Joe Fahmy The Next Big Move » Anthony Robbins

10 Lessons I Learned from Steven Cohen’s SALT Conference Interview

Joe Fahmy — Tue, 31 May 2011 03:17:38 +0000

I recently had the pleasure of attending the third annual SALT Conference in Las Vegas. One of the highlights of the event was a rare interview with SAC Capital founder and hedge fund legend Steven Cohen, who spoke in front of a packed room of 1,800 people. Just to give a quick introduction, Mr. Cohen manages over $15 billion in assets and has achieved a +30% average annual return for 18 years. The interview was conducted by Anthony Scaramucci, managing partner of SkyBridge Capital, the firm that organizes and hosts this tremendous event.

I am a big fan of the quote: “Success leaves clues.” Unfortunately, many people choose to snub success, rather than embrace it, study it, and learn from it. Since I knew this was going to be a rare opportunity to hear one of the best in the business speak, I decided to take notes. Here are some of the lessons I learned:

1) As Steven Cohen walked on stage, my first thought was: “Wow! He is much thinner than I thought.” He mentioned that he works out “hard” three times a week, for an hour and a half each workout. This really impressed me for 2 reasons: 1) They say a common trait among successful people is health/fitness. He certainly proves that point. 2) He is 54 years old, so it’s a huge inspiration for me to stick with my workouts and to stay fit.

2) Anthony Scaramucci asked him who were his mentors growing up? Cohen said his father was his biggest influence and spoke about him with great reverence. He mentioned his father more than once during the interview, and I could tell by his tone that he was extremely sincere. This was comforting to me since my father is also my greatest influence. I don’t mean to get sentimental, but it was nice to see Cohen being real and being himself, especially when the media seems to only report negative news about these hedge fund giants and portrays them as arrogant. Cohen was very calm during the entire interview, and he was certainly down-to-earth.

3) Scaramucci asked him how has the business changed over the years? Cohen said the markets constantly evolve and adapt, so you have to adapt with it. For example, he is getting more involved with MACRO trading (commodities and currencies). He never thought he would be doing it, but “the world has changed and it’s a MACRO world.” This answer was important to me because part of being successful in any business is learning to anticipate and adapt to changes in your industry. For example, Blockbuster knew about Netflix for years but did nothing to change their business model. Obviously, one flourished and one didn’t.

4) Scaramucci asked him what makes someone successful at SAC Capital? Cohen said they look for people with “an identifiable, repeatable process.” This gave me comfort because I screen every night to evaluate the health of the market and its leading stocks. Sometimes it seems like a boring and redundant process, but this nightly preparation accounts for 90% of my trading success.

Cohen also stressed the importance of risk management. Remember what I said earlier about “success leaves clues?” If you read any of Jack Schwager’s Market Wizards books, you will find that the number one theme mentioned by the most successful traders in the world is: “CUT YOUR LOSSES!” Mr. Cohen, who is also featured in Market Wizards, reiterated this point a few times during the interview.

Other characteristics that Cohen looks for in his managers include: the ability to scale up their process, generate ideas, and they must be able to manage a group. Cohen judges his managers by their stats…”just like in baseball.” He uses “simple” stats such as win/loss ratios and other risk measures.

5) Lessons from the 2008 financial crisis? Cohen spoke about the importance of LIQUIDITY. He also said that some people were “over-levered and too heavily concentrated,” but his firm’s diversification helped them survive. When managing large amounts of money, I agree that diversification is important. However, for smaller managers or individual traders, I personally feel that the best way to outperform is to keep a concentrated portfolio. There is nothing wrong with putting all your eggs in one basket, as long as you watch the basket closely . Either way, I definitely agree that liquidity is very important. Not necessarily on the way up (because every stock is liquid when it’s rising), but on the way down (when you need to get out).

