Trading is the pursuit of truth. Which also means it is a meritocracy.
Star traders tend to get rewarded and rise to the top. It usually (But not always) happens that way.
Which brings me to some news that happened over the past few months.
If you are not familiar, George Soros, one of the greatest hedge fund managers in history, shut down his hedge fund a few years back and converted it to a family office to manage the investments of himself and his family. At the time it happened, Soros still had around $20 billion of his own money.
However, Soros still wanted to grow his wealth, because people of all ages want that, and also to help fund his philanthropic endeavors. So he desired to and still desires to find new Chief Investment officers to lead his hedge fund. He probably doesn’t want to be doing the full day to day investing on a moment by moment basis. So he would like someone else to take this role.
Finding someone to take on such a role and responsibility is not the easiest task. Running one of the world’s largest hedge funds, and now family offices, for over 40 years, this requires a great deal of skill in picking the top job – the CIO. So important, as they will be responsible for so much. For finding new opportunities, to managing risk, etc. To make money no matter what market environment. They can come to you and talk to you about bigger risk trades. But still, you want to give them a chance. You don’t want to have two cooks in the kitchen.
You don’t want to hire somebody and they go blow up the fund. Blowing up the fund can mean a big drawdown of -50%, or -30%, or even -20% can be considered blowing up the fund.
So you are trying to find someone with intelligence, integrity, and enthusiasm. Those are some of the key pillars. He has done a decent job over the years I would say.
The most recent person he has hired this year is a female by the name of Dawn Fitzpatrick.
This adds to the eclectic mix of people he has had to lead his hedge fund over the past 30+ years.
He has tried Stanley Druckenmiller, who is a white male, a family man and a class act. One person dubbed him one of the greatest money making machines in the history of the world. They formed an enormously profitable partnership for over a decade. He made Soros billions and by the time he finished running the Quantum fund in the year 2000, estimates put it that he was also a billionaire himself. Druckenmiller was also recently correct along with Carl Ichan in his expectation for a surge in equity prices after the Trump win.
He has tried having his sons run the fund for a bit.
He has had Scott Bessent, a white male, who is openly gay, thus breaking more stereotypes and more ceilings. Bessent was faced with the very formidable task of taking a very large fund, and growing it, producing some kind of decent return. I am sure Soros would have liked a +30%, +50% etc return year. But sometimes that is a difficult task for a very large fund to do every single year. Bessent was able to capture some very good macro trades in European Sovereign debt and the Japanese yen, to help bring the Soros Fund to a new equity peak.
And now he has hired a female for the top job for the first time in the funds history.
Trading is a Pursuit of Truth
The whole point about all of this is that the western world, especially in the area of trading, it is a meritocracy. Despite what some people who spread the hate and discrimination would have you to believe, if you are good at trading, you can make a lot of money. There is no one that is going to stop you.
It does not matter if you are male or female, straight or gay, Asian, British, Mexican, wear a turban, all tattooed up, smoke 3 packs a day, etc. The financial market does not care about such things. Where the price of the EUR/USD or Apple stock, or any market is going to go, does not depend on such things. The market does not care about your ethnicity, or what you look like, how you dress, etc. (whether you should care about your health or how you present yourself to the world is a different matter)
This should fill you with enthusiasm because if you are good at what you do, if you have skill and apply it, you can make money. No one is going to keep the money away from you.
Which is another important point about trading and forex: It is a pursuit of truth. I know of lot of people complain that they are employees, their voices aren’t heard, corporate politics, their bosses don’t value the truth and distort it.
Well, if you are a trader, then truth in the marketplace is valued. If you can get in harmony with what is driving the markets, in tune with the market participants, etc, then you can position your portfolio in such a way and profit. This is the case in any market, whether stocks or currencies. In currencies it is even more so, because a country cannot typically hide its crisis like an individual company can. But still, it is the case in all markets. Markets are a pursuit of truth. In order to profit in the market, you must have some kind of philosophy and action in accordance with a version of the truth.
That’s the first lesson – trading as a pursuit of truth.
Which leads to…
Among traders first starting to break into the business, there can be a tendency to believe in conspiracies, discrimination, that the top talent doesn’t go to the top, corporate politics getting in the way, etc. And I am not saying that the world is completely perfect. But it is the year 2017 and it is certainly getting better every single year.
But what I am saying is that if you have developed real skill, real value to the marketplace with what you know and can do, and market and present yourself appropriately, you will be valued and can rise to the top, either in a business that you own, or in working for someone else.
As the saying goes to “Do the work.” To put in the work. Put in the effort. It still applies most certainly to today.
Because, if you make a company a billion dollars, why wouldn’t they pay you $50 million or $100 million?
Paolo Pellegrini, who helped John Paulson structure the short trades on the housing market, got a $175 million bonus for his work in 2007. He helped Paulson make billions, and got paid a 9 figure bonus.
When Soros broke the Bank of England in 1992 his hedge fund made over $1 billion for the year. Soros was estimated to have made personally about $650 million for the year. The estimate was that he also paid out at least $100 million to his Chief Investment Officer at the time – Stanley Druckenmiller.
Carl Icahn’s son – Brett Icahn, made the 2016 list of highest earning hedge fund managers – making $280 million, a lot of which came from his long position in Netflix – trading his fathers money.
So any limitations you have, are just in your mind. Your fear, your doubt, your disbelieving. That the world is evil, world out to get you, sabotage you. I certainly felt these emotions and had these thoughts in my early years when I did not know as much as I know now.
