Long Term Investing vs Day Trading
Is long-term investment better than trading? When I first found out who you were it was from one of the guys in my office and youâre an internet phenom, your style of investing couldnât be more opposite than mine. Letâs start with how you got started in this business? â Sure, howâs it going everybody? Thank you for joining, first of all, thank you for having us. I got started when I was a senior in high school.
I had my bar mitzvah gift money just sitting in like Series EE bonds like going nowhere and I was a tennis player. I had surgery on my arm and I couldnât play tennis anymore so my parents gave me control of the bar mitzvah money, they thought I would lose it all, and instead, by the end of my senior year of high school, I made over a hundred thousand, by the time I graduated college it was nearly two million.
I gravitated towards low-priced much-hated penny stocks. So how much did you start out with? I started with 12,000. So 12 grand to a hundred grand in what style of investing? I- Just buying penny stocks as they broke out. I didnât know at the time I was actually That they were penny stocks? â Well no, I knew they were penny stocks I didnât know that they were being promoted by a boiler room, so I recognized the pattern, I would buy around 3:50, 3:55 p.m.
Eastern, before the market closed and almost nine times out of 10 they would Gap Up the next day because the boiler rooms were promoting them overnight to people at dinner and the buy orders would pop up the next market, no pre-market, so you would get the Gap Ups. â So letâs walk into your show that you first got known for in a mainstream style. So I was on Wall Street Warriors, drunk in every episodeâ â Why? â Going through a tough time.
I was very depressed. My hedge fund was down 30% they thought that it was because, you know, I got cocky because of all the success, it was just because I didnât know shot about investing, I was a trader. So trading and investing, two different animals as you know. â So letâs know where you are today, so when I saw the video of Lamborghiniâs, you know, flash, I looked at you at a go, man this guyâs flash, Iâm about cash, we couldnât be opposites, but yet the conclusion here is that you gotta know what style of investor you are, or speculator, and what works for you.
So what have you learned from, you know, going through the boom, the bust, and the echo of your style of trading? â Yeah, and opposites attract, I like you, you know, I donât mind that you, what do you have a Mazda, a Subaru, a Hyundaiâ â Something like that. â I donât know, but no, itâs about cutting losses quickly for me, thatâs rule number one.
When I was an investor I had no risk management, now as a trader that loss helped me understand why I failed, the loss Iâm very grateful for. Now you wonât see me lose more than 2 or 3% on any trade. â So letâs talk about that. How long is your average trade? â Between 30 minutes and two days. â 30 minutes and two days? â Yeah, somewhere around there. Sometimes like two hours, sometimes a day, never more than two days. â And how do you do your research in this? â So Iâm always looking for big percent gainers.
I donât wanna be stuck in a mining company going nowhere with a big promise of a story where their stock is doing nothing. I focus on stocks hitting new highs every single day. We might not have the boiler rooms anymore but we have weed stocks, we have CBD, even though the markets were down as a whole last year my main account was up over 70% focusing on weed stocks, focusing on CBD. I donât care what sectorâs hot I just focus on that because thatâs the volatility that I need.
And how do you buy your stocks? Do you have a stockbroker? â So Iâve heard there are stockbrokers, I donât know, I donât know this, Iâm mean I just, everything I do is online, itâs all digital. But I got a business card from somebody last time saying that they were a stockbroker and I actually framed the business card âcause I feel like itâs an artifact. I feel like if Iâ â It should be in a museum? â Like a museum of Wall Street, like awe once upon a time the great stockbrokers, but no.
I use, you know, interactive brokers, E-Trade, it makes it very simple. â So do you play only the North American stocks or do you do international, different time zones? âCause I see all these videos of you canoeing and making money. Now letâs pull the veil off of marketing and the real world. â Yeah, so I bring my laptop everywhere, I do trade from some crazy places.
I was in South Africa on a rhino operation, a trade actually happened while I was in the operation and we had wifi in the bush, that was a real trade. Usually, Iâm in Asia, Iâm actually heading to Asia tomorrow might and the market is open at night there so I trade U.S. stocks, Canadian stocks, itâs tough âcause I pull all-nighters, you know, itâs not the best time zone, but I love it.
Youâre pulling all-nighters, still doing the boozing that you did in Wall Street Warriors? â I canât drink for shots anymore. Now Iâm drinking coffee. I just started drinking coffee, Iâm 38 now and in my 37th year I joined the coffee revolution. Who here likes coffee? Yeah. â Aw, ya gotta love this. So what about private placements, so a big thesis of my MS thing is, the alligator, you sit back, you do a ton of research, you go to the site visits, you get positioned well with the warrant upside.
Do you do any private placements? â Not at all. You canât manage the risk, I donât have the patience so I canât cut losses quickly, I just, itâs not my style. Thatâs you and your Subaruâs and Hyundaiâs. (laughing) â Well, when you own the dealership itâs kinda good selling Hyundaiâs and (voice covering voice)â â If you own 500 Hyundaiâs thatâs fantastic, 500 Hyundaiâs equals half a Lamborghini. â (chuckling) Yeah I donât know about that one.
Now, what about asset allocation? How do you manage how much you put in towards a trade? â So I donât like risking more than 30% of my account, I know thatâs aggressive for people, but remember Iâm cutting losses very quickly so Iâm very. â So let me clarify. â Yeah. â 30% of your account in one trade? â Correct, I only take one or two trades at a time, no diversification, no hedging bull. Iâm specifically focused is this stock gonna move, you know, usually, Iâm buying big percent winners so theyâre already up 30, 50% on the day.
Can they spike even more? Does it have news? Does it have legs? â So a question I would have, âcause itâs not my style, but if I was watching this marketingâ â You made that clear. â Yes, âcause I would love to put our portfolios up and I think the next time we will do this. â Yeah, letâs do it. â In your newsletter do you make the trade then tell your subscribers about the trade or how do you handle not front-running your own subscribers or, you know, your followers? â So different newsletters have different amounts so I mainly trade with the $12,000 account.
So Iâm buying like 500 shares, a thousand shares. â How the hell do you buy a Lamborghini with a $12,000 account? â Iâll teach you, you grow it over time, it builds up over time, but then, you know, I have like an Agora Newsletter where I donât trade the stocks at all, Agora doesnât, you know, allow any trading. For me I wanna teach peopleâ â Can I, can I freeze you there? â Yeah, sure.
Why would anyone ever wanna follow someone if you canât put your own money in, but you want them to put your money in. I just donât understand that fundamentally. â I donât want anybody to follow any of my picks. I want them to learn the strategy. So whether I have moneyâ â So itâs just an education. â Itâs all education and thatâs the beautiful thing here.
I have five millionaire students now and my top student has turned 1,500 into 7.4 million, he hates my picks. He actually is mainly a short seller. So heâs gravitated towards a different strategy, but you learn different angles. This is the beauty of investing. You could be an investor, you can be a trader, you can be a short seller, you can hold for five minutes, you can hold for an hour. You find what suits your personality and weâre all different people here and this is what I love about this.
