Tiger Mgmt. founder, Julian Robertson chats with Bloomberg TV about the changing landscape of the hedge fund industry, the impact of the SEC's case against SAC Capital and Steve Cohen, and his thoughts on Apple and Google.
Last week, I tweeted a link back to our post, "Insights from Hedge Fund Legend, Julian Robertson" for his thoughts on the hedge fund industry and the changes that size and increased competition have brought. This latest Bloomberg interview is a worthwhile update to this discussion.
Here are the clips (part one: JR on hedge funds, part two: Julian on Apple, Google) and a few quotes below.
Julian Robertson on the Steve Cohen case and info flow to hedge funds: "I think hedge funds are generally extremely careful that they adhere to rules [concerning inside info]." Doesn't think it will impact the industry much. Tiger cub Nehal Chopra of Tiger Ratan Capital agrees.
On Steve Jobs and Apple: "I read the book on Steve Jobs and developed a tremendous amount of respect for his intellect, but I came to the conclusion that he really was a maverick person and really couldn't establish a great long-term entity [without his leadership]." Julian now prefers Google for their leadership structure long-term.
JR on hedge fund performance: "One of the things that has affected performance [since the growth of the industry from 1980s] is the increase in size of hedge funds. It was so much easier to compete with bank trust depts, individual investors and mutual funds than with other hedge funds... the competition is tougher.".
How Robertson selects his Tiger cubs: "That's sort of secret to us, but one aspect that got us interested in Nehal... was her competitiveness in tennis (Davis Cup caliber). She's a vicious competitor. I find that people who compete well in one thing compete well in others".
Twitter: Tom Keene asks Robertson, "are you on Twitter?". Robertson: "No, sir".
Related posts:
1. Insights from hedge fund legend, Julian Robertson.
2. Julian Robertson on hedge fund strategy and competition (Bloomberg).
Showing posts with label Hedge Funds. Show all posts
Showing posts with label Hedge Funds. Show all posts
Tuesday, July 23, 2013
Tuesday, March 19, 2013
Insights from hedge fund legend, Julian Robertson
While looking through some archived interviews at Financial Sense, I found this 2004 interview on hedge fund legend, Julian Robertson with author Daniel Strachman.
Although Strachman's book on Julian Robertson was not terribly well received (see reader reviews), this interview does offer some worthwhile anecdotes and insights on one of the hedge fund industry's great investors. Let me share a few with you here.
1. Hedge funds began as an alternative investment vehicle for high-net worth individuals. Later, they came to fill the void of liquidity in the marketplace left by the trading operations of once-private firms such as Goldman Sachs, J. Aron, Lehman Bros., JP Morgan, etc.
2. The strength of Tiger Management was in its highly focused research efforts (pre-web) and Robertson's willingness to follow his conviction on a trade or investment.
Julian was unmoved by price movements that went against his positions if he had conviction in a trade and the fundamental story. This worked in his favor at times (copper in the mid-'90s) but proved to be a disadvantage at other times (shorting tech stocks during the earlier part of the dot.com bubble - though he refrained from shorting them again in '99).
3. Robertson is very competitive and also able to delegate research and decisions to his team, utilizing their expertise in order to get the best investment results. He is a Graham and Dodd investor, but he also found great success by applying aspects of this investing philosophy beyond the world of stocks (in currencies, commodities, etc.).
4. Julian met hedge fund pioneer, Alfred Winslow Jones and from Jones he learned lessons on business organization and the advantages of delegating research work. He also learned that the hedge fund structure could be very profitable and he brought his investing talents to bear in this format.
5. Among the factors that led to Tiger Fund's demise in 2000: Robertson's decision to avoid participating in the dot.com bubble led to a decline in AUM. Also, younger managers who had helped build Tiger (the "Tiger cubs") went off to start their own hedge funds and were gradually replaced by Wall St. veterans. Younger and hungrier workers who had been the lifeblood of the firm left, taking their performance abilities with them.
6. When asked what he most admires about Julian Robertson, Strachman relates the story of their first meeting, which "deeply affected" him. He was nervous about the meeting, but was struck by Robertson's ability to make people feel welcome and valued, "a great skill". Julian is incredibly driven to win, but he also knows there is "no I in team" and he leverages the strengths of those around him.
In addition to Strachman's book, Sebastian Mallaby's book on hedge funds also carries some background on Julian Robertson and Tiger Fund, as well as other industry pioneers.
You can check out our related posts to hear more from Julian Robertson, including his thoughts on the increasingly competitive environment for hedge funds.
You'll also learn more about hedge fund pioneer Alfred Winslow Jones, who was mentioned in Strachman's interview.
Related posts:
1. Julian Robertson interview with FT.com.
2. Julian Robertson interview with CNBC.
3. Julian Robertson on hedge fund strategy and competition (Bloomberg).
4. A.W. Jones and the history of hedge funds.
1. Hedge funds began as an alternative investment vehicle for high-net worth individuals. Later, they came to fill the void of liquidity in the marketplace left by the trading operations of once-private firms such as Goldman Sachs, J. Aron, Lehman Bros., JP Morgan, etc.
2. The strength of Tiger Management was in its highly focused research efforts (pre-web) and Robertson's willingness to follow his conviction on a trade or investment.
Julian was unmoved by price movements that went against his positions if he had conviction in a trade and the fundamental story. This worked in his favor at times (copper in the mid-'90s) but proved to be a disadvantage at other times (shorting tech stocks during the earlier part of the dot.com bubble - though he refrained from shorting them again in '99).
3. Robertson is very competitive and also able to delegate research and decisions to his team, utilizing their expertise in order to get the best investment results. He is a Graham and Dodd investor, but he also found great success by applying aspects of this investing philosophy beyond the world of stocks (in currencies, commodities, etc.).
4. Julian met hedge fund pioneer, Alfred Winslow Jones and from Jones he learned lessons on business organization and the advantages of delegating research work. He also learned that the hedge fund structure could be very profitable and he brought his investing talents to bear in this format.
5. Among the factors that led to Tiger Fund's demise in 2000: Robertson's decision to avoid participating in the dot.com bubble led to a decline in AUM. Also, younger managers who had helped build Tiger (the "Tiger cubs") went off to start their own hedge funds and were gradually replaced by Wall St. veterans. Younger and hungrier workers who had been the lifeblood of the firm left, taking their performance abilities with them.
6. When asked what he most admires about Julian Robertson, Strachman relates the story of their first meeting, which "deeply affected" him. He was nervous about the meeting, but was struck by Robertson's ability to make people feel welcome and valued, "a great skill". Julian is incredibly driven to win, but he also knows there is "no I in team" and he leverages the strengths of those around him.
In addition to Strachman's book, Sebastian Mallaby's book on hedge funds also carries some background on Julian Robertson and Tiger Fund, as well as other industry pioneers.
You can check out our related posts to hear more from Julian Robertson, including his thoughts on the increasingly competitive environment for hedge funds.
You'll also learn more about hedge fund pioneer Alfred Winslow Jones, who was mentioned in Strachman's interview.
Related posts:
1. Julian Robertson interview with FT.com.
2. Julian Robertson interview with CNBC.
3. Julian Robertson on hedge fund strategy and competition (Bloomberg).
4. A.W. Jones and the history of hedge funds.
Saturday, March 2, 2013
Nassim Taleb, Stan Druckenmiller talk crisis on Bloomberg TV
Our future may be a bit more fragile than "Anti-fragile", if the latest warnings from Nassim Taleb and Stanley Druckenmiller prove correct.
