What Steve Cohen (legendary investor) Tells His Traders
This Is How Legendary Investors Think
Today’s edition is part of My Stories where I share vulnerable thoughts around my opinions in Finance.
Charts & Chit Chat will be the next edition coming out within a few days where I share Financial Data/Charts alongside quick takeaways that get right to the point.
For now, let’s get vulnerable.
Trading is easy.
Trading profitably though, that's fucking hard.
Having 1 profitable year that beats the S&P 500 is impressive. Having 10-30 profitable years that beat the S&P 500 is almost impossible. Those of us who can do it are the outliers of all market participants.
Maybe 5% of market participants can do that over a decade or three.
Every single one of those outliers that make up the total 5% are also outliers in their own individual regard. Very few of us are implementing the same strategies to outperform markets over the long term.
Also, the totality of what I own and what strategies I am using to create wealth in my life looks nothing like yours. Nor should it.
We may have some overlap between the strategies we're both using. Maybe we’re in a Discord group trading the same strategy. Maybe we both own Bitcoin. We both slang 0DTE options in a similar way.
But the percentages allocated to each investment bucket relative to our net worth, how much cash we have, how much income we bring in elsewhere, how much debt we have, how many dependents we have, how much of our net worth is liquid, our monthly expenses, our opinions and our intellectual capabilities -- all of this stuff is drastically different from person to person.
This is why I think it's dumb when retail traders try to "hedge" a position in their portfolio. Are you a Hedge Fund manager in a high rise office with a bloomberg terminal in front of you, or are you a retail trader from home with a dog on your lap?
There's a big difference, and for the retail trader the best "hedge" is to just own less of the asset or trade smaller size of the product.
The Hedge Fund Guy and what he is doing is an outlier compared to what you the retail trader is doing, and vice versa for that matter. You can both beat markets doing different stuff though.
Maybe some Hedge Funds sell option premium, and maybe some Hedge Funds buy Bitcoin. But the Balance Sheet of your personal life and everything that goes into it looks nothing like the Balance Sheet of Mr. Hedge Fund Guy.
It also looks nothing like the Balance Sheet of the next Joe Shmo retail trader you are standing next to in the metaverse we call "the internet."
What he, she, or they is doing has nothing to do with what YOU should do.
You need to stay in your own lane and stop making it so hard on yourself.
You need to hone in on what has proved to be true and master every part of it that you can.
This week I was listening to Nick Colas, Co-Founder of DataTrek Research, talk about his experiences as a "kid" trading for a firm owned by Steven Cohen.
If you've been living under a rock and have never heard that name before, Steve is a well known Hedge Fund manager and current owner of the professional baseball team the NY Mets.
When you trade for a firm like that there is a scoreboard recording your P/L in real time every second of the trading day. Every trader on the floor knows exactly how much everyone else on the floor is up or down at any given moment.
As you scroll to page 2 of that scoreboard you would usually see 1 or 2 people that are down about 1/3 of their capital. 33% of their capital wiped out in a single day.
Steve Cohen would never get mad and start screaming at a trader. We all know how much it sucks to lose money. Steve Cohen has lost plenty of money in his life, and that's exactly why he has so much money now.
Instead of screaming, Steve would walk up to that trader, tap them on the shoulder and say, "you're making this harder than it needs to be."
And then he would walk off.
It was a polite way to tell the trader that he/she/they was doing too much.
Nick said that every single time, the trader would immediately recognize the large loss in their account and take it as a chance to start fresh.
It was a wake up call to the trader letting him know that he's gotten away from what he knows to be true, and that those positions he has on are not the same positions he used to get him this job in the first place.
When the best trader and head of the firm gives you a nudge, you nudge that way.
2024 was my 11th full year of trading.
I started dabbling in the winter of 2013, and lost plenty of money along the way trying to learn.
In the beginning you don't even think about the long term game against the market as a retail trader. You're just trying to make a dollar out of 50 cents and see how many times you can do that.