Itâs not just about hot plays, or hot picks, or new technology, or some amazing gold find, find what works best for you and what youâre comfortable with. Like, even if I made a million dollars on one of these mining companies I would hate it because thatâs not my style. â Donât lie youâd be out buying a Hyundai or a Mazda. â Not at all I would be donating the money, I would donate. I donated 4.5 million in the past three years, but itâs not my style. You have to find your style thatâs what I love most about this.
Long-term investment in stocks does not involve emotional investing decisions.
I get to travel, I get to trade, I get to teach, and I do it based on my personality. â Okay so now I really wanna pick into your brain about where do you see the resource sector? Iâm sure youâve looked at gold or copper, or silver, what is your belief in the gold market? â I see the resource sector and itâs usually on the, you know, the columns of like the biggest percent gainers, or the biggest percentage losers, itâs usually unchanged or close to that. So I donât even look at such a boring sector because it just doesnât move enough for me.
I do like it when, you know, a mining company strikes gold or they find diamonds, or they find, you know, amazing oil and the stock goes up 30, 50, 100%. To me, thatâs a catalyst. There are so many stories. You guys will hear so many stories, and girls, over the next few days, and in your lifetime, I just have learned to ignore stories.
Everybody is a storyteller, every CEO is positive about their company and most of the time it just never plays out and most people are full of shots. Iâm sorry I expect the least and Iâm never disappointed, yeah. What about the role of marketing. Youâre part of the Agora Franchise, Iâve seen some pretty aggressive marketing on that.
Where do you see the future of the newsletter industry going? â I think that you have to be real. In the past, a lot of newsletters and a lot of companies, especially in the resource sector, put out like these pipe dreams, like oh we did all this, and then you never match up to expectations. So with whatever your market, whatever product, you wanna be as close to a real as possible.
Like this could actually happen. Like my top student actually did turn a few thousand into several million. Itâs not just me, I have several students like that, and if you have that real stuff the internet will reward you. If youâre fake the internet will crush you. The internet is the future with all of these sectors and you want to just be real.
You donât need to have these highly glossy magazine ads or these photoshoots, just be as real as possible and itâll shine through eventually. â So what about currencies? Do you play these? â I use a lot of currencies in my travels, I donât trade them. I donât think that you have a good enough edge either way.
Iâve seen so many moves come out of the blue and I see too much leverage. You know, if you look at the odds, five out of six, forex traders blow up in the first six months. I just like penny stocks because you have a lot of idiots in this sector, and in this niche, and you can beat the idiots.
Itâs like playing Mini-Me in basketball, you know, like if you have like a little midget and heâs trying to shoot and youâre just blocking him all day, and itâs not his fault he might be the best midget basketball player in the world, but he just doesnât have any height, and basketballâs a height game. So to me, thatâs penny stocks. Forex youâre competing against, you know.
LeBron James, youâre competing against all these great traders, I canât compete against that. If Iâm going one-on-one with LeBron James as Iâll just lie down and say, you win, but if itâs a midget Iâm talking that game and Iâm betting on it. (laughing and clapping) â So looking back at your use of proceeds we had Have you ever played basketball with a midget? â Have I? â Yeah. â No.
So I think next time we talk, a round of applause if you think this is a good idea, should we bring a midget to play basketball. â No. (laughing) â I hear some laughs Iâll take that as applause. You need to understand the edge and for most people, it doesnât matter how good a thesis is with an investment or a currency, you have no edge.
And so if you do this trade over and over and over again your accountâs just not gonna build. â So what about cryptocurrencies? â I mean they have a great pump and dump pattern so I love it. Thatâs the volatility that I need. You can make money on the way up and make money on the way down, that is at least volatile.
But I donât believe all the idealistic bullshit where itâs like oh, this is gonna change the world, why arenât more companies using it? Itâs changing the world of, you know, kind of like an underworld economy, I know a lot of drug dealers who use cryptocurrency. â Why do you know so many drug dealers? â Dude Iâm all over social media.
I get the craziestâ â Are you buying your Lambos off them? â No I just, people come to me and I meet drug dealers, I meet strippers, I meet all kinds of crazy people. â Where do you hang out? â On Instagram, this is all on Instagram. Are you on Instagram? â I think my marketing teams are, I have no idea. â You need to get on Instagram if wanna meet these amazing people.
No, I justâ â Thatâs the difference about being flash and cash, I, you know. â For me, itâs interesting to see the way the world works. Cryptocurrency is a big boom to the black market of the world with drugs and all kinds of nasty stuff that frankly is very questionable and the government I think is going to step in, but for me that at least sector is volatile.
Thatâs what I want. Whereâs the volatility in these commodities? Whereâs the volatility in mining? I see gold, I looked up the price of gold to prepare for this interview and I see itâs up 8%, down 8% over the past year, itâs flat. Itâs freaking unchanged. Why are we even talking about something thatâs unchanged? Cash was the best-performing asset of 2018.
You donât have to come to a conference, you donât need anybody to just have freaking cash. â Actually, vanadium beat it, uranium beat it, so research does matter. â Fantastic I canât even pronounce those things. For me, cash wins. It beats all the hype. â Okay, so you donât use a broker which I can getâ â I use an online discount broker. â There you go, online discount broker.
What about research reports, do you read any of this or do you just look at gainers and momentum? â I mean most penny stock research reports are paid for promotions. â Of course, but Iâm talking real research not stuff from, you knowâ â Well I look at. â Marketing firms such asâ â Yes. â Starts with an A and ends with an A. â Yeah, so I mean, hey, hey. (laughing) Listen there are different kinds of research reports.
I put out research on the companies that Iâm actually trading. They might not all be fundamentally based, but a lot of penny stocks in just technical. So for me, Iâm looking at the technicals, Iâm looking at the volatility, and Iâm looking for the stories. You know when a story sells it can have hype, it can have legs, it spreads all throughout conferences like this, everyone starts talking and thatâs good for momentum.
Iâm also a short-seller so I short scam, so yeah, I read through SEC filings a lot too. â So what percentage is long versus short? â In the last year I was like 80% long, 20% short in previous years it was flipped. I go both ways. I made millions of dollars each way, for me, itâs three out of four stocks that follow the market I wanna follow that trend.
Now with a $12,000 account, Iâm assuming youâre using severe leverage? â No leverage whatsoever. No leverage? â No, I mean E-trade you can short you just need $2,000 in your account. Interactive brokers are actually great for shorting stocks under $2.00 a share, E-Tradeâs a little less, but you donât need to take a big position, you donât need to be one of this good till zeros, I know a lot of people they say, oh, this is a scam Iâm just gonna short it for three months.
For me Iâm looking for that first red day, Iâm looking for the crack in a lot of these promotions. There might not be the wolf of Wall Street anymore, but there are lots of little wolves, and they have these little mini promotions in stocks, you know, in cryptocurrency, in weed, in whatever weird metals you just said, you know, unobtainium, I think that was in Avatar, that might be a promotion these days.