The pair recently sat down with Bloomberg TV to voice their concerns over America's social and economic strains. Taleb believes we are still loaded down with the unsafe systemic risks and toxic leaders of our recent past. Druckemiller sees a crisis "worse than 2008" ahead.
We have their full interviews for you here, so let's jump right in.
Nassim Taleb feels we are at a point where we have not learned or benefited from the mistakes of our recent financial crisis. This has made our society more susceptible to fragility and will deepen the effects of future crises.
Moral hazard has increased as bankers have paid themselves larger bonuses with our (taxpayers') money. Quantitative easing has lifted asset prices. Median incomes, and the average person's standard of living, have been dropping while the top tier of society ("the 1 percent of the 1 percent") has been absorbing the lion's share of recent economic growth.
As Taleb puts it, we are now paying for the bad debts and disastrous trades made by irresponsible, bailed-out parties in the last cycle. We have transferred private problems and failures into public problems by transforming private debt into public debt.
In order to improve our situation and ensure future prosperity, we need to face our mistakes and make our regulations and tax codes less complex. Complex regulations are a boon to lawyers and big businesses who game the laws to their benefit. To quote Taleb, we need "sound, minimal regulations and more skin in the game (personal liability) for those who make mistakes.".
Recently retired from running public money, star hedge fund manager, Stanley Druckenmiller has stepped back into the spotlight to warn of a looming entitlement spending crisis in the USA.
"Every once in a while, the world of investing and what's going on in the country will intersect".
Druckenmiller recounts his conversations with US officials about previous storms on the financial horizon. Based on his past experiences, he figured it was better to keep quiet and manage his investors' money than get caught up in public debates over politically sensitive issues, like the fallout from the 2000s housing bubble.
He now feels he needs to speak out to warn citizens about a coming bust of America's demographic bubble. Druckenmiller notes that in 2030, the average population of the USA will be older than the average Floridian is now. "I don't know about the timing of when markets will respond to this, but I know it will happen based on the fundamentals.".
Stan also offers his thoughts on the valuation of the equity markets, bonds, risk assets and zero rates, and competitive currency devaluations. "Every single major country is now running stimulative monetary policies, basically modeled after the Fed.".
One great piece of investing advice from Stanley Druckenmiller (and a recurring theme in this interview): "You've got to think in an open minded fashion and look out into the future to judge companies [and stock prices]. Try and imagine the world 18-24 months from now and not the way it is today. Then think about where securities prices will be to reflect that view".
Related posts:
1. Victor Sperandeo exclusive interview: gold, inflation, and trading the QE wave.
2. Nassim Taleb on Antifragile at Google.
3. Jim Rogers on Street Smarts and outsized returns.
The pair recently sat down with Bloomberg TV to voice their concerns over America's social and economic strains. Taleb believes we are still loaded down with the unsafe systemic risks and toxic leaders of our recent past. Druckemiller sees a crisis "worse than 2008" ahead.
We have their full interviews for you here, so let's jump right in.
Nassim Taleb feels we are at a point where we have not learned or benefited from the mistakes of our recent financial crisis. This has made our society more susceptible to fragility and will deepen the effects of future crises.
Moral hazard has increased as bankers have paid themselves larger bonuses with our (taxpayers') money. Quantitative easing has lifted asset prices. Median incomes, and the average person's standard of living, have been dropping while the top tier of society ("the 1 percent of the 1 percent") has been absorbing the lion's share of recent economic growth.
As Taleb puts it, we are now paying for the bad debts and disastrous trades made by irresponsible, bailed-out parties in the last cycle. We have transferred private problems and failures into public problems by transforming private debt into public debt.
In order to improve our situation and ensure future prosperity, we need to face our mistakes and make our regulations and tax codes less complex. Complex regulations are a boon to lawyers and big businesses who game the laws to their benefit. To quote Taleb, we need "sound, minimal regulations and more skin in the game (personal liability) for those who make mistakes.".
Recently retired from running public money, star hedge fund manager, Stanley Druckenmiller has stepped back into the spotlight to warn of a looming entitlement spending crisis in the USA.
"Every once in a while, the world of investing and what's going on in the country will intersect".
Druckenmiller recounts his conversations with US officials about previous storms on the financial horizon. Based on his past experiences, he figured it was better to keep quiet and manage his investors' money than get caught up in public debates over politically sensitive issues, like the fallout from the 2000s housing bubble.
He now feels he needs to speak out to warn citizens about a coming bust of America's demographic bubble. Druckenmiller notes that in 2030, the average population of the USA will be older than the average Floridian is now. "I don't know about the timing of when markets will respond to this, but I know it will happen based on the fundamentals.".
Stan also offers his thoughts on the valuation of the equity markets, bonds, risk assets and zero rates, and competitive currency devaluations. "Every single major country is now running stimulative monetary policies, basically modeled after the Fed.".
One great piece of investing advice from Stanley Druckenmiller (and a recurring theme in this interview): "You've got to think in an open minded fashion and look out into the future to judge companies [and stock prices]. Try and imagine the world 18-24 months from now and not the way it is today. Then think about where securities prices will be to reflect that view".
Related posts:
1. Victor Sperandeo exclusive interview: gold, inflation, and trading the QE wave.
2. Nassim Taleb on Antifragile at Google.
3. Jim Rogers on Street Smarts and outsized returns.
Monday, February 25, 2013
Lessons from Hedge Fund Market Wizards: Steve Clark
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| Photo via marshfieldrodandgunclub.com |
These are the words Jack Schwager uses at the outset to describe the track record of Steve Clark's Omni Global Fund.
In his opening notes on Clark's event-driven hedge fund, Schwager points out that Omni Global has been profitable every year since its inception in 2001. This, of course, includes the panic year of 2008, during which Clark handily outperformed the Hedge Fund Research index of funds sharing this strategy.
The combination of strong gains and moderate equity drawdowns and losing periods gave Omni Global an "extremely high Gain to Pain ratio", a return/risk measure favored by Hedge Fund Market Wizards author, Jack Schwager. In other words, he is very, very good.
On to the interview lessons...
1. Steve Clark was "brutally honest" in his interview with Schwager. In the opening, Clark describes his background; raised in a council house on the outskirts of London, no father in sight, no university degree, and no initial trading experience. Clark was installing stereo systems when a friend told him about trading jobs in the City. Sometimes interest and motivation are more important than "pedigree".
2. He worked a series of back-office jobs and assistant roles before getting a shot at running a market-making book. He got his first chance to trade the book while filling in for a trader on holiday...during the week of the October 1987 crash. Trial by fire situation.
3. Steve learned a valuable lesson making prices on October 19, 1987: the price is where anyone is prepared to deal, and it can be anything. Steve found he had to quote prices so low until sell orders dried up. He still lost several million pounds on his book that day.
4. Eventually he became the most profitable trader in his group. Steve credits this shift to his ability to cut positions that were down or "wrong". He also traded around news to orientate himself on "the right side of the market". Plus, he was inexperienced and didn't have the fear that cripples people who've been in the business for a long time.
5. Traded on order flow info and screened for stocks making moves on big volume. He also used charts to see what happened when stocks reached certain levels in prior periods. Clark cautions that he is not a big believer in predictive chart analysis.
6. Clark left his market-making job at top-rated Warburg for a better salary offer from Lehman Brothers. He soon found that he couldn't make money at his new firm, having left behind an environment that was rich in order flow information. It was a shock to his ego and caused him to doubt his ability as a trader. It happens to the best of us.
