5 ms·

Lenny Baum as trader (1982) [pdf]

44 points by scottlocklin 8y ago

dang 8y ago
Anybody know the year?
- grzm 8y ago
  Guessing from context in the document, I'd say circa 1982. > "Some five years ago, Jim Simons ... persuaded me to come down and consult for a day in March 1977." Also, the latest figures for reported returns in the document are dated April 1981–March 1982, so that's consistent.
hristov 8y ago
Well page 6 is missing, but this is a very interesting historical document nevertheless.
- wolfhumble 8y ago
  Looks like the ink from page 6 has bled over to page 5, so if you have time you might decipher the original content. :-)
  - qrybam 8y ago
    great idea - transcribed in reply to parent
- qrybam 8y ago
  Gave it a stab, anything with ? were (for me) illegible characters: I was aided in this action by (1) my personal estimates for very weak economic statistics for January to be reported in February which others had to varying degrees of certainty, (2) careful attention to what Volcker said (3) my ?????? aris- ing from careful reading of various components of the money supply statistics that there was a largely technical explana- tion for the rapid M1 growth - the other checkable deposits component was growing disproportionately (4) my carry tenta- tive observation that the treasury one way or the other was collecting more money than expected which was later confirmed by the treasury reducing the supply of treasury bills offered. Two years ago, I would not have been able to do some of these things at all and some not as well since I did not have the relevant knowledge. I now have a large amount of financial knowledge and monitor many financial and economic releases and cost sheets. However, since everyone has the same figures available to him and some people actually read them, one wonders how you can make money in this way. In previous years, I made money in financial futures in a non ??????lly way once as described to you in a previous ?ess ? talk by observing that the winter weather was good and selling bonds and bills short under the hypothesis that the economy would not slow up as many economists expected at the time so long as the weather was good. On another occasion I bought treasury bills because of a misallocation of supplies of gasoline causing lines to form at stations under the hypothesis that if Americans could not conveniently use their cars then the economy would slow down. Of course everyone else knows about the weather and gasoline lines. Here is a list of some of my trading characteristics: 1. I don't take actions except for specific reasons - a news item, a prediction I have of forthcoming data etc. Usually I will have several reasons 2 - 15 say for assuming a new position. edit: some words
  - hristov 8y ago
    Wow, thanks! This is really helpful, thanks for taking the time to decipher this.
avvt4avaw 8y ago
A couple of things I found interesting in this document, speaking as someone working in quantitative trading over 35 years later - 1. Baum and Simons started by using a momentum strategy to trade currencies, years before this was commonly done (it had been used to trade commodities for decades, but was only later applied to financial assets) 2. As well as momentum, they used a rudimentary value strategy ("a variety of line trading in which you sell or buy a currency according to whether it is to far above or below its line" and "I try to buy cheap and sell expensive") 3. At least according to this document, they don't seem to have engaged in carry trading (taking advantage of interest differentials in different currencies) 4. They at least considered the impact of macroeconomic variables, albeit in a somewhat ad-hoc and non-systematic way. Despite starting out with a momentum strategy, Baum didn't seem to subscribe to the most common paraphrase of momentum trading, which is to "cut your losses short and let your winners run on", as evidenced by his statements that "I will hold positions both losing and winning for a very long time" and "I hate to sell in a falling market" and "I am courageous in losing positions holding on and sometimes enlarging them". I would characterize him as more of a value trader than a momentum trader. It was only realized decades later (in the 1990s and early 2000s) that value and momentum strategies were particularly powerful in combination, and this only became part of the academic record in 2013 or so.
- jeffreyrogers 8y ago
  > Baum didn't seem to subscribe to the most common paraphrase of momentum trading, which is to "cut your losses short and let your winners run on" I don't have a source for it that I can find at the moment, but I recently read a paper showing that this advice is actually quite bad and traders perform better when they do the opposite. (They sell losers too early (when they would have recovered) and they sell winners too late (after they've declined)) Of course, prospectively knowing you're selling losers to early or winners to late is hard to do.
  - scottlocklin 8y ago
    Such a study is practically inevitable. Studies generally need central tendency to be statistically significant. Long trends are kind of by necessity outliers. Both are valid and depend on your modeling and time horizon. But if you can find a simple statistical alpha which has more examples, you're probably better off doing that. Which is why HFT was so profitable.
ArtWomb 8y ago
If this floats your boat you should also check out a BBC documentary from just about that time Billion Dollar Day - a 1986 documentary about currency (forex) speculative trading https://www.youtube.com/watch?v=mNmbjQhTHnE https://www.youtube.com/watch?v=mNmbjQhTHnE Two interesting things. Almost everyone retires from dealing by age 30. And its amazing, given our current age of anonymity in markets and robo trading, just how personal FX markets used to be. Almost akin to a sitting around a poker table. With your counterparts halfway around the globe, setting bull traps ;) Regarding the role of luck. Given current global macroeconomic policy seems to be determined on the merest whims of authoritarian regimes. There is an interesting strategy that comes with fading spikes in EM FX volatility. Very illiquid. It's pretty much casino gaming. But with monthly swings in 25%+ range!

