You’re Only Competing Against Yourself

What’s the rush?

Once famous hedge fund manager Hugh Hendry once recounted a story during the markets trough during the financial crisis, a forlorn affair that he called correctly and positioned correctly, heavily short stocks and long treasuries. The resulting gain was about +30% for a single month, which also accompanied his clients withdrawing their money in droves, an absolute Exodus that all but marked the end of his hedge fund career.

So how could someone so right be treated so wrong?

In order to achieve +30% for a single month, one would have to take on incredible risk, the sort of risk that works both ways. Sophisticated investors understand this dichotomy, which is why managers are judged by their Sharpe and their beta and the single most important metric when sifting through returns is attempting to ascertain how much risk someone is taking in order to achieve his results.

What are my goals now?

I want to hone my craft to reduce churn and maintain consistency with my returns, whilst at the same time curating a process to know when to hedge and when to gun for alpha.

My returns the past 20 months, just 3 down ones.

Being +14% for the year isn’t a great achievement. I haven’t looked around to see what other managers are doing but if I had to guess I’m about average. More often than not my returns are much greater than average. But that’s ok and there’s nothing wrong with hitting singles and doubles, while waiting for a fat pitch.

Even though the vast majority of you reading this are retail traders, responsible for your own money, you should treat it in a professional manner and that entails building habits and systems to hold yourselves accountable. There is a reason why professionals are good and it has a lot to do with discipline and method. I was always the best trader at the firm, whatever firm I was in, a brokers broker. To this day, my professional managers call me for advice to help them manage their clients money. But that didn’t stop me from blowing myself up in 2000 and again in 2014. I had let my success melt into developing poor habits, fueled by hubris.

Nowadays, I am not too impressed by myself and only view my achievements as part and parcel of doing my job, conducting myself in a manner that is authentically professional and measured. I do not seek to return 200% per annum, but wouldn’t mind if I did.