Christian Siva-Jothy was Goldman Sachs Group Inc.’s co-head of proprietary currency trading until 2004, when he launched his own SempreMacro fund. He closed his fund in 2011 after losing 27% in 2009 and 8.7% in 2010.
Here’s Siva-Jothy on why he closed his fund:
In this business you are only as good as your last few trades,” Siva-Jothy wrote. “Mine have not been very good. Whether I have lost my edge or simply need a break after 23 years I am not sure, but I certainly hope it is the latter.
No one gets paid for originality
Generally, I can’t see more than a year ahead because things change so rapidly it is very difficult to have a 5- to a 10-year view. I have a rolling one-year view of the world and I impose discipline on myself by keeping a trading diary. Every morning, I go through the same process: If I have any positions on, I ask why do I have the positions? What has changed?
Putting on positions because someone really smart that you respect has it on is a recipe for disaster because you don’t know why you got in or where to get out.
No one gets paid for originality — you get paid for making money. I am happy to take other people’s good ideas and run with them, AS LONG AS I UNDERSTAND EXACTLY WHY I AM IN THE TRADE.
The way to make money is to chip away at small trades and then lever up when something big comes up.
I am a great believer that there are three or four major macro opportunities every year. If you catch one, your return will be in the high single digits; if you catch two, you should be up somewhere between 10 and 20 percent; if you catch three or four, you are doing incredibly well.
One of the most difficult things about trading is not to trade. That’s probably one of the most common mistakes that people starting out in this business make. Overtrading is as bad as running losing positions for too long.
On how to manage risk
To me, risk is about liquidity, and that is one of the reasons why I am never short gamma.
Markets can be unbelievably slow to figure out the consequences of big events that there’s no script for.
Implied volatilities are always massively undervalued during big events.
I learned not only not to sell options, but to actively look for options to purchase in times of stress and dislocation.
History can be a useful benchmark but only if everything is put into the right context
People spend far too much time saying things like, “This is what happened in 1987 and this looks very similar so I’ll put the same trade on” or “This is what happened in 1994 when the tightening cycle started; therefore the same thing is going to happen this time.”. I don’t like this approach. Markets are dynamic and people’s reactions are different. It’s much more subtle and nuanced that looking at what happened the last time.
Risk more only when you have won your right to do so
My philosophy has always been to trade up when things are going well and you have a high-confidence view. There’s a big difference between going from 30% to 20%, and going from zero to -10%.
From zero to minus 10% is an unbelievably meaningful drawdown. On the other hand, if we are up 30-40%, I am not going to be worried about a 10% drawdown as long as we’re being rigorous.
Confidence is a very, very dangerous thing. Simply because you’ve had a god run doesn’t mean it will continue. In fact, once you’ve had a good run, you’re at your most dangerous. Markets can take it aways as easily as they give it.
Source: Inside the House of Money, Steven Drobney
