Steve Cohen

From Junior Trader to Billionaire

Steve Cohen is a man who took trading just about as far as humanly possible.
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Worth an estimated $15 Billion, he’s gone from a junior trader at Gruntal & Co through to a billionaire via a few dodgy dealings along the way…

   
So what do we know and what can we learn?

In 1992 Steve founded SAC Capital, a hedge fund known for super-aggressive trading styles and outsized returns, averaging 30% per year between 1992 and 2013.

Trading Strategies

Now, of course, a lot of this stuff is heavily guarded but I’ve done some research and here’s what I discovered…

SAC employed a multi-strategy approach, focusing a lot on individual equities.

Even though they were a big firm they operated in small autonomous trading teams, each focusing on a specific sector or strategy.

This allowed them to remain nimble and make quick decisions rather than going through some bureaucratic process that might be in place at other firms.

We know they ran an HFT department, trading a lot of volume very quickly.

They also placed a big emphasis on research, networking, and data.

Spending huge sums on big data and alternative data to try and uncover some kind of information edge that other firms did not have…

Things like satellite imagery, web use data, and social media trends. (I mentioned this last week.)

And yes they took it too far… in 2013 SAC pled guilty to insider trading, paying a fine of $1.8 billion with two traders doing some jail time. But that’s another story…

A keen poker player, Cohen was also super hot on risk, conducting regular meetings with risk committees to review exposures and to make sure the firm’s risk management was on point.

Specialism

One thing I noticed about Steve’s approach was he was a big advocate for specialism.

He set up his fund so each trading team was almost like a startup, specialising in one thing and one thing only.

So, perhaps there was a social trends team, making trades based on social media data.

Then you’d perhaps have a restaurant stocks team, they would know the listed restaurant businesses intimately, form relationships with key figures in that sector and do everything they could to gather information to support trade ideas…

It makes sense when you think about it.

Takeaways:

  1. Ironclad risk management
  2. Specialism
  3. Thinking differently than the crowd

Oh yeah and not insider trading…!