Top Traders Unplugged

"I don’t know if we’re a hedge fund, I don’t know if we’re a CTA - but as a currency trader we’ve always been the red-headed step child of both industries." - Chris Cruden (Tweet) Our next guest was a British Army Officer and moved to South Africa before finding a career in the financial markets. He is now the CEO of his Managed Futures firm and has worked with some of the industry's most influential companies and people, including Dean Witter and AHL. The story of his career's beginnings and the lessons he used to become a systematic trend follower are unique and insightful. You're sure to learn a lot from this episode. Thank you for listening and please welcome our guest Chris Cruden. Subscribe on: In This Episode, You'll Learn: How Chris came to work with Dean Witter, one of the leading players in the industry back in the 1980's & 90's. About his days working for AHL in the early 90's. "Even in those days, the successful CTAs were or tended to be systematic trend followers." - Chris Cruden (Tweet) How his career started off as a British Army officer. His time in Africa after leaving the army -  finding himself in Rhodesia (now Zimbabwe). About his first job at Syfrets Trust bank in South Africa as a Gold analyst. How he came to do business with Dean Witter Reynolds and after a few years why they hired him. After the 1988 crash he found himself back in London and joined AHL. "When signals were generated, 7am New York time, Carol would then call Pru, who was our main broker in London and speak to someone called Syd, and a Syd would give us the mid range prices, and then the trades were done." - Chris Cruden (Tweet) In 1993 he went back to New York joined with Robert M Tamiso, a mentor to him. Why he looked for a market that was not overcrowded and easily spooked, which was the inter-bank foreign exchange market. "The belief was that the game was becoming too crowded, so we looked for another game that was not crowded." - Chris Cruden (Tweet) What AHL was doing in the beginning of the company. Why he started trading currencies early on. How Bob Tamiso was successful and the way he carried himself that made him successful. "These were not people who represented their greatness by pretending that they knew tomorrow’s prices." - Chris Cruden (Tweet) Why Bob Tamiso’s best advice was to always "show up". About Chris' golf playing and his ties to Scotland. His routine at work and why being a systematic trader makes him boring and bad at marketing, but helps him sleep at night knowing they are going to "show up" the next day. About Chris' goal with his work and why he is happy with the size of his firm and why growth is not the prime focus. "The fact that Insch exists or is as big or as successful as it is is almost entirely accidental." - Chris Cruden (Tweet) How he has such low staff turnover and why he likes to work with young people who have never worked anywhere else in the financial world. "I spend most of my time getting in the way of the research department and generally annoy people here in the office." - Chris Cruden (Tweet) What matters when discussing a firm’s track record and how his programs are setup. The building blocks of their trading program and how the money they’ve made has historically come mainly from interest rate differentials. What the environment has been like for a currency program in the last 5 years. Why he believes the current intervention by The Fed is not so substantially different that his model won’t be able to see good returns in the future How he designed his program and what its objective is.

"I don’t want to trade much more money - I want to show that a mostly automated system can make money over the years in a pretty regularly recurring fashion." - Luc Van Hof (Tweet) In the second part of our interview with hedge fund founder Luc Van Hof, we dive into the philosophy and creation behind his trading models. We also discuss why he is a risk averse person, what hobbies help him stay focused at work, and what investors and fund managers can do to grow their business and trade smarter. Welcome to Part 2 of our conversation with Luc Van Hof. Subscribe on: In This Episode, You'll Learn: How to avoid model decay and how to avoid the risk when the model may stop working in the future. How to diversify your types of models - dynamic filtering that takes place. Automatic de-leveraging when a certain market goes down. "So you focus on effective diversification which means - you have to diversify across markets, across trading approaches, and across time." - Luc Van Hof (Tweet) How Luc chooses his models and why he does: Short term trend following Short term mean reversion What concepts for his models repeat themselves over and over again, pattern recognition. About volatility risk premium strategies. "The risk premium strategy is the most important source of our return drivers." - Luc Van Hof (Tweet) How he tests his models that have so many moving parts in short timeframes. "We spend a lot of time making sure the data we use for our research is of good quality." - Luc Van Hof (Tweet) His views on position sizing. "Position sizing has become by far the most important component." - Luc Van Hof (Tweet) What investors should look at in terms of risk management Maximum Exposure for a trade - determines the maximum risk that a trade can generate for the total of the portfolio. How Luc deals with drawdowns. Why he is a risk averse person. Why he is still researching other trading ideas when he thinks he’s found a way that mitigates risk effectively. How he gets his ideas from math puzzles, reading about geometry and logic. Why investors should look at the predictability of returns and how to convince investors what and how you are going to trade is something that is going to work. Why discipline is the main characteristic that people need to be a successful fund manager. "Build a program and offer that program, so that every single one of your clients has the exact same thing." - Luc Van Hof (Tweet) The books that he recommends for managers starting out wanting to be successful. How his hobbies such as nature, reading, and music help to keep him balanced in a busy financial world. Resources & Links Mentioned in this Episode: Books that Luc mentioned in this episode: Market Wizards The Predictors Definitions of terms mentioned in this episode: Mean Reversion Risk Premium This episode was sponsored by Swiss Financial Services: Connect with Capital Hedge: Visit the Website: www.CapHedge.com E-Mail Capital Hedge: bernhard@caphedge.com Follow Luc Van Hof on Linkedin   "If we can make something that is not going to suffer too dramatically in a down market, and is going to underperform in an up market, the client is going to like it." - Luc Van Hof (Tweet)

