Jack London had a sense of this when he wrote The Call of the Wild. His main character, the dog Buck, returns to a feral state of nature after he is kidnapped and taken to Alaska. When his adopted master is killed, Buck goes wild, eventually leading a wolf-pack.
There are times when people undergo this Jekyll-and-Hyde transformation as well, when they face a novel or uncertain challenge. Their bodies react to the tension, releasing steroids into the bloodstream, which in turn affects their judgment. If they experience repeated success, their hormone levels rise, and they can become addicted to risk-taking, or even become reckless.
We’ve seen this movie before in the financial markets: young adrenaline-junkies are attracted to the action and glamour of the trading floor; they get on the right side of a big market move; and their positions grow and grow until they threaten the very institutions they work for. Heightened testosterone levels may have a lot to do with market bubbles. There’s a reason why all the major trading losses of recent years have been made by men, and mostly young men.
The tragic story of success, overconfidence, and downfall is as old as civilization itself. One way banks can avert it is by having a balance of men and women, both young and old, on the trading floor, along with clear limits and segregation of duties.
Buck may have succumbed to the call of the wild. But people don’t have to.
Douglas R. Tengdin, CFA
Chief Investment Officer