I mean you can promote anything if you have a story and little blue-green characters. â So do you follow the promotions of newsletter writers that go, okay Iâm gonna short that like even within in your own universe of Agora world? â Iâm notâ â âCause almost, like 80%â â No, no. In the newsletter, readers are owned by Agora. â I would not agree with that.
Agora does not take compensative promotionâ â No Iâm not saying â paid promotion. â But theyâre doing a. â Iâm talking about paid promotions. I short sell paid promotions so those kinds of stocks are fantastic. Itâs not a question of if, itâs just a question of when â When, yeah.
Because these companies spend, or insiders, or the CEO, somebody spends hundreds of thousands of dollars, maybe millions of dollars investing in a promotion, not investing in a company, itâs just logical that itâs gonna crash. But a lot of these promotions go further than you think. You know Bitcoin, a lot of people ripped on it before it went up thousands of percent and all the other cryptocurrencies.
So now weâre going to play long or short okay? Regardless of what the product is itâs just the equity. â Yeah. â Long or short, but youâre forced to buy okay? â Okay. â So youâre either gonna go long or short. â I canât, I canât, no trade? â No, Iâll have to say no trade. â Cash is a position, okay. â I agree. â And oftentimes the bestâ â How many alligators are there in the crowd. Thereâs not enough of you.
Can I be a hippo, can I just chill in the water and then eat people when they come into my pond? â You can do that too, but a sniper, you hold positions for two hours, you canât take a big chunk of something for two hours. â Correct, Iâm taking a quick shot, a kill shot, and Iâm sitting there waiting for that shot for hours. Have you seen, Enemy at the Gates? â No I havenât. â Or American Sniper with Bradley Cooper? â Yes I have. â Iâm gonna send you the DVD, or you might have VHS.
DVD, I thought everythingâs on Instagram now? â You might have VHS tapes Iâll send you a VHS. â No I donât, I thought everythingâs online, you donât have Netflix where you live? â Instagram is only one minute. â I know those drug dealers donât want any evidence on this online. â Exactly Instagram is only one minute, you canât watch it.
Long term investing in stocks is stress-free
Okay so, Tesla, long or short? â Whatâs the time horizon? â Well you, I donât know, two hours to two days? â Is there aâ â Iâm kidding, over the next 12 months. â Short. â Gold? â I mean itâs gonna be unchanged so it doesnât really matter. â U.S. dollar? â If Iâm long or short I make nothing, I lose nothing. â [Marin] U.S. dollar? â Long. â Me too actually I agree with you on that. â [Timothy] Hell yeah. â What about something, Facebook? â Iâll go long just âcause itâs down so much already, but again, this is not my kind of a play so.
Google? â Iâd go long. â Now letâs get into your world. â The marijuana sector as a whole, where do you see it going over the next 12 months, âcause Vancouverâs been an incredible printing press for these companies. â Yeah, I mean everyone was all excited about legalization, but it just, when legalization came it came and went and all the stocks just tanked. I think that marijuana stocks will continue as they have been, thereâs a lot of criminals, thereâs a lot of shady characters, you gotta be careful.
Most of the companies will do nothing or fail and theyâll all have amazing hype before they fail. And then there might be one or two plays that, you know, really do well. So some names that you believe in that actually will work out? â I donât believe in any of them so, cash is a position. Right now I am 100% cash, mind you, okay.
The stock market went down a lot, it went up a lot, Iâm freaked out, I do nothing when in doubt I do nothing. So you asked me for names, Iâll look for the biggest percent gainers over the next week, the next two weeks, and the beautiful thing is that the biggest winners will show themselves. Youâre not gonna miss anything. Everyoneâs so afraid of missing the next big winner.
If you just look at the big percent winners youâll see them popping up, youâll see them spiking for one, two, three days. If they are gonna spike for one, two, three years, youâll see the beginning of an uptrend. You donât have to be there on day one. And I think a lot of people have this problem where they wanna try to predict the next big winner ahead of time and so then youâre just, youâre throwing out 10 picks and none of them are gonna be the big winner.
So with this strategy of the, you know, trading philosophy that you become famous for online, and the Millennials just gravitate to it, right? So weâve talked about why do you use the Lamborghini as marketing âcause in the days past, how many people have heard of John Vu. â Tom Vu. â Tom Vu. â Tom Vu.
Sorry, Tom Vu, and the Rolls-Royce and I know you bought a Rolls-Royce and I believe your uncle drives it around? â Yeah, my uncle uses it to get laid in Miami. Iâm barely there. So for me again itâs about being real. Notice how Iâm real about who drives my, you know, Rolls-Royce, but I did buy it I donât rent it for a day. And the key is being real.
My latest millionaire student found me because he liked my Lamborghini on Instagram, which inspired him. Once you get beyond the flash you see that I have 6,000 video lessons. So I think it dependsâ â So letâs talk about that. â Yeah. â Thatâs what, so when I initially came across you and me, Jane talked to meâ â Yeah, you just see the flashâ â And I was like â And you make assumptions.
Oh, this is interesting. And then we got to know each other, I went okay, thereâs something here. Talk about these videos that people can learn, like what can you learn? â Yeah soâ â So where to buy, a Ferrari or a Lamborghini? â Yeah, but I actually do have a video on that. But theyâre mainly technical videos, just basic technical analysis, how to read SEC filings, how to read level two.
Are these real short videos or? â All kinds, I have about 1,800 hours of total content from video lessons, DVDs, and live webinars, Q&A, live training, you can see my screen. So itâs showing every single thing that I learned the hard way over the past 20 years. âCause I didnât have a teacher so, even though I was successful I was blind for a while, I was just looking in the dark. I didnât have my risk management, I didnât have cut losses quickly for the first eight years.
So I had no risk management. When you have no risk management, when you have no education youâre bound for a fall it doesnât matter how successful you get, you need to have risk management. So a lot of my video lessons are boring as (bleep) about risk management so the Lamborghini gets people watching. Youâre gonna wanna watch an hour-long video on cutting losses and where to put your stop-losses and trailing stop-losses unless you have a motivation why should you actually use this.
So I use the visuals to get people to study and the data shows that it works. â You suck âem in with the flash, and then you teach âem how to make cash. â So what I tell, I said this to Larry King when he interviewed me, itâs like teaching, itâs like going up to a homeless man, right, and you have two different bottles in your hand.
One you have like green juice, itâs like kale and spinach, and in another bottle is Jack Daniels, and you ask the homeless guy which does he want? Which one do you think the homeless guy wants? He wantsâ â Well we are in Vancouver, theyâll probably go with that green juice. â No, no, no, youâre ruining it.
