Hi, Niels here.
You know, ever since I created Top Traders Unplugged in 2014, I always looked forward to asking my guests the question that is the focus of this eBook. Now chances are you’ve already heard many of the podcast episodes by the time you read this book. BUT, since there is so much content to digest, I wanted to take an opportunity to FOCUS on just one question that I have asked many of my amazing guests.
And since part of my mission with Top Traders is to help you in your investment journey, I thought it would be a great place to start by focusing on the one question that gives you the essence of what some of the Top Traders in the world have learned through their journeys…and passing that on to you.
I know Systematic trading and Trend Following are still concepts that many people struggle with…but let me leave you with this quote:
“Find a way to say yes to things. Say yes to invitations to a new country, say yes to meet new friends, say yes to learn something new. Yes is how you get your first job, and your next job, and your spouse, and even your kids. Even if it's a bit edgy, a bit out of your comfort zone, saying yes means that you will do something new, meet someone new, and make a difference. Yes lets you stand out in a crowd, be the optimist, see the glass full, be the one everyone comes to. Yes is what keeps us all young.”
― Eric Schmidt (Google)
Deep Field Capital
I wanted to ask you, partly as an entrepreneur, partly as an alternative investment manager, if you put that thinking cap on, and that is, based on everything you've learned from starting your business, and so on and so forth... If you were starting today, is there anything that you would have done differently?
That's a very interesting question. I would say two different things, as to how I would approach that. Of course, there're certain things we would do differently, but second, the market environment now is different as well, which would even enforce certain aspects of doing things differently. Let's probably start with the second. It refers a little bit to the regulation part. If you are a young manager, and you have a trading idea and in the best case you're trading with your own assets or small assets. And you think about starting a business. Even when it's difficult to develop an understanding who your potential investors could be, and where they are geographically, you should spend a significant time on that question. Go out and talk to other managers. Try to find managers who do similar stuff as you - not necessarily the same, but similar. Look at them and how they've positioned themselves in the market, and where investors are.
I'm saying that in terms of the question of regulatory aspects because the environment as I said earlier in Europe has become much more difficult. For example, if you are a CTA managed futures type of manager, to be in the US might be a much better starting point than actually staying in, for example, in Germany, which is really strict on the forefront of regulating pretty much everything on this particular alternative investment industry. It can be really difficult for you to start your business properly because you might spend a lot of time on the regulatory aspects, without really knowing if you have an interesting business idea there.
So, the geographical question is certainly a thing, of course, not everyone has the flexibility to move immediately to the US and start a business, but imagine you failed, you'd probably be in more trouble. But think about where you can develop and grow your business best in terms of framework. Think about where your investors are and develop for yourself a very good understanding of what you're doing. A good narrative in why you are different, and be careful about vocabulary. You might find some literature to read first because it might mean something different, and you might use it in a different way than someone else is, and an investor might misunderstand it as well.
We have to take volatility as an example. We did that as well in the beginning; you build up your narrative, you try to develop a story that everyone including your investors can understand. Keep in mind as well how your profile looks like and what you're planning to deliver. For example, if you were to say that volatility is good for us, that's a statement. But, there are different types of volatilities, and you might not be aware of that in the beginning because there might also be volatility in a certain variation which might not be good for us. But if you actually have investors who tick the box...okay, the volatility is up, singularity is up, or your program is up, they will be disappointed. So you have to be careful about the narrative and take your time to develop that properly. You can only do that by going out and reaching out to other managers.
I personally haven't had the experience of people pushing you away because they perceive you as competitors. I would say that the space is generally quite friendly and open as long as you don't talk about secret sources and stuff like that, and you don't want to do that anyway. So if you just talk about the general stuff it's more supportive, which might be the case because the space is suffering or has been suffering for a long time, so everybody is suffering and everybody sticks together, I don't know. But we felt welcomed quite frankly by peers and by potential competitors. They were quite friendly and exchanged all kinds of different sources, and that's something I would recommend.
In terms of aspect number one, do something different, yeah, I'd reflect on what I just said earlier. I think it's really important that you're passionate about what you're doing. I'm so grateful that I have the opportunity to start the business with friends and continue doing business with friends. And as I said earlier, life is way too short to spend a lot of time working with people you don't like. So if you can somehow influence that aspect, you will be much more successful. That doesn't mean that things are always going straight forward. I think the benefits of a friendship are that you can discuss things quite openly. Things are probably much more hotly debated and can be very disturbing for outside people to look at a discussion when it's at its hottest point. But the friendship helps you as well to find solutions much faster because everything is sad, and the friendship holds you together, and you can actually start working on solutions. And whatever aspect you discussed about, has been looked at from all kinds of different angles, further fueled by emotions. And that's probably something that is really beneficial. And that's something I would recommend to strive for if that's somehow possible.
Brandywine Asset Management
Based on everything you've learned over the years, if you were starting today, would you do anything different? If so, what?
I'm not one of these guys who look back and say, "I'd do everything exactly the same." I'm constantly going, "Oh, I wish I didn't do that. Oh, I should have changed this." Big and small. Little things, day to day, things I said.
I'm sure if I listened back to this conversation, there will be a dozen things right out of the gate I'll go, "Oh my god. I sound like an idiot. Why'd I say that?" There's always regrets I guess in that sense, but I just keep moving forward. Definitely if I started over, I would do a lot of things different. I wouldn't have spent as much time on the discretionary trading, but I learned a hell of a lot.
KFL Capital Management
Are there any things that spring to mind in terms of where you say, yeah, I failed at this stage, I could have done it differently, or maybe you don't look at it in that respect?
I think at the deepest philosophical level, it's not a great idea to go back and say what I would have done differently. But it's also a great idea to be open minded about your failings, and certainly the self-examined life is the one worth living. So we as a group spend a lot of time on that. What I would say about my personal journey is that I waited too long. I would say that I was an imposter working for the big law firm, and the big bank and the big mutual fund company. And I really, if I was to do it all again, I would take a lot more risk a lot sooner. And what I mean by risk isn't reckless risk, it's just... if you're going to get to a result that puts you in the top quintile of anything, you can't get there by being comfortable all the time.
The risk you want to take, now I sound like I'm pontificating, I don't mean too, I'm teaching myself the risks I would take in life are the risks that, yes, have downside. But the amount of upside is commensurate or even greater than the downside. So what we look for going through life or what we call pod odds: if you know for example, that the chance of making an outside straight are say eight in forty-two, so let's call it one in six, or one in five. And you know that you're being asked to make a bet that has a ten to one payoff, well then you should probably make that bet. It's true that you could lose, but if you get your money in good, each time you get the chance throughout your life, then the rewards are amazing. There're far too many people, certainly I've seen it, I was a victim of it, who were not prepared to take that risk.
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I hope you enjoyed/learned a lot from the points above. There are, in fact, 9 other investors who share what they wish they knew when they started their career. They can be found in our Ebook, which you can download right now, for FREE.