Monthly Archives: June 2015

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: 

“…“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.”

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.

Related articles and posts

1.  Bruce Kovner interview with AR magazine – Absolute Return.

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Lauren Templeton shares investing lessons from Sir John Templeton

Investor Lauren Templeton shares some life wisdom and investing lessons from her great-uncle, Sir John Templeton in this VIC 2012 video. 

By way of background, John Templeton was a pioneer of global share investing who founded the Templeton Growth fund in 1954. As his wealth increased, he also became known for his philanthropic efforts and writings. In the 1960s, he renounced his U.S. citizenship (an increasingly popular move among the rich of late) and continued to live in the Bahamas as a Bahamian citizen.

In her talk at the Ben Graham Centre for Value Investing, Lauren Templeton shares some insights on Sir John’s investment philosophy and his life. A few notable lessons and quotes

1. Born in Tennessee, Templeton was an excellent student who attended Yale and Oxford. While at Yale, young John found he had to work to pay for a part of his schooling. His skill with probabilities helped him earn a good part of the money playing poker. 

2. After studying at Oxford, Templeton took a 40-nation tour of the world. He was gone so long that his mother thought he had passed away! His travels provided a “bedrock of geopolitical knowledge” to guide his investing. 

3. Lauren relates the story of his first trade in “maximum pessimism”, the famous deal in which Templeton borrowed $10,000 and purchased shares of all the U.S. companies trading below $1 a share. Even though many of the companies were facing bankruptcy at the time of his purchase (on the eve of World War II), most turned a profit and he sold his shares for a $40,000 profit a few years later. 

4. Listed among his personal attributes: self-reliance, flexibility, sense of stewardship, a drive towards diversity (seeking opportunities globally), a bargain-hunting mentality, devoting time to study, ability to retreat from daily pressures, developing a broad range of friendships and contacts, positive thinking, patience, simplicity, and great intuitive powers. 

5. “To buy when others are despondently selling, and to sell when others are avidly buying, requires the greatest fortitude and pays the greatest ultimate reward.”

6.  “If you want to have better performance than the crowd, then you must do things differently from the crowd.”

7. John was a thrifty saver and he advised his family and friends to live simply and save 50 percent of their income. He viewed his savings as the seed corn of future investments and opportunities. 

8. Templeton operated on a truly long-range view. He planned in advance for market panics by drawing up a list of securities to buy at bargain prices. When he discussed his charitable foundations, he spoke of finding the best investment opportunities for the next 200 years. After searching the globe for property investments that might suit his foundation, he still came back to stocks.    

There’s a good deal more in this video on behavioral finance and human behavior in market panics. As Lauren Templeton says, “If you’re aware of your biases you’ll become a better investor.”. 

Enjoy the video and the insights. You’ll find more from Sir John and friends below.

Related posts

1. John Templeton’s last memorandum from 2005. 

2. Lessons from Hedge Fund Market Wizards: Ray Dalio.

3. Jim Rogers interview: lessons on life and investing.

Goldman hearings as mass distraction

Well, sorry to repeat myself, but this is how I basically put it earlier today on Twitter:

“To detached observers, it’s obvious Goldman $GS hearings are a public spectacle designed to draw attn to fin reg. + pandering to US voters.”

Thanks to BMB for quoting me, and more importantly, for adding his own two cents. I really couldn’t summarize the game plan any better than he does.

Obviously, I’m not the only one who thinks the timing or circumstances of Goldman Sach’s hearing in Congress are a little staged or convenient.

And it’s not that the SEC doesn’t have a case against Goldman; that’s for the legal system to decide. It’s just that we’re getting the broad strokes of information on this case in the midst of a circus sideshow, with politicians lashing out at the investment bankers in a blatant effort to appeal to their economically-strained voter base.

I could go on about the timing and merits of the case, and the shameless grandstanding of our elected officials during this latest public spectacle. Instead, we’ll post some relevant videos here to lend a bit of added perspective on the Goldman fiasco, and some of the bigger problems our nation currently faces.