44 points by scottlocklin 8y ago

dang 8y ago

Anybody know the year?

grzm 8y ago
Guessing from context in the document, I'd say circa 1982. > "Some five years ago, Jim Simons ... persuaded me to come down and consult for a day in March 1977." Also, the latest figures for reported returns in the document are dated April 1981–March 1982, so that's consistent.

hristov 8y ago

Well page 6 is missing, but this is a very interesting historical document nevertheless.

wolfhumble 8y ago
Looks like the ink from page 6 has bled over to page 5, so if you have time you might decipher the original content. :-)
- qrybam 8y ago
  great idea - transcribed in reply to parent
qrybam 8y ago
Gave it a stab, anything with ? were (for me) illegible characters: I was aided in this action by (1) my personal estimates for very weak economic statistics for January to be reported in February which others had to varying degrees of certainty, (2) careful attention to what Volcker said (3) my ?????? aris- ing from careful reading of various components of the money supply statistics that there was a largely technical explana- tion for the rapid M1 growth - the other checkable deposits component was growing disproportionately (4) my carry tenta- tive observation that the treasury one way or the other was collecting more money than expected which was later confirmed by the treasury reducing the supply of treasury bills offered. Two years ago, I would not have been able to do some of these things at all and some not as well since I did not have the relevant knowledge. I now have a large amount of financial knowledge and monitor many financial and economic releases and cost sheets. However, since everyone has the same figures available to him and some people actually read them, one wonders how you can make money in this way. In previous years, I made money in financial futures in a non ??????lly way once as described to you in a previous ?ess ? talk by observing that the winter weather was good and selling bonds and bills short under the hypothesis that the economy would not slow up as many economists expected at the time so long as the weather was good. On another occasion I bought treasury bills because of a misallocation of supplies of gasoline causing lines to form at stations under the hypothesis that if Americans could not conveniently use their cars then the economy would slow down. Of course everyone else knows about the weather and gasoline lines. Here is a list of some of my trading characteristics: 1. I don't take actions except for specific reasons - a news item, a prediction I have of forthcoming data etc. Usually I will have several reasons 2 - 15 say for assuming a new position. edit: some words
- hristov 8y ago
  Wow, thanks! This is really helpful, thanks for taking the time to decipher this.

avvt4avaw 8y ago

A couple of things I found interesting in this document, speaking as someone working in quantitative trading over 35 years later - 1. Baum and Simons started by using a momentum strategy to trade currencies, years before this was commonly done (it had been used to trade commodities for decades, but was only later applied to financial assets) 2. As well as momentum, they used a rudimentary value strategy ("a variety of line trading in which you sell or buy a currency according to whether it is to far above or below its line" and "I try to buy cheap and sell expensive") 3. At least according to this document, they don't seem to have engaged in carry trading (taking advantage of interest differentials in different currencies) 4. They at least considered the impact of macroeconomic variables, albeit in a somewhat ad-hoc and non-systematic way. Despite starting out with a momentum strategy, Baum didn't seem to subscribe to the most common paraphrase of momentum trading, which is to "cut your losses short and let your winners run on", as evidenced by his statements that "I will hold positions both losing and winning for a very long time" and "I hate to sell in a falling market" and "I am courageous in losing positions holding on and sometimes enlarging them". I would characterize him as more of a value trader than a momentum trader. It was only realized decades later (in the 1990s and early 2000s) that value and momentum strategies were particularly powerful in combination, and this only became part of the academic record in 2013 or so.

jeffreyrogers 8y ago
> Baum didn't seem to subscribe to the most common paraphrase of momentum trading, which is to "cut your losses short and let your winners run on" I don't have a source for it that I can find at the moment, but I recently read a paper showing that this advice is actually quite bad and traders perform better when they do the opposite. (They sell losers too early (when they would have recovered) and they sell winners too late (after they've declined)) Of course, prospectively knowing you're selling losers to early or winners to late is hard to do.
- scottlocklin 8y ago
  Such a study is practically inevitable. Studies generally need central tendency to be statistically significant. Long trends are kind of by necessity outliers. Both are valid and depend on your modeling and time horizon. But if you can find a simple statistical alpha which has more examples, you're probably better off doing that. Which is why HFT was so profitable.

ArtWomb 8y ago

If this floats your boat you should also check out a BBC documentary from just about that time Billion Dollar Day - a 1986 documentary about currency (forex) speculative trading https://www.youtube.com/watch?v=mNmbjQhTHnE https://www.youtube.com/watch?v=mNmbjQhTHnE Two interesting things. Almost everyone retires from dealing by age 30. And its amazing, given our current age of anonymity in markets and robo trading, just how personal FX markets used to be. Almost akin to a sitting around a poker table. With your counterparts halfway around the globe, setting bull traps ;) Regarding the role of luck. Given current global macroeconomic policy seems to be determined on the merest whims of authoritarian regimes. There is an interesting strategy that comes with fading spikes in EM FX volatility. Very illiquid. It's pretty much casino gaming. But with monthly swings in 25%+ range!