7. Eventually he bounced back and over time developed contacts with trusted brokers. He used their order flow info to gauge near-term market sentiment on news events. If he was not aligned with momentum he would cut his position. Steve believes in buying on the way up.
8. Steve gives traders one key piece of advice: do more of what works and less of what doesn't. Dissect your P + L and see what works for you (types of trades, timing, etc.) and what doesn't.
9. Price is irrelevant, it's size that kills you. If you are too big in an illiquid position, there is no way out.
10. Clark discusses a period of professional ups and downs that begins after the initial seed money for his first hedge fund fell through. After seeding a small fund on a shoestring using his own money, he wound up closing shop and went back to work for others. Thus began a hard road which led to some contentious litigation and Clark's disillusionment with The City.
11. Set up his own fund in 2001 after a successful career move to First New York Securities. Despite his trading success, Clark says he is still waiting to find out "what I want to do when I grow up". A revealing section of the interview follows, in which Clark feels he has nothing to show for his trading career except money. "What have I accomplished?", he asks.
It may be worthwhile to reflect on this issue. What are we in this for? Your values and your assessments of the pros and cons of a trading career may vary.
12. Back to trading. It's the size of your position rather than the price at which you put it on that determines your ability to keep the position. Trade within your emotional capacity. Don't take on a bigger position than you can handle. If you wake up thinking about a position, it's too big.
13. When everything lines up, you need to swing for the fences. However, if the position starts acting in a way you don't understand, you need to cut it because that is a sign you don't know what is going on.
14. Your job as a trader is to make the line [your equity curve] go from bottom left to top right. That's it. Don't get hung up on other supposed "mandates". Protect your capital and the direction of that equity line.
. . . .
That's it for this latest edition in our interview series. We'll have some new "Lessons from Hedge Fund Market Wizards" posts for you over the next few weeks. In the meantime, do pick up a copy of Hedge Fund Market Wizards to get the full color and detail of all these great trader interviews.
You can revisit the earlier posts in our Hedge Fund Wizards series (it's like a Cliff's Notes of investing) here:
a) Jack Schwager's insights from Hedge Fund Market Wizards.
b) Lessons from HF Market Wizards: Colm O'Shea.
c) Lessons from HF Market Wizards: Ray Dalio.
d) Lessons from HF Market Wizards: Scott Ramsey.
We have some more great stuff in the works, so stay tuned to the Finance Trends blog feed and our Twitter updates for the latest on upcoming posts. Thanks for reading!
Monday, December 31, 2012
Lessons from Hedge Fund Market Wizards: Scott Ramsey
Today we continue our series, "Lessons from Hedge Fund Market Wizards", with a look at Jack Schwager's interview with Scott Ramsey of Denali Asset Management.
Ramsey, a futures trader and CTA who works on the island of St. Croix, spoke to Schwager about his first foray into the markets, his evolution as a trader, and the process he stands by to protect and grow his clients' money.
1). Ramsey started trading in college. He was roped into the OTC metals market via a broker's ad in the Wall St. Journal. The broker charged customers a flat fee to buy and sell as much as they wanted in a particular market for six month. At the time, Scott was a novice and didn't know about futures, so he traded metals in this fashion through the inflationary run-up of the late 1970s.
2). Scott had to rethink his trading strategy after he bought silver at $50 an oz., only to watch it collapse to $26 following a long string of limit-down days. He sold as soon as the market resumed trading, but he lost all the money he had made plus some starting capital.
3). "Losing money was what got me hooked", says Scott. He knew that some 90% of futures traders lost money and he was determined to be in the 10% that profited. This motivated him to succeed. He was so engrossed in trading that he left college 9 credits shy of graduating, despite being an excellent engineering student.
4). Scott learned to trade first w/ his own money, then by advising clients as a broker. He leased a seat on the IMM and tried trading from the floor. Being on the floor turned out to be a big disadvantage compared to screen trading. Scott felt there was a lack of meaningful info in the pits and he lost his feel from watching other markets. He soon left the floor.
5). Ramsey continued to broker and screen trade, watching every market and updating chart books by hand. He made money in his own account almost every year, but not a lot. Why? Ramsey says it was because he focused only on TA, not fundamentals. Also, because he regularly pulled money out of his account. He stayed a 1-2 lot trader instead of pushing it and increasing his size.
6). "The evolution of a trader is when you start letting your money work for you and increasing your size."
7). Scott is one of those traders who has used his time as a broker to his learning advantage. By observing retail clients, he learned what not to do - everything from holding losers and taking small profits to emotional decision making and chasing market activity.
8). In order to make the big money, Scott realized he had to embrace fundamentals. The transition began when he started thinking about prevailing sentiment in the bond market and why prices were where they were. He thought about how people were positioned and the psychology behind prices. He then initiated a trade that was positioned against the prevailing sentiment, which turned out to be a very profitable move. "I began to look at the market from the perspective of other traders."
9). Discussing market action during the Euro crisis, Ramsey notes, "The market's repeated resilience in the face of negative news tells me it wants to go higher. Chaos creates opportunity. We learn so much about the markets when we have crisis events."
10). Rigorous risk control not only keeps losses small, it impacts profit potential. You must be in a position to seize opportunity. The only way to do that is w/ a clear mind. Don't expend mental energy by managing poor trades. Cut those that are not working.
11). When asked what trading advice he offers to friends, Ramsey tells them that it's not about being right - it's about making money. Taking losses is part of the process, so don't dwell on losing trades. Think about your next trade. Trading is a business. Treat it like one, keep records of your trades and journal your experience.
Once again, I highly recommend reading Hedge Fund Market Wizards to get the full detail and feeling of these interviews. Hope you enjoyed this latest post and we'll see you back here, with more to come, soon.
Happy New Year to all our readers and friends across the globe!
If you're enjoying these posts and would like to see more, please subscribe to our free RSS updates and follow Finance Trends in real-time on Twitter and StockTwits. You can also check out our related posts below for more market wisdom and trading insights.
Related posts:
1. First 3 posts from "Lessons from Hedge Fund Market Wizards" series.
2. Lessons from Hedge Fund Market Wizards: Ray Dalio.
Photo credit: Trend Capture Futures.
Ramsey, a futures trader and CTA who works on the island of St. Croix, spoke to Schwager about his first foray into the markets, his evolution as a trader, and the process he stands by to protect and grow his clients' money.
1). Ramsey started trading in college. He was roped into the OTC metals market via a broker's ad in the Wall St. Journal. The broker charged customers a flat fee to buy and sell as much as they wanted in a particular market for six month. At the time, Scott was a novice and didn't know about futures, so he traded metals in this fashion through the inflationary run-up of the late 1970s.
2). Scott had to rethink his trading strategy after he bought silver at $50 an oz., only to watch it collapse to $26 following a long string of limit-down days. He sold as soon as the market resumed trading, but he lost all the money he had made plus some starting capital.
3). "Losing money was what got me hooked", says Scott. He knew that some 90% of futures traders lost money and he was determined to be in the 10% that profited. This motivated him to succeed. He was so engrossed in trading that he left college 9 credits shy of graduating, despite being an excellent engineering student.
4). Scott learned to trade first w/ his own money, then by advising clients as a broker. He leased a seat on the IMM and tried trading from the floor. Being on the floor turned out to be a big disadvantage compared to screen trading. Scott felt there was a lack of meaningful info in the pits and he lost his feel from watching other markets. He soon left the floor.