Mark Mobius discusses the Goldman hearing (at 8:20) on Bloomberg.

Marc Faber feels the case against Goldman Sachs is “purely for show, to appease the public” (Bloomberg video) and (CNBC video).

Goldman hearings are an argument to short Treasuries, and a distraction from problems at Fannie Mae and Freddie Mac, says Charles Ortel.

Peter Schiff talks with Tech Ticker about the “real crisis” the US is facing, how we got into this mess, and why our Senators have “some nerve” slamming Goldman for running with the policies and incentives they helped create (you’ll hear Peter’s take on the proposed financial industry regulations as well).

We’re sure you’re already loaded to the gills with media commentary on these hearings and the case against Goldman Sachs, so we’ll just offer up these interviews in the interest of highlighting some of the more detached, and contrary, bigger-picture views on this subject. Hope you get something out of them.

Latest on US financial reform bill

The Financial Times reports that the financial reform bill is nearing a final vote in Senate:

The US reform of financial regulation will go to a final vote in the Senate as early as Wednesday as big banks engaged in a last-ditch effort to change it.

Senators argued in public over a broad range of measures, including an attempt to prevent California getting federal bail-out money, while aides worked in private to hammer out a single “manager’s amendment” that will be the last opportunity for changes.

The legislation, which would be the second major new law of President Barack Obama’s tenure after healthcare reform, provides for a sweeping overhaul of US finance that would force the largest institutions to spin off their riskier operations...”

The FT goes on to note that an attempt by New Hampshire Republican senator, Judd Gregg, to place limits on federal bailouts to states was voted down by Senators who opposed the proposal. You’ll also find details on measures in the bill that the financial industry is fighting to keep out or limit.

Forbes opines, “Wall Street Overhaul Not Bad for Wall Street”, noting that the FIRE sector of the economy (finance, insurance, and real estate) has spent $123 million so far in 2010 to “influence policy makers”, and that their push has helped Wall St. shape certain aspects of the reform bill to their liking.

This, “Financial Reform Amendment Scorecard” is also a very handy resource and overview of the major areas of proposed legislation including consumer protection, card fees, a spin off of FDIC-insured banks’ derivatives trading activities, and the “Volcker rule” on proprietary trading at big banks.

Also: The Atlantic asks, “Will Financial Reform Pass This Week?”; Nouriel Roubini talks to Channel 4 about banking reform and breaking up “too big to fail” banks; Points and Figures explains why the Dodd bill will be a major drag on the economy; and Ron Paul discusses the financial reform bill on MSNBC.

SMB Capital at Indiana U: aspiring traders, take note

SMB Capital’s Mike Bellafiore shares some lessons with aspiring traders at Indiana University in this video presentation from 2011.

I recently shared this video on Twitter and am including it here with added notes. Why? Because I follow Mike (author of One Good Trade and The Playbook) and SMB Capital on StockTwits and often recommend their valuable posts and videos to friends and fellow traders.

If you’re new to stock trading, or are curious about the life and work habits of full-time traders, have a listen. Bellafiore shares his experiences, from starting out as a prop trader to managing his own firm, and engages in some Q+A (and light verbal hazing) with the students throughout the talk.

Some key quotes and highlights from Bella’s presentation:

● Recalling his own transition from disillusioned law student to novice prop trader, Bella cites Drive author, Daniel Pink’s advice to “do what you do.” In other words, make a full-time gig out of the thing you are already engaged with. If you want to be a trader, open up a small trading account or start learning (paper-trading) with a simulated account.

● The market will always find a way to eliminate you. You can be a great trader making millions one year, and be totally humbled or see your account dwindle the next. 

● “What the hell do somebody’s grades have to do with how good a trader you’re going to be?” Trading is a skill (related to pattern recognition, psychology, etc.) and you must have a passion for it. Your geometry grades are about as relevant as your basketball skills. 

If you want a job at a firm, the first question Mike will ask you is, “are you trading?” What are you reading, can you talk about your trades and the rationale behind them? See first point above on starting early with a small trading account. 

