(2:30) - Learning From Experts and Rogues: The AlphaMind Podcast (12:00) - Why Is Trading Such a Difficult Mental Game? (20:10) - Comparing Nick Leeson and Bernie Madoff (32:50) - Goldman's David Tait: Life and Trading Cannot Be Separated (38:40) - The Emotional Challenge: Learning To Love Your Losses (45:30) - Done Properly: The Zen of Trading Podcast@Zacks.com
Welcome back to Mind Over Money. I'm Kevin Cook, your field guide and story teller for the fascinating arena of behavioral economics.
This week I was stoked to interview Steven Goldstein of the new AlphaMind Podcast. I say "new" because it just started last year, but Steven and his co-host Mark Randall -- with 70 years of market experience between them -- already have over 35 episodes in the bank. And their guest list is quite impressive with top bank traders like Goldman's David Tait to rogue traders like Nick Leeson, who took down Barings in 1995, the world's oldest bank at the time. I just went back and listened to their first episode "An Introduction to AlphaMind: The Mental Skills of Trading," and found Steven with a great call to action when he explained part of why he and Mark started their consulting firm Alpha R Cubed to coach and advise global trading firms and independent speculators. When asked by clients "Why do we need this now?" regarding their focus on the psychology of risk and reward, Steven says because the game is "much tougher" now. The "fat in the system" on bank trading desks and hedge funds is gone. I completely agree because it was the same thing I noticed in the early 2000s when Chicago pit traders from CME Group CME were trying to make the tough transition from floor to screen. In the pits, your success was built on lots of social, physical, and predatory skills that don't work on a trading screen. And the edges are even thinner and faster now in a world of algos grabbing every opportunity at lightning speed. As I concluded two decades ago, the only reliable edge anymore is your mindset and "internal capital." Steven and Mark focus on the whole range of internal controls and mindset edges a trader can access and their AlphaMind podcast explores the lives and stories of extraordinary guests whose experiences give us a fresh and powerful lens through which to understand the mental, emotional, psychological and behavioral challenges people face when when encountering risk and uncertainty in markets. Steven sums up the challenge for modern traders in an algo world with this: "A lot more skill is needed to differentiate successful trading than it was in the past." The Renaissance Man Who Conquered Wall Street Long-time followers of mine know that I hold Jim Simons, the founder of hedge fund Renaissance Technologies, in high regard and mention him every time I see his firm involved in my favorite stocks, even though he's retired and spending his fortune on helping math teachers around the country. Here's what I talked about two weeks ago in my video and article Where the Bulls Roam... Using Nasdaq.com, I look at the top holders and top buyers in Tesla TSLA and four other "disruptive innovators," to borrow the primary theme of Catherine Wood, chief architect of the ARK Invest ETF family with over $12 billion AUM. In spite of their $7,000 price target on TSLA, ARK actually had to sell 38% of their position in Q4 because it appreciated so much and exceeded their position limit threshold. But they still held over 720,000 shares as of 12/31/2019. It was also good to see Renaissance Technologies buying 3.2 million shares of TSLA to bring their haul to 3.9 million. But then again, the Jim Simons algorithmic juggernaut tends to be a very active trading house and this position could be much smaller now. Still, it's proof that some of the best quant models in the world were such aggressive buyers in Q4 -- and that break above resistance at $350-400 may have been one of their triggers. (Be sure to watch the video attached to this article to find out who sold almost all 8 million of their TSLA shares in Q4 before the massive price surge!) You can learn more about the Wall Street "math club" Simons started, after giving up being a professor in 1980, in the new book The Man Who Solved the Market: How Jim Simons Launched the Quant Revolution by Gregory Zuckerman. (end of excerpt from Where the Bulls Roam) As good fortune would have it, Steven just had Greg Zuckerman on The Alpha Mind podcast. When asked what inspired him to write the book, Greg said that after 20 years of writing about successful investors and hedge funds for the Wall Street Journal, when it comes to "who does well and why, there's truly no one with a track record like Jim Simons." Indeed, this Renaissance man has inspired many other quant investors, traders and hedge funds. And while Jim revealed the legacy of his secrets to Zuckerman, dozens more remain silent, quietly exploiting the parallel computing power of NVIDIA NVDA machine learning chips to mine and model the financial markets for huge quarterly gains. This reminds me that Alphabet ( GOOGL Quick Quote GOOGL - Free Report) with its mastery of all things data was reported to have entered the algorithmic trading arena a few years ago. I'll have to look into that secret soon. Until then, I saw yesterday that Google Cloud Platform (GCP) is opening new data centers in four cities around the globe, bringing GCP's reach to 26 regions. The new hubs are in Delhi, Doha, Melbourne and Toronto. And this news got me thinking that this kind of global data footprint should only increase the number of markets and investor-traders that have access to each other. Steven and Mark, you guys up for opening a trader training operation in Delhi? Seriously though, the trading volumes lately must have data-focused quants licking their chops about trading opportunities. I just saw the record-breaking options stats from exchanges like CBOE Global Markets CBOE where US options volume topped one billion contracts in the first two months of 2020. According to options pro Henry Schwartz writing on LinkedIn, "Last week, nearly 206 million contracts traded as global markets sold off and implied volatility exploded, setting a number of new records including an amazing 47.8 million contracts on Friday 2/28, breaking the prior day record of 44.5 million." Will Algos Eliminate the Speculator? One question I didn't get to with Steven was whether he believed that fund managers and traders were a dying breed in the age of algos. But I can guess he would probably agree with me when I answer the question this way... Of course not. Markets will always have irrational extremes for smart, skilled and mentally-fit traders to exploit. Just as the machines can run the crowd back and forth in FOMO and FEAR, the extremes will provide opportunities in thousands of stocks and ETFs. Yes, the game is tougher and requires more training and discipline, and so the numbers among the 1% who excel and win will fall. But the fields of opportunity will remain fertile for those few. Just as video didn't really kill the radio star, free markets will provide enough diverse players to create enough differences of opinion -- and discipline. Kevin Cook is a Senior Stock Strategist for Zacks Investment Research where he runs the TAZR Trader and Healthcare Innovators portfolios. Click "Follow Author" above to receive his latest stock research and macro analysis. Free: Zacks’ Single Best Stock Set to Double Today you are invited to download our latest Special Report that reveals 5 stocks with the most potential to gain +100% or more in 2020. From those 5, Zacks Director of Research, Sheraz Mian hand-picks one to have the most explosive upside of all. This pioneering tech ticker had soared to all-time highs and then subsided to a price that is irresistible. Now a pending acquisition could super-charge the company’s drive past competitors in the development of true Artificial Intelligence. 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