"We are more of a research company than a pure trading firm - trading is more a byproduct of what we do in terms of the research." - Luc Van Hof (Tweet) Our next guest worked for the European Commission before starting his own firm. In an unusual career twist, he sold his company to a larger firm only to buy it back from them a few years later and had to start from scratch. Learn about his aversion to risk, his short term trading strategies, and his interesting past as one of the fastest readers in the world. Thanks for listening and please welcome our guest Luc Van Hof. Subscribe on: In This Episode, You'll Learn: About Luc's time working for the treasuring of the European Commission starting in 1985. "We had the luxury of being provided with an immense amount of ideas, being provided by investment banks." - Luc Van Hof (Tweet) How he learned about Options trading before many people were doing. "Options trading was not very well known - it was considered a dangerous animal, like let's stay away from it." - Luc Van Hof (Tweet) About his years working for Bankers Trust in London and Morgan Stanley as a trader and how those experiences influenced his career later. How he started Analytic Investment Management (AIM), doing options trading. How he acquired his first clients. Why he got started trading currencies. About the early days of trading and the physically demanding work before computers took over. How his attendance at conferences, getting invited to speak on panels, and other speaking engagement led to the sale of his company. "We had the good balance of not being a startup derivatives firm, but not having grown to a multibillion dollar company." - Luc Van Hof (Tweet) About the selling of AIM to Trobico in 2006 and why trobico bought his firm. How he ended up buying his company back from Trobico in 2010 after management changes caused them to shut down everything in the alternative investment space. About the different products that Capital Hedge provides. "We were able to difference ourselves because we were trading very short term and very controlled risk, that was something that was very appealing to many people." - Luc Van Hof (Tweet) How he had to start from scratch, getting all new investments after buying his firm back. Where he is now - advising $200 Million US dollars, mainly in his DPI program. How he is one of the fasted readers in the world, and how he learned to speed-read from a class he took in the Netherlands. How he convinces institutional investors that a 2-3 person company is enough to manage the investments they have, and how technology has changed the game from needing a staff of 25 to needing just 2. "I would have to employ 3 times if not twice as many people to do the same thing with the organization I have - because the technology has made such progress." - Luc Van Hof (Tweet) How small managers need to describe what they do, and why they might not want a multibillion-under-management hedge fund. How investors should look at a track record of a firm and why that doesn't necessarily mean good returns in the future. Why investors should see the latest test of what the firm is currently running rather than worry too much about the historic model results. How Luc trades and develops his systems, and how he looks for patters in the market. How to avoid model decay and avoid the risk when the model will stop working in the future. Resources & Links Mentioned in this Episode: Learn about the European Commission. More about Bankers Trust. This episode was sponsored by Swiss Financial Services:

"If you can’t explain it in English to a reasonably intelligent person why it really works, then we don’t want it." - Marc Malek (Tweet) In the second part of our conversation with Marc Malek, we explore the strategies that he uses to build his models and how he explains them in simple terms. We go in depth about drawdowns and what investors should know about them. We also discuss what keeps Marc inspired, what he does for fun, and how he couldn't imagine having any other job. Welcome back to Part 2 of our conversation with Marc Malek. Subscribe on: In This Episode, You'll Learn: Four strategies inside Conquest Capital's Macro program. "What we start with is what we believe is the blueprint of how markets move, and then we try to create different models that take advantage of the different parts of that movement." - Marc Malek (Tweet) How the technological revolution has changed the market and trend following, now that everyone gets the same information at the same time. Marc's approach to building trading models. Defining risk in terms of upside deviation vs. downside deviation in the portfolio. Why correlation is one of the most misunderstood stats that you can use. How Marc deals with drawdowns and why he thinks nothing new is happening now that did not happen before. "Drawdowns are a very emotional issue and that's really the one time where I think managers, including us, do something that feels better for the investor, but is probably not in the investor's best interest." - Marc Malek (Tweet) His view on backtesting. The challenges hedge fund owners face in the current business climate and why Marc is lucky to have investors that have stuck by him. "We benefit from those sudden events that keep people awake at night; and the way we lose money is not from any fireworks, but from a lack thereof." - Marc Malek (Tweet) Why Marc is motivated to keep pushing through this period and why he loves what he does. "For each additional parameter that you’re putting into your model, you are lowering the number of the degrees of freedom that your model can have to react in different market conditions." - Marc Malek (Tweet) The story of how Conquest Capital got its first investor, and how in the early days investors cared more about managers and interacting with them personally. Marc's biggest failures, and how he overcame them. "If I could do it all over again, I’m not sure I would choose to be in a risk averse strategy." - Marc Malek (Tweet) The hobbies Marc has and why he likes seemingly dangerous sports. Resources & Links Mentioned in this Episode: Learn more about Backtesting. Learn about Downside Deviation. This episode was sponsored by Swiss Financial Services: Connect with Conquest Capital Group: Visit the Website: www.ConquestCG.com Call Conquest Capital Group: +01 212.759.8777 E-Mail Conquest Capital Group: info@conquestcg.com Follow Marc Malek on Linkedin   "Even in its worst days - it's still the best job in the world. It's very dynamic, very exciting." - Marc Malek (Tweet)