Then, eventually, you get smacked up.
Many leave the game after that. Not everyone stays, and not everyone who stays is guaranteed to win the game later on. Staying certainly increases your odds though.
While I had some profitable trades, years, and strategies from 2013-2017, it was nothing that was something I could feel confident with over the long term and with larger sums of money.
I have a friend with no investments who asks me about putting a few thousand dollars into a crypto meme-coin. I told him it's fine to take a shot here and there with a few grand, but it's what you do with 10's of thousands of dollars over the long term that is going to really mean something.
The real money is made by putting larger sums of money into assets and strategies you are more confident with while keeping a longer term perspective.
Shaking your stick at a FartCoin in the crypto market is only going to take you so far for so long.
As the old saying goes, "you're making this harder than it needs to be."
I spoke with a sales lead recently who was thinking about joining our community. He was very smart, and he's been trading since the Dot Com bubble days.
He has tried everything and anything in the world of trading. We spoke about VIX structure, technical analysis, internals, market breadth, Wyckoff method, dealer positioning, volatility hedges, and probably a dozen more things I can't remember right now, nor care to.
From 2013-2017 I was doing the same thing. Never honing in, jumping from one thing to the next, shooting from the hip, spraying and praying looking to make a dollar out of 50 cents.
I was making it harder than it needed to be.
I wasted valuable opportunities early in my journey, and I lost more money than I needed as I tried to figure it all out.
While I was speaking with the very smart sales lead about all of these different trading philosophies he knows, how he has yet to find consistency with his trading gains, and how he's missed out on the huge bull run in the market over the past 2-16 years because he was scared of a market collapse similar to the one he saw in the year 2000 during the Dot Com bubble, I could not help but think to myself the entire time...
My man. You're making this harder than it needs to be.
I don't want to judge anyone's timeline. The fact that he has stayed around this long shows his commitment and his passion for the game.
But at some point you need to just cut the loss and start fresh like those traders in Steven Cohen's trading firm.
I think people are scared to give up on all the time they have invested into learning something.
But you know what, sometimes you get a 4 year Accounting degree in college and then only use the damn thing for 2.5 years.
The fact that I was able to give up my accounting career that quickly kind of makes sense why I was able to give up "making it harder than it needed to be" relatively quickly.
Early in my journey I would always hear how it takes about 3-5 years for the average market participant to find a "flow" in what they are doing in markets for the long term. The funny part about that is you don't even know if that's true until about a decade down the line.
You can't lose money for 4 years and then on the 5th year make money and call your strategy "consistent."
That's not how it works, unless you're one of those TikTok traders claiming $10k weekly profits living in their mother's basement.
I lived in my mom's basement too for a little, so no judgement there I guess.
But it takes 10 years before you can look back and say, "my market investments and strategies sucked for the first 5 years but they've been profitable over the last 5 years."
As mentioned, 2024 marks my 11th full year of participating in markets.
I sucked for 4-5 years. But over the past 5-6 years I can confidently say I've reached the "outlier" status.
How did I get there?
It was really easy when I look back in hindsight.
I simply stopped making it harder than it needed to be.
That's what I want you to think about when your P/L YTD column in your trading account resets to $0 as the clock hits the year 2025.
That's also what I want you to think about while you dissect the dozens of market narratives that come out every single day from the financial media.
You know who has been right and who has been wrong.
You know what has worked. You know what hasn't worked. You know what you need to do.
Like Nike tells us, just do it.
And like Steven tells us, stop making it harder than it needs to be.
I'm wishing you all a Happy New Year, Happy Holidays, and Easier Trading for decades to come!
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Disclaimer: These are not recommendations and I am not a financial advisor. These are just my two cents, or two satoshis as the kids say. Remember to do your own homework before making any financial decisions. Also, keep in mind I usually have some personal investments in the things I discuss. Some things stated in this article could also be wrong.
