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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!