The latest scandalous news from the hedge fund world - the lawsuit against SAC Capital founder Stevie Cohen by his ex-wife Patricia is shocking not for its salacious details but rather for its accusation that Mr. Cohen traded on insider information. The news is utterly depressing because if true, it only serves to confirm the commonly held notion that hedge funds are nothing more than graft vehicles that exploit other investors with an unfair edge and furthermore that success in the markets can only be achieved through cheating.
I have no idea if the accusations against Mr. Cohen are true (although rumors of insider trading have dogged SAC for years) but I do know with reasonable degree of certainty that there are great traders who make their money the old fashioned way - they earn it. Paul Tudor Jones of Tudor Investments is one such case in point.
How do I know that Mr. Jones is an honest trader? Because he loses. In fascinating PBS documentary that recently surfaced on Youtube entitled Trader Mr. Jones is dutifully followed by a television crew over a period of months as he trades everything from the kiwi dollar to the S&P futures as markets careen towards the 1987 collapse. In one particularly poignant scene Mr. Jones is early in shorting the raging bull market of the late 1980's and has to cover for stinging 5% loss as the camera records his every movement. It's precisely at that moment that you know that Mr. Jones is for real. He doesn't shy away from his mistakes and though clearly upset he takes the losses with professional equanimity and later on in the film rallies to recoup his losses as his bearish bias is finally rewarded.
What is the easiest way to tell if a trader is a liar and a fake? If they talk only about their triumphs and promise you a never ending stream of uninterrupted profits. That's why I am always wary of all investment gurus who talk only about their winning positions and never admit their losing calls. Real traders lose money all the time. Real equity curves are jagged and do not follow a 45 degree angle and real investment returns are like real life - a few steps forward and several steps back.
Unfortunately as human beings very few of us are prepared to accept that reality. While almost everyone pays lip service to the word risk - few really understand that it is simply a polite synonym for the word loss. Traders who can't stand loses never win in the end and those who tell you they don't lose are lying and cheating.
Yes its good to know your not the only one, as long as we can keep the ratio of few steps forward couple of steps back we are on to a winner.
I to have learned from this weeks trading, I think we are lucky to be able to notice and understand why we have gone wrong, classic newbie mistakes from me this week, over trading, chasing loses etc, the trick for me is to walk away from the table, i had a lovely profit from that spike on the ftse friday, more than my quit limit (if i make £x i stop for the day) but i didn't stop as i was a small amount away from a nice round figure on my account, silly really, now i am closer to a round figure just the next one down HA HA
I'm reflecting on it this weekend and reviewing my rules. For ever learning.
"The ultimate measure of a man is not where he stands in moments of comfort and convenience, but where he stands at times of challenge and controversy"
Martin Luther King Jr., Strength to Love, 1963
US black civil rights leader & clergyman (1929 - 1968)
How true, I can relate to that, Jamie you will glad to know I also had a week like yours, I am glad I am not the only one, and again how true few steps foward couple back, at least every time you go backwards you learn why and hopefully do not repeat them.
Comments
Yes its good to know your not the only one, as long as we can keep the ratio of few steps forward couple of steps back we are on to a winner.
I to have learned from this weeks trading, I think we are lucky to be able to notice and understand why we have gone wrong, classic newbie mistakes from me this week, over trading, chasing loses etc, the trick for me is to walk away from the table, i had a lovely profit from that spike on the ftse friday, more than my quit limit (if i make £x i stop for the day) but i didn't stop as i was a small amount away from a nice round figure on my account, silly really, now i am closer to a round figure just the next one down HA HA
I'm reflecting on it this weekend and reviewing my rules. For ever learning.
"The ultimate measure of a man is not where he stands in moments of comfort and convenience, but where he stands at times of challenge and controversy"
Martin Luther King Jr., Strength to Love, 1963
US black civil rights leader & clergyman (1929 - 1968)
JamieD