● Part of the value in being a trader is that you are working to become an elite performer. When you realize your goal of becoming a successful trader, you’ll find that you also have the confidence to become great at other things. You may also find that you are learning to become a better person all around. 

● If you’re impatient or lose your temper, the market will seek that out and take your money. It’s no coincidence that top traders like Paul Tudor Jones are in great physical condition, meditating, and guarding their emotional capital and well-being. “Trading forces you to be the best person you can be“. 

● Domain knowledge of your field and reading is important, but you have to learn by doing. You need intrinsic motivation to succeed. Kobe Bryant practices harder after a loss, he’s not just motivated by money. High-level performers need to learn through purposeful practice and critical feedback

Talent is overrated. Mike feels that there is no “great trader gene” and that traders need to embrace a growth mindset to improve. Know that you can be better tomorrow and work at it. He offers some recommended reading on these themes here.

Enjoy the video, and check out SMB Capital’s blog for more (you can always find it in our blogroll). Want to know more? Check out our related posts below.

Related posts:

1. Inner Voice of Trading: lessons on ego and risk.

2. Humans vs. algos: Mike Bellafiore on the future of trading

3. Mark Minervini interview: define and refine your approach.

Follow Roubini or catch the rally?

Bloomberg examines the trade off between following the economic forecasts of Nouriel Roubini and catching the recent rally in US shares.

Has keeping up with Roubini’s insights meant that you’ve missed the rally? More from Bloomberg:

Making money on the thinking of Nouriel Roubini isn’t what it used to be.

The New York University professor, who in 2006 foretold the worst financial unraveling since the Great Depression, has yet to say the economy is worth investing in again. “There is a big risk of a double-dip recession,” wrote Roubini, also known as Dr. Doom, in his column in the Financial Times this week.

Anyone attempting to apply Roubini’s wisdom to stocks may be forgiven for missing the biggest rally since the 1930s as the Standard & Poor’s 500 Index climbed 52 percent in six months. While Roubini said in March the advance was a “dead-cat bounce,” that it may “fizzle” in May and warned in July that the economy’s “not out of the woods,” the MSCI World Index was posting a 58 percent gain, the largest since it began in 1970.”

So I’ve been hearing a lot of this kind of chatter (often directly aimed at Roubini) since the rally in stocks heated up this past spring.

That Roubini was on record on March 9th saying that the S&P 500 might head back down to 600, the very day the market made its low in this current cycle, is (for some) enough to fuel scorn for his opinions.

But, as others have pointed out, Roubini is an economist and the market is not necessarily the economy, and vice versa. In this particular instance, Roubini may be wrong, whereas earlier he was lauded for his prescient views on the dangers lurking within our financial system and in the stock market. No one is right 100% of the time.

Maybe the lesson here is to seek counsel from many, decide what’s relevant, and incorporate that info (where useful) into your own plan and investing/trading methodology.

If a respected economist’s views are likely to carry enormous weight over your investing decisions, you may need to reformulate your strategy to take advantage of your strengths and what you know, while accounting for (and protecting against) what you don’t know.

Why traders fail: Mark Minervini interview

Veteran stock trader and Market Wizard, Mark Minervini speaks to Traders World magazine and offers up key insights on trading success and why most traders fail. 

First off, if you don’t know Mark Minervini, you may want to check out his track record and read some of his previous interviews (he was interviewed by Jack Schwager in Stock Market Wizards) to understand his trading philosophy. You can find some good interview links included at the end of this post. 

Now if you’ve read some of Mark’s previous interviews, you’ll know that persistence plays a big part in his trading success. His latest interview opens on that note, as Mark is asked about the key traits of successful traders. 

Larry: What are the key traits for a successful trader?

Mark: When I started 30 years ago, I knew stock trading was going to be exceptionally challenging and I knew success was not going to happen overnight. I made a decision that I was going to put as much time and effort necessary no matter how long it was going to take, because I was confident the eventual payoff would be well worth it. 

