgery in July. From one that experienced an unpleasant outcome.
Damn Gary, just retitle the article “you should work everyday until you die and never take vacation”
99% of us don’t matter THAT much. Turn the emails off, take that vacation, and enjoy life!
I remember when Barings Bank collapsed. I read that supposedly Leeson didn’t take vacations and then when he took one, his work was found out.
This is nonsense. #1, your graphic shows a cherry picked day with a past month loss of 4.83% That’s completely normal, historically. Second, ok, there were 3 days in a row of losses. So what? Trotting on some “expert” to attribute the cause of it to whatever narrative is simply tealeaf reading. I can also toss a coin 3 times and 1/8th of the time it comes up tails 3 times in a row. So you found a handful of wall street bros who would happily blame their poor performance on staffing levels, congrats. Half those losses have since reversed…due to what? people returning from vacation? Tidal effects? The end of the Olympics?
Seriously, this is poorly informed, bad conclusions drawn, and not travel related at all. What, trying to branch out from trashy people behaving badly while traveling stories?
I mostly take investment advice from independent blogs.
Ongoing trading is just a recipe for losing money. Don’t believe me? Ask that Warren Buffet guy. I’ve been approached countless times by some (usually a guy) person with a swagger that starts telling me about how much money they can make me. I ask them for a comparison with the S&P 500 over 5+ years before I’d consider such a thing, and to include fees in the comparison. They always slink off at that point. Hearing somebody talk about how they beat the S&P 500 over an extended time is like hearing them say that they went to Vegas and “Broke Even”. It effectively never happens.
The point of all this is just to say that you should ignore the inevitable ups and downs of the markets. If that’s a problem then you should reallocate.
If the people who were on vacation are that important, then companies should be building things to work while those people are OOO and train on the scenarios with not just the experienced people, but the junior ones also. Just like a naval ship running drills. Rinse and repeat. Its not that hard, its just that companies ignore the risk for the potential of higher profits. Which eventually will come back to haunt them as it did last week.
Nice post!! Thanks for sharing.
Jimmy Cayne was too busy playing bridge to save Bear Stearns.
What’s the point of a vacation if you can’t disconnect? I have two phones – one for business and one for personal. The business phone shuts off on my last day in the office and doesn’t turn until the morning of my return. If I stay connected, then it’s not a time off, it’s just working remotely from somewhere else. I’m 100% against taking work on holiday. I’m also against trying to work on the plane. Yeah in the lounge sure thing, but on a plane? Surely there is nothing THAT important?
I say plan accordingly, plan ahead, have backup, share knowledge and if there is absolutely some crazy reason why someone has to do some work activity while on holiday, be specific in timing (don’t stay connected all day), do the meeting/presentation, then be done with it.