5). Ramsey continued to broker and screen trade, watching every market and updating chart books by hand. He made money in his own account almost every year, but not a lot. Why? Ramsey says it was because he focused only on TA, not fundamentals. Also, because he regularly pulled money out of his account. He stayed a 1-2 lot trader instead of pushing it and increasing his size.
6). "The evolution of a trader is when you start letting your money work for you and increasing your size."
7). Scott is one of those traders who has used his time as a broker to his learning advantage. By observing retail clients, he learned what not to do - everything from holding losers and taking small profits to emotional decision making and chasing market activity.
8). In order to make the big money, Scott realized he had to embrace fundamentals. The transition began when he started thinking about prevailing sentiment in the bond market and why prices were where they were. He thought about how people were positioned and the psychology behind prices. He then initiated a trade that was positioned against the prevailing sentiment, which turned out to be a very profitable move. "I began to look at the market from the perspective of other traders."
9). Discussing market action during the Euro crisis, Ramsey notes, "The market's repeated resilience in the face of negative news tells me it wants to go higher. Chaos creates opportunity. We learn so much about the markets when we have crisis events."
10). Rigorous risk control not only keeps losses small, it impacts profit potential. You must be in a position to seize opportunity. The only way to do that is w/ a clear mind. Don't expend mental energy by managing poor trades. Cut those that are not working.
11). When asked what trading advice he offers to friends, Ramsey tells them that it's not about being right - it's about making money. Taking losses is part of the process, so don't dwell on losing trades. Think about your next trade. Trading is a business. Treat it like one, keep records of your trades and journal your experience.
Once again, I highly recommend reading Hedge Fund Market Wizards to get the full detail and feeling of these interviews. Hope you enjoyed this latest post and we'll see you back here, with more to come, soon.
Happy New Year to all our readers and friends across the globe!
If you're enjoying these posts and would like to see more, please subscribe to our free RSS updates and follow Finance Trends in real-time on Twitter and StockTwits. You can also check out our related posts below for more market wisdom and trading insights.
Related posts:
1. First 3 posts from "Lessons from Hedge Fund Market Wizards" series.
2. Lessons from Hedge Fund Market Wizards: Ray Dalio.
Photo credit: Trend Capture Futures.
Thursday, December 20, 2012
Heads up: new "Market Wizards" posts coming soon...
Hi gang, just wanted to let you know that we'll have a new "Lessons from Hedge Fund Market Wizards" post up soon. In the meantime, you may want to check out the most recent posts from this series.
Dive in with this introductory post: key interviews and a trading webinar with Hedge Fund Market Wizards author, Jack Schwager. The videos found in this post contain some excellent insights and quotes from the traders and hedge fund managers interviewed in Schwager's latest Wizards book.
Ready to learn from some of the most astute traders around? Here you'll find some choice trading and investing lessons from global macro trader, Colm O'Shea and noted hedge fund manager, Ray Dalio.
You'll find the first 3 posts in our "Lessons from Hedge Fund Market Wizards" series below.
1. Jack Schwager shares insights from Hedge Fund Market Wizards.
2. Lessons from Hedge Fund Market Wizards: Colm O'Shea.
3. Lessons from Hedge Fund Market Wizards: Ray Dalio.
Now if you'd like to keep up with our real-time updates and be alerted to our upcoming posts, please subscribe to the Finance Trends RSS feed or follow Finance Trends on Twitter (totally free).
We'll see you next week with the latest in our "Market Wizards" series. Until then, thanks for reading and have a safe and happy holiday season!
Dive in with this introductory post: key interviews and a trading webinar with Hedge Fund Market Wizards author, Jack Schwager. The videos found in this post contain some excellent insights and quotes from the traders and hedge fund managers interviewed in Schwager's latest Wizards book.
Ready to learn from some of the most astute traders around? Here you'll find some choice trading and investing lessons from global macro trader, Colm O'Shea and noted hedge fund manager, Ray Dalio.
You'll find the first 3 posts in our "Lessons from Hedge Fund Market Wizards" series below.
1. Jack Schwager shares insights from Hedge Fund Market Wizards.
2. Lessons from Hedge Fund Market Wizards: Colm O'Shea.
3. Lessons from Hedge Fund Market Wizards: Ray Dalio.
Now if you'd like to keep up with our real-time updates and be alerted to our upcoming posts, please subscribe to the Finance Trends RSS feed or follow Finance Trends on Twitter (totally free).
We'll see you next week with the latest in our "Market Wizards" series. Until then, thanks for reading and have a safe and happy holiday season!
Thursday, November 29, 2012
Lessons from Hedge Fund Market Wizards: Ray Dalio
You've probably heard of Ray Dalio if you have even a cursory knowledge of the hedge fund industry (or the Forbes billionaires list), so let's get right to it. These notes will fill in the rest of the story.
1). Dalio is the founder and former CEO (now "mentor") of Bridgewater Associates, a fund that has returned more money ($50 billion) for investors than any hedge fund in history.
2). Bridgewater still manages to achieve excellent returns on a huge base of capital and has done so over a long period of time. It is among the few hedge funds with a 20-year track record.
3). Dalio believes that mistakes are a good thing, as they provide an opportunity for learning. If he could figure out what he (or someone else) was doing wrong, he could use that as a lesson and learn to be more effective.
4). His life's philosophy and management concepts are set down in a 111 page document called, Principles, which drives the firm's culture and daily operations. Identifying and learning from mistakes is a key theme. It also advocates "radical transparency" within the firm; meetings are taped and employees are encouraged to criticize each other openly.
5). "The type of thinking that is necessary to succeed in the markets is entirely different from the type of thinking required to succeed in school". Ray notes that school education emphasizes instructions, rote learning, and regurgitation. It also teaches students that "mistakes are bad", instead of teaching the importance of learning from mistakes.
6). If you are involved in the markets, you must learn to deal with what you don't know. Anyone involved in markets knows you can never be absolutely confident. You can't approach trading by saying, "I know I'm right on this one." Dalio likes to put his ideas in front of other people so they can shoot them down and tell him where he may be wrong.
7). "The markets teach you that you have to be an independent thinker. And any time you are an independent thinker, there is a reasonable chance you are going to be wrong."
8). Ray learned in his early working years that currency depreciation and money printing are good for stocks. He was surprised to see US stocks rise after Nixon closed the gold exchange window in 1971 (effectively ending the gold standard). The lesson was reinforced when the Fed eased massively in 1982 during the Latin American debt crisis. Stocks rallied, and of course, this marked the beginning of an 18-year bull market.
9). From these earlier experiences, Dalio learned not to trust what policy makers say. He has learned these lessons repeatedly over the years (much like our previous "Market Wizard", Colm O'Shea).
10). Dalio vividly recalls a time when he was nearly ruined trading pork bellies in the early 1970s. He was long at a time when bellies were trading limit down every day. He didn't know when the losses would end, and every morning he'd hear the price board click down 200 points (the daily limit) and stay there. The experience taught him the importance of risk management - "I never wanted to experience that pain again".
11). "In trading you have to be defensive and aggressive at the same time. If you are not aggressive, you're not going to make money, and if you are not defensive, you are not going to keep money.".
12). Bridgewater views diversification and asset correlation differently than most. As Dalio puts it, "People think that a thing called correlation exists. That's wrong.". Instead, he describes a world in which assets behave a certain way in response to environmental determinants. Correlations between say, stocks and bonds, are not static, but are changing in response to "drivers" (catalysts) that can cause assets to move together or inversely.