"People are fond of saying: 'we are 100% systematic.' And when you say you're 100% of anything, it tends to make people nervous." - Marc Malek (Tweet) This guest had a different path that eventually led to owning a hedgefund in New York. Marc Malek got a grant from NASA to study how different armored tank positions would lead to winning results on the battlefield. Traveling to Wisconsin to begin his research, his advisor steered him to do a similar project on stocks, bonds, and equities instead. He went on to work for UBS and finally founded his own firm, Conquest Capital Group. His story will fascinate and inspire you. Thanks for listening and please welcome our next guest, Marc Malek. Subscribe on iTunes, Stitcher Radio or TuneIn In This Episode, You'll Learn: The story of how Marc became interested in the financial markets after a university project, a bit unexpectedly. About Marc's upbringing in Beirut, Lebanon. How his studies at Caltech in neural networks and decision support systems eventually led him to the stock market. About his grant from NASA to research the position of tanks. His job offer from Oracle that he turned down. About his first job out of university at Salomon Brothers and why he left after one year. "If you look at any successful discretionary trader, they don’t sort of wake up and randomly decide one day to put on a position because they had a dream." - Marc Malek (Tweet) How Marc got hired at UBS and moved to Europe and then Asia during his time with the company. "In setting up the Global Exotic Derivatives Group, I initially set it up in New York, then moved to London and set it up there, then moved to Tokyo and set it up there." - Marc Malek (Tweet) Marc's departure from UBS and how he started Conquest Capital Group. How trader's thought processes are turned into trading models. "Liquidity is the oxygen of these strategies, and one of the first casualties from the rise of risk aversion is liquidity." - Marc Malek (Tweet) Why models are not black boxes and why investors should not be worried. The history of trend following and the old systematic approach. "There is a big misconception out there that investors believe that long term trend following is a long volatility strategy; it's not." - Marc Malek (Tweet) How markets move for alpha and beta reasons. About "turtle strategies" vs "trend following 2.0". How Marc's strategies and models have evolved over time. "I don’t understand how anyone can promise a certain return profile because really returns are a function of what the markets give you, and no one really knows ahead of time what the market will give you." - Marc Malek (Tweet) About his product Conquest Macro and the two mandates that the product has. How his product makes the bulk of its return during periods of risk aversion and high volatility. How his firm developed a risk index in a time before anyone was doing them. Resources & Links Mentioned in this Episode: Learn about Marc's previous employers/institutions: Salomon Brothers Caltech UBS See Episodes 13 and 14 for more discussion on "Turtle Strategies". This episode was sponsored by Swiss Financial Services: Connect with Conquest Capital Group: Visit the Website: www.ConquestCG.com Call Conquest Capital Group: +01 212.759.8777 E-Mail Conquest Capital Group: info@conquestcg.com Follow Marc Malek on Linkedin   "In a very very simplified way, active investment makes money by buying the risky asset and selling the less risky asset against it and benefitin...

"We are not a firm that is constantly tweaking models, trying to calibrate." - Aref Karim (Tweet) Welcome back to the second part of our discussion with Aref Karim. In this episode, Aref discusses his firm's strategies and the broader philosophies that drives what he does. He also talks about market volatility, the need to innovate while keeping models intact, his perspective on drawdowns, and what investors should be asking their managers. You'll learn something about the art galleries and music that fuels his inspiration, and what he thinks it takes to become a successful hedge fund manager. You will be amazed by the candid truthfulness of Aref at the end of the episode as he speaks about his personal life and the current state of his business. Thanks for listening to Part 2 of the conversation, I hope you enjoy it. Subscribe on iTunes, Stitcher Radio or TuneIn In This Episode, You'll Learn: What strategies his firm uses regarding commodities and currencies. "Some people make money by calling directions in the markets and others do it by just changing the level of conviction." - Aref Karim (Tweet) How Aref explains his investment strategy in a concise and understandable way. "What we have is a mechanism which we believe quite efficiently tries to change the levels of convictions so that the portfolio is looked at as a whole." - Aref Karim (Tweet) Why volatility is an important source of information when making investment decisions. How to make the best of the current market environment and innovate. "The environment we've seen over the last few years since the crisis has been extraordinary, it has been unusual." - Aref Karim (Tweet) Why his firm evolves their model on a macro level and does not change the model every time the markets change. How QCM manages risk. Aref's perspective on drawdowns and how to make investors comfortable with drawdowns and see them as an opportunity. "You can never predict drawdowns - it's like going on a holiday at the beach and expecting perfectly sunny weather at the right time, and then suddenly encountering rain and adverse weather - those things just happen." - Aref Karim (Tweet) How investors should be evaluating the track records of managers given that some firms' models have changed over time. How growth and technology have effected the relationship managers have with potential investors and why it is still best to meet the manager in person. When investors ask questions of potential managers, the economic alignment question often gets left out. "They just want to jump straight into the model, does the model do this or that, as opposed to understanding maybe the higher philosophy." - Aref Karim (Tweet) What it takes to be a successful fund manager: treating it like a business even if you are investing for yourself. Aref's personal appreciation for the arts, art galleries, opera, and jazz. How it inspires him. How Aref sees the current state of QCM and why he believes in its future. "Assets have sort of come down from where they were - but we look at that as real, this is how things are. Longtermism is something that is very crucial to me, I'm passionate about it." - Aref Karim (Tweet) Resources & Links Mentioned in this Episode: Learn about Long Volatility vs Short Volatility, mentioned as "Long Vol" by Aref in the episode. Aref's suggestions on becoming a successful fund manager: "Get rid of cognitive biases and avoid emotional biases." - Aref Karim (Tweet) "Try and keep [the model] solid, simple, crisp, and clear - where you know how the parts are moving together." - Aref Karim (Tweet)

