Thursday, November 13, 2014

Israel Englander: Attaining Permanent Success in the Market


"When you are trading, trade the truth. Truth is the only safe ground to stand on." - Old Trader

Israel Englander (sometimes called Izzy) was born in 1948, in New York City, USA. He’s a Hedge Fund guru. He was raised in a Jewish family - his parents were Poles who immigrated to the States after they left a Soviet labor camp.  Israel got fascinated with the markets when he was in high school. He earned a B.S (finance) from New York University in 1970. Later he applied for an MBA program at the same University and he was accepted, but he didn’t finish his studies.

Before he enrolled for the MBA program, Israel worked at Kaufmann, Alsberg & Co: a Wall Street Firm. He and his partner John Mulheren Jr. founded an investment firm, which was called Jamie Securities Co. in 1985. The Belzberg family of Canada was a major investor in the firm, having contributed about $75 million. Mulheren was convicted of facilitating unlawful trading practices for Ivan Boesky (who was also a professional trader). Israel was never implicated with Mulheren's wrongdoings, but the lawsuit caused a very bad reputation that damaged Jamie Securities. The firm was shut down.

Israel and Ronald Shear founded Millennium Partners in 1989, with seed money of about $35 million. The beginning was very rough for the firm and as a result of this, Ronald Shear left the business. From that time on, Israel has made the firm achieve success, growing it into a very big hedge fund that is worth billions of dollars. Rather than charging a fixed management fee per annum, Israel shares trading expenses with his investors.

Now Millennium Management LLC, the firms uses several unique strategies to achieve their goals. It got about 900 employees and 12 offices.  It’s one of the most successful hedge funds in the world. The firm trades with over $21 billion. In March 2014, Israel was worth $3.3 billion dollars. He’s been very generous to Jewish schools and organizations. He’s married to Caryl Englander and they’ve 3 children.

Here are some of the lessons you can learn from Israel Englander:

  1. Never give up when you face challenges in your career. When Israel and Ronald Shear founded Millennium Partners in 1989, things were not encouraging then. Ronald even left him. Before all these, the Jamie Securities he co-founded was dissolved. These things were enough for chickens who’d rather go back into their comfort zone. Nevertheless, Israel kept on, rather than giving up and he ended up being the boss of one of the biggest and most successful hedge funds around. 

  1. Israel is a good stock picker. He likes to pick promising stocks. It’s what you pick that’ll bring gains for you. How can you find stocks and trading instruments that are really promising? You need to develop strategies that help you do this?

  1. Israel is secretive – even in the world of hedge fund. He doesn’t appear in public, talk to the press, grant interviews, and broadcast his photos. Yet, he’s made billions of dollars from the markets. Really, those things aren’t what would make you a successful trader. In fact, talking publicly about your open trades would have an adverse effect on your psychology because it would put your ego on the line. You don’t have to be the most handsome, the biggest mouth, the greatest orator and the most hyped socialite, before you can become a successful trader.

  1. Israel wasn’t born rich, but he made fabulous money. His riches are self-made. No matter your background and economic class, you can end up making it in life.

  1. Are you often disturbed by your critics? Are your actions decided by what people say about you? It’s a mistake to think you can always answer your critics; plus one of the best ways to fail is to try to please everybody. As a trader, just continue to put out your trading best and let others continue to make the noise. Despite a possibility of a hedge fund scandal and allegation of fraud affecting one of the traders at Millennium, Israel told his top employees that they shouldn’t pay attention to what they saw in the press, but they should focus on making profits so that they could keep their jobs.

  1. Israel’s Millennium has been doing great consistently. It makes an average of 17 per cent returns per year: that certainly beats the bank. Good results were achieved when the markets were seriously unfavorable to the bulls and when the markets were seriously favorable to the bulls. With only a profit of one per cent per month, you can become rich in the long run – not only when you make 50% per cent (that’s a recipe for financial disaster). You can also make money in bull and bear markets. 

  1. Like Israel, it’s possible to attain permanent success in the market if you’ve strict risk management and realistic goals. At Millennium, trading is treated as serious business and no nonsense is allowed. There are many traders working for the firm and they must make money in order to retain their jobs. Each trader must also not experience drawdowns that go below the predetermined level, otherwise she/he is dismissed. On the other hand, traders who perform well at the firm would be given more money to trade with. Prudent trading firms also employ effective risk control principles so as to ensure that they continue to enjoy everlasting triumph. By defining your maximum risk per trade, maximum roll-down per week or month (after which you temporarily stop trading for a while) and other risk control techniques like trailing stops, you survive the vagary of the markets. 

Conclusion: Formal education can’t help protect our accounts as risk control principles can. Our discipline and sense of responsibility help us avoid approaches that can endanger our portfolios. When we started trading, we faced some recalcitrant challenges. If we’d done the right things from the beginning, the results could have been different. In order to move forward as traders, we try to focus on what we still have rather than what we have lost.

The quote below, which ends this article, is attributed to Israel:

“Here's a chair and computer — go trade.”

Learn from the Generals of the Markets: Market Generals

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