Compounding works in your favor with long term investing in stocks
The homeless guy would probably want the Jack Daniels so I put the green juiceâ â Youâre making such assumptions here. â Listen weâre gonna go up to 10 homeless guys, Iâm gonnaâ â I wanna know where you hang out okay? â Instagram, they have free wifi at McDonaldâs. No, listen, so you put the green juice in the Jack Daniels so the homeless man thinks that heâs drinking the alcohol meanwhile youâre tricking him with healthy nutritious green juice, thatâs what I do with my people.
I trick them into studying for whatâs good for them and it pays off over time if they study enough. People come to me who just want hot stock picks, I say get the (bleep) away from me, I donât want that. Thereâs an ugly bald guy on CNBC heâs right about 35% of the time, heâll tell you when to buy, buy, buy, and sell, sell, sell, thatâs not me. â I love it. So whatâ â See I have a lot of friends. â What recommendation do you have to a struggling sector such as the resource sector where socially thereâs a big argument about who issues a social license.
Itâs not attracting the Millennials, itâs a difficult business, and itâs in a bear market. What do you recommend for someone whoâs had big success in the marketing of yourself to these, and you canât put a Mercedes, or a Lamborghini, or a Ferrari on the title of these things? â No, Iâll tell you, what I do in any market thatâs barren I get the (bleep) out.
You donât need to stay in one, who says that you have to do this all your life? â But thatâs truly how you make the big scores in the echo. â For me, I go from hot sector to hot sector, okay. We had CBD, we had weedâ â No, no, no, no, you misunderstood my question. â We had Ebola, we had medical, we had China, we had shipping stocks. â Iâm talking to the management team to attract Millennial investors.
Yeah, get the (bleep) out. When the market is bare when thereâs nothing to do go do, like create a little CBC subsidiary, create a Bitcoin subsidiary and at least get your stock moving. They were doing it all the time and maybe, who knows, maybe thatâll even pan out. â Okay, note to mining executives, do not do that. â Why not, be adaptive. You donât need to stay in the sameâ â But to build a mine.
Terrible sector. â You actually do, the focus factor matters. â I understand, okay, for long-term success in business, but thatâs not gonna attract Millennials. â But you canât run a company in two-hour time frames. â But you didnât ask me for business success, you asked me for marketing success.
So here, weâll compromise, you do the boring stuff where the stock doesnât move and maybe it pays off 10, 20 years from now, and you can afford like (bleep) an unobtainium steel hip or something. But in the meantime buy some little CBD startup, buy some little Bitcoin, whatever sector is hot, and market that, and that way you can do both.
You can ride the hype in the short-term and then win in the long-term, win-win. â Okay, now letâs talk about the real-world (voice covers voice)â â That is the real world. â No itâs not. â I saw lots of little mining companies, and lots of companies in boring sectors buy Bitcoin. They bought into it and even though theyâ â And how did that work out for them? â Their stocks were fantastic they were able to raise money.
For how long? â Until they raised money. You donât need a high stock price all the time, you rise, right, you raise it, you get it up, you can freakinâ do financing. â So I think the fundamental difference of what Iâm trying to get at is net asset value, how to build true value to your company to attract.
But if youâre a mining company thatâs gonna go bankrupt âcause you canât raise any money at least you should raise money using a high stock price. Use what the market will give you, get that moneyâ â But if you have a quality asset you wonât go bankrupt. â But do you know how many quality assets are undervalued for one year, two years, five years, you know youâre a crocodile. I donât have that kind of patience.
Youâre sitting in your (bleep) Hyundai âcause that lasts like 20 years, Iâm sitting in my Lamborghini, the motorâs gonna burn out in a year or two. So I need money now and I want returns now. I donât have patience, the world might not even be here in 10 or 20 years. I donât if youâve been looking at the geopolitical situation. â Iâm sure weâll still be here in 10 or 20 years.
I mean youâre waiting for it to be here, Iâm not taking that chance. â Oh god, I love this. So have you ever done a private placement? â I have Iâve done a few little startups, Ticketfly, StockTwits, did decently, but again, it wasnât my specialty so I wasnât comfortable. I actually made money on those two. I had another loser, overall I might be plus or minus $25,000, but I learned Iâm not comfortable with that so I stopped.
â So what I was trying to get at is, what should the resource sector as a whole do to appeal to the Millennial investor, not whore itself out to the trend of the day, Iâm talking about bringing the Millennials. Because when you go to school, I started out as a teacher, you know mining is bad, and all these things, itâs engraved, itâs actually gone backward in society, yet itâs the backbone of society.
Long-term investing in stocks enables you to save more on taxes and commissions.
As a marketing guru, what do you think the sector should do to attract Millennials? â Yeah I mean going back to the future of the market and finance I think and social media, just be real. You donât need to hire a whole camera crew to, you know, look at this mine, and make it into like this glossy pamphlet. Glossy pamphlets are dead in my view.
Okay they might work on like 80-year-olds and I see of few them hobbling around here, but for me, I want the younger people interested, and that means just being real. Like just get out your iPhone, start filming, start talking about it. Give like an hour-long Instagram Live or a YouTube Live.
Answer everybodyâs questions, just be real about it and if you are real, again, you might not be rewarded today, but youâll be rewarded in time. And itâs so much easier like itâs crazy how social media has made things easier. You donât need to spend a lot of money on ads or anything like that, you just use your iPhone or Android, for some weird people. (laughing) You probably have an Android too donât you? Oh my god, you have an Android.
This is iPhone versus Android. â How much money do you wanna put on that? â I donât even care I donât gamble. â Are you kidding me, listen to what you do. (laughing) â I donât know because your face is a scary poker face, you might have an iPhone, I donât even know what this is? â Itâs an iPhone. â Okay, there you go, but I donât gamble when I donât have odds, thatâs what you have to understand. For me Iâmâ â Oh, crocodiles know about odds.
Iâm focusing, I mean that thereâs so long, I donât even know how you like to wake up during the day. You might not even have to wake up for a day or a month because the stock hasnât budged. You might not have to wake up for a year, like oh, is this 2019 or 2020, I donât even know, gold hasnât budged. â It moves, donât worry. â Unobtainium moves, okay.
When Avatar, the next movie hits, unobtainium is gonna go to new levels. â Unfortunately, thatâs not a true element so I live inâ Avatar, Avatar. â I live in the world of not drug dealers, strippers, and Lamborghiniâs. I lend money to people who need to make their payments on the Lamborghini. â Do you lend money to strippers? â No I do not.
Anyways, so if you had to start all over againâ â Yes. â With everything you know what would you be doing today as a career. â I would be, again, trying to be real and pitch my services to somebody whoâs not real. â In all truth, pitch your services being real, so youâre not gonna be a fraud, okay we get that, Iâm talking about a sectorâ â No, no, no, no, not even fraud, Iâm saying, be like I guessâ â
Who you are. â Not even who I am like the way to say it is likeâ â It sounds like such an Instagram thing, be real. â No, like be unedited, my bad okay. â Okay. â So Iâm talking about just going live and starting little conversations like this. We donât know what questions, like letâs take some questions whatever. â Sure letâs do it, any questions for Tim Sykes?