"Simplicity and robustness, some of the basic things that were fundamental to our philosophy at QCM because I believed in them, still prevail today." - Aref Karim (Tweet) How do you transition from working alongside the capital management industry to starting your own hedge fund? Our next guest grew up in Bangladesh but fled to London during the Bangladesh Liberation War in 1971. He worked as an accountant and then went on to join the Abu Dhabi Investment Authority (ADIA) where he pioneered the organization's futures investment department. Learn about his personal setbacks and successes, his innovative investment strategies, and how he founded Quality Capital Management in the UK. Thanks for listening and please welcome our guest, Aref Karim. Subscribe on iTunes, Stitcher Radio or TuneIn In This Episode, You'll Learn: About Aref's childhood in Bangladesh. How his father wanted all 10 of his children to attend university and instilled in them the belief system that made them successful. Why Aref decided to study English and Literature even though his background was in the sciences. "My father quite fancied me to be joining the foreign service - he thought I could make a good foreign minister or ambassador for the country." - Aref Karim (Tweet) The story of Aref's escape to the United Kingdom because of war and social upheaval in Bangladesh. How he went from being an accountant in England to working for the largest sovereign wealth fund in the world, ADIA. Aref's perspective on the history of the hedge fund industry and the alternative investment industry. "The degree of sophistication increased many fold because of technology, the power of computers, the power of being able to go into tighter and shorter time frames." - Aref Karim (Tweet) About the beginnings of ADIA's futures department that Aref helped to start. The early days of the futures industry and Aref's perspective on trend-following. "I don't believe in too many moving parts, because I feel like it's a lot of smoke without the fire." - Aref Karim (Tweet) How he overcame personal setbacks when his wife unexpectedly passed away, leaving him with three young children. About Aref's return to the UK and his decision to start his own CTA and start trading in futures. "The more variables you introduce - the more that things can go wrong or go out of sync." - Aref Karim (Tweet) About the genesis of Quality Capital Management. How Aref's investment strategy evolved and the specifics of his current trading strategy. "Our propensity to buy is far greater than our propensity to sell, and this always keeps that element of buoyancy on the long side." - Aref Karim (Tweet) How he measures the "Flow" of the market. Why his strategy looks at changes in volatility and doesn't care whether it is a bond or an equity. How QCM went from using a few indicators to no indicators at all. Resources & Links Mentioned in this Episode: Learn about Aref Karim on his Wikipedia page. Learn about the Bangladesh Liberation War that displaced Aref from his country of birth to the UK. Learn more about the Abu Dhabi Investment Authority (ADIA). This episode was sponsored by Swiss Financial Services: Connect with Quality Capital Management (QCM): Visit the Website: www.QualityCapital.com Call QCM: +44 (0) 1932 33 44 00  E-Mail QCM: marketing@qualitycapital.com Follow QCM on Linkedin   "Our basic premise is that all these assets are one and the same so we use the same approach whether it is commodities, fixed income, or equities." - Aref Karim (Tweet)

