Really Rich Guys - Top 10 Traders
 

http://www.traderdaily.com/news/item/5585.html

At the top: "John Arnold Houston Centaurus Energy 33 $1.5-2B"

Much more famous guys like T Boone Pickens, Steven Cohen, and David Shaw only made between $600M to a billion.

I found the profiles of these guys really interesting. And I think I need to learn more about natural gas.

Re: Really Rich Guys - Top 10 Traders
 

Did you mean to link an article?

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JB,

Thanks, fixed.

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33 years old, 1.5-2 billion in 2006. I'm really glad that number is so inconceivable to me that it has little effect.

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[img]/images/graemlins/heart.gif[/img] T Boone

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And so many more who would be self trading and making $100m+ too.

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ED,

I saw this the other day as well. I think it's awesome that someone like Steven Cohen can make sooo much, and yet the people still acknowledge that they could be like 50% short of his actual earnings.

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And I think I need to learn more about natural gas.


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i knew a bunch of guys who were at wharton undergrad like 10yrs or so ago. when it came time for everyone to get jobs a lot of guys went to goldman and morgan stanley etc., then there was this one dude who was probably in the lower middle of the class. partied a lot, standard slacker and not too bright by wharton standards. anyway, he tells everyone he's going to work for some hedge fund in connecticut - whatever - he may or may not have mentioned tudor, but i don't recall anyone being too impressed. i know market wizards had recently come out, but maybe none of us had read it yet.

so dude goes up to connecticut and word filters back that he's some kind of glorified errand boy. everyone laughs. around christmas (3 months later) he comes home for the holidays. he's driving a twin turbo 911. eevryone's like, uh, wtf happened? he says - eh, i had some idea about natural gas and they let me run with it.

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33 years old, 1.5-2 billion in 2006. I'm really glad that number is so inconceivable to me that it has little effect.

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WOW. What kind of profits do you have to generate to make that much a year. It's per year, right?

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ED,

There is a book coming out that you might be interested it. Detailed interviews of Hedge fund folks at various positions.

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hah great quote:

Arnold declined to comment on our income estimates, as did Centaurus’s Perkins, though Perkins shared his views on why a trading bounty is such a beautiful thing. “You ask a big CEO what he makes, and it’s a huge number, but it’s all tied up in stock and options. Traders get paid in cash. It’s liquid. It’s real. You can go, ‘Here, look,’ and slap someone across the face with it.”

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And I think I need to learn more about natural gas.

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I have done work on Natural Gas projects for a few different companies and it is unfathomable the kind of money they throw around for no real good reason. The only thing I could come up with is they are swimming in so much cash, they need to spend some of it to make it look like they aren't raping everyone.


Here's a good for instance :

I was working on a 68 mile pipeline going in Eastern Kentucky for Equitrans (Equitable). The pipeline had a hard time getting final approval because it really was not needed in the opinion of many, but I guess they greased the right wheels to get final approval. Construction started late December/early January. They have a good bit of pipe already in the ground for it. They just now decided that they are going to tie into a line at a different starting point, which means they are going to just forget about a mile and a half of pipe already laid. We're talking millions of dollars invested in this mile and a half alone and they're just scratching it like it's nothing.

Original goal of this line was something like 650 million but I was told they budgeted probably 3 times that since this was their first brand new line they were putting in themselves. I got to think by the end of things, it'll be well over a billion dollar project.

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And I think I need to learn more about natural gas.

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I think you should read about Brian Hunter.

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these traders are destroying top ibankers

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wow...what do you think these guys networth are?

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And I think I need to learn more about natural gas.

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I have done work on Natural Gas projects for a few different companies and it is unfathomable the kind of money they throw around for no real good reason. The only thing I could come up with is they are swimming in so much cash, they need to spend some of it to make it look like they aren't raping everyone.


Here's a good for instance :

I was working on a 68 mile pipeline going in Eastern Kentucky for Equitrans (Equitable). The pipeline had a hard time getting final approval because it really was not needed in the opinion of many, but I guess they greased the right wheels to get final approval. Construction started late December/early January. They have a good bit of pipe already in the ground for it. They just now decided that they are going to tie into a line at a different starting point, which means they are going to just forget about a mile and a half of pipe already laid. We're talking millions of dollars invested in this mile and a half alone and they're just scratching it like it's nothing.

Original goal of this line was something like 650 million but I was told they budgeted probably 3 times that since this was their first brand new line they were putting in themselves. I got to think by the end of things, it'll be well over a billion dollar project.

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This sounds a lot like: "Let's connect to where the gas is actually coming from." And well, that sounds like a good reason to me.

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omg that abandoned pipeline is a sunk cost . . . literally!

hahahahaha

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33 years old, 1.5-2 billion in 2006. I'm really glad that number is so inconceivable to me that it has little effect.

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WOW. What kind of profits do you have to generate to make that much a year. It's per year, right?

