Steven Cohen: An Enigmatic Market Speculator

LEARN FROM GENERALS OF THE MARKETS - PART 41

“What you do not believe, you can never become.”

Born in June 11, 1956, Steven A. Cohen is an American funds manager. He grew up in New York, where his parents worked. He began to play poker while still in high school – something that could’ve groomed him to develop a liking for the vagaries of the markets. When in school, he opened a brokerage account with some of his tuition fee. He got a degree in economics in 1978. After that, he was hired at Gruntal & Co. in 1978 (a Wall Street firm). On his first day as a trader, he made a profit of eight thousand dollars.  Later, he was making at least one hundred thousand dollars per day. In 1984, he was managing his own trading group at Gruntal. He founded his own firm, SAC Capital Advisors, in 1992 (with about twenty million dollars of his own money).

Steven has been so successful in his career. In the year 2005, he was paid one billion dollars as salary. In 2011, he was paid a salary of six hundred million dollars. As of March 2013, he was termed as the one hundred and sixth richest individual on earth (number thirty five in the States), being worth far above nine billion dollars. A Wall Street Journal article called him a hedge fund king. Time Magazine and Bloomberg Markets Magazine once ranked him among one of the most influential people. He’s been married twice with 7 children. Unlike some billionaire funds managers who donated huge amounts of money to charities, Steven (an avid lover of arts) has spent huge amounts of money on arts. Since the year 2000, he’s been collecting art works and has spent hundreds of millions of dollars on that. He’s constantly ranked among the top ten biggest-spending art collectors. That’s how he preferred to spend his money.

Lessons

There are helpful things to learn from Steven:

1. There are some who can talk lots about trading and also trade successfully, while some can talk a lot about trading, but can’t trade successfully. Steven rarely grants interview, for he’s a timorous soul. There are many timorous souls out there who don’t talk, write or grant interview about trading; yet they constantly make killings in the markets.

2. It’s been observed that at the beginning of one’s trading career, one tends to favor short-term trades. However, as one gains more experience, one tends to hold one’s trades longer than when one first started. This is exactly what happened to Steven, who didn’t hold open trades for long periods of time. Later, he began to trade for the longer term.

3. Teach your kids the art of trading (as one of my past articles explains). When kids start having market-like experience while still a teenager, they usually grow up to become highly profitable traders. As far as the markets are concerned, there may be a seed of greatness in you and your kids. Those who start trading when they’re still young would have the chances of becoming market wizards more easily than those who start when they’re older. Steven began to experience the unpredictability of the markets while in high school. You can see what he later became.

4. It’s very important to stick to the industrial standards, rules and regulations in the course of one’s career. No-one says you mustn’t make money, as long as you’re doing that legitimately.  No doubt, Steven is a great trader, but sadly, he’s been indicted in a large criminal insider trading scandal. It’s believed that insider trading gives those who do it an unfair advantage over others. He was charged with failure to prevent insider trading in his company. Five of SAC Capital Advisors former employees were implicated and they admitted their guilt. More employees have also been charged. This is a serious allegation. Now U.S. securities regulators are trying to bar Steven from managing other people’s money. In fact, there have been many former funds managers who’ve been jailed, fined and disgraced because of insider trading. Steven’s glorious and enviable career is mired in scandal. That should be a lesson to us.

Conclusion: Funds managers like Steven are worth our admiration because it’s daunting to manage other peoples’ money. It’s far easier to manage one’s own money. So it pays to get a trading methodology that fits your mindset and beliefs, for what fits you may not fit another person. When you use a methodology that agrees with your mindset, trading becomes much easier and enjoyable. Just make sure you’ve tested the methodology to make sure you like it. Tweak it and apply the rules as they fit you. Then make sure that the rules give you an edge. There’s no end to acquisition of knowledge and maturity in the trading world.

This piece is ended with a quote from Jesse Felder, who’s also a money manager. He mentions the challenge of managing other people’s money.

“When trading your own account you can only harm yourself. When trading other people’s money you have their financial future in your hands. My clients typically have most of their net worth invested with me and that’s a major responsibility. I take very seriously.” (Source: www.tradersonline-mag.com)

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