MorningWord 5/2/14: Help Me, Help You

by Dan May 2, 2014 9:31 am • Commentary

On February 4, 1997 I started working at a hedge fund as an assistant trader charged with supporting equity and options traders (think getting lots of coffee and tedious lunch orders).  Back then most news sources quoted the equity market’s performance in Dow Jones terms, but truth be told it would be the performance of the Nasdaq that would define the careers of so many at that time.

The Nasdaq Composite closed my first day at 1374. It doubled by the spring of 1999. It then doubled again the next year before finally putting in a top in the spring of 2000.  My career at the time took a similar ascent, I went from lunch grabber to actual assistant trader in a matter of months. Then research assistant, and then actually being able to put risk on by the end of the year.  As the young guy on the desk, if I could describe what,, or (all went public that prior 12 month period) in a semi intelligent fashion to the old guys, then I could actually offer some value.

By mid 1998, along with 6 others, I was asked to leave and start a new long short equity fund with one of the partners and one of the firm’s largest producers.  In return for my loyalty (and yes there was a sort of Jerry Maguire exit moment, but I’ll leave that for another post) I got to trade my own book.  Two years later, right before the highs, one of our largest investors asked me to move to London to start a long short equity trading group for him at his new $600 million hedge fund that was preparing to launch.  My career trajectory was looking a lot like that of the Nasdaq chart.

Nasdaq Comp 1997 thru 2002 from Bloomberg
Nasdaq Comp 1997 thru 2002 from Bloomberg

Truth be told my best year trading in my entire career was 2000, as I was an active two way market participant in Q1, I also had the benefit of going completely to cash prior to my March 18, 2000 wedding (and the all time high) and what in hindsight can only be called the mother of all bull market honeymoons in Asia (might have been a zero sum trade).  For the back half of the year I successfully adapted to what I felt was a changing market paradigm and made money selling rallies.

2001 was an entirely different story, from having my worst trading day ever in the first week of the year (short) as a result of a surprised rate cut by the Fed, followed by another surprise rate cut in April (also bad day to be short), followed by a series of other events from corporate meltdowns like Enron to the terror attacks on September 11th, the year was UN-TRADEABLE, punctuated by an event that made trading seem uninteresting entirely.  When it was all said and done, I had my first losing year of my short career, and this was a jolt back to reality.

Trading/investing in equities was NOT a one way street where those willing to throw the darts would be rewarded with 25% returns annually for years on end (which is all I had observed during my career).

On New Years Eve 2001, my new wife and I came back to New York and I rejoined the start-up fund from 1998, but the prior couple years left me with a distinctly skeptical view of markets, how they are manipulated by a whole host of different players and why all good things come to an end.  In some ways I was mildly defeated, but heck, no worse off for wears.

So why this and why today?  Well, as many readers know I write hundreds if not thousands of words a day on this site, and offer what I feel are non-conflicted market musings on CNBC multiple times a week. And believe it or not, I take a good bit of grief for it on email/Twitter etc.  Which is fine by me. Despite no longer being a fancy “hedgie”, my experiences in multiple bull markets and subsequent busts informs my market views and I find it impossible to ignore the inevitable.  I don’t make my living trying to beat the markets, and frankly for most it is an impossible undertaking, but we hope our candor and skepticism helps you achieve your goals in a less painful manner!