13). By studying how asset prices move in response to certain drivers, Bridgewater looks to build portfolios of truly uncorrelated assets. By combining assets that have very slight correlations, they are able to diversify among 15 assets (instead of 100 or 1000 more closely linked assets). This helps them cut volatility and greatly improve their return/risk ratio.
14). We are currently in the midst of a "broad global deleveraging" that is negative for growth. Since the United States can print its own money, it will do so to alleviate the pressures of deflation and depression. The effectiveness of quantitative easing will be limited, since owners of bonds purchased by the Fed will use the money to buy similar assets. Dalio elaborates on our future economic course and possible policy approaches to these problems throughout the interview.
There's a lot more in Schwager's chapter with Ray Dalio. These notes just scratch the surface on Bridgewater's process and their quest for the Holy Grail of investing.
There is also an addendum to the chapter containing Dalio's big picture view of long-term economic cycles and a historical "stage analysis" of the economic rise and fall of nations.
Be sure to check out this latest Market Wizards book (a very worthwhile read) and look for our upcoming posts for more "Lessons from Hedge Fund Market Wizards". In the meantime, you'll find more lessons and interviews in our related posts below.
If you're enjoying these posts and would like to see more, please subscribe to our free RSS updates and follow Finance Trends in real-time on Twitter and StockTwits. You can also check out our related posts below for more market wisdom and trading insights.
Related posts:
1. Lessons from Hedge Fund Market Wizards: Colm O'Shea.
2. Jack Schwager interviews on Hedge Fund Market Wizards.
3. Ray Dalio in Barron's: "It's a D-Process".
4. Ray Dalio's 'Principles'.
*Photo credit: Ray Dalio Blog.
Monday, November 26, 2012
Lessons from Hedge Fund Market Wizards: Colm O'Shea
In our first installment of "Lessons from Hedge Fund Market Wizards", we examine the lessons offered in Jack Schwager's interview with noted global macro trader and hedge fund manager, Colm O'Shea of COMAC Capital. Last week we brought you a brief overview of Hedge Fund Market Wizards, including several interviews with author Jack Schwager on the trading insights found within this new Market Wizards volume.
We'll expand on those ideas throughout this series by zeroing in on our favorite interviews and highlighting some key lessons and quotes. Of course, our notes are just a sample of what readers will find in these interview chapters - we don't want to give away the store!
Today, we'll look closely at some key insights offered in the book's opening chapter. Here are our notes on Schwager's interview with Colm O'Shea.
1). Colm O'Shea began his career as a young economic forecaster. He was kept behind closed doors by his firm, who did not want clients to know their research reports and forecasts were written by a 19-year old who had landed the job before starting at university.
2). Colm realized he did not want to continue publishing consensus-hugging forecasts, and he landed his first job as a trader at Citigroup after graduating from Cambridge. He went on to work for George Soros' Quantum Fund before founding his own firm, COMAC Capital.
3). O'Shea view his trading ideas as hypotheses. Moves counter to the expected direction are proof that his trade hypothesis is wrong. O'Shea is quick to liquidate these positions when they reach a pre-defined price (a level at which his trade hypothesis is invalidated). He risks a small percentage of his assets on each trade - position sizing.
4). Received early lessons in trading and macro thinking by reading Edwin Lefevre's classic, Reminiscences of a Stock Operator. Colm points out that the character, Mr. Partridge teaches the protagonist (a thinly-veiled Jesse Livermore) to size up general conditions - "it's a bull market, you know!".
5). Price movements take place in the context of a larger fundamental landscape. O'Shea believes one must pay attention to both the fundamentals and the technicals (price as seen through technical analysis) to make sense of the picture.
6). In his first week as a trader, the British pound was kicked out of the ERM (the famous Soros trade), much to his surprise. Recalls Colm, "I had absolutely no comprehension of the power of markets vs. politics. Policy makers [often] don't understand that they are not in control...it's the fundamentals that actually matter."
7). You can't be short just because you think something is fundamentally overpriced. In the example of the Nasdaq bubble, you should have been selling Nasdaq at 4,000 on the way down, not on the way up. Wait until the market turns over, or until you can see a turning point (a la George Soros shorting the pound).
8). Being short credit in 2006-2007 was the same as being short Nasdaq in 1999. Bubble pricing was evident and the problems were obvious. However, being short was a negative carry trade (in which one must pay a certain cost to maintain a speculative position through instruments such as credit default swaps) and credit spreads went lower (the trade went against you) before a turning point was reached.
9). All markets look liquid in a bubble. It's liquidity afterwards that matters. Can you get out?
10). There does not have to be an identifiable reason for every trade. O'Shea cites the LTCM blowup in '98 as an example. At the start of the '98 crisis, there was no LTCM story in the press, but T-bond futures were limit up every day. "Once you realize something is happening, you can trade accordingly.". Trade hypothesis = something big is happening. I will participate, but do so in a way that I can get out quickly if wrong.
11). Most great trades are incredibly obvious to everyone after the fact. O'Shea points to his bearish turn at the start of the financial crisis in August 2007, when money markets seized up and LIBOR spiked. To this day, equity people wrongly point to March 2008 (Bear Stearns collapse) as the start of the crisis. The great trades don't require predictions, but you must see what other market participants won't.
12). Big price changes occur when people are forced to reevaluate their prejudices. Crisis (such as the inflationary threat from growing U.S. debt) may hit in the future when people notice and start to care. Bond yields will only signal there's a problem when it's too late. Fundamentals underlying the trade/event exist all along.
Hope you enjoyed the first in our series of "Lessons from Hedge Fund Market Wizards". Look for our next post, featuring hedge fund titan Ray Dalio, later in the week.
If you're enjoying these posts and would like to see more, please subscribe to our free RSS updates and follow Finance Trends in real-time on Twitter and StockTwits. You can also check out our related posts below for more market wisdom and trading insights.
Related posts:
1. Jack Schwager on Hedge Fund Market Wizards (interviews).
2. Lessons from Hedge Fund Market Wizards: Ray Dalio.
Tuesday, November 20, 2012
Jack Schwager on Hedge Fund Market Wizards
If you're a fan of the Market Wizards books by Jack Schwager, then you've probably read (or are looking forward to reading) the latest in the series, Hedge Fund Market Wizards.
We'll be taking an in-depth look at this book and the insights of the "Hedge Fund Wizards" in an upcoming series of posts, but for now I'd like to share some key interviews and webinars with author Jack Schwager.
These videos will give you a great inside look at Schwager's writing process, as well as offering some key lessons found in this new collection of interviews with leading traders and hedge fund managers.
First, an Opelesque interview with Schwager in Manhattan: "15 Hedge Fund Market Wizard trading secrets and insights".
This discussion opens by noting that while markets have changed since the first Wizards books were published, the main principles behind the various traders' successes have not. Certain strategies and opportunities may have gone by the wayside, but successful traders have continued to hone in on what works for them as they strive for superior risk adjusted returns.
Of supreme importance, Schwager finds, is the need to find a trading method that suits your personality. He cautions young traders from trying to emulate their trading heroes, since top traders may have an approach or strengths that differ from those of the would-be apprentice. You need to develop your own approach.
If you enjoyed this interview and would like to dig further, check out Michael Martin's interview with Jack Schwager, as well as this Schwager Q&A webinar on the behaviors of Hedge Fund Market Wizards.
