LFG

who are you?

Research analyst at a $10Bn+ multi-strat fund. The team I worked for was $50Mn LMV at launch, $3Bn at peak. Style was a combination of top-down / macro-driven with bottoms-up fundamental research. Trading heavy around catalysts. I guess you could call it the vanilla long-short fund strategy that Cohen popularized. Recently took time off to travel / invest personally for the first time.

i) what are catalysts?
ii) what is your (v general) personal inv. strat?
iii) which areas of market do you focus on (with personal inv.)?
iv) any aha moments in inv. from travelling that you can share?

Will your personal investing be similar to what you were doing at the hedge fund?

Will you be getting into crypto at some point? Any thoughts on the death-cross looming over the oversold Bitcoin market right now?

Oh, it looks like Jacobite and i posted at the same time - guess we have the same sort of question

i) Pretty basic - just an event that causes other people to notice why a stock is under or overvalued. As an example, one stock I personally own is about to complete a merger. I believe that post-merger, the stock's liquidity will increase, the Company will establish a higher dividend and, as a result, more people will find it attractive and bid it up.

ii) My area of expertise is old economy - industrials, chemicals, energy, transports, metals & mining. Style-wise, I really like trading cyclicals since people tend to put too high of an earnings multiple on peak earnings and too low of an earnings multiple on trough earnings. LDO, but tech is the future. If I come back recharged I'll probably considering getting sharper here. I don't find bitcoin appealing now from a trading standpoint - no edge. Outside of stocks, I collect / trade vintage watches.

iii) I am an advocate of people holding onto cash if they don't invest professionally. There are just a lot of players doing it professionally and it's hard having a significant edge. The one edge that still exists IMHO is time arbitrage - you can make money if you have a long term time horizon. This is due to the fact that hedge funds get evaluated on a monthly basis, so they are forced avoid profitable investments that have a near-term negative carry even if they are long-term homerun investments. THAT BEING SAID, I think now is a difficult time for people to take advantage of this opportunity since markets are toppy / overvalued right now and it probably makes more sense sitting on the sidelines and waiting for a correction before making a lot of significant long-term market bets.

I like your avatar.

Answered it in my prior post, but no. What is my edge in bitcoin? That's what I ask myself, and I don't have one, so I avoid it. Not saying bitcoin is overvalued or undervalued, just that I can trade elsewhere more profitably.

That being said, I personally think the market is bubble-esque right now. When AMZN gains as much market cap from December 2017 - today as it's entire market cap in mid-2015, you have to wonder how sustainable things are...

Am currently sitting on the sidelines of everything, except my SHLD short right now - just my luck, they somehow find a way to engineer a turnaround

Are you shorting anything right now?

How much of your firm's trading was in options & what strategies did you guys most often employ?

We traded primarily stocks, commodities and FX. Options were used on the margin. Favorite strategy were risk reversals.

Hey I've been trading professionally at prop firms for almost 6 years now and have done pretty well. When I started I was completely on my own and lately I've been forced more and more to interact with other traders and managers. I did well on my own and made a lot using strategies I reverse engineered myself but now I'm a little uneasy about working with others. I've learned a lot working with other traders better than myself but I've also had bad experiences with traders taking my ideas and strategies and offering nothing in return. Obviously I want to be nice to other traders I meet but on the other hand it's a competitive business and it seems bad to help people that will likely not return the favor, whether it be out of selfishness or lack of market knowledge.

I'm assuming you worked with a bunch of different traders/analyst at your fund. Did you have any similar experiences or advice?

What? So some random dentist or teacher should just be keeping their money in a bank account instead of investing in index funds for retirement?

Yes. I'm running neutral so have a commensurate amount of shorts. Most are market shorts to eliminate beta, but I have a couple of standalone shorts that I think can generate alpha on their own.

What's the borrow on SHLD these days?

I meant at this point in time I would choose cash. Meaning, if I met a teacher who asked me for advice I would say just leave it in cash at the moment. Over the long run stocks have been proven to be a better option, but at this particular moment in time I personally believe cash is better.

The broad point I was trying to make is that active investing is generally more difficult than people think, and passive makes a lot more sense when you also consider the time drag component.