6) Cohen’s description of how he got started was inspiring, especially to a young manager like myself. After 14 years at Gruntal & Co., he started SAC Capital (at age 36) with 12 employees and $23 million under management. He admits that he never thought they would get to $100 million. The firm currently manages over $15 billion in assets, employs 850 people, and has offices in 6 locations worldwide. He says he was able to take advantage of big opportunities, especially since he started in the bull market of 1992. Cohen personally manages 10% of the firm’s assets and the remainder is divided amongst 300 investment professionals and portfolio managers. The majority of his management team has been with him for over 10 years, and he trusts them and their judgment.

7) Scaramucci asked him how the US deficit is going to be solved? Cohen said either 1) The Democrats and Republicans will get together and work on a solution or 2) The market will fix it on its own. I instantly thought of Comedian Lewis Black’s quote that “The only thing dumber than a Democrat or a Republican is when the two of them try and work together.” So, sorry everyone, looks like the market will simply have to correct itself someday, LOL!

8) I was certainly impressed by Cohen’s philanthropic endeavors. He and his wife focus their charitable efforts on two areas: 1) Children’s education and 2) The Military (specifically helping troops when they return home). As Tony Robbins says: “The secret to living is giving.” Cohen demonstrates this quite well.

9) Scaramucci asked his current opinion on the markets and if there were any sectors he liked? Cohen said we’ve had a good run and “I think we’ll see a pause.” He is optimistic about the second half of 2011, forecasting a 4% US economic growth rate. He is “worried” about 2012, but “we’ll worry about it when we get there.”

He mentioned that the recent sell-off in commodities could provide a good entry point for energy equities. He also favors the Mobility theme because we are going from 3G to 4G.

10) So what’s motivating him to keep going? Cohen simply loves doing what he’s doing. Although he was incredibly calm during the entire interview, his passion for trading and investing was quite apparent. He concluded by saying: “I can’t see myself doing anything else.”

As I mentioned earlier, it’s too bad that the media portrays most Wall Street titans as bad guys. I honestly had no idea what to expect prior to the interview, but I left INSPIRED!!! I was extremely impressed by Mr. Cohen’s human side, a side that I’m guessing very few get to see. I wasn’t impressed by his billions (because you can’t take it with you when you die), but rather by his focus on family, health, philanthropy, his passion for trading, and his overall advice on how to build a successful business. I wrote this article because I’m a huge fan of studying success. Hopefully, you have learned a few things along the way and will continue to embrace success and learn from it…it leaves us clues every day.

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Valuable Investing Advice

Joe Fahmy — Mon, 02 Nov 2009 01:12:04 +0000

I am about to share one of the most valuable lessons I have ever learned about the stock market. I learned it from one of the best traders I know. Even if you already know this, it never hurts to hear it again because as Tony Robbins says “Repetition is the Mother of skill.” Ready?

Use the 50-day moving average of the NASDAQ Composite as your general guide to get in and out of the stock market. Consider it like a red light/green light on a traffic signal. If the NASDAQ is above its 50-day, then it’s a green light to be invested in stocks. If below the 50-day, it’s a red light, step on the brakes, and get out of the market!

When I look back at my 14-year trading career, 95% of the money I made in the stock market came when the NASDAQ was above its 50-day and when the “wind was at my back.” Unfortunately, a large percentage of my losses came when the NASDAQ was below this line, and I forced trades in an unhealthy market. If you used this guide over the past 2 years, it would have kept you out of the market from Sept 2008 through March 2009, and it would have told you to get back in from March 2009 through October 2009. Even if you are not a technician, go to any free charting website and plot the 50-day to see this. In fact, I’ll do it for you. The red line is the 50-day; you might have to click on “2y” at the bottom if the 2-year chart doesn’t appear (click here to see).

I’m sure a few questions immediately come to mind: Why the 50-day? Why the NASDAQ? And why get out of the market?

The 50-day is one of the strongest areas of institutional support for both an index and a stock. I consider it as a “sign of health.” For example, if someone asks me “what do you think of XYZ stock?” The first thing I do is pull up a chart and see if the stock is trading above or below the 50-day. I almost NEVER buy a stock below its 50-day because if it’s not good enough for the institutions to support it, it’s not good enough for me. (Note: the 200-day is also a strong area of support, however a stock or index near its 200-day is usually already below the 50-day, and further deteriorating in health).

