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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