"You are not going to make money because of a formula; you use formulas, but that is not why you make money." - Scott Foster (Tweet) Welcome back to the second part of our interview with Scott Foster, President and Founder of Dominion Capital Management. In this episode, we learn the philosophical rules that drive his firm, and how he bridges the gap between the philosophy behind his decisions and the models he creates. We discuss the increased governmental involvement in the markets and the adjustments that Scott has had to make to adapt to new signals. Finally, we learn the personal habits that help Scott succeed. Thank you for listening to Part 2 of our conversation with Scott Foster. Subscribe on iTunes, Stitcher Radio or TuneIn In This Episode, You'll Learn: Why Scott does not worry about model decay due to the principals with which he runs his firm. How to bridge the gap between philosophy and rules. How he created the Sapphire program, his firm's signature service, and what it took to create it. "Model decay is not generally something that I worry about." - Scott Foster (Tweet) How increased government involvement in the markets has changed his system and made him adapt to new signals in the markets. "We always were a low-volume trader but over the years we’ve become even more low-volume." - Scott Foster (Tweet) Why and how political feedback and involvement are affecting the markets and short term trading. "The political feedback is a bit different - because it has no tether - there’s nothing that says that it can’t change." - Scott Foster (Tweet) How his firm is able to so expertly predict to potential customers their drawdowns and how they contain them. "A market is emotionally charged - there are a lot of people with strong opinions and a lot of vested interest that the market move one way or the other." - Scott Foster (Tweet) That investors spend too much time dissecting the drawdowns and not enough time looking at why and how they made money. "I was doing what everyone else was doing at the time, which was thinking of bad volatility as being bad, and trying to figure out how to avoid it." - Scott Foster (Tweet) The principals of behavior finance and the underlying philosophical principals such as self attribution bias and loss aversion. How alone time and contemplation have led to 80% of Scott's best trading ideas. The hardest part of being the President of a fund and why it is not the trading. Resources & Links Mentioned in this Episode: Scott mentions "The Lake Wobegon Effect." Learn more about illusory superiority, the bias that the Lake Wobegon effect is name after, or Lake Wobegon itself, a fictional town in Minnesota. "The Lake Wobegon effect where all kids are above average; every professional in the financial world thinks they are above average - even though we can’t all be." - Scott Foster (Tweet) Learn more about Mean Reversion, which Scott's firm looks at closely in the models they use. This episode was sponsored by Saxo Bank: Connect with Dominion Capital Management: Visit the Website: www.DomCap.com Call Dominion Capital Management: +1 (231) 995-4400  E-Mail Dominion Capital Management: dominion@domcap.com Follow Scott Foster on Linkedin  "I’m a big believer in the trends of your internal numbers - not the internal numbers themselves." - Scott Foster (Tweet)

"You can even argue that in the markets - reality doesn't matter. Because when reality catches up, it will change perception." - Scott Foster (Tweet) Our next guest was a philosophy major and a magician before he ever considered trading in the stock market. In Part 1 of our talk, he describes how philosophy and psychology determine his firm's decisions and the story of how he started trading in a small town in Pennsylvania. Thank you for listening and please welcome our guest, Scott Foster. Subscribe on iTunes, Stitcher Radio or TuneIn In This Episode, You'll Learn: On the 20th Anniversary of Scott's firm, he looks back on how it all started. Scott's life as a magician and how the principals of magic influences his perspective on trading and the market. How he became a philosophy major and how he applies philosophy to trading and everything his firm does. How he started trading in the market, getting a group of his college friends to take out cash advances on their credit cards and investing it. "I tripled the account size and from that point on I knew I was never going to make it to graduate school. I was hooked. It was the best thing since sliced bread. But I didn’t know anything about money management.” - Scott Foster (Tweet) The Austrian perspective on economics that his college was well known for. How he educated himself in futures trading and invested long before he ever met another trader. Scott's initial lessons learned from trading in the stock market; how he lost almost all of his capital in one day and had the first sleepless night of his life. "I went from high in the sky to very very low in a matter of hours." - Scott Foster (Tweet) How he made the mistake of investing in coffee and cocoa in the late 1980s and what he learned from that experience. "There’s a great trading maxim that says ' you should never trade anything that you can eat for breakfast'” - Scott Foster (Tweet) How he started his first firm in 1989. How Scott traded while living in rural Western Pennsylvania. "You don’t realize the pain side of it, and how much more you’re going to feel that pain then the euphoria." - Scott Foster (Tweet) How a philosophy major with no connections to the financial world used his network to find a mentor. The story of Scott becoming a principal at one of the biggest short-term CTAs in the world. The story of Dominion Capital Management, which he started in 1994 by moving to Chicago. Why he is based in Traverse City, Michigan. How his firm is a bit different and why they don't have any mathematicians or scientists on their team. Resources & Links Mentioned in this Episode: Learn about the Square of Opposition that Scott explains in the episode. In Scott's first job at a firm, the company hired people belonging to Mensa. Learn about how trading was conducted and firms operated before the use of personal computers and the Internet. Scott's firm had a VAX computer. This episode was sponsored by Saxo Bank: Connect with Dominion Capital Management: Visit the Website: www.DomCap.com Call Dominion Capital Management: +1 (231) 995-4400  E-Mail Dominion Capital Management: dominion@domcap.com Follow Scott Foster on Linkedin  "The psychology of the markets is my universal affirmative: in other words how people make decisions is not going to change the next day or the next day." - Scott Foster (Tweet)

