WHAT YOU NEED TO KNOW ABOUT MASTER TRADERS – PART 9

“As a trader, the brutal truth is that you only get paid for your results. There is no 'time and a half', or over-time rates. We live in a results economy, not a time economy, like people who have ‘jobs.’’– Louise Bedford

Name: Ottavio Biondi

Nationality: American

Education: M.B.A. (Harvard University)

Occupation:  Trader and fund manager

GETTING A GOOD STRATEGY OUT OF LOTS OF CRAP

Ottavio is a co-founder and managing partner of King Street Capital Management, LP, launched in 1995. He and another co-founder, Brian Higgins, manage the firm’s portfolios.

King Street tripled in asset value from 2006 to 2010, rising to an all-time high of $19.9 billion.

The firm speculates on bonds, equities, currency, warrants, and options across four funds, looking for distressed and undervalued firms, value investing, capital structure trades, spin-offs, mergers, and acquisitions. The firm engages in short and long trades.

Ottavio got married to Jamie Nicholls in 1997.

What You Need to Know:

1. King Street Capital Management has been doing well overall, though some years were better than others. The year 2011 was an example of a bad year, but the loss was only 1.2%. Compare this with portfolios that lost tens of percentage. Don’t forget that small losses are very easy to recover. In 2012, the firm made a net profit of 12.4%.

2. Please see the quote above, Ottavio Biondi made a personal income of $100 million in 2013. This is an example of payment for results. 

3. Sometimes, an empty barrel makes the loudest noises. Most of traders who shout online and on the media aren’t successful in the markets; whereas there are unknown traders, who’re silent, and yet they make cool money consistently. According to Bidnessetc.com, “both Biondi and Higgins seldom appear for interviews or press meetings, since the inception of their fund in 1995 in New York. At the beginning of 2013, the firm managed $18.5 billion and it is yet to conduct an investor day. An investor day is a normal occurrence for many hedge funds, where the managers interact with prospective investors and try to woo them to invest in the fund. The co-founders believe that their primary job is to manage assets rather than mingle with the clients. Biondi’s philosophy puts emphasis on higher returns and believes a better fund performance is the best indicator to attract investors.”

4. As far as Ottavio’s King Street is concerned, results speak volumes, owing to good strategies the firm uses. For you to get paid as a trader, you need a good strategy. Unfortunately, many strategies are simply useless, while good strategies are as rare as diamonds. 

Then how do you get a good strategy when majority of strategies aren’t useful?  A very helpful answer has been provided below, from an invaluable website called Collective2.com. This website is where numerous winning traders use strategies that are copied by many, many thousands of astute investors. Here’s the answer in form of a short article:

The Role of Trash Cans in Developing a Trading Strategy

“When you develop trading strategies as your profession, a large portion of your work ends up in the trash can.

Almost every week I have a new trading idea. And usually, that idea seems "good" to me. So I turn it into a computer program.

Then I study the back-tested results. And usually (about 98% of the time, I estimate) - the so-called "good" strategy goes straight into my trash can.

Why? Because once you analyze a strategy over the course of several years' worth of historical data, you see the blemishes, and you realize that the "good" idea isn't actually so good after all.

Okay, what about those other 2%?

Well, next I look at the results, in the form of a graphical representation of the strategy's equity gains and losses. If the graph look like a mountain range - up and down, up and down - then it goes straight into the trash!

Okay, what next? Next, I look at the average annual performance. Is it higher than the maximum drawdown? No? Into the trash!

Next, I examine the annual gain per position. Is it greater than typical slippage and commission per trade? No? Into the trash!

So, as you can imagine, there's a lot of crap piled up in my trash can, representing hundreds of hours worth of programming, and data analysis, and study. All of it - in the trash.

To me, that's a mark of success. It means I'm selective, and I don't rush into things. I'm dealing with money, after all. One must be careful.” - Gianni Salerno (Source: Collective2.com)

Source: www.tallinex.com