Mark Eidem has spent his career helping people make better decisions. In his former job as a check pilot for Alaska’s civil air patrol, he put search-and-rescue trainees through a series of tests to see how they would react as conditions changed, such as during the loss of an engine. Today, as a Seattle-based Trading Solutions Regional Manager (TSRM) with Schwab, Mark helps investors navigate the markets and be responsive traders.
“Investing, like flying, is a constantly changing environment,” Mark says. “When the facts change, we need to be able to adapt and make appropriate decisions.”
Nearly every day of the year, Schwab’s 16 TSRMs host seminars in Schwab offices or conduct one-on-one consultations with clients. Their backgrounds include experience as Chartered Financial Analysts, Chartered Market Technicians, Certified Financial Planners and Accredited Asset Manager Specialists. This varied expertise helps Schwab’s TSRMs address subjects as general as risk management and as technical as hedging strategies.
Clients in control
Mark covers a 16-office region in the Pacific Northwest that includes Washington, Oregon, Idaho, Alaska and Hawaii. During a trip to Honolulu last year, Mark led nine seminars in six days at the local office, covering topics such as hedging strategies, technical analysis, trade execution, risk management, and Schwab’s StreetSmart Edge® trading platform. In between, he met one-on-one with nearly 20 clients.
“I’m always amazed at how sophisticated and varied clients’ needs are,” Mark says. “I can honestly say after doing this for seven years that this is the most fun I’ve had in my professional life.”
After leaving the civil air patrol, Mark spent some time as a full-time trader but eventually found he missed working with people. He likes to listen, a trait that all TSRMs have in common.
“Whatever clients want to learn—that’s what I’m there for,” Mark says. “The agenda is totally theirs.”
Mark recalls working with one client who wanted help understanding some of the psychological aspects of trading. The client wanted to know whether mental mistakes were contributing to his recent run of trading losses. As with most such cases, Mark determined that the client’s poor win-loss ratio stemmed from issues with security selection and trade entry.
“You have to ask yourself, ‘What am I buying and when am I buying it?’” says Mark.
He adds that clients often rely on fundamental analysis for security selection but sometimes fail to realize that technical analysis can be a helpful tool when deciding when to buy. Similarly, traders who are savvy with technicals might skip the fundamental analysis and gravitate toward low-priced stocks without considering why they are priced so low. Blending the two trading disciplines, he says, is a hallmark of a good risk-management strategy.
“Risk management is probably the most popular subject we cover with trading clients,” Mark says. “It’s the heart of everything we do.”
Focusing on risk management
When working with clients on risk management, Mark’s goal is to get them to define a trading plan long before they place a trade. He asks a series of questions to get them thinking about their motivations for making a trade, such as:
- What are they trying to accomplish with a given trade?
- At what point will they sell if their plan doesn't work?
- Are the potential rewards worth the risk?
Mark says the answers to those questions drive the screening process and help him know where clients should focus. From there, they discuss strategies for minimizing losses.
Imagining the “what-ifs?”
Robert Kmec, a TSRM who covers the Great Lakes region, says his former position as a market maker helps him address many aspects of risk management with active trader clients.
Robert says many clients don’t start thinking about risk management until they are reacting to a coming event. That was the case leading up to the Federal Reserve’s rate-setting policy meeting in September 2015. Many believed the central bank would finally raise its benchmark lending rate for the first time since 2006.
“In those instances, my consultations with clients aren’t about helping them predict what’s going to happen, because nobody knows,” says Robert, who supports 26 branches in his five-state region. “Instead, I help them work through whether they’re prepared for a variety of outcomes. Are they comfortable with the positions they have if the markets go down? Have they thought about reducing capital exposed or deploying more capital to a trade if that happens?”
Leading up to the August 2015 market swoon, Robert helped educate clients about how to identify individual stocks that had broken through support levels. He noted that the market started trading sideways beginning in early spring and throughout the summer, before breaking through a support level and the moving 200-day average in the days leading up to the market correction. Warning signs were flashing before then for a wide number of individual securities, he says.
“When stocks break through their support levels, our guidance to clients is to go back and reevaluate why they’re holding the stock and whether it’s time to start paring back,” says Robert, who teaches a seminar on identifying support levels and recognizing when those levels are broken.
In the eyes of both Robert and Mark, the biggest mistake traders can make is ignoring those kinds of red flags.
“When they have the equivalent of engine trouble, some traders convince themselves the engine will start working again,” says Mark. “Sometimes you have to recognize that you’re not going to get to your destination, find a place to land and call the ‘expert’ to fix the engine.”