Jack Schwager

In his last trade, [Randy] McKay was going to reach his goal of making $50 million in the markets. This next-to-last trade was supposed to get McKay close enough to his target so that one more strong trade would achieve his goal. That is not quite how things worked out, however. The trade involved a huge long position in the Canadian dollar. The currency had broken through the psychologically critical 80-cent barrier, and McKay was convinced the market was going much higher. As the market moved in his favor, McKay added to his longs, ultimately amassing a 2,000-contract long position.

At the time, McKay was having a house built in Jamaica and would travel there every few weeks to supervise the construction. One Sunday evening, before he rushed off to the airport to catch his connecting flight to Miami, McKay stopped to check the quote screen. He cared about only one position: the Canadian dollar. He looked at the screen and was momentarily shocked. The Canadian dollar was down exactly 100 points! He was late for his flight, and the limo was waiting. The Canadian dollar rarely moves 20 points in the overnight session, let alone 100 points; it must be a bad quote, thought McKay. He decided that the market was really unchanged and that the hundreds digit in the quote was off by one. With that rationalization in mind, McKay rushed off for the airport.

It turned out that the quote that evening had not been an error. The market was down 100 points at the time, and by the next morning, it was down 150 points from the IMM Friday close. What had happened was that, with the Canadian election a month away, a poll had come out showing that the liberal candidate—who held some extreme views, including support for an independent Québec, and who had been thought to have no chance of winning—had closed most of the gap versus his opponent. Overnight, the impending election had gone from a foregone conclusion to a toss-up.

To make matters worse, although construction was sufficiently complete for McKay to stay at his new house, phones had not yet been installed. We are talking pre–mobile phone days here. So McKay had to drive to the nearest hotel and stand in line to use the pay phone. By the time he got through to his floor clerk, his Canadian dollar position was down $3 million. Since by that time the market was down so much, McKay got out of only about 20 percent of his position. The Canadian dollar, however, continued its plunge. A few days later, McKay was down $7 million. Once he realized the extent of his loss, he exclaimed to his clerk, “Get me out of everything!”

Jack Schwager, The Little Book of Market Wizards: Lessons from the Greatest Traders, Hoboken, New Jersey, 2014, pp. 65-67