WHAT YOU NEED TO KNOW ABOUT
MASTER TRADERS – PART 9
“As a trader, the brutal truth is that you only get paid
for your results. There is no 'time and a half', or over-time rates. We live in
a results economy, not a time economy, like people who have ‘jobs.’’ – Louise Bedford
Name: Ottavio Biondi
Nationality: American
Education: M.B.A. (Harvard
University)
Occupation: Trader and fund manager
GETTING A GOOD STRATEGY OUT OF LOTS OF CRAP
Ottavio is a co-founder and
managing partner of King Street Capital Management, LP, launched in 1995. He
and another co-founder, Brian Higgins, manage the firm’s portfolios.
King Street tripled in asset
value from 2006 to 2010, rising to an all-time high of $19.9 billion.
The firm speculates on bonds,
equities, currency, warrants, and options across four funds, looking for
distressed and undervalued firms, value investing, capital structure trades,
spin-offs, mergers, and acquisitions. The firm engages in short and long
trades.
Ottavio got married to Jamie
Nicholls in 1997.
What You Need to Know:
- King
Street Capital Management has been doing well overall, though some years
were better than others. The year 2011 was an example of a bad year, but
the loss was only 1.2%. Compare this with portfolios that lost tens of
percentage. Don’t forget that small losses are very easy to recover. In
2012, the firm made a net profit of 12.4%.
- Please
see the quote above, Ottavio Biondi made a personal income of $100 million
in 2013. This is an example of payment for results.
- Sometimes,
an empty barrel makes the loudest noises. Most of traders who shout online
and on the media aren’t successful in the markets; whereas there are
unknown traders, who’re silent, and yet they make cool money consistently.
According to Bidnessetc.com, “both
Biondi and Higgins seldom appear for interviews or press meetings, since
the inception of their fund in 1995 in New York. At the beginning of 2013,
the firm managed $18.5 billion and it is yet to conduct an investor day.
An investor day is a normal occurrence for many hedge funds, where the
managers interact with prospective investors and try to woo them to invest
in the fund. The co-founders believe that their primary job is to manage
assets rather than mingle with the clients. Biondi’s philosophy puts
emphasis on higher returns and believes a better fund performance is the
best indicator to attract investors.”
- As
far as Ottavio’s King Street is concerned, results speak volumes, owing to
good strategies the firm uses. For you to get paid as a trader, you need a
good strategy. Unfortunately, many strategies are simply useless, while
good strategies are as rare as diamonds.
Then how do you get a good strategy when majority of strategies
aren’t useful? A very helpful
answer has been provided below, from an invaluable website called
Collective2.com. This website is where numerous winning traders use
strategies that are copied by many, many thousands of astute investors.
Here’s the answer in form of a short article:
The Role of Trash Cans in Developing a Trading
Strategy
“When you develop trading
strategies as your profession, a large portion of your work ends up in the
trash can.
Almost every week I have a new
trading idea. And usually, that idea seems "good" to me. So I turn it
into a computer program.
Then I study the back-tested
results. And usually (about 98% of the time, I estimate) - the so-called
"good" strategy goes straight into my trash can.
Why? Because once you analyze a
strategy over the course of several years' worth of historical data, you see
the blemishes, and you realize that the "good" idea isn't actually so
good after all.
Okay, what about those other 2%?
Well, next I look at the
results, in the form of a graphical representation of the strategy's equity
gains and losses. If the graph look like a mountain range - up and down, up and
down - then it goes straight into the trash!
Okay, what next? Next, I look at
the average annual performance. Is it higher than the maximum drawdown? No?
Into the trash!
Next, I examine the annual gain
per position. Is it greater than typical slippage and commission per trade? No?
Into the trash!
So, as you can imagine, there's
a lot of crap piled up in my trash can, representing hundreds of hours worth of
programming, and data analysis, and study. All of it - in the trash.
To me, that's a mark of success.
It means I'm selective, and I don't rush into things. I'm dealing with money,
after all. One must be careful.” - Gianni
Salerno (Source: Collective2.com)
