Thursday, May 31, 2012

Lucky or Good?

This is a bit off topic but somewhat related as I was doing some bigger picture thinking about the US employment report tomorrow, how the employment rates have fluctuated over my lifetime and skill vs. luck in both life and the markets.

My general overview is that most people are lucky fools, particularly those in the financial markets and especially those in the US financial markets the past decades.  The whole luck vs. skill debate was marvelously presented in Taleb's Fooled by Randomness and recently I was thinking about what aspects in my life/career were rooted in fortune rather than skill.  Quite often I do think of the luck and good fortune to have been born a first generation American, grown up in Kansas where it's easy to make then learn from mistakes, be mentored by great traders with strong ethics and meeting my wife in an unlikely way on a flight to North Korea, all which I can easily attribute to unquantifiable luck. 

One quantifiable piece of luck was the unemployment rate when I came out of high school and decided against college (before it was fashionable which people are actually encouraging now) to do what I really wanted and work in the trading pits.  I pulled some charts to illustrate off the St. Louis Fed's research website which is an amazing resource for any economic data.

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The first chart is the unemployment rate from 1968 to the present day as that is the extent of their data set.  As you can see, the lowest unemployment rate in a generation after the late 60s was the very late 90s and I can recall that my first day at the KCBT was July 1, 1998 so while not the bottom, it was close. 

Click to enlarge

The second chart is the unemployment rate during my lifetime and the important thing to note is that leaving high school and getting my first 'real' job coincided w/roughly 4% unemployment rate.  It's often noted that the first job is very important to start moving up the career ladder and is imperative to get on as high a rung as possible so graduating into a tremendous job market was amazing fortune. 

Click to enlarge

The third chart shows the unemployment rate from 1998 to late 2001, generally as close to full employment as economists agree can be had.   I left working for an options local at the KCBT in November 1999 to work on an order desk at the CME/CBOT and the unemployment rate was 3.9%.  It wasn't well accepted by a lot of coworkers that the managing director hired a 19 year old on the desk but it's clear in retrospect how tight the labor market was.  After about nine months working for that institutional desk I got on with a small trading group of locals in October 2000 and the unemployment rate was 3.8%, just 0.1% off the generational low achieved earlier in the year.  

No doubt it was tremendous luck to get to the right place at the right time and I'll happily admit it.  Not squandering any luck that comes one's way and making the most of it is also just as important.  

With the LA Kings back in the Stanley Cup Final, the thought of luck brings to mind the song they played when 'Lucky' Luc Robatille's number was retired a few years ago, "Lucky Man." 

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