4 ms·

How hedge fund manager Steve Cohen averaged 30% returns for 18 years

10 points by eplanit 17y ago

gte910h 17y ago
Luck seems to have no mention. The existence of people who've happened to bet on the correct side of the 9 or 10 huge events in the last 20 years surely exist, and that is sure to make them at least moderate successes if they don't do completely stupid things. Given enough series of die rolls by enough different rollers, there is inevitably going to be some with long strings of success. It only takes looking at 1024 cases before you find someone who bet correctly on 10 binary decisions. There are assuredly more than 1024 funds. He might have some special sauce, or may have done some smart things, but it is just as possible he's just #1024
- watty 17y ago
  "100 portfolio managers buy and sell 100 million shares a day" Luck should have been mentioned but the sheer volume of trades and absurd average over 18 years makes it seem like they DO have some special sauce... and a lot of it.
  - bjoernw 17y ago
    since when does trading volume suggests special sauce? you can buy and sell 100 million shares a day and only trade 20 stocks.
    - watty 17y ago
      I didn't suggest volume alone suggested special sauce, " sheer volume of trades and absurd average over 18 years makes". I was more trying to get the point across that they weren't rolling one die for 18 years but rolling it thousands of times. All this talk about special sauce is making me hungry...
  - gte910h 17y ago
    In general, most trades are a wash, not a huge up or down swing. It's the big events, like betting against the dotcom crash, betting against enron, etc, which make or break this size fund. Those are the 9 or 10 events I'm talking about. These people are probably rarely betting on something more than 1:10 odds. But for those huge cases, they were probably getting 1:100 or 1:1000. Those are the ones it is so important to be on the right side of, and dampen quite a bit of suboptimal whatever in the meanwhile. He quite specifically bet against the housing and dotcom boom as mentioned in the article, therefore shows to be betting most importantly on those 1:1000 events.
- qq66 17y ago
  SAC Capital is not #1024. They literally have strong control over the markets. Their process, systems, and relationships allow them to, for example, buy all of the offered stock from multiple investment banks at once, constraining the supply. It's really a failure of regulation.
  - gte910h 17y ago
    That is certainly enlightening to the discussion: They're not lucky, they just hold all the cards.
vinhboy 17y ago
I used to read these stories and salivate at the thought of these superhuman investors. Now I read just see them as gamblers making big bets with someone else's money.
GiraffeNecktie 17y ago
The article is basically a puff piece. How about a more critical view of SAC and hedge funds in general: http://www.fool.com/community/pod/2005/050401.htm http://www.fool.com/community/pod/2005/050401.htm
mattiss 17y ago
Insider trading?
lotharbot 17y ago
Lots of fluff in the article. The only real explanatory investment comments I saw were about him timing his exit of both the tech bubble and the housing/credit bubble right near the peak, riding both to the top and then betting against both to the bottom. If you know an investor who successfully did both of those things without making any huge mistakes along the way, you know an investor who's averaged gaudy returns. What it doesn't tell us is how he "knew" those bubbles were about to burst. How much of a role did luck have?
bryanh 17y ago
A bit of a fluffy piece but interesting to think that 30% for 18 years yields $112 after an initial investment of $1 (1.3^18). Or $5,000 18 years ago is worth a half a million today.

10 points by eplanit 17y ago

Luck seems to have no mention. The existence of people who've happened to bet on the correct side of the 9 or 10 huge events in the last 20 years surely exist, and that is sure to make them at least moderate successes if they don't do completely stupid things. Given enough series of die rolls by enough different rollers, there is inevitably going to be some with long strings of success. It only takes looking at 1024 cases before you find someone who bet correctly on 10 binary decisions. There are assuredly more than 1024 funds. He might have some special sauce, or may have done some smart things, but it is just as possible he's just #1024

watty 17y ago
"100 portfolio managers buy and sell 100 million shares a day" Luck should have been mentioned but the sheer volume of trades and absurd average over 18 years makes it seem like they DO have some special sauce... and a lot of it.
- bjoernw 17y ago
  since when does trading volume suggests special sauce? you can buy and sell 100 million shares a day and only trade 20 stocks.
  - watty 17y ago
    I didn't suggest volume alone suggested special sauce, " sheer volume of trades and absurd average over 18 years makes". I was more trying to get the point across that they weren't rolling one die for 18 years but rolling it thousands of times. All this talk about special sauce is making me hungry...
- gte910h 17y ago
  In general, most trades are a wash, not a huge up or down swing. It's the big events, like betting against the dotcom crash, betting against enron, etc, which make or break this size fund. Those are the 9 or 10 events I'm talking about. These people are probably rarely betting on something more than 1:10 odds. But for those huge cases, they were probably getting 1:100 or 1:1000. Those are the ones it is so important to be on the right side of, and dampen quite a bit of suboptimal whatever in the meanwhile. He quite specifically bet against the housing and dotcom boom as mentioned in the article, therefore shows to be betting most importantly on those 1:1000 events.
qq66 17y ago
SAC Capital is not #1024. They literally have strong control over the markets. Their process, systems, and relationships allow them to, for example, buy all of the offered stock from multiple investment banks at once, constraining the supply. It's really a failure of regulation.
- gte910h 17y ago
  That is certainly enlightening to the discussion: They're not lucky, they just hold all the cards.

vinhboy 17y ago

I used to read these stories and salivate at the thought of these superhuman investors. Now I read just see them as gamblers making big bets with someone else's money.

GiraffeNecktie 17y ago

The article is basically a puff piece. How about a more critical view of SAC and hedge funds in general: http://www.fool.com/community/pod/2005/050401.htm http://www.fool.com/community/pod/2005/050401.htm

mattiss 17y ago

Insider trading?

lotharbot 17y ago

Lots of fluff in the article. The only real explanatory investment comments I saw were about him timing his exit of both the tech bubble and the housing/credit bubble right near the peak, riding both to the top and then betting against both to the bottom. If you know an investor who successfully did both of those things without making any huge mistakes along the way, you know an investor who's averaged gaudy returns. What it doesn't tell us is how he "knew" those bubbles were about to burst. How much of a role did luck have?

bryanh 17y ago

A bit of a fluffy piece but interesting to think that 30% for 18 years yields $112 after an initial investment of $1 (1.3^18). Or $5,000 18 years ago is worth a half a million today.