Ya, I mean you're always going to encounter people who don't reciprocate something in return. The hedge fund I worked for had a multitude of teams, and it's pretty amazing how many different personalities / skill levels you run into. You'd be surprised at how many mangers just flat out suck - and when I say suck, I mean it's apparent the first few weeks you see them trade.

At the end of the day, you have to look out for yourself. Don't waste your time with someone who provides nothing in return. At the same time, you can obviously be cordial with the person.

Following up with what you guys are talking about, do you feel like being part of a community is important to success? There is a lot of noise out there, as you said plenty of smart guys can still be crappy traders/managers and provide nothing of value. Why did you end up leaving the business and go on your own?

What is your background and how did you get into that line of work? I have an undergraduate background in finance but am finding now a lot of these buyside firms are looking for more quantitative background.

Further I am serving in the military right now so it's difficult to find time to read / analyze companies to get better. I invest my own capital and do OK for a retail guy (albeit IMO better informed than average Joe retail). I am thinking about doing an MBA after I get out to "transition" back. What are your thoughts on that?

Did you do any trading yourself or just giving suggestions to the traders? How much of the firm's pnl do you think is attributed to the traders and how much to the infrastructure/tech surrounding them?

Interesting question. I initially learned mostly through reading about other successful investors. The issue is that a lot of that advice is outdated / priced-into the market. A good example is Buffett. I find it interesting that so many people worship him, yet most of his teachings are well-known at this point. Buy great businesses with moats and great management teams, etc. etc. IMHO, you're going to need to go a step further to consistently make money these days.

I was fortunate enough to work for a portfolio manager who had a very good track record. He was awful at teaching (couldn't be bothered), but you learn from making mistakes (he was good at letting you know when this happened). You learn from osmosis and seeing what works and what doesn't. People sometimes ask me what is the biggest lesson I learned over the years. I tell them it's to be patient and know when to get big in a bet that is 10/10. Here's the issue - it's my years' of experience that let me know through intuition when a particular investment setup is "awesome". It's the same as any other job that a particular person gets very good at. It's the same as lightning chess (which I play); it's the same as poker (which many of you play).

So, to answer your question, I guess being part of a community is helpful to success, but definitely not necessary. At the end of the day, you need to learn things yourself so that they become a part of you. The issue with communities is that you really don't know who is good and who isn't. Sure, some person may have made a lot of money trading bitcoin in 2017, but maybe he's just buying every dip and getting lucky from being in a massively bull market.

I left because I just found the job to be less interesting. I never had time to travel and wanted to do so while I was still relatively young. I may come back to the business in a year and become a portfolio manager where I can be my own boss, or a may do something completely different. We'll see.

I was an economics major who got somewhat lucky. I started working for a start-up hedge fund outside of NYC (much smaller talent pool) that ballooned to a $500Mn+ fund. I then had an opportunity to work at another start-up in NYC with a founder who had a great track record and that fund grew to ~$3Bn.

There will always be room for fundamental analysts, you just need to differentiate yourself. I would suggest spending your time reading about successful investors and learning how to come up with investment ideas that you can write-up and show prospective employers. A lot of candidates we would interview had standard backgrounds (Ivy undergrad, PE, Wharton MBA) but had no idea how to pitch a stock.

MBA may make sense for you given your specific background, but if you were to try interviewing with me / any hedge fund as a fundamental research analyst, I don't think it would give you any greater edge in that specific field.

Our traders were just execution guys. We would put in the orders and "fundamentally trade" based on our views on the market / individual stocks, and they would make it happen. Good execution traders can save you money on the margin but not noticeably impact your year (assuming they're not awful).

When you're running a large portfolio (not to sound like a DB), it's very hard being tactical since you'd move the stocks by too much. That was one of the frustrations I had as our fund became larger - we would sacrifice % returns to make a higher $ amount. I'm expecting to generate a much better sharpe ratio on my own since I can trade around positions much more efficiently.

Did your hedge fund beat the market?

How much did you personally make or on average how much does someone in your role make?

How much were charts used to time entry points? Were things like support/resistance looked at? Trendlines? Overbought/oversold?

Do you feel you have the ability to trade your own account and make a similar living to what you were making working at the hedge fund?

What was the yearly percentage return for the lifetime of the primary fund?

Yes. ~10% annualized returns since 2010 with .1 market beta over that stretch. I'm expecting them to do well if / when the market sells-off.