Good Hedge Fund managers tend to be obsessive; many are up all night trading or doing research or responding to sales queries. Judging by their flight schedules and the time stamps on their emails, many seem to work twenty-four hour days. I stopped being impressed when I realized that the money they were managing was melting away.
Trading is a thinking game and anything that impairs judgment and ability to focus, anything that trashes memory and slows thinking, is going to damage performance and profits. Sleep deprivation does all of that along with damaging spatial orientation and slowing reaction time. In some ways, getting a bad nightís sleep is worse than drinking or using drugs. I have met my share of hung-over brokers and traders and not one of them wore his problem as a badge of honor. Most were slightly apologetic and most did their best to assure me that they never, ever worked drunk and that they could stop drinking any time they wanted. In contrast, I canít remember ever having met a sleep-deprived analyst or hedge fund manager who wouldnít subtly or not so subtly brag about how little sleep they get. ĎSamí, one of my former co-workers, once called me a Ďsissyí because I wouldnít work more than an eleven-hour day. I remember coming into the office one morning and finding Sam already there looking like he had spent the night with the Russian army trying to find out who could drink the most vodka without actually dying. Judging by the apparent evidence, the Russian army lost. Sam hadnít actually been drinking; he had been there working since 3:00 AM, he said. I suggested he go home (he lived about a thousand feet from work), take a shower and come back later in the day, if he felt better. But no, he had to stay. As far as I know, he didnít accomplish anything else that day. But he had to show people how hard he worked and part of that is showing them how awful he looked.
Most of the time, not accomplishing anything is the best a sleep- deprived analyst or hedge fund manager can hope for. In a competitive game like trading, it is all too easy to accomplish less than nothing. Working on too little sleep, it is all too easy to make that one stupid mistake. After a couple of days with too little sleep, W.D Gannís mystical texts relating price behavior to corporate names will start to make sense. Compared with running a Hedge Fund, driving is a relatively simple task. Most of the time all you have to do is keep your car pointed in the right direction. But even here, sleep deprivation kills. Frequently. According to an article in last yearís Harvard Business Review, driver fatigue has accounted for 1.35 million automobile accidents in the United States in the past five years. When we in the investment industry screw up, we donít kill anyone. At least, not directly. But we do turn real money into trash and, sometimes, that is almost as bad.
There are a number of palliatives that can make it easier to get by with less sleep, at least for a while; caffeine, moderate exercise, getting enough sunlight and drugs, legal and otherwise. Exercise and sunlight are quite good for you, at least, in moderation. The problem with the rest of these approaches, besides the fact that some of them are illegal and most donít do much good, is that they all draw attention away from the only technique that really works; getting more sleep. The bad news is that there is an upper limit to how much we can work. The good news is that for some analysts and managers it is possible to work less and accomplish more. There is no magic here. Sleep deprivation is a performance killer and many of us are working over our limits. For some of us, therefore, reclaiming this lost performance requires little more than an act of will; when we reach our limit, we just go home. The fact that there is more work than there is time means nothing at all. There is always more work than there is time; there is always a need for time management. Management is about making choices, if it is about anything at all.
When the problem cannot be solved by an act of will, which is much of the time, it is either a management issue or a medical issue. In many ways, medical problems are easier to deal with. Insomnia, sleep apnea, restless leg syndrome, exploding head syndrome and more all steal sleep. And no, I wasnít joking about exploding head syndrome. If you find you canít get enough sleep even when you try, you need to see a doctor, preferably a sleep specialist. My own problem was sleep apnea, a mechanical problem that prevents you from getting enough air. Itís something like constantly choking and constantly almost waking up, gasping for air. I now sleep with a CPAP machine, a machine that forces air up my nose. It is unromantic and mildly unpleasant, but it is better than shuffling through life like a bit player in a zombie movie.
Medical problems are almost simple compared to management problems. Many investment firms have a macho culture that demands extremely long hours and if you get a heart attack, well, that is just the way it has to be. I have heard of managers who wear their heart attacks as badges of honor. And I have met people in our industry who have told me that they go to the bathroom and fall asleep on the toilet rather than go home. Apparently, it is better if management thinks you are constipated than if it thinks you are tired. In such cases, I think it is management who is full of, ah, who is constipated. The only prudent approach to such a problem, I believe, is to confront management, tell them you canít work the hours they seem to want and ask if you should start looking for another job. Sam may not have been impressed by my work ethic, but I am still alive and he is not. So, I won.
On the positive side, FOF managers can add another item to their due diligence lists. If the hedge fund manager isnít getting enough sleep he is more dangerous than he appears. Even better, the Hedge Fund manager will probably tell you how little he sleeps without your asking him. And best of all, he wonít hide his incompetence, heíll brag about it.