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Lessons Learned in a Tulsa Steakhouse

2009 November 22

In the spring of 1995, no one knew what the internet was, the Netscape IPO was still months away and I wasn’t planning on a career in media. 

Nevertheless, it was then that I learned precious lessons that have sustained me through a career that has spanned booms and busts, various countries and multiple media platforms.

Some of the most valuable lessons I learned one night in a steakhouse in Tulsa, Oklahoma.

At the time I was working in finance, on a natural gas trading desk.  I had no idea about GRP’s or CTR’s or anything of the like.  I was trying to learn the intricacies of basis swaps, options and the Black-Scholes pricing model.

Even more importantly, I was trying to get clients to trust me enough to do their multi-million dollar trades through me and not some other broker.  I got lucky one day when a prospective client I had been calling found out that I had been a competitive wrestler. (Oklahoma, besides being rich in hydrocarbons is a fanatical wrestling state).

Trades started to come my way and on the strength of that (certainly not my trading ability), I was off on my first business trip with my boss to Tulsa, Oklahoma.  It was there that I heard a tale that has shaped my outlook ever since.

The Gas Trader’s Story

We met at a steakhouse that was popular with the oil and gas crowd, where I was introduced for the first time to the concept of a “quadruple” cocktail (good training for my future Eastern European adventures).  As we settled in to our drinks and enormous slabs of beef, the trader told us his story.

Apparently he had been in oil and gas since he was a teenager.  He started first in the fields and eventually worked his way up to trading “physical gas.”  A little more than a year before I arrived, the NYMEX exchange started trading financial “paper” gas contracts. Tulsa soon became inundated with traders from New York offering big money for long term deals.

My client was ecstatic and determined to “show those New York boys a thing or two.”  He took all the business that he could get that winter and “lived like a pig in slop all spring.”  Unfortunately, “then came the fall” and he was nearly wiped out.

What Had Happened

The New York traders were not speculating on the price of gas,as my newfound friend had assumed. In fact, they weren’t betting at all.  They noticed a discrepancy in pricing and took advantage of it.

They had found that they could buy separate months of the year cheaper than the entire year.  It was arbitrage, plain and simple.  There was no risk involved.

Of course, my Oklahoma friend didn’t know that.  He thought he was taking advantage of some naive city slickers with fancy suits and slide rules.  He was sure that his greater experience and gut instinct would win the day.  After all, he had grown up in the business, lived it, loved it.  He practically had gas in his veins.

In his own words, “We thought we were gonna show those New York boys a thing or two, but they showed us instead.  They just gave us a shellackin’!” (Shellakin’ is Oklahoma-speak for a beating).

Lessons Learned

Instinct is an Illusion: My friend’s years of built-up experience actually hurt him rather than helped him.  He thought he understood the situation because it looked familiar.  However, he was dealing with something wholly different than his previous involvement led him to assume.

The new, paper market allowed for a much more efficient and transparent informational environment.   The New York traders weren’t betting against him, or anyone else.  Their profit was locked in as soon as the trade was completed.

I later studied some neurology and discovered what we experience as “gut instinct” is really the effect of synapses in our brain being built up over time.  These learned responses can be quite useful because they allow us to act quickly in situations with which we are familiar.

The amygdala region in our brain alerts us to danger when our experience is violated, but when something seems familiar, we feel comfortable, calm and confident.  When the facts on the ground change, these same instincts can prove fatal.  Knowing this beforehand was especially valuable as my work took me from one country to another.

Be Data Driven: There is no substitute for good data and hard analysis.  Data allows us to test what our gut instinct is telling   us and see if there are facts to support it.  Even more importantly, it allows us to experiment with counter-propositions and see if a strong case can be made for the opposite of our presumption.

Over the years, I have found that whenever I really analyze the facts well, there is something that doesn’t fit my mental picture.  Almost always, this out of place data alerts me to something very important and I can make adjustments.

Arbitrage Pricing: As I learned on the trading desk, if you want to know the value of something, you need to “do the arb.”  Many markets are inefficient. You can find price discrepancies and profit from them just like the New York Traders.

Usually, there is more than one way to buy something, either directly or by way of substitute goods.  Having some trading experience under my belt has been an asset for me as both a buyer and a seller.

Healthy Skepticism: Whenever someone in an expensive suit tells me that they want to make me a lot of money, I hold on to my wallet!

That night in a steakhouse in Tulsa, I not only learned how to drink “quadruples,” but gained some important  lessons offered by a few wizened old oil and gas men from the plains who had the generosity to share their wisdom with one more trader from New York (albeit with a less expensive suit).

– Greg

14 Responses leave one →
  1. November 22, 2009

    Awesome story Greg. I love all the lessons learned. One thing about lesson one that I think also think is in play is a lack of humility. You should always, no matter who you are talking to or for however long you have been in your industry, look at meetings, business opportunities, mergers (or whatever it is) as an opportunity to learn. Even if it’s just one small detailed piece of information. That small detail cold be the difference between $5 or $5,000 dollars. Great post as always.

    [Reply]

    Greg Reply:

    Rasul,

    Good point. There’s something to learn from everybody.

    – Greg

    [Reply]

  2. Ann Eads permalink
    November 23, 2009

    As always, the best read all week. Please keep them coming Greg.

    [Reply]

    Greg Reply:

    Ann,

    Thanks for your continued support. It really means a lot:-)

    – Greg

    [Reply]

  3. November 23, 2009

    Really enjoyed that story. I have learned this lesson many times , but seldom heard it summarized so eloquently !!!!!!!!

    [Reply]

  4. Dr. France Jagolino permalink
    November 25, 2009

    Very important lessons learned there. Well, business is really a cut throat arena but it’s good to see a different approach in explaining what works and what doesn’t. Hope to read more posts like this one soon.

    [Reply]

  5. December 13, 2009

    Greg:
    All valuable points with cogent lessons! The most important of which (from a business standpoint) is that most people do business with people they like and with someone whom they have a common bond (in this case, wrestling). As for “data driven” business and how to find that, it is as with any scientific research – follow the serendipity. Most data either proves or rejects the proposition (hypothesis), when something out of the ordinary appears, a good scientist (statistician or even bsinessperson) will follow the serendipity to see where it leads. There are no new trails being blazed following what’s known to be…only in following the unknown (and that’s where new advances, in any and all fields, originate).
    Great article!
    Tracy

    [Reply]

    Greg Reply:

    Tracy,

    Thanks for you input.

    – Greg

    [Reply]

  6. December 13, 2009

    Great story.. And as a former “Oky” myself from Tulsa, I enjoyed reading that much more! Will come back to read your posts more often. Found this blog in LinkedIn, so I will be sure to look for your name!

    [Reply]

    Greg Reply:

    Angela,

    Thanks. Have a nice week.

    – Greg

    [Reply]

  7. Abolaji permalink
    January 4, 2010

    Wow! Good story, well told. I certainly learn a lot. You should really consider writing a business book. Your writing is silky and the moral stands out. Business intelligence is key in all

    [Reply]

    Greg Reply:

    Abolaji,

    Thanks. I’m glad you enjoyed it.

    – Greg

    [Reply]

  8. January 23, 2010

    Hi Greg,

    I really like this business story. It was informative and right on so many points. One of the things I have consistently found in my consulting work is even with seasoned professionals with years of experience in a certain industry, they don’t always ask the right questions when considering a situation – and you are right, this comes from their years of experience which can result in a feeling that they know the situation without considering any further questions that may need to be asked. Great article!

    [Reply]

    Greg Reply:

    Brenda,

    Thanks. I’m glad you liked it.

    – Greg

    [Reply]

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