"Trend following is the most repeatable method of trading ever invented." - Scot Billington (Tweet) Welcome back to the second part of our interview with Scot Billington of Covenant Capital Management. In this episode, Scot delves into the practice of trend following and why it is a great model to follow. He also discusses tips for beginning traders and investors, and advice for those who wants to start a firm. Thank you for listening to Part 2 of our conversation with Scot Billington. Subscribe on iTunes, Stitcher Radio or TuneIn In This Episode, You'll Learn: The story of Scot's childhood obsession with mathematically based, but unknown future outcomes. The discipline required to follow a mathematical model. The advantages of trend-following and why the media reports that "Trend Following is Dead" every few years. "Your largest drawdown is always in front of you. But there will always be a winning period bigger than we've seen because it is over a longer period" - Scot Billington (Tweet) Scot's philosophy on position sizing. “I would rather have a small edge with proper position sizing then vice versa” - Scot Billington (Tweet) How every sector in the market is highly correlated. Getting comfortable with taking risks: they exist and it is impossible to avoid them. The Barbell strategy: have very little money at risk, but the money that is at risk is in the most aggressive things that it can be. The biggest mistake that allocators make. "I'm a big believer that the handling of the large moves is sort of all that matters." - Scot Billington (Tweet) How Scot conducts research for Covenant Capital. Why he is based in Nashville and how he overcomes the challenge of asking investors to buy into the long time-frame. Finding your niche as a boutique firm. "As a boutique firm you are going to attract some people and some people will never be attracted to you." - Scot Billington (Tweet) Advice for managers wanting to start firms today. Resources & Links Mentioned in this Episode: Scot mentions how the media often announces the death of trend following. Here’s an article on the subject from Futures Magazine. Learn about the Barbell Trading Strategy. See 10 Fallacies when Selecting CTAs. This episode was sponsored by Saxo Bank: Connect with Covenant Capital Management: Visit the Website: www.CovenantCap.com Call Covenant Capital: +1 (615) 678-6742 E-Mail Covenant Capital: info@covenantcap.com Follow Scot Billington on Twitter. "Any new business is like a small tree: it cannot take a tire swing yet” - Scot Billington (Tweet)

"Nobody ever started trading a model that didn't make money in the past. But we don't know if those things were luck or skill." - Scot Billington (Tweet) Our next guest takes a mechanical, long-term trend approach to trading to a new level, and you'll find out why he thinks it is the better option in this episode. He started Covenant Capital with his business partner in 1999 and has grown it into a profitable boutique firm. But in early 2002 after they ended the previous year down 20%, they really had to grind it out and stick to their guns which ultimately paid off in a big way. Thank you for listening to the show, and please welcome our guest Scot Billington. Subscribe on iTunes, Stitcher Radio or TuneIn In This Episode, You'll Learn: How Scot started his firm, doing the testing by hand. The difference between a discretionary model and a mechanical model and why Scot chose a mechanical one. "I figured that there may be other ways that one can make money in the markets, but this seems to be the first place that I ought to look." - Scot Billington (Tweet) How he met his business partner Brince Wilford and started with 3 accounts in 1999. How narrative bias can affect a trader's decisions. How the firm got through a year that ended with them down 20%. What made Scot believe in his model and stick to his guns. "I was doing all of this back testing by hand. So, well that's a good way to not be curve fitting." - Scot Billington (Tweet) The offerings that the firm currently has, including the differences in the trading models. The pitfalls of investing in shorter term models and not allowing managers to see a full cycles with markets. Why most allocators and investors are chasing 24-month returns on stocks and why that may not be the right approach. About different types of CTA firms, including boutiques, battleships, emerging, and experimental. What to look for in a CTA. How to get investors to share the long-term horizon with his firm when certain markets do very well in the short term. "I moved into the smallest apartment in Nashville, and cut my living expenses to next to nothing" - Scot Billington (Tweet) Resources & Links Mentioned in this Episode: An article on Covenant and Scot Billington in Futures Magazine. Four types of HedgeFunds/CTAs: Battleships Boutiques Emerging Experimental Check out Discretionary vs System Trading. This episode was sponsored by Saxo Bank: "Our first major change to the model was in early 2002, was basically eliminating short trades and using a volatility filter for long trades." - Scot Billington (Tweet) Connect with Covenant Capital Management: Visit the Website: www.CovenantCap.com Call Covenant Capital: +1 (615) 678-6742 E-Mail Covenant Capital: info@covenantcap.com Follow Scot Billington on Twitter. "More or less, we like to look at trades like, here comes a refrigerator, put in the shelf, here comes a refrigerator, put in the shelf." - Scot Billington (Tweet)