One recurring theme that runs through these discussions is the quote, "There is no single true path". The Market Wizards profiled in this book, and throughout the series, have all found success by managing risk and pursuing the methods that suit their personalities and strengths.
Join us next week, as we examine some key "Lessons from Hedge Fund Market Wizards" in our upcoming post series of the same name. See you then.
If you're enjoying these posts and would like to see more, please subscribe to our free RSS updates and follow Finance Trends in real-time on Twitter and StockTwits.
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| The review copy Wiley was kind enough to send me this summer. I've taken my sweet time re-reading it... |
We'll be taking an in-depth look at this book and the insights of the "Hedge Fund Wizards" in an upcoming series of posts, but for now I'd like to share some key interviews and webinars with author Jack Schwager.
These videos will give you a great inside look at Schwager's writing process, as well as offering some key lessons found in this new collection of interviews with leading traders and hedge fund managers.
First, an Opelesque interview with Schwager in Manhattan: "15 Hedge Fund Market Wizard trading secrets and insights".
This discussion opens by noting that while markets have changed since the first Wizards books were published, the main principles behind the various traders' successes have not. Certain strategies and opportunities may have gone by the wayside, but successful traders have continued to hone in on what works for them as they strive for superior risk adjusted returns.
Of supreme importance, Schwager finds, is the need to find a trading method that suits your personality. He cautions young traders from trying to emulate their trading heroes, since top traders may have an approach or strengths that differ from those of the would-be apprentice. You need to develop your own approach.
If you enjoyed this interview and would like to dig further, check out Michael Martin's interview with Jack Schwager, as well as this Schwager Q&A webinar on the behaviors of Hedge Fund Market Wizards.
One recurring theme that runs through these discussions is the quote, "There is no single true path". The Market Wizards profiled in this book, and throughout the series, have all found success by managing risk and pursuing the methods that suit their personalities and strengths.
Join us next week, as we examine some key "Lessons from Hedge Fund Market Wizards" in our upcoming post series of the same name. See you then.
If you're enjoying these posts and would like to see more, please subscribe to our free RSS updates and follow Finance Trends in real-time on Twitter and StockTwits.
Tuesday, April 24, 2012
Cliff Asness of AQR: Bubble Logic
I'm reading a passage from Scott Patterson's book, The Quants, that looks back on the .com bubble. Let me share a few brief quotes from this section with you here.
Backdrop: "A few months before the dot-com IPO frenzy began, LTCM had collapsed. Greenspan and the Fed swept in organizing a bailout. Greenspan also slashed interest rates...the easy money added fuel to the smoldering internet fires...pushing the tech-laden Nasdaq to all-time highs on an almost daily basis."
The .com boom proved disastrous for Cliff Asness' hedge fund, AQR, which invested in value stocks while "betting against companies his models deemed expensive".
After agonizing over the fund's poor performance and the perceived boundless stupidity of market participants, Asness finally came to a realization about markets and crowds: investor irrationality does not stay within expected, "just right" modeled bounds.
Surveying the scene near the peak of the internet bubble in 2000, Asness expanded on his views in an academic paper entitled, "Bubble Logic: Or, How to Stop Worrying and Love the Bull".
Enjoy the historical market overview - maybe you'll find some lessons that apply to the markets of 2012 and beyond.
Backdrop: "A few months before the dot-com IPO frenzy began, LTCM had collapsed. Greenspan and the Fed swept in organizing a bailout. Greenspan also slashed interest rates...the easy money added fuel to the smoldering internet fires...pushing the tech-laden Nasdaq to all-time highs on an almost daily basis."
The .com boom proved disastrous for Cliff Asness' hedge fund, AQR, which invested in value stocks while "betting against companies his models deemed expensive".
After agonizing over the fund's poor performance and the perceived boundless stupidity of market participants, Asness finally came to a realization about markets and crowds: investor irrationality does not stay within expected, "just right" modeled bounds.
Surveying the scene near the peak of the internet bubble in 2000, Asness expanded on his views in an academic paper entitled, "Bubble Logic: Or, How to Stop Worrying and Love the Bull".
Enjoy the historical market overview - maybe you'll find some lessons that apply to the markets of 2012 and beyond.
Thursday, December 8, 2011
Kyle Bass on sovereign debt crisis and gold
Hayman Capital's Kyle Bass discusses the world economy, gold, global credit growth, and debt problems in US, Japan, and Europe at the AmeriCatalyst 2011 conference.
Here's the, "Black Swan of Cairo" piece (Nassim Taleb and M. Blyth) cited by Bass.
Hat tip: Olivier at Tischendorf Letter for highlighting this clip and the article.
And if you missed it, here's Kyle's interview on BBC Hardtalk, skillfully dodging TV sensationalism and speculator-scapegoating attacks to address the euro crisis, the developed world's sovereign debt troubles, and how he is managing risk in his portfolio and hedging against problems in Japan.
Quoth Bass: "Capitalism without bankruptcy is like Christianity without hell".
In other words, the Western world must atone for its past financial profligacy. Check it out.
Monday, September 26, 2011
Hugh Hendry on the importance of social mood & failure
"I'd say 80% of my activity is engaged in the interpretation of social mood." - Hugh Hendry.
That quote taken from this September 2010 BBC Hardtalk interview with Hugh Hendry.
When asked about the need for regulatory control of financial markets and curtailing of risk, Hugh replies, "The best form of regulation is, 'If you mess things up, you fail.'".
Hat tip: Kevin Kaiser at Hedgeye.
That quote taken from this September 2010 BBC Hardtalk interview with Hugh Hendry.
When asked about the need for regulatory control of financial markets and curtailing of risk, Hugh replies, "The best form of regulation is, 'If you mess things up, you fail.'".
Hat tip: Kevin Kaiser at Hedgeye.
Tuesday, September 13, 2011
Bruce Kovner retires: a Market Wizard's career
Bruce Kovner is stepping down as chairman and CEO of Caxton Associates, the hedge fund he founded in 1983.
Bloomberg has the details on the transition that will see CIO Andrew Law take over at Caxton:
Bloomberg has the details on the transition that will see CIO Andrew Law take over at Caxton:
"...“After 34 years in the trading business and more than 28 years leading Caxton, the time has come to hand the leadership of the company to a new generation,” Kovner, 66, wrote in the letter. “I do so knowing that I will miss the adrenalin rush of confronting markets every day but also confident that new leadership will carry on the traditions, style and substance of Caxton’s successful history.”...
...Kovner is attempting a rare handover of power in the $2 trillion hedge-fund industry, where some of the most successful managers, including Stanley Druckenmiller and George Soros, chose to transform their firms into family offices rather than put another trader in charge. A family office usually oversees money for a wealthy individual and their relatives."
And a note on Kovner's successor Law, who offers up some interesting comments on lessons learned from Bruce Kovner and similarities in their trading styles:
"...Law’s trading style has always been similar to Kovner’s, he said in an interview in his office on Park Avenue in Manhattan. Yet the older man drove home some important lessons.
“I’ve learned to listen to the markets more,” said Law, meaning that he pays close attention to how markets move relative to one another, and how they react to events. He depends on these observations, rather than what he calls “abstract fundamental preconceptions,” to forecast future price movements.
Law also embraces Kovner’s practice of cutting risk when he doesn’t understand what’s going on in markets, something that Law did in May and June of this year. “Bruce has done this many times in his career,” he said."
