The New Market Wizards: Conversations with America's Top Traders (10 page)

VETERAN TRADER

T
here are few futures traders who have gone from a starting account of several thousand dollars to double-digit million-dollar gains. Those who have kept their winnings are even fewer. If we now add the stipulation of holding a twenty-year record of highly consistent profitability, we are down to about the same number as there are Republican supporters of Teddy Kennedy. Randy McKay is one of those individuals (a consistent trader, that is—I don’t know what his political leanings are).

The start of McKay’s trading career coincided with the birth of currency futures trading. Although currencies have become among the most actively traded futures markets, at their inception they were moribund. In those days, the currency trading ring was so quiet that in the list of daily activities conducted in the pit, trading was probably a distant third to newspaper reading and board games. Yet, although the currency futures market’s survival was initially in question, McKay’s success as a trader was never in doubt. Despite the lack of activity, McKay was able to parlay an initial $2,000 stake into $70,000 in his first calendar year in the business (actually, a seven-month time span).

McKay continued his success, making more money each year than in the previous year. This pattern of steadily increasing annual gains was broken when McKay decided to switch from trading on the floor to trading at home. He quickly made the necessary adjustments, however, and by his second year of trading from home, he registered his first million-dollar gain. McKay continued to increase his winnings each successive year until 1986, when he suffered his first trading loss. Prior to that point, he had strung together seven consecutive million-dollar-plus years in his own account.

Over his entire trading career, McKay has been profitable for his own account in eighteen out of twenty years. A conservative estimate would place his cumulative earnings in the tens of millions. McKay has also managed a handful of accounts for family and friends. The two oldest accounts, which were initiated in 1982 with a starting equity of $10,000, have each generated cumulative earnings in excess of $1 million.

Despite his great success in the markets, McKay has maintained a very low profile. Until recently, even within the industry, few people had heard of him, myself included. McKay, however, has decided to enter the world of money management, a transition that requires at least a modestly higher public profile.

The interview was conducted in McKay’s office during trading hours. Although McKay traded intermittently throughout the interview, he seemed totally focused on our conversation, with the exception of when he made actual trading decisions. I found McKay refreshingly open about his personal experiences and his thinking process in regards to the markets.

How did you first get involved in this business?

In 1970, I returned from a tour of duty in Vietnam…

Before you continue, I’m curious, were you drafted or did you volunteer?

I was drafted. In my second year of college, I learned to play bridge and became addicted to the game. I played day and night and skipped all my classes. My lack of attendance led to six Fs. I flunked out and was immediately drafted by the marines.

I didn’t know that the marines drafted recruits.

They normally don’t. However, there were two months in 1968—April and May—in which they were allowed to take eight thousand draftees.

Did you try to avoid getting drafted?

I didn’t have to be drafted. My father was a colonel in the reserves and he could easily have gotten me a cushy job in the reserves.

How come you didn’t take that option?

At the time, I felt it was my obligation to serve. I guess I was a conservative kid. I felt that if I accepted the privileges of being a U.S. citizen, I also had to accept the responsibilities.

Did you have any personal opinions about the war at the time?

I thought it was a stupid war, but I felt that we elected leaders and they made the decisions.

You make it sound like it was a matter of civic responsibility.

That’s exactly the way I felt about it
before
Vietnam. During and after the war, my feelings changed drastically.

In what way?

One of the experiences that will always be with me is standing guard duty, which is something everyone did regardless of his job. I would hear a noise in the bushes and think, “What is that?” Of course, the worst possibility was that it was one of the enemy sneaking up to try to shoot me. I would think to myself, “This is the enemy; I really want to kill him.” Then I thought about who was really out there. It was probably a young kid just like me. He didn’t hate me; he was just doing what his superiors told him to do—just like me. I remember thinking, “What’s going on here? Here’s a kid who’s as scared as I am, trying to kill me, and I’m trying to kill him.”

I started to realize that war is insanity. It doesn’t make the slightest bit of sense for countries to try to settle their political differences by sending their children out to kill each other and whoever kills the most people gets the piece of land. The longer I was in Vietnam, and the more personal my experiences became, the more intently I felt that war was insanity.

It almost sounds as if the war made you a pacifist.

Very much so.

What about the rest of the unit? Was there any prevailing sentiment about the war?

There was a pretty wide range of feelings, but most of the unit leaned to the hawkish side. Most of them thought that we were doing the right thing; that we were there to help free these people from communism. I don’t know if they were, as we say in the markets, “talking their position,” or whether they really believed it.

Did you get into arguments because your beliefs were different?

I tried to avoid it. You have to remember that the marines were almost all volunteer. Therefore, the people who were there believed in what they were doing. Their backgrounds were very different from mine. Few of them were college educated. A number of them came from street gangs. Some were even there because the judge had given them a choice between jail and probation on condition of joining the service.

Did you feel out of place?

