Success is in the mind it is often said. One of the most important mentors I ever had to help me in finance and trading and then set up my hedge fund was Bill Lipshutz. He taught me being too successful is a problem too.
Bill Lipschutz was Global Head of Currency Trading at Salomon Brothers at the end of the 1980s. If ever there was a right time and a right place for a trader, that was it - then and there.
Jack Schwager in The New Market Wizards described Bill Lipschutz as ‘Salomon Brothers’ largest and most successful currency trader.’ That’s not surprising when you consider that a single Lipschutz trade might be measured in billions of dollars, and the resulting profits in tens of millions of dollars. Schwager estimated Bill’s trading alone accounted for more than half a billion dollars profit for Salomon in the 8 years he was there. That’s the equivalent of $25,000 profit each and every trading day for 8 years.
I interviewed Bill Lipschutz twice, on both occasions in London. The first interview was conducted by the side of the open air roof swimming pool of the Berkeley Hotel, overlooking Green Park and Knightsbridge. The second interview took place in Surrey at the home of Mark Slater, one time Head Currency Trader at Salomon Brothers’ in London.
It is often not realized that the source of trading funds can affect one’s trading style and performance. As Bill Lipschutz explains, this fact is something even the most experienced traders do not appreciate until they experience it.
“I was unaware that there were these differences. Seven years ago, I had a naive view that you get the money from here, or from Salomon Brothers’ proprietary capital, whether it is ten high net worth individuals or a fund of funds I felt it was all the same; let me see how much I can extract from the market. The big issue in leaving a major firm is that I did not foresee that that is something that is learnt, that it is a series of experiences. It’s all very well for me to sit here and attempt to articulate it, but it is something you have to experience.”
“At Rowayton, we had three different products, if you will. As a side, my experience is that managing people’s money and trading for a company, while on the surface one might think they are the same, and I certainly did at one time, they are so vastly different, particularly the motivations. It is not simply a questions of saying, ‘oh, I have some capital. It doesn’t matter what the source is. I will go out and I do my best and at the end of the day try to make some money.’ It is not like that. There are many, many different strengths that come from being a corporate entity. Whereas dealing for high net worth individuals, you do live and die by your monthly numbers. It is much, much different from being a money manager.”
“The whole money-management game is a difficult game. It has not only to do with how well you perform, but what kinds of results people are looking for in their portfolios. Absolute performance is a real misleading thing. I can say to you, ‘we were up 600 percent’ over five years in our most aggressive program, and you might say, ‘wow 600 percent’. But that does not necessarily mean that much in and of itself, without knowing how well other currency-only managers performed. For example, say a guy is managing $200 million, and $120 million of it is a fund that he runs with a very specific mandate. If he made 600 percent over four years in that particular fund, he may have people pulling money out from that particular fund, because they are nervous, because that really was not the kind of variance they were looking for. So, it is very complicated.”
Sometimes, too much success is not good either – it scares people.
Alpesh B Patel
For a free online trading course visit www.alpeshpatel.com/apprentice