"Carry is really about picking pennies in front of a steam roller. The greedier you get, the closer to that steam roller your going to be." - Anders Lindell (Tweet) Welcome back to the second part of our interview. In this episode we dive into the negative effect of greed on the market. Anders Lindell again shows his depth of knowledge as he elaborates on the nature of irrationality though the ages and how our markets today, really are rather stretched. This is a powerful episode, I really do hope you will enjoy it. Subscribe on iTunes, Stitcher Radio or TuneIn In This Episode, You'll Learn: How the IPM model profited by choosing to position against the carry frenzy in Japanese Yen during late 2008 Risk factor analysis when selecting model attributes What the more reliable indicator in the global economy is "We're not interest in the absolute level of carry per market, we're interested in the deviation from the longer term average carry being delivered by a specific market." - Anders Lindell (Tweet) How their trading model works on overall, daily basis "Stop-Loss" Positioning in the IPM strategy Where IPM identifies value traps and optimizes their exposure to it "When we design our risk factors, they are designed to be uncorrelated with each other."  - Anders Lindell (Tweet) The average length of trades at IPM What drives the relationships that Anders explores to build models around If Correlations structure matters when IPM decides on risk overlay to make market decisions "I do like traditional valuation metrics. I think they are reliable, they make a lot of sense from a fundamental and theoretical perspective, but it can take significant time for them to play out." - Anders Lindell (Tweet) Why timing can be the largest challenge for their strategy How Anders defines risk and how IPM controls the model and expected risk The biggest fear Anders have in regards to unexpected market effects "People may trade in or out or create trends and prices may deviate, you know, it is just noise over short time spans. We're trying to step back and avoid that by specifically trading and holding trades over long periods of time." - Anders Lindell (Tweet) What is expected in regards to drawdowns in the IPM Global Macro Strategy How to convey the needed confidence to investors during drawdowns Risk Management/Risk Control model rebuilding "Spend 1/3 of your time trying to understand what we do on the Alpha side. The other side you should spend on risk management and the other third you should spend on understanding our portfolio construction." - Anders Lindell (Tweet) How Anders Lindell identifies research processes which will over engineer and cause return issues Succession planning as Anders sees it for IPM - Perception and Vision "I'm not so sure that market/investor irrationality has increased over time. I think we feel that at the current time, but that's only because our time window is so short. - Anders Lindell (Tweet) The challenges for IPM and how overcoming them has helped to make them stronger What Anders would suggest for investors to focus on What it takes to be a great hedge fund manager in today's economy "One of the reasons for being systematic in the fist place is to avoid exactly this emotional behavior."  - Anders Lindell (Tweet) Sponsored by Swiss Financial Services and Saxo Bank: Connect with IPM: Visit the Website: www.IPM.se Call IPM: +46 8 20 19 29 E-Mail IPM: info@ipm.se Follow Anders Lindell on Linkedin

"It's always important to know that individual data points, may actually lead you astray and quite significantly so as an economy does move and change in a relatively slow fashion." - Anders Lindell (Tweet) Our next guest turned a challenging market into an opportunity to transform his strategy and build something substantial. Welcome back to another episode of Top Traders Unplugged. Today we have the former CEO, now Chairman of Informed Portfolio Management on to discuss the road to formation of his firm, their Systematic Global Macro strategy, their unique approach to investor interaction and much much more. Thank you for listening to the show, please welcome our next guest, Anders Lindell. Subscribe on iTunes, Stitcher Radio or TuneIn In This Episode, You'll Learn: The relevance of controlling production at paper and pulp mills while Anders was a developing man His history during his early days at JP bank as an analyst The impact of the shifts in the fixed income markets of the early 1990's which inspired a new strategy "How do we deal with tactical deviations from these long term strategic targets? You can end up in a situation where you deviate intentionally or you end up there because you've allowed markets to push you in that direction." - Anders Lindell (Tweet) The strategic focus that was the starting point for the formation of IPM Who Anders learned from early on and who helped him cultivate a career in the hedge fund industry The programs IPM run today, when they started and the assets run inside of each: Systematic Macro Program - with about $3 billion AUM trading in account format since 2002 Systematic Equity Program - with about $4 billion AUM trading since 2006 "Once we have identified weakness in areas for further improvement, that's when we try and define how to fix it. That goes into research rather than scouting the market for general forms of alpha." - Anders Lindell (Tweet) How to find and retain talent and the entrepreneurial spirit drives in house management decisions How IPM as an organizations manages the in house operations How Anders hopes to see their potential realized in terms of double or tripling their AUM for future markets "We want the markets, even if they start deviating, that they will mean revert at some point in time and we don't want that point to be 5 years out." - Anders Lindell (Tweet) What Anders looks for when spotting talent for new team members Ideas for incentivizing team members to appreciate their careers The long term view of IPM's track record and how to evaluate it More on the objective of the strategy of IPM and the environment in which it's been designed to work well "If we find ourselves in a market environment where people simply don't care about fundamentals, then this model could not be expected to perform optimally. It could still deliver but then it becomes more of a random game." - Anders Lindell (Tweet) Why the opportunities and volatility in emerging market equity trades is decompressing globally The meaning of global macro and how they structured all the information into a systematic trading approach How the IPM model differentiates it's self from discretionary trading models and how they run them The role of fundamental information in identifying market strategies "What differentiates us from a discretionary trader is that we have identified a large number of opportunities and they are coded in the form of risk factors and we are always in the market for all of those to a varying degree."  - Anders Lindell (Tweet) Sponsored by Swiss Financial Services and Saxo Bank:

"Knowledge can be a negative. It can be a luggage to seeing life as it is." - Nigol Koulajian (Tweet) Did you know that a meditation practice can help you be a better investor? In this episode we discuss our common lessons that we ask all Top Traders, but we dive deep into why Nigol thinks differently about CTA issues. Growing up in war-torn Lebanon shifts the filters he uses to see the markets. We all have filters but in this episode you will learn what perspective he takes on the markets that may, or may not, support his market philosophy. Welcome back to the second half of our interview with Nigol Koulajian of Quest Partners Subscribe on iTunes, Stitcher Radio or TuneIn In This Episode, You'll Learn: How growing up in war torn Lebanon influences the way Nigol filters market decisions The challenging nature of a market injected with federal liquidity Nigol's strategies for selecting position sizing "Always question the system, don't believe that a system which looks strong means that it's stable. Things can reverse at any point in time." - Nigol Koulajian (Tweet) Drawdown expectations of Quest Partners How Quest works to maintain a balance in the working environment and how busy the team stays How Nigol manages emotional turmoil of drawdowns and how he projects this calmness upon his investors "The common mindset of today is that, 'it's unpatriotic to assume that the stock market can go down." - Nigol Koulajian (Tweet) The few things that Nigol predicts would shake their strategy How to listen to clients and use their advice in a way that serves them, even if you don't implement exactly what they're saying Why mathematician optimization can adversely effect the strength of your CTA strategy "From my perspective, the more math you utilize the less you know about what you're doing." - Nigol Koulajian (Tweet) How Nigol expects to know if a model is working or not The importance of using math as little as possible despite the systematic approach to trading A fascinating perspective on why the CTA industry AUM has shifted to Europe "What I worry about is how desperate central banks can be and how far they will go in terms of controlling markets." - Nigol Koulajian (Tweet) The most important question investors should be asking: "How to price tail risk." What it takes to build a firm and become the next Quest Learn all about Nigol's daily meditation practice which he credits as his top personal attribute to becoming a great trader The most challenging thing about being a CTA for Nigol (A: Fishing in a very small pond) Nigol's biggest failure which occurred in 2009 "Information and memory is important, but being awake is more important." - Nigol Koulajian (Tweet) Sponsored by Swiss Financial Services and Saxo Bank: Connect with Quest Financial Partners: Visit the Website: www.QuestPartnersLLC.com Call Quest Partners LLC: +1 (212) 838-7222 E-Mail Quest Partners LLC: info@questpartnersllc.com Follow Nigol Koulajian on Linkedin "It's the path to the test, it's not the test it's self." - Nigol Koulajian (Tweet)

"Volatility is the most important criteria behind our strategy." - Nigol Koulajian (Tweet) Want to build a computer that makes money? Quest Partners LLC has a long, robust track record with their systematic trading approach. They utilize a different strategies from many of their peers and have diversified their product range to include equity programs both hedge and long only. At the core of it all is their philosophy on focusing on what investors need. They provide solutions for investors rather than a purist strategy. Leading the way is our next guest on Top Traders Unplugged, Nigol Koulajian. Subscribe on iTunes, Stitcher Radio or TuneIn In This Episode, You'll Learn: How growing up Armenian provides a filter for the way Nigol perceives the markets His experience at Anderson Consulting and how he ended up working with Solomon Brothers by chance Why Nigol spend time at Colombia Business School programming and building models "Alpha does not equal skill, alpha measures… skill sometimes." - Nigol Koulajian (Tweet) What Nigol thinks of Value at Risk How Nigol found himself as a risk arbitrage manager despite his passion for CTA strategies How Nigol navigated beneficial detours before finally partnering to co-found Enterprise Asset Management in 1994 "CTAs are getting better at implementing these factors on a stand alone basis, but they are becoming worse and worse at hedging equity corrections." - Nigol Koulajian (Tweet) About the founding and growth of Quest Partners from inceptions in 2001 to +760$ million in 2014 The dangers of an increased correlation between alternative strategies designed to protect against trouble in traditional investment and the traditional asset classes themselves Learn about self reinforcing feedback loop and how managers of growing AUM are forced to allocate to factors that are doing well (but perhaps doing well by chance) "When volatility is expanding, CTAs are expected to generate high returns." - Nigol Koulajian (Tweet) About the tight, automated business infrastructure of Quest Financial Partners About the shift in volatility expansion and how to measure it Plus much, much more... "Sometimes not getting what you want is the best thing you can get because long term there are things that are very useful that we don't even realize we don't know." - Nigol Koulajian (Tweet) Resources & Links Mentioned in this Episode: Investors Business Daily - The finance newspaper which inspired Nigol in the early days 3 Research Pieces from Quest that specifically examine factor drifts that could effect the returns of CTAs Learn about Sharpe Ratio A specific trading model that trades the S&P and 30Y Bonds if it's down 3 days in a row, with a stop-loss and profit target (Full testing and code in the link). BTOP50 - the index that seeks to replicate the overall composition of the managed futures industry with regard to trading style and overall market exposure Learn about David Harding, one of the largest alternative investment managers in the world Read this interesting article about transcendental meditation and Nigol Nigol's Foundation to promote studies on eastern religious philosophies and Yoga Seven CTA Factors that are not Skill Based which Drift in Long-term Returns: Sector Allocation - CTAs have been allocating to fixed income because it performed well over the past few years Long vs. Short - 90% of CTA profits come from the long side of trades Time Frame - CTAs have increased model time frame Mean Reversion - Selling rallys and buying dips within the trend