I use the NASDAQ Composite because, in my opinion, it is THE leading index filled with the young, entrepreneurial growth companies that make for Great Winning Stocks.

Why get out of the market? Because I believe in Jesse Livermore’s philosophy: the market is healthy 2-3 times a year, do your homework to identify those times, and trade them aggressively. The rest of the time, build cash and protect your profits. Livermore believes you are a fool for trading everyday and “you should not be in the market all the time.” By the way, I do not recommend irrationally selling everything when the NASDAQ breaks below its 50-day. Other factors need to be considered such as distribution days and if leading stocks are breaking down. On the way back up through the 50-day, such as in March 2009, one needs to evaluate “follow through days” and if stocks are breaking out of strong bases. In other words, the 50-day is a GUIDE to use in addition to other market variables.

I decided to post this trading advice now because it significantly applies to today’s market, which broke below its 50-day last week. On Wednesday 10/28/09, the NASDAQ broke below 2089 on heavy volume. While watching the tape, it seemed like NO support was coming in at this level. In addition, the index has experienced distribution (professional selling) in 7 of the past 11 trading days AND leading stocks are breaking down. My best advice is to raise cash and wait patiently for healthier conditions. I share this valuable advice with the hope that you can learn from my past mistakes and prevent further losses.

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Confidence is Everything!

Joe Fahmy — Tue, 13 Oct 2009 02:15:08 +0000

In my Recommended Reading List blog, I suggest “self-help” books because I believe confidence and a positive state of mind is extremely important if you want to become a successful trader…or a successful anything for that matter! You cannot convince a jury if you are not a confident lawyer, you cannot properly construct a building if you are not a confident engineer, and you will certainly have trouble making money as a trader if you do not have conviction in your ideas.

By conviction, I do not mean that we should blindly be bullish or bearish on a stock. One of the worst things a trader can do is “marry” a stock because at the end of the day, all stocks are “crap” (pardon my language). In other words, many companies will have strong growth periods when their stocks perform well, but eventually this growth will slow and their stocks will get hit. In fact, the majority of great winning stocks give back a large portion of their gains over time. My objective is to take advantage of a company’s growth period and move on to better stocks after the technical and fundamental story weakens.

In many of Tony Robbins’ books, he uses the phrase “Personal Power.” He is referring to our ability to make decisions. He believes that making decisions is like training a muscle. The more “small” decisions we make, the more we empower ourselves, and the easier it becomes to make “bigger” decisions. He goes on to say that it is okay to make a bad decision because ”bad decisions lead to experience, and experience leads to good decisions.” The key is to MAKE a decision, learn from the experience, and make better decisions in the future! (By the way, I am not claiming to be a “self-help” expert; I am simply paraphrasing some of the concepts I have learned from Tony Robbins’ books and I highly recommend reading them).

Part of making good investment decisions involves formulating your own opinion and letting THE MARKET tell you if you are right or wrong, not other people. Jesse Livermore says: “A stock trader can be convinced to move away from his own convictions by listening to the advice of other traders, or in the least case, listening to others may cause indecision and bad judgment. This indecision may also cause a loss of confidence, which may well mean a loss of money.”

Bottom line: Confidence and decision-making is crucial to becoming a successful trader. I highly respect the ideas and thoughts of many sharp people in the business, but eventually, my own work and experience is what I rely on. The key is to find an investing/trading philosophy that you are comfortable with and one that fits your personality. Once you have discovered this, work hard, study it, and try to perfect it. My best advice to gain more trading confidence is to make decisions, evaluate if your ideas are working, and constantly make adjustments until you can replicate a successful and disciplined trading methodology. Believe me when I tell you this: I am still working on it myself and I plan to continue learning and improving my strategies indefinitely.

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