Schwager, Jack D. - Market Wizards 1989
Related articles and posts:
1. Bruce Kovner interview with AR magazine - Absolute Return.
Kovner is a true trading legend whose trading career really took off once he joined Commodities Corporation in late 1976. On his performance as a hedge fund manager, Financial Times sums up his 28 years thusly: "An investment of $1,000 in Caxton made when the firm began trading in 1983 would today be worth $168,000.".
Kovner sat down for a rare interview with Jack Schwager in 1989. The resulting chapter on "Bruce Kovner - The World Trader" can be found on page 31 of this Market Wizards ebook. Check it out.
Kovner sat down for a rare interview with Jack Schwager in 1989. The resulting chapter on "Bruce Kovner - The World Trader" can be found on page 31 of this Market Wizards ebook. Check it out.
Schwager, Jack D. - Market Wizards 1989
Related articles and posts:
1. Bruce Kovner interview with AR magazine - Absolute Return.
Monday, August 1, 2011
Charlie Rose interviews Barton Biggs (March 9, 2009)
Charlie Rose interviews hedge fund manager, Barton Biggs (Traxis Partners) for an episode which aired on March 9, 2009.
Yes, that was also the exact day the S&P 500 put in its bottom at the 666 mark, amidst more economic gloom than some of us had ever seen.
Thought it would be interesting to revisit this interview, and while I still don't agree with much of what Barton and Charlie said about the "need" for certain bailout measures and monetary stimulus, it is quite instructive to hear the discussion that took place at this particular moment in time (some might say this is real market and economic history you're watching).
Note that Biggs is rather bullish on stocks in the interview, which, in hindsight, was the right thing to be up to this point. Of course, the two year bull move in shares we've witnessed has been helped along by holding interest rates at historically low levels and employing "quantitative easing" programs designed to keep asset prices aloft.
Still, Biggs makes the sound point that the sharp declines of '08 had occurred in a short timeframe, thereby providing the necessary fuel for a sharp rally (even if only within the context of a bear market). He also compares the "scary" mood of the time with the terrible period surrounding the 1974 market bottom. In fact, he goes on to say that "[negative] sentiment is more extreme than in 1974".
These points are quite similar to those made around the same time by Jim Rogers and Marc Faber, who argued that a forced asset liquidation period and extreme negative sentiment were signs of a potential share rally to come, as well as an entry point for long-term share investors in commodities and certain segments of global share markets.
If you enjoyed this interview, you may also want to check out Biggs' follow up appearances at Rose's table.
Wednesday, July 20, 2011
Bloomberg profiles Michael Burry on Risk Takers
Bloomberg TV just aired a special on Scion Capital founder, Michael Burry that is worthwhile viewing for any trader or investor.
If you missed the program, tune in now for a quick primer on Burry's entry into the investing world and the structuring of his now-famous subprime short CDS trade. This is a great story of how one blogger-turned-investor got his start operating a hedge fund and eventually shifted his focus from common stock value investing to diligently uncovering opportunities in the subprime mortgage and credit markets.
If you'd like to get a much more in-depth view of Burry's struggle to stick with his hugely rewarding trade during the height of the real estate bubble, check out Michael Lewis' book, The Big Short.
You'll also want to check out the video of Burry's recent lecture on his "big short" trade and America's financial future at Vanderbilt University.
There you'll find added links to our post on Michael Burry's emergence as a global macro star, plus a great deal of interview material with Burry and author, Michael Lewis (including some Bloomberg interview transcript material you may not have seen). Dig in and enjoy.
Friday, May 27, 2011
Austrian economics and financial markets: Kevin Duffy interview
Mises Institute's Jeffrey Tucker interviews hedge fund manager, Kevin Duffy (Bearing Asset Mgmt.) to discuss Austrian economics and navigating the financial markets with an Austrian perspective.
This is a must watch, must hear discussion on basic economic principles and the problems of crony capitalism and the "political economy" that have grown out of the bailouts and stimulus-fueled responses to the 2007-2008 financial crisis.
QE and QE2 have helped spur a two year rally in the stock market, but Duffy argues that these easy money policies have created many harmful unintended consequences. Check out the full interview for insights into how Duffy and his firm use their Austrian viewpoint to analyze economic trends and invest in the capital markets.
Related articles and posts:
1. Marc Faber at Mises Circle: final crisis is yet to come.
2. Navigating the Financial Markets with an Austrian Compass (w/ Kevin Duffy).
Saturday, April 16, 2011
Michael Burry talks "Big Short", America's future at Vanderbilt
Michael Burry, the Scion Capital founder and subprime speculator profiled in Michael Lewis', The Big Short, talks to Vanderbilt students about his now-famous subprime CDS short trade and the perils of America's financial future in this video lecture.
Last week on Twitter, I retweeted DDI's notes on Michael Burry's talk, which gave rise to hopes that video of this talk might soon be available. Indeed, that video is now here and it has been making the rounds over the last few days.
Be sure to check DDI's post for comments from the Q&A (Burry's thoughts on farmland and capitalist innovation in Silicon Valley) that might have been edited out (?) of this video.
Burry's talk adheres to a script early on, but as he warms up near the second half of this presentation on the causes of the housing collapse and the financial crisis, the vibe is a bit more loose and the information presented is excellent throughout.
Watching this clip, I get the feeling that we are witnessing a first-rate historical commentary on the pre and post-crisis environment. If economic historians don't look back to Burry's talks, or Tom Woods' analysis of the crisis, they'll be doing everyone a huge disservice.
If you want to know a great deal more about Michael Burry's investments and his views on America's current cultural and financial condition, check out our posts in the section below. Lots of valuable info, including an unedited Bloomberg interview transcript, will be found here.
Related articles and posts:
1. Michael Burry: macro star? (Bloomberg interview transcript) - Finance Trends.
2. Michael Burry bullish on farmland & gold (Bloomberg) - Finance Trends.
3. Michael Lewis on Charlie Rose: The Big Short - Finance Trends.
Tuesday, April 5, 2011
Michael Steinhardt talks Buffett, America with CNBC
Legendary hedge fund manager, Michael Steinhardt has a few things on his mind and he shares them readily in this interview with CNBC.
A few highlights from Steinhardt's chat with the CNBC crew:
While it is interesting to hear someone publicly question Buffett's "PR" persona and his philanthropic gestures, I'm actually more interested to hear Steinhardt's take on the economy and the reality of inflation, as well as how that affects the average person in America today.
This rich guy gets it - why do all the pointy-headed academics have such a hard time voicing these simple truths (maybe because they're paid to do the opposite)?
A few highlights from Steinhardt's chat with the CNBC crew:
- Hedge fund management is not the elite business it once was. Managers today content with low double digit returns, versus emphasis on true performance and 25%-40% annual returns in Steinhardt's days.
- Asked if he could repeat his performance today, Michael demurs, "I don't know". He notes that magnitude of funds involved in hedge funds is much larger today. Emphasis has shifted to making money off a large asset base, as opposed to performing for your investors.
- You don't have to do what everyone else is doing. You do need to understand the way in which your perspective is different than the world's (your edge).
- Steinhardt is concerned about savers (old folks and retirees) getting shafted by near zero interest rates and inflation. This is a terrible situation for Americans.
- Buffett's carefully crafted PR persona and his philanthropy-in-one-fell-swoop approach are "worth reflecting on".
- Superficially, the United States is doing okay. Steinhardt looks at the inflation picture, the valuations in the stock market, and America's economic strength and its cultural standing in more depth.