You go with the moment thatâs what I would do and it doesnât matter what sectorâ â Anyone got a question? I think thereâs a gentleman walking up to the microphone, just go up to the mikes. Weâve got four minutes for questions. â Some of the older people need a few more minutes to get to the mikes, give them time. A Mr. Damion Reynolds, whatâs the question?
So can everyone hear me? Youâre a mining promoter of course they can hear you. â Unobtainium, is the energy metal that fuels Timâs. Ooow. Thatâs what unobtainium⊠â But how is it. â I think your microphones are on now. â What heâs saying. â Youâre on. â So Timâ â Yeah. â Youâre full of. â How? â You are full of.
Even though I showâ â Do you know who youâre sitting beside? â I do, the alligator. â Do you know who youâre sitting beside? â The alligator. â Do you know how, alligator, heâs an alligator the size of 15 (bleep) hippopotamuses. â I donât care. â Do you know light heâs been on you? Dude, dude letâs walk through this. â How about you go home already?
Iâm looking for a moment and Iâm doing $12,000 two-hour trades. â Yes. â Buddy you donât have enough hours in our year for a (bleep) worth of trades to make the kind of money youâre trying to sell us that you make man. Your simple math doesnât add up. â But Iâ â Show me, baby. And now itâs a dead industry. â (voice covers voice). Timmy, talk to me my brother, itâs a dead industry.
So why are you here? â Because itâs fun. â You know what youâve done, you know what youâve done young man? â Itâs fun. â You know what youâve done young man, itâs fun, go, yo Tim, take a look at the audience. You havenât talked to the audience once so why donât you talk to the audience, Timmy? â Okay- â Heâs been real. â No, no.
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And why donât you tell them what they can do, by the way, the 80-year old hobbling around, you know what theyâre hobbling around with? The life, the pain of their life where theyâve tried and they come to listen to your (bleep). Now, now ifâ â Letâs all calm down. â If Marin sells them to do something and you know what, you know what, everything in this world, you know what it comes from?
What? â Two things, you know what those two things are? â Tell me. â Tick tock, you got three seconds mother (bleep) tick-tock, go. â No tell me Iâm entertained. â Something you grow, something you grow, and something you mine. â Yes. â And the stuff you grow sits on top of the stuff you mine. You need to track it okay? Okay, next question. â No, no, no. â Give me your mic. â Okay, let me answer that for a second. â Okay, okay. â Thank you for yourâ â This kind of went sideways.
Give him a round of applause. Give him a round of applause. Seriously I like the passion, this is what Iâm talking about, being real. You canât be afraid when it gets real. We donât know whatâs gonna be said, this is why I show every single trade, over 20 years, with my income tax returns, with my auditsâ â I get it. â And I have a charity that has now been built by me single-handedly, raised over five million dollars total, four million-plus of my own money.
And that is built on education and training prophets. And Iâm totally transparent about that and itâs good to be real. I see youâre freaking out a little bit, but itâs okay. â Well I saw two big guys about to go at it. â No, no. â And Iâm a vegan whoâs trying to lose weight. â Listenâ â Okay, one more question. â Weâre sharing knowledge here. â One more, I get it and Damionâs a great guy. â I like his spirit of conversation.
One more question and then Iâve got a surprise for everybody and then itâll kind of put the whole alligator conclusion. Yes sir. â I like the spirited conversation though. Iâll be a little bit less spiritedâ â Oh, itâs okay. â Honestly, my first impression of you was also, I shared the same impression, my first is, heâs too flashy, too cocky, all in your face, lucked out on penny stocks went to 10,000 to a million, anyone can do that, but pushing that out there to get a lot of people to buy your course, I didnât like you at first. I just made itâ â Thank you.
For the first time right now, last five minutes, Iâm actually willing to talk with you and see maybe youâre right. Some people donât learn what they need to, theyâd rather hear what they wanna hear not what needs to be said. â Thank you. â So thereâs a chance where the Lamborghini is actually a good way to teach them the stop-loss, trailing stop, I liked how you picked those two, in particular, to use as an example.
So I am myself trying to educate people for 10 years Iâd love to sit down with you and see, you know, how to get the message out to more people how to be the top 1% of day traders by not just making more money, but protecting their losses âcause most people think, you know, itâs all about going all in, 50/50. â Well donât buy a Lamborghini to start your career out on. Last question, last question right there.
Hey guys, hey Tim. â Thank you. â Hey Timâs itâs George from Agoracom, how are ya? â Hey George howâs it going? â Hey itâs more of a statement âcause I think Iâm one of the few guys in this room thatâs actually a hybrid because as an Agoracom we help companies build long-term valueâ â Oh I love the promotion factor coming up. â No, noâ â Alright.
But as a trader on Timâs platform, because my trades are actually tracked on Profitly, I think thereâs a lot of value to doing both. I donât see how you can do one or the other and all I wanna say was I think Tim got a bit of a bad deal there. â No, itâs. â Thereâs great value in long termâ â I appreciate it, listen I appreciate all the conversation, this is what it takes.
We should be talking about our differences, we should be talking about different strategies, different beliefs, conversation debate is good and you canât be afraid of what happens. Iâm not always right, Iâm wrong roughly 30% of the time. But rule number one is to cut losses quickly.
Â
Stock Market Battle: Day Trading vs. Investing (who wins?)
We got ourselves a battle in the stock market, day traders averse investors. Which one is actually better? Who is going to win this battle? Well, Iâll just start right at the get-go. Itâs really just a matter of personal preference, but, and I didnât really come up with this idea on my own, and I donât know if they were really coming at me, or just trying to, but they said something I was like, you know what, I can make an Article of that, because thatâs a really, really good point, and it really illustrates the difference between day trading and investing.
So if somebody says, well, Iâm a day trader, and then somebody else says Iâm an investor. Okay, what does it actually mean? Now sure thereâs a time element, meaning the day trader is going to be, you know, buying and selling a stock in a very small amount of time, relative to an investor, but thereâs also something else that at the core,
you need to understand about these two, and I see it quite a bit often, where day traders are way too focused on the stuff that investors are usually focused on, and so I figured from that point of view, Iâll try to kind of accomplish a lot of different little miniature lessons here, in and of itself.
So letâs first get to this comment. But before I get to it, the main dynamic here that needs to really kinda be focused on is the idea of understanding. Youâre gonna see the word, but thatâs really the overarching principle that separates what a day trader is doing, and what an investor is doing. So, let me get to this comment first.
âIâm sorry charts, have little to no value. âMaybe read their financials and news on whatâs happening. âThatâs enough to help you understand the downtrend.â Clearly this person, not a fan of technical charts, which if youâre not familiar with, thatâs just a tool that a lot of people out there use, but thatâs fine.
Everybodyâs got their opinion, but the whole, hey, understand the downtrend, and what is a downtrend? Well first off, if youâre brand new, all thatâs telling you is a stock is doing this, right.