With faith, invested in action to acquire and apply the principles and strategies far closer to the trading truth, then results can come.
And even if “they” don’t value you like you desire, you always have the option of starting your own fund. With your SKILLS, your mastery, this all stays with you. These are transferable to an enterprise of your own. No one can take it from you. As you are the Trading WIZARD. This success and continued success is a function of what you have become and already are.
Asset Allocators vs True Macro traders:
Soros’s new pick comes from the asset allocater world, the “modern management paradigm.” – which I would say is a term that comes from the echelons of academia.
For those who do not know, there is a new “modern management paradigm” of asset allocation that has come into vogue and that some people and funds believe in. It has existed for many decades in various forms. For example the stock/bond asset allocation that some people talk about for retirement. So it is present in there as well.
A lot of college endowments use some form of the asset allocation model. The general belief is that they allocate money to various strategies and into various markets – say a certain percentage, based on your risk tolerance levels, and profit goals. For example a certain percentage gets allocated into US equities, into foreign equities, into bonds, into commodities, etc. A certain percentage can get allocated into macro trading, and other various strategies. As you can see, it can get very complicated and very messy.
In my opinion “asset allocation” is just another word for saying that someone is not good at trading. Instead of saying that you are not a good trader, or not good at macro, they developed this new term called: “asset allocator” and “modern management paradigm.”
And if they lose money in the year, they think they got the wrong asset allocation. It takes the focus off of their subpar trading skills and onto some wrong asset mix, etc. The fact that they placed the wrong trades, got in at wrong prices, wrong position sizes, got out at the wrong time, too many correlated trades, etc, that and those kinds of things, they are oblivious too. They hide behind the “asset allocator label.” So I am not a fan of that term.
Sometimes the asset allocators do well. Some university endowments have that kind of model. But, I would always, always, ALWAYS prefer a smart trader steeped in the exquisite skills of global macro trading over an asset allocator, any day of the week. They have the ability to protect capital and grow it during market dislocations.
In my opinion, the best way to trade in a directional fashion, has always been, is currently and always will be – in global macro fashion. This allows you immense flexibility to place trades in many markets, to create a freewheeling portfolio with uncorrelated trades that have an option like payoff stream.
Also: The best and brightest are generally not found managing academic endowments. Better to study the private investors that have made their own fortunes. Like Soros, Dalio, Paul Tudor Jones, etc.
Asset Allocation is VERY DIFFERENT from the “old school” macro traders or long/short equity traders that place a very high degree of emphasis on finding good trades, position sizing properly, and attaining good entries and exits.
The modern management paradigm of asset allocation places emphasis on the percentage mix to various assets and strategies. That is where the emphasis is on.
The old school trading and global macro world, places an emphasis on the individual trades in the portfolio and always the overall stance as well – whether the portfolio is structures in a risk appetite or risk aversion way. The old school and global macro traders are constantly on the hunt for adding these kinds of good trades to their portfolio, no matter their time horizon. Whether the trade lasts a day, or a week, or a month or a year, it does not matter. They are constantly on the hunt for these. My Apple Trade has lasted over three years from 2013. (insert link here) It has been that good.
The old school of trading places great emphasis on finding a currency about to make a big move and trading it with a large position size. The macro way places great emphasis on studying the financial conditions of the country as they will be in a few months to a year and if the equity market is going to explode, betting big on it. The old school way studies individual companies and if they show the stock is going to rocket higher by +50% or +100% or more, like AAPL or Netflix over the past few years, to bet big on it.
The old school trading approach can even involve at times using leverage and going more than 100% of equity into a single market.
The traders who come from the “old school” believe in terms of raw trading skill. They are not so easily seduced by this new school “asset allocation” stuff. The old school traders keep practicing the tried and true universal principles of speculation. If they try something new like this “asset allocation” stuff, then they do it in a separate account and fund. Like Ray Dalio does. He has his “Pure Alpha” fund – which is more macro oriented to generate “pure alpha.” And he has his “All Weather Fund” – which is more “asset allocation” oriented.
So I am most certainly an advocate for the old school approach. An advocate for conscious development and application of that kind of trading skill. The kind of raw trading skill. Developing it from nothing if you have to, which can most certainly do if you put yourself on a plan!! Check out the Order Flow Mastery Course for how to develop this skill even if you are just starting out.
Looking at Soros’s history of CIO’s the old school macro guys like Druckenmiller, Nick Roditi, Scott Bessent, tended to do better than the ones that have not had a strong macro background.
Various other CIO’s for Soros have been people like Keith Anderson, and Ted Burdick, who have had a much more fixed income background, rather than a global macro background.
The true global macro guys – who have experience betting long and short in stocks, bonds, currencies, commodities, etc, tend to do better – sometimes a lot better. That is what I have noticed over the years.
So what’s the insight? Get really good at Global Macro. It’s like 3-D Chess. And you can protect and grow your money if there is a crisis. Which Warren Buffett cannot really do. (though he can make a lot of money in the recovery after the crisis.)
I don’t know the new person Soros has tapped – Dawn Fitzpatrick, other than my interpretation of the articles that I have read. I will be watching closely to see if this asset allocater does a good job. It will certainly be interesting to see how these people perform when they get hired to run these large hedge funds or family offices, etc. It always is fascinating. It always is.
*** To benefit from this Trading Meritocracy environment, it is important to know how to quickly develop these trading skills to find the good trades.