While it is interesting to hear someone publicly question Buffett's "PR" persona and his philanthropic gestures, I'm actually more interested to hear Steinhardt's take on the economy and the reality of inflation, as well as how that affects the average person in America today.
This rich guy gets it - why do all the pointy-headed academics have such a hard time voicing these simple truths (maybe because they're paid to do the opposite)?
Thursday, February 17, 2011
Steve Cohen on trading, global macro
If you caught our last post on Steve Cohen's ISI chat with Paul Tudor Jones (coverage courtesy of Dealbook), it's highly likely that you clicked through to read the details of Steven's interview.
Here's one item from that discussion that really grabbed my attention, Steve Cohen talking global macro:
"...Mr. Cohen, who said probably 25 percent of his investments were made outside the United States, has been emphasizing to his traders that global macro themes are more important than ever in investing.
For this reason he went to Davos, Switzerland, last month for the World Economic Forum and said that he found “the development of the next phase of the consumer economy in China is very intriguing.” He recognized that there “could be more situations like Egypt” and “you have something going on here that could be a tinderbox.”".
This piece of info really jumped out at me for a few reasons.
Firstly, as far as I know, Cohen has not been identified as a global macro trader in the past. SAC Capital seemed to grow from Cohen's roots in proprietary stock trading, with SAC's traders eventually taking on a larger role in fundamental analysis as time went on.
The fact that such a prominent, fundamental and technical-driven US stock trader is now stressing the importance of global macro themes and their influence on markets is quite noteworthy.
His recent comments to PTJ on the firm's growing exposure to international investments were also touched on in an earlier, 2008 interview with AR:
"...How much does SAC invest outside the U.S.?
[SC] Probably 15 to 20 percent of our activity is outside the U.S. There’s a lot of opportunity for growth in both Europe and Asia. The game is changing. Stock markets are starting to develop all over the world, and that creates opportunity...."
This brings to mind two separate interviews, with Passport Capital's John Burbank and California investor Michael Burry, that we shared last fall in our global macro post series. Both stressed the importance of international investing and the profound influence that global macro themes now have over US markets.
The observations made by Burry and Burbank were soon echoed by well-known hedge fund manager, David Einhorn, who noted the shift that had occurred in his investing style due to the impact of big picture, macro trends.
These interviews are a rare glimpse into the thinking of some of our most astute investors, and are all must hear/must read material. Hoping you will be informed by, and profit from, them.
Related articles and posts:
1. Must hear interview with John Burbank - Finance Trends.
2. Michael Burry: an up & coming macro star? - Finance Trends.
3. Macro themes dominate investing world - Finance Trends.
Here's one item from that discussion that really grabbed my attention, Steve Cohen talking global macro:
"...Mr. Cohen, who said probably 25 percent of his investments were made outside the United States, has been emphasizing to his traders that global macro themes are more important than ever in investing.
For this reason he went to Davos, Switzerland, last month for the World Economic Forum and said that he found “the development of the next phase of the consumer economy in China is very intriguing.” He recognized that there “could be more situations like Egypt” and “you have something going on here that could be a tinderbox.”".
This piece of info really jumped out at me for a few reasons.
Firstly, as far as I know, Cohen has not been identified as a global macro trader in the past. SAC Capital seemed to grow from Cohen's roots in proprietary stock trading, with SAC's traders eventually taking on a larger role in fundamental analysis as time went on.
The fact that such a prominent, fundamental and technical-driven US stock trader is now stressing the importance of global macro themes and their influence on markets is quite noteworthy.
His recent comments to PTJ on the firm's growing exposure to international investments were also touched on in an earlier, 2008 interview with AR:
"...How much does SAC invest outside the U.S.?
[SC] Probably 15 to 20 percent of our activity is outside the U.S. There’s a lot of opportunity for growth in both Europe and Asia. The game is changing. Stock markets are starting to develop all over the world, and that creates opportunity...."
This brings to mind two separate interviews, with Passport Capital's John Burbank and California investor Michael Burry, that we shared last fall in our global macro post series. Both stressed the importance of international investing and the profound influence that global macro themes now have over US markets.
The observations made by Burry and Burbank were soon echoed by well-known hedge fund manager, David Einhorn, who noted the shift that had occurred in his investing style due to the impact of big picture, macro trends.
These interviews are a rare glimpse into the thinking of some of our most astute investors, and are all must hear/must read material. Hoping you will be informed by, and profit from, them.
Related articles and posts:
1. Must hear interview with John Burbank - Finance Trends.
2. Michael Burry: an up & coming macro star? - Finance Trends.
3. Macro themes dominate investing world - Finance Trends.
Tuesday, February 15, 2011
SAC's Steve Cohen opens up to Paul Tudor Jones
SAC Capital chief, Steve Cohen opens up to fellow hedge fund legend Paul Tudor Jones in an ISI conference chat that was closed to the media, but reported on by Dealbook.
Here's the 411 from Dealbook:
"The founder of SAC Capital Advisers, the $12 billion hedge fund in Stamford, Conn., sat for a rare wide-ranging interview with Paul Tudor Jones, another hedge fund manager, where he discussed his favorite stocks and a whole lot more. The interview was part of a two-day conference at the Waldorf Astoria hotel in Midtown Manhattan sponsored by ISI, the Wall Street research firm...
Other than complaining about his bad back, Mr. Cohen is said to have appeared at ease during the hourlong conversation before a packed crowd. Mr. Jones, who joked that he was playing the role of Charlie Rose, pressed Mr. Cohen on a variety of topics but did not — no surprise — ask questions about the government’s insider trading charges against two of his former traders.
Mr. Cohen talked about how he got started as a trader, reading the stock tables in the daily newspaper as a child and hanging around the local brokerage firm near his house in Great Neck, N.Y. There “was something in my blood, something that I loved” about trading that has stayed with him... ".
This discussion must have been something to witness in the room. I'm just glad Dealbook has provided notes on this little chat between two modern-day trading legends. Check this one out, gang.
Related articles and posts:
1. Bloomberg profiles SAC's Steve Cohen - Finance Trends.
2. Paul Tudor Jones on trading macro - Finance Trends.
Here's the 411 from Dealbook:
"The founder of SAC Capital Advisers, the $12 billion hedge fund in Stamford, Conn., sat for a rare wide-ranging interview with Paul Tudor Jones, another hedge fund manager, where he discussed his favorite stocks and a whole lot more. The interview was part of a two-day conference at the Waldorf Astoria hotel in Midtown Manhattan sponsored by ISI, the Wall Street research firm...
Other than complaining about his bad back, Mr. Cohen is said to have appeared at ease during the hourlong conversation before a packed crowd. Mr. Jones, who joked that he was playing the role of Charlie Rose, pressed Mr. Cohen on a variety of topics but did not — no surprise — ask questions about the government’s insider trading charges against two of his former traders.
Mr. Cohen talked about how he got started as a trader, reading the stock tables in the daily newspaper as a child and hanging around the local brokerage firm near his house in Great Neck, N.Y. There “was something in my blood, something that I loved” about trading that has stayed with him... ".
This discussion must have been something to witness in the room. I'm just glad Dealbook has provided notes on this little chat between two modern-day trading legends. Check this one out, gang.
Related articles and posts:
1. Bloomberg profiles SAC's Steve Cohen - Finance Trends.
2. Paul Tudor Jones on trading macro - Finance Trends.
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