Itâs down-trending itâs going down in value, and this person is you know what, hey, charts, theyâre not going to help you understand the downtrend. Understanding in what way? Well, why is it down-trending? Whatâs causing it to downtrend? And you will get that, to their credit, by reading financial statements, by going through cash flow statements.
Maybe youâre looking at the management, and youâre thinking, well this guyâs a terrible CEO, but I mean, yeah. So you could, by looking at that stuff, you could understand why the stock is down-trending, but itâs not a question of that really, itâs a question of, should you even care about understanding? Thatâs what it comes down to is should you understand? And as day traders, no, you shouldnât understand.
You donât care. The only thing as day traders that you care about, is well the fact thatâs in a downtrend, and thatâs it. Because as day traders, weâre trading price movements. Weâre trading volume, and if you know itâs in a downtrend, thatâs all you need to know. You donât need to know the why, you donât need to know any of that.
Just hey, itâs in a downtrend. Okay, now you can start to form trade plans around that. With that being said, now, of course, if itâs in a downtrend Iâm not saying you donât go and scan the news headlines real quick, and just read the headline. All right, yeah, got it. I understand the overall context.
There was some sort of bad news that came out, but as day traders, especially if youâre somebody thatâs really doing micro trading, a day trader is not gonna look at that and be like, all right, well let me go check through the cash flow statements. Let me go look through the financial balance sheets, and all that, and then, you know, no.
Is day trading a good idea?
Because, as day traders by the time you get through all that stuff, who knows, maybe now itâs in an uptrend, and it could change that fast. So, itâs all a matter of should you even be trying to understand? Now the flip side of the coin, as an investor, should you be trying to understand why itâs down-trending? Absolutely, you should, because youâre gonna be in it for more of a long-term haul.
Youâre gonna have a longer-term game plan. So yeah, it would definitely be very wise to understand why the downtrend is happening, but as day traders, we just want to know what is happening, and if a downtrend is happening, well, here you go.
Check out a news release real quick. Read the headline, and then get back to starting to form a trading plan around what is happening, and what in this situation what is happening is a downtrend.
But you donât need to understand why itâs down-trending, and a lot of times people get that mixed up. They show up and Iâm a trader. Oh, I see this acting a certain way, and then they start digging through all this stuff, and they make things way more complicated than what they need to be. So, itâs okay to not understand why a stock is moving in a certain way, thatâs okay.
Itâs okay to have no idea what this stock does. Iâm trading ticker symbols all the time. If youâre like Clay, what do they do? What is their business model? I have no idea. I donât know anything about this. Now, of course, you have the famous ones Apple, Amazon, stuff like that, so of course, I would know what that is. But some stocks out there, I have no idea, and you donât need to either.
Now again, as an investor, do you need to understand their business model? Do you need to understand what they do? Of course, you do. But as a day trader, no, you donât need to know any of that.
Trading vs investing
You just need to know whatâs going on, and thatâs why charts are very popular because thatâs what a technical chart is, is a chart is gonna tell you whatâs going on with the price, and then the amount of activity, or in other words, the volume that that stock is getting, and this person, maybe being a little short-sighted, a little narrow-minded.
Apparently, they think that only investors exist, but no, there are many different branches and many different strategies out there. But to call the charts totally worthless, because they donât help you understand why something is down-trending, thatâs true. I love charts, and I will be the first to admit, youâre absolutely right. Looking at that, which is essentially a chart, a line chart, in a very simple form.
Thatâs not gonna help me understand why itâs going down. Now if you say, well Clay, technically speaking, itâs going down because thereâs more supply than demand. Well yes, I get that, but from a fundamental standpoint, I donât know why thatâs going down. I just know that it is going down, but the flip side is, well maybe I just donât need to know why itâs going down.
Maybe I just need to know that itâs going down in the first place. So that is really the big battle that goes on sometimes, are you have investors saying, oh, technical analysis is garbage, and none of that stuff works, because it doesnât help you understand anything about the company, and thatâs fine. And then you have traders saying, well, why are you bashing charts, like Iâm doing right now.
We donât care about what the company does. We donât care about why something is doing what it is. We just care about, well, what is it doing? So thatâs the battle that goes on. Who wins, itâs a matter of strategy. Me personally, I do both. I have my retirement accounts are all investments.
So yes, I care about it, Iâm trying to understand why price movements are acting in certain ways, but I also have my trading accounts where I donât care. I just want to know what the price is doing, and then I can start making decisions from that point of view.
So thatâs the big difference between an investor and day trading, is all about kind of what you need to understand, and really, should you even be trying to understand it in the first place?
And once you start to answer those questions, that really kind of will narrow things down in terms of what is an actual valid strategy that you can be used in the market. So, if you have any questions or comments on this, please leave those down below in the comment section. I do read and will reply to all comments.
Do you have any experience with this? Iâm curious, have you ever had an investor, or who knows, it can go from both sides, but have you ever seen this debate occurring before, where one personâs saying, charts are totally just worthless, and then the chart people like, financials are worthless, cash flow statements.
The $25 Billion Day Trader that Even Warren Buffett Acknowledges
It has been said that a good investor must always strive to crush his most cherished beliefs. Well, during Berkshire Hathawayâs 2021 annual shareholder meeting Warren Buffett and Charlie Munger crushed one of mine. What do you think of quants? Jim Simonsâ Medallion fund has done 39% net of fees for three decades which, proves that it works. But they were very smart.
Yes, they got very rich. Very, very smart. Very smart and very rich, yes. And very high grade, by the way. Jim Simons. But we are not trying to make money trading stocks. We donât think we know how to do it. Charles Darwin used to say that any time he found evidence that contradicted his previous convictions he had to write it down in the first 30 minutes because otherwise, the mind would reject the evidence for cherished beliefs.
Well, how about reading a whole book and making a video about it? During the last few years, Iâve read tons of books on personal finance and investing, and I settled down on a conclusion that value investing and fundamental analysis is the way to go, while day trading and studying price charts is just pure bogus. Or, you know, bots trying to sell you something. Enter Jim Simons.
Jim Simons is the worldâs richest mathematician. Forbes estimates his wealth to be at a staggering $24.6b currently. He gained most of this wealth through conquering the world of trading by starting the âquant revolutionâ with his company Renaissance Technologies and the Medallion fund. The Medallion fund has the best track record of any hedge fund in history. It has averaged a 62.9% return per year before fees, and 37.2% net of fees, versus 11% for the S&P 500.
That is the most impressive investment record Iâve ever heard about, itâs even better than Warren Buffettâs, although it has been accomplished with a much smaller capital. So, should you abandon value investing to become a day trading quant? Letâs not get ahead of ourselves here, but weâll get to that.