I believe one of my major strengths is my unconditional persistence. If you’re someone who gets discouraged and quits easily then stock trading is going to be very difficult for you…” 

OK, but what about those who flame out as traders? We know that the vast majority of individuals who try their hand at trading fail (80% to 90% of new traders fail, according to the most frequently cited figures), but why? Minervini offers a few reasons why stock traders often fail. 

Larry: Why is it that most traders fail in the markets?

Mark: Here are 7 common reasons:

1. Most traders follow a flawed strategy with poor selection criteria (usually based on personal opinions or bad advice).

2. Even when they find a good approach, the majority of traders don’t stay the course. They suffer what we call “style drift”, changing strategy when short-term results are unsatisfactory.

3. The #1 mistake made by virtually all investors is that they don’t cut losses…”

Check out the full interview to see the rest of Mark’s list, aka the “7 Deadly Trading Mistakes”. 

You’ll also find Minervini’s thoughts on the benefits of a positive outlook and believing in your abilities as a trader, setting realistic trading goals, money management, and the importance of keeping good records of your trades. Plus, an overview of the methods Mark Minervini uses to trade stocks. 

If you enjoyed this post and would like to know more, click through to the related items below. You can also subscribe (free) to the Finance Trends blog feed or follow us in real-time on Twitter

Related posts

1. Mark Minervini interview: define and refine your approach.

2. SMB Capital at Indiana University: aspiring traders take note.

GM’s post-bailout IPO a disgusting “success”

Thankfully, I’ve not watched any of the TV hoopla surrounding General Motors’ (or if you prefer, Government Motors‘) post-bailout IPO.

Still, I can’t avoid the news of this event entirely, as I’m exposed to the GM news through my Twitter stream, StockTwits, and the recent posts from some bloggers I keep up with.

The disgusting spectacle of this government-engineered IPO (made possible with your taxpayer dollars) was but an ugly image in my mind until I found Greg Harmon’s tweet on StockTwits’ GM stream. Now I have the shocking, surreal life photo to go with it:

Subtlety is dead in America. You are being ripped off and the banner proclaiming it is staring you right in the face. It is a disgusting spectacle indeed, to see the announcement of GM’s post-bailout IPO draped over the American flag and the columns of one of our most revered capitalist institutions, the NYSE.

Last night I read an article in which GM’s CFO Chris Liddell described the then-upcoming share offering as “historic”. Historic is not the word I would have used to describe it. A farce and a national shame would be much closer to the mark.

Meanwhile, GM CEO Dan Akerson had this to say about the IPO and its effect on reducing the US government’s stake in GM:

“They have taken their ownership down by roughly half,” he said. “I would say that the average taxpayer in the United States would look at this particular transaction as very positive.“.

Well it’s nice to know the government is reducing its ownership stake in GM, but let me stop here and point out the use of the word transaction to describe this unseemly state of affairs. “Transaction”?!

A transaction is an exchange that occurs between two or more willing parties. Did US taxpayers have a say in any of this? Were you consulted on the auto industry bailout or were you given an opportunity to vote on whether your money could be used to prop up a failing enterprise such as this? How many IPO shares of the “new GM” were allocated to your account today in exchange for your kind support?

Before I go off the deep end completely, let me point you to Jeff Carter’s excellent post on the GM IPO over at Points and Figures. Read it, and check out Francine McKenna’s Forbes blog post on GM’s unaudited financial statements while you’re at it. Then get back to me if you still think this is a wonderful, “historic” investment opportunity or an “exciting” chapter in our country’s history.

New: Finance Trends mobile reader view

Finance Trends mobile readers: you can now easily access our new mobile view on your iPad, iPhone, Berry, or Android device (courtesy of Blogger). 

Here’s what individual posts look like in our mobile site view: 

Right now we’re leaving the mobile view as an option, rather than a default, for our mobile visitors. 

If you’re a mobile reader and you’d like to see this mobile view as the default view during your visits, please leave us some feedback. For now, I’ll work on providing a mobile link icon near the top right portion of our sidebar column. Thanks!