I felt very much out of place. I was in an artillery unit. Each hour we received weather reports, which we were supposed to use to derive a composite adjustment factor. We filled out a form specifying the wind direction and velocity, air density, temperature, rotation of the earth, and other factors and performed a mathematical process to derive a net factor. Every time the weather report came in, it became a game to see who could derive this factor most quickly. Before I was there, the speed record was nineteen seconds. On my second day there, I broke the record, and I eventually got the time down to nine seconds. I thought this was great fun. Little did I realize that I was making enemies by the truckload.

The people who were there preferred the new guys being ignorant so that they could have the feeling of helping to bring them along. Here I was, a new guy, a college kid, doing things better and faster than they were. I also got three promotions in my first four months, which was unheard of in the marines. All of this didn’t go over too well. It took me a while, but I finally realized that being a college hotshot was doing me a lot more harm than good. I made an effort to blend in better, with modest success.

Were you in situations in which your unit was in direct line of fire?

Oh sure. We were bombarded by mortars and rockets nearly every other day, and there were about a dozen times when we were in face-to-face combat with troops trying to overrun our position. However, for the most part, the greatest danger was that artillery pieces were primary targets for the North Vietnamese troops and Vietcong.

What was the emotional response to going from civilization into a situation where your life was being threatened almost daily?

There are two responses one has. The first is fear. I remember getting off the plane in Da Nang, with gunfire all around, and being rushed into the back of a jeep. There were repeated bursts of gunfire throughout our ride to the base camp. We had our weapons with us, but we had no experience in shooting at people. I was absolutely terrified.

After a few months, the primary feeling changed from fear to boredom. Once you get used to the idea that you might die, you’re faced with a sixteen-hour workday in absolutely horrible conditions. Either it was 110 degrees with dust blowing in your face, or during the monsoon season you were knee-deep in mud and freezing, even though the temperature was about 50 or 60 degrees.

Did the fear dissipate after a while?

There is always fear, but you get used to it. There were even times when an attack was almost welcome because it helped break up the boredom. I don’t mean that to sound flip—some of my friends were killed or lost their arms and legs in these attacks—but after a few months, the boredom became a bigger problem than the fear.

Did you have any experiences in hand-to-hand combat in which you know that you killed somebody?

Yes and no. I know that I personally killed people, but there were no specific instances in which I fired and saw someone drop. Firefights are different in reality than they are on TV. You don’t fire single shots at specific targets. Instead, you put your rifle on automatic and put out as much lead as you can. I know that I killed people with my rifle and certainly with the artillery shells that I was directing, but fortunately I never had the experience of seeing a person bleed to death by my bullet. I’m very thankful for that. I have nightmares to this day, but I’m sure my nightmares would be much worse if I had that experience.

Nightmares because you were the instrument of death? Or because you were exposed to death?

Nightmares from being exposed to death. The one nightmare I still have to this day is being chased by people with rifles. My feet get bogged down; I can’t run fast enough; and they’re gaining on me.

While you were in Vietnam, did you feel that you were going to come out of it alive?

I guess you’re always an optimist in that type of situation. I thought I would, but I certainly had plenty of friends who didn’t. I knew that was a possibility. But you can’t have an anxiety attack every thirty seconds for a year. Eventually, your mind forces you to get used to the idea that you might die or lose a leg, and you go on.

How did the Vietnam experience change you?

The major change was that I went from being a rule follower to thinking for myself. When I realized that the leaders in the country didn’t necessarily know what they were doing, I became much more independent.

Given that you came out of Vietnam in one piece, in retrospect do you consider it a beneficial experience?

The discipline of boot camp and learning that war is insanity were beneficial experiences. Outside of that, it was largely a waste of two years. I used to have philosophical arguments with one of the other members of the fire direction control unit. I would argue that I would prefer to be put to sleep for two years and then be awakened rather than to go through the actual experience. He argued that any experience was worthwhile.

How do you feel now?

The same way. I feel that it was two years stolen out of my life. When I was in Vietnam, the term for everywhere else was “the world.” “What’s happening in
the world?
” “I want to get back into
the world.
” We felt as if we had not only been removed from our home and friends but from the entire world as well. It was as if we were in another dimension.

I guess the day you left must have been one of the best days of your life.

Absolutely! I’ll never forget the feeling. I had a window seat. When I saw that runway in Da Nang getting farther and farther away, I felt as if I were on my way up to heaven.

I’m afraid we got off on a bit of a tangent. Before I interrupted you, I had asked how you became a trader.

Since I didn’t finish college before I left for Vietnam, I needed a job that would allow me to go to school at the same time. My brother, Terry, was a floor broker on the Chicago Mercantile Exchange [CME]. He got me a job as a runner on the floor, which allowed me to work in the morning, attend school in the afternoon, and study in the evening. I worked as a runner for a couple of years with absolutely no intention of getting into this business, or for that matter any other business. I was studying to be a clinical psychologist.