The Man Who Solved the Market: Jim Simonsâ Investment Philosophy
we shall take a closer look at the Medallion fundâs success and reveal a few of its secrets. Youâll have to stay put for that, but I think that a quote from agent Smith from the movie The Matrix may be used to set the stage: âNever send a human to do a machineâs job.â This is a top 5 takeaways summary of The Man who Solved the Market. Written by Gregory Zuckerman.
And this is The Swedish Investor, bringing you the best tips and tools for reaching financial freedom through stock market trad⊠investing. Takeaway number 1: From $0 to $25b Before getting into the howâs of Simonsâs incredible success, letâs first have a look at the whatâs. What did Jim Simons do to go from $0 in 1938 to $25b in 2021? Simons was born in 1938.
Jim Simons Early life and education
Early on, he began to read a lot. I know, surprise, surprise! Jim Simons is another one of those successful people who read a lot. To be honest I do not think that the medium through which you consume information matters too much, what matters is that you strive for more knowledge.
Simons enrolled at MIT in 1955 and was even able to skip the first year of mathematics thanks to his extensive high school curriculum. He decided early on what he wanted from life â coffee, cigarettes, and lots and lots of maths. Simons was quite the adventurous type. Together with two friends, he decided to go from Boston to Buenos Aires, riding scooters. They named the trip âBuenos Aires or Bustâ.
Well, they busted in Bogota in Colombia, but it must have been a crazy trip nonetheless. While getting his Ph.D. at the University of California, Berkley, Simons had his first dabble in stocks. He got up early each morning to drive to Merrill Lynchâs office in Los Angeles, just in time for the opening of the Chicago exchange. He would stand there to watch prices flash by and make a few trades.
Simons got his Ph.D. by age 23, in 1961. At age 26 he got a job as a code-breaker at a US intelligence unit, targeting old Soviet Russia. Simons learned something important about hiring people here. The unit worked very well while primarily focusing on hiring people for their creativity, ambition, and brainpower, rather than any specific expertise or education.
Another important lesson from this place was its motto: âBad ideas are good. Good ideas are terrific. No ideas are terrible.â In 1968 Simons published a mathematical paper on something which I find quite difficult to pronounce, let alone understand: âMinimal Varieties in Riemannian Manifoldsâ.
To this day, the paper has been cited 1722 times, which counts as an incredible success for a paper on geometry. Also in 1968, Simons was asked to build and lead a maths department at Stony Brook University. Itâs been said that the extroverted mathematician will look at your shoes during a conversation rather than his own.
Well, Simons was extroverted, period. And he had an unusual knack for leading his fellow mathematicians. In 1978 Simons had had enough of the world of academia though. He wanted new challenges and solving the market, conquering the world of trading, was something which no one had done before, which sparked his enthusiasm.
Jim Simons the Numbers King
He called his first hedge fund âMonemetricsâ, which was a play of words combining âmoneyâ and âeconometricsâ. Simons was hinting that he would use math to analyze the financial markets and score big time. Simons utilized his unusual combination of being an exceptionally skilled mathematician himself while possessing some incredible leadership and interpersonal skills to hire and get the most out of many fellow mathematicians.
He realized early on that he wouldnât solve this puzzle by himself. In fact, the book might as well have been called âThe Men Who Solved the Marketâ, but youâll hear more about these people and their contributions later, because thatâs more about the howâs than the whatâs of this incredible trading success. In 1982 Simons renamed the company to Renaissance Technologies, a name that it holds to this day.
In 1988 Simons launched the Medallion fund, which is the most successful hedge fund of all time in terms of returns on capital. While others were still relying on instinct and intuitions for their trades, Simons employed automated algorithms, tons of data, and advanced mathematics, but again we are getting ahead of ourselves.
Medallion didnât charge the usual rip-off fee of 2/20 that other Wall Streeters did, no, no. They charged 5/20, eventually raising that to 5/44! These are insane numbers, but in Renaissanceâs case, it proved to be worth it. In 1990 the Medallion fund had its first year surpassing a 50% return. It scored as high as 77.8% before fees for the twelve months. Simons kept up his leadership skills.
Jim Simons Renaissance Technologies
He created a culture of unusual openness at Renaissance. Moreover, he used smart monetary incentives, where people were paid bonuses, but only if the company reached certain levels of profit. This money was paid out over many years to keep people in the firm. Renaissance had almost no employee turnover. Simons also had an important role to play in the hiring process.
He wanted people who had little or no connection to Wall Street and generally accepted business dogmas. In 1993 the Medallion fund closed to outside investors, from now on it was only available to employees of Renaissance and their families. In the year 2000, Medallion had its first year exceeding a 100% return, achieving a stunning +128.1%.
In 2003, stocks had officially taken over as the most important trading instrument of the firm from previously having focused on currencies, commodities, and bonds. In 2005, Jim Simons received a personal gain of $1.5b, which was the highest compensation among any hedge fund manager that year.
Simons retired as CEO of Renaissance in 2009 and handed over the role to two of his colleagues â Robert Mercer & Peter Brown. Simons stayed as Chairman, but eventually left that post too, just recently in 2021, but he remains on the board of directors. He earned a cool $2.6b with his financial stake in the company in 2020, reaching an estimated personal wealth of $24.6b.
Okay, letâs now get into how Jim Simons (and his colleagues, I should add!) was able to achieve these stellar results in the Medallion fund. Takeaway number 2: Medallion is a short-term predictive algorithm The secret to Renaissanceâs and the Medallionfundâs success has been to employ tons of data and advanced mathematics to develop automated trading algorithms.
Renaissance was one of the pioneers of using machine learning and applying it to the world of investing. Today, this black box algorithm is an exceptional short-term predictor of market movements. The Medallion fund holds on to positions for an average of a day or so, but sometimes as little as minutes or seconds.
It executed 150,000 â 300,000 trades per day back in 2000, and probably even more of them today. One employee expressed that Medallionâs goal is the following: â[To] scrutinize historic price information to discover sequences that might repeat, under the assumption that investors will exhibit similar behavior in the future.â
 Jim Simons Palo Alto Networks Inc.
Simons understood quite early on that the stock market moves because of a complex process with many, many inputs. Some of these inputs may be difficult or even impossible to understand. They may not be related to traditional fundamentals such as earnings, dividends, interest rates, or similar, but there may be some other, more obscure reason for certain moves.
However, eventually, they will all be reflected in pricing data, so Simons decided to study that data. What type of human behavior is it that Medallionis able to take advantage of? Well, to Simons, it didnât matter as long as the patterns reappeared with a certain degree of statistical significance, but it can be interesting to speculate a little. Medallionâs profits probably stem from human biases and misjudgments.
We may have a few of the suspects in Daniel Kahnemanâs famous book Thinking Fast and Slow Loss Aversion â people hate losing more than they like winning â Anchoring â oneâs judgment is skewed based on previous prices and experiences And â The Endowment Effect â you like what you already have more than what is objectively sound One of the core strategies ever since the inception of the fund has been to rely on mean reversion.
