My Own Hard Look at Trading for a Living, Part I

This post was contributed by a guest author, and does not necessarily reflect the views of Richard or MovetheMarkets.com

Ok, so you’re currently in your cube farm, and you think you’ve read all these books on trading, and you’ve read all those blogs about trading for a living, and now you want to know whether it is for you, the whole you, and the real you. Well, I have been pondering the same question.

I was once asked at the exit interview with a company I used to work for, about why I am quitting my job. This prompted me to start learning about how to evaluate a job. Through a variety of books, and introspection, what I eventually came up with were factors that I found to be important in evaluating a company. Over time and through discussions with a close friend of mine, I expanded that idea into a quantitative formula for evaluating a job offer, or even a company.

First, the factors I use to evaluate a company are as follows:
1) Passion/Challenge (variety, interest, and technical difficulty of the job duties, tasks and responsibilities itself)
2) Growth Opportunities (potential for promotion, moving to a different position, training, taking courses, expansion of the position/responsibilities, etc.)
3) Job security (threat of downsizing/right-sizing and/or layoffs, hostile takeovers, major re-org, etc.)
4) Compensation and benefit package
5) Work Environment (relationship and rapport with peers, direct reports, supervisors, managers, hours worked, corporate culture, etc.)

My process was as follows:
First, rank the factors according to importance by assigning a percentage weight to each of the above factors, such that the total cumulative weight of the 5 factors MUST equal to 100. You can even assign equal (or zero) weights to the various factors, but the total cumulative weight MUST equal 100. This is the most meaningful but hardest step because you really need to spend some time think about what is important to you. Note that the assignment of these weights will change over time as your values change and the company changes. For example, as a worker in the high tech industry, it is very common for me to stay more than 8hrs a day, or work more than 40hrs per week. In one of the companies that I used to work at over 5 years ago, I would spend an average of about 50-60hrs per week (10hr days + saturdays) at work in order to meet the deadline, deliver results, make an impact on my peers and my boss, and establish influence within the company. But nowadays, now that I have a family, I value a company where I do not have to work 60hrs per week, since this gives me more free time to do other things.

For example, here is how I prioritized the factors according to the following weights over the past 3 years:

Factor                          Weight

.                        2006     2005    2004
Passion/Challenge     27%      29%     26%
Growth                14%      13%      9%
Job security           9%       9%     12%
Compensation          26%      26%     30%
Work Environment      24%      23%     23%
==============================================
100%     100%    100%

Next, evaluate your current company against these same factors by scoring them from 0-100 for each factor (0=bitter disappointment, 100=giddy nirvana). This time, the cumulative scores do not have to add up to 100.
For example, here is how I scored my (former) employer:

Factor                        Score

Passion/Challenge            70
(High initial interest which declined over time)

Growth                       60
(taking courses ok, but there was no real opportunity for advancement)

Job security                 40
(Very little threat to my job security - until I was laid off !)

Compensation                 85
(they paid me well)

Work Environment             75
(good rapport with my co-workers and boss, good corp. culture)

Then the next step after that is normalize the results by computing the weighted average as follows:

Weight1*Score1
+ Weight2*Score2
+ Weight3*Score3
+ Weight4*Score4
+ Weight5*Score5
==================
= Normalized Total

In my example:
27%*70 + 14%*60 + 9%*40 + 26%*85 + 24%*75 = 71

So, my employer ranks somewhere between a B- and a C+. Just your average, vanilla flavoured employer.
Note that although this is an objective and quantitative formula for evaluating a company/job offer, there is no conflict with the truth that accepting job offers or deciding to leave a job is as much about gut emotion than rational thought. All I am trying to do here is to quantify my gut emotions with a rational formula - the values we place on the 5 factors remain totally subjective, and will vary from person to person.

So, to evaluate a job offer or an employer, repeat steps described above for the company making you the job offer and compare the two scores.
Normally, I do this for the job offer that I would receive within the same vocation. But in this case, I want to compare my previous job with a totally different vocation - trading for a Living. So, I will go through this exercise as follows:

1) Passion/Challenge - I am absolutely and overwhelmingly passionate about Trading for a Living. And of course, I find trading to be challenging => 90
2) Growth Opportunities - Trading for a Living offers me a tremendous chance to improve myself as a person - in that sense I do have the opportunity to expand my responsibilities/capacities => 85
3) Job security - regardless of pay or inherent risk, the vocation of Trading for a Living will always be there so long as there is equity in my trading account. No threat of being laid off here => 90
4) Compensation / benefits - This one is the toughest to evaluate objectively. Granted, the potential for great income exists. And granted, I believe I can achieve the goal of consistent income given enough time and practice. But at the present moment, while my consistency is improving, it’s still not at a point where I generate trading income that is comparable with my previous job. ( That says nothing about the future, only what is the present reality of or my situation). Also, Trading for a Living, like all businesses, is not a source of a steady income.
=> 55
5) Work Environment - Trading for a Living is very much a solitary job. There aren’t many scenarios involving trading itself which require working as a team, or collaborating with others. (Working on a stock picking newsletter, or designing and implementing an Automated Trading System is a different story). While I can understand how Trading for a Living can get lonely sometimes, I have not experienced that feeling myself. It is good to have interaction with other traders, even though much of the interaction is through a bunch of 1’s and 0’s travelling down an inert piece of wire. Also, having a life outside of trading helps a lot. What is the “corporate culture” of Trading for a Living? Choice, freedom, and freedom of choice. The most important part is the freedom to get what YOU want out of the cultural aspect to trading. It is up to you to make it as social or as solitary as you want it to be. => 70

So, normalizing, we get:
27%*90 + 14%*85 + 9%*90 + 26%*55 + 24%*70 = 75.4

The first surprise is that the vocation of Trading for a Living ranked SIGNIFICANTLY higher than my previous job (that I was laid off from recently). It is a surprise because I used to think that a high-paying job that pays for the bills ‘n the toys was automatically a satisfying job. Not true, according to this system.
The second surprise (which really should not have been surprising to me at all) was that this is objectively confirming what my emotional side has been saying all along - that Trading for a Living would be a better “job offer” than what my previous employer offered, at least according to this system. That’s not to say that I don’t enjoy Engineering - I studied 5 long years to get my BASc in Engineering Physics, and still do enjoy practicing (5-10% of) what I learned in University. However, I think it’s time to recognize that I enjoy the vocation of Trading for a Living just as much, if not even more.

So what happens now?
Well, there are other issues not addressed by this system which I will need to consider. I will talk about that in Part II (since I have to take a break and gather my thoughts for answering this question).

In the meantime, try this system out yourself, to see how your present job compares with the vocation of Trading for a Living (or any other job, for that matter).

This post was contributed by a guest author, and does not necessarily reflect the views of Richard or MovetheMarkets.com