Early on, back in the 80s & 90s, the Medallion fund used simple linear regression models to the plot, for example, the price of crude oil vs the price of gasoline. If you look at enough data points you can spot a trend line, a linear relationship between the two assets. When gasoline is cheap compared to oil, youâll buy gasoline and short oil and vice versa.
Jim Simons on the hedge fund industry
Then you wait for the prices to go back to ânormalâ, reverting to the mean. Today, Medallion uses a technique called âstatistical arbitrageâ which is about identifying a small set of quantifiable market-wide factors that best explain certain stock market movements. If, for instance, Exxon tends to move in tandem with petroleum prices and interest rates, Renaissance identifies that.
Then they bet on the stocks that have moved the least in the direction of their market-wide factors while betting against those that have moved more than the factors predicted. Again, reversion to the mean. Today these relationships often consist of multiple variables and the relationships no longer have to be linear, so they are often difficult to identify for the naked eye.
To identify such relationships the Medallion fund needed data. Mountains of data. Takeaway number 3: Medallion requires TONS of data One of the former CEOs of Renaissance Technologies, Robert Mercer, said it best: âThereâs no data like more data.â This became something of a mantra at Renaissance. Any data that could be quantified and was deemed to have some potential for predictive value was gathered.
Newspaper stories, internet posts, insurance claims, nothing is too obscure. An employee named Sandor Straus noticed the need for data early on if Simonâs wish for a fully automated algorithm was to become reality. Back then, having more data than your competitors meant buying books from the World Bank and magnetic tape from various exchanges.
The data went back as far as WW2. Straus collected more than even Simons thought was necessary, among other things, he started to collect the intraday tick prices, betting that it would become useful to them at some point. Straus even began to model data itself for a while. There were gaps in the data at certain periods due to unexpected circumstances, such as when a major flood had suspended Chicago trading.
Atlassian Corporation Plc (Atlassian)
Sometimes, modeling data is as possible, just like it is possible to sometimes determine the shape of a missing jigsaw puzzle piece. Today more than 300 people are employed at Renaissance and they have more than 30 people with PhDs with the primary focus of cleaning up different data feeds so that they have the best data available for making short-term predictions.
While studying this much quantitative information, Medallion must be careful as to not run into data overfitting. If you look at enough data you are bound to find some signals that seem statistically significant just by pure chance.
For example, a quant investor called David Leinweber had identified that US stock returns could be predicted by combining the yearly butter production of Bangladesh, the cheese production of the US, and the population of sheep in Bangladesh and the US (true story!).
For this reason, Medallion always starts to trade new signals with smaller amounts of cash, gradually ramping up the capital committed as profits roll in. Takeaway number 4: Medallion is based on advanced mathematics As I said before, this book might as well have been called âThe Men who Solved the Marketâ as Simons definitely couldnât do this alone.
He employed various mathematicians who were specialists within their fields. Among the men who solved the market were: Lenny Baum, who was an early employee that helped Simons with something called Hidden Markov Processes. James Ax, who held the largest stake in Medallionâs predecessor, Acxiom. Ax was a great algebraist and exceptional at exploring correlations.
René Carmona helped incorporate some stochastic differential equations into the models. He began applying so-called Kernel Methods to analyze patterns in the data sets. He was the first one to implement a full black-box approach, where they allowed the computer to teach itself which patterns were most important.
Elwyn Berlekamp, who helped with advanced game theory. He even founded a branch of mathematics called combinatorial game theory. Berlekamp had also worked for John Larry Kelly Jr., the creator of the Kelly criterion. The Kelly criterion determines how large or small a certain trading position should be.
It can be used for value investing too, by the way, something Iâve discussed previously in a summary of The Dhandho Investor by Mohnish Pabrai. And then there were of course Robert Mercer and Peter Brown who were appointed co-CEOs of Renaissance in 2009. They both brought even more experience with Hidden Markov Processes to the group, but most of all, they were exceptional computer scientists.
Monster Beverage Corporation (MBC)
Simons headhunted both of them from IBMâs former speech recognition team. Takeaway number 5: Donât try this at home! Hereâs a little thought experiment for you. Since 2003, the Medallion fund has primarily been trading in stocks, although they also do trades in commodities, currencies, and bonds.
Also since 2003, Medallion has returned an average of 73.7% per year, before fees, while the S&P 500 has returned on average 10.6% per year. The returns could be explained by the fact that Medallion uses leverage, but to say that that explains the full overperformance, I think would be a little bit foolish.
No, Medallion is also just on the right side of trades. This leaves one questioning: Who does it âtakeâ these profits from? Who is on the other side of the trade? According to a 2019 CNBC article, index investors control nearly half the US stock market. If you are an index investor and youâve been investing without buying and selling too much since 2003, you would have received that 10.6% in average returns.
The medallion cannot have âstolenâ profits from the index investors, as they will get the average almost by definition. Then we have the long-term investors who invest based on fundamentals and hold over longer time periods. Thatâs the Warren Buffetts of the investing world. This represents an area where Renaissance and its mathematicians havenât been able to produce any above-average profits yet.
In 2005, Renaissance founded a new fund called Renaissance Institutional Equities Fund, or RIEF, to take in outside capital without risking the profits of Medallion. Supposedly, this fund would make similar long-term predictions as the Medallion fund has been doing successfully for the short-term ones.
To this day though, it hasnât been able to do that. Thatâs a 9.1% return on average for all the full years since RIEFâs inception, versus 9.9% for the S&P. The forecasting methods that Renaissance uses are similar to weather predictions â very useful for saying what is likely to happen in the coming hours or perhaps days, but not useful for longer time periods than that.
Therefore, it is unlikely that itâs the acolytes of Warren Buffett who have been the pray of Medallion either. Whoâs left? It is the traders. Renaissanceâs profits stem from fellow speculators, both large and small.
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The people who do not have a trading algorithm that trades without being| influenced by emotions, who do not have access to the same amount of data, who do not have access to some of the greatest mathematicians of our time, but who decides to take a short-term gamble in the stock market, nonetheless.
The people who buy a course in day trading from a âguruâ on Udemy and draw trendlines on a head and shoulder pattern. Simons came to this conclusion himself, that these must be the people from who Medallion is âtakingâ profits, and it is good for you to know as an investor too. Do not think that you can do this at home.
The only thing that will happen is that youâll hand over your hard-earned money to Renaissance or some of the other quants. What was it that agent Smith said now again? âNever send a human to do a machineâs job.â
So: â Jim Simons became one of the richest people on the planet through his Medallion fund â The fund is a short-term algorithm that scrutinizes historic price information to discover sequences that might repeat, under the assumption that investors will exhibit similar behavior in the future â To do this, the fund requires tons of quantitative data.
Moreover, Simons needed the help of a few of the worldâs greatest mathematicians â Finally, donât think that you can do this at home. As a smaller and private investor, Iâd still opt for the value investing approach of Warren Buffett over a day trading, technical analysis approach, any day. Value investing is an area where the machines havenât caught up to us yet.