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depends on your fee structure.

guy who owns the hedge fund i work at is easily worth 20bil.

he keeps no body guards but is so down to earth it is scary.

asked once "how do you think the money has changed you?" he said:

"it hasn't. i know many people say that and it has, but that is because the pursuit of money has always been high on their lists. the highest thing on my list is the pursuit of excellence at all costs. when you pursue excellence, the money doesn't matter so much, as long as you love what you do, always try to get better, have great people around you and a great family you'll be the happiest person ever. that is what life is about. if the money started to change me, i'd be notified by those around me very quickly."

he dresses in jeans very often. in teaching our Market History class, he takes about 1.5hrs out of his extremely busy day every monday to teach new analysts about the history of markets that he lived & traded through.

anyways, those top traders are surely at the top of their craft. but reading "fooled by randomness" lets you know that they can very easily talk bigger than they trade in expectation. large risks are necessary for large rewards. therefore, those at the top are likely those who have benefited disproportionally from the risks they take, almost by definition.

meanwhile, those who make a consistent living taking less relative risk, but earn a higher risk-adjusted-return, tend to not break out. our fund is one exception simply due to the fact that the clientelle are huge pension funds/endowments/fund of funds etc that give us money based on the risk-adjusted-return we have generated & continue to generate since our process is both transparent to our clients (vs. funds like renaissance & goldman who are basically black boxes) & target a specific level of risk for them that they know they can reduce it or increase it at any time.

blah blah blah, you gotta be lucky to be in that top 10 list of traders. i would LOVE to see the rolling list of the top 10 including those that fall out of that list year by year. i bet you'd find a far higher % that blow up vs. your average population of traders.

Barron

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I know nothing of the trading industry, but the firms don't jump out at me. Are they all boutique firms?

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nvm

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Barron,

"i bet you'd find a far higher % that blow up vs. your average population of traders."

That's very true. A progression like this is not all that uncommon (usually not for quite these stakes though):

Guy makes very risky billion dollar bet (after a decent career managing smaller amounts). Wins. He is +$300m.

Now can raise much more easily. Guy makes very risky two billion dollar bet. Wins. He is +$900m. Call it a billion after fees.

Guy raises ten billion dollars. Loses five or ten billion. Still makes $300m in fees.

Here's a situation where someone is now worth over a billion, but their net track record is down billions.

LTCM, Amaranth (guys who blew out taking the other side of the guy in spot #1), and other big blowouts are all good examples of this. And most key players involved in those blowouts come back again with huge funds.

A lot of times this is just two guys making low expectation super high variance plays. Given the fee/carry structure (common for them to charge 3% of money invested + 30% of profits. SAC in one of his recent funds switched that to straight 50% of profits, but I don't think he's still on that), all that guarantees is that some trader is going to get super rich and high-profile.

Very few of these guys have track records that can be attributed to much more than variance, even if they are really good and really smart.

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I'm guessing at least half of these dudes sit in their unfurnished penthouses watching "Wall Street" at least 3 nights a week.

I wonder what the life expectency of these guys is, too.

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#7 Paul Tudor Jones donated $20M to build UVA's new basketball stadium. Doesn't seem like that much looking at his income.

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i would LOVE to see the rolling list of the top 10 including those that fall out of that list year by year. i bet you'd find a far higher % that blow up vs. your average population of traders.


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I think I disagree based on the fact that a large % of traders blow up. Several of these guys were already in Market Wizards (Kovner, Druckenmiller, Tudor Jones) and others have years of impressive track records (Shaw, Simons). But yeah you're right regarding excess risk. I remember reading a paper at wilmott where the author showed that Buffet and Soros have equity curves similar to a Kelly better (a Kelly bettor has a fairly high chance of going busto).

I would expect mostly the energy traders to blow up. Many energy companies were forced to move into trading becasue there were no other easy alternatives left to improve profits. Of course trading is not as easy as it seems...

And yes El D is right...the incentive structure is pretty crazy. I heard Brian Hunter is starting another fund. [img]/images/graemlins/confused.gif[/img] And Meriwether from LTCM is still in the business. Merton didn't manage to raise funds last year so I guess investors are not entirely clueless.

It's also interesting to see George Soros' son at spot 20. I guess investing skill is transferable.

The most interesting person on the list in my opinion is Simons, because he was an extremely accomplished mathematician before he switched to finance. There aren't many people who can be successful at that level in 2 different fields.

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barron - 20billion?

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i used to work in the day trading industry and had 3 or 4 good years (just smalltime stuff compared to these guys but i was paid a few hundred K a year) (my trades dont work anymore.)

in all honesty it was not stressful at all. the lows and bad luck runs were never as bad as poker.

these guys dont have it as rough in the stress department as someone fulltime pokering and they are paid alot better.
in all honesty the guys who are uber successful at poker have alot of skills they need to do this type of work and at its roots is very similar.

so yeah if anyone has any opportunity to get into the trading business and is good at poker the skills transfer over really well.

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crazy,

I thought Buffet had been a stud for three decades or more. Am I wrong? If not, is he a complete outlier or aberration? If not, what's the problem in your correlation between Kelly curves and market success?

My understanding of the Kelly criteria come almost completely from a paper by Stephen Levitt (author of Freakonomics), in which he discusses NFL gambling markets. From what I picked up, Kelly's criterion dictate an optimal bet size that dictate a bet size that guarantees NOT going busto.

Assuming that my understanding of Kelly is correct - that a perfect Kelly bettor has no chance of going busto, as you stated - I'm not sure where the disconnect is.

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stox,

Let me translate for you:

Barronspeak: "guy who owns the hedge fund i work at is easily worth 20bil."

English: "guy who owns the hedge fund i work at may be worth over a billion dollars."

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my question would be, can an average joe do this? can an average joe pick up a bunch of books, learn the market and make himself rich if he is good enough and lucky enough? don't you need money to make money in this field? (unlike poker where a small deposit can lead to great things if you're good)

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Barron,

Lets kidnap him and extort randsom.

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I thought Buffet had been a stud for three decades or more. Am I wrong? If not, is he a complete outlier or aberration? If not, what's the problem in your correlation between Kelly curves and market success?

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Yes, he is a stud. But like DcifrThs said the top traders/investors must be taking on excess risk, otherwise they would not be on top.

Maybe there is an investor with Buffet's exact skill who blew up after 10 years and nobody knows about him. And there might someone else who made good money for 30 years but not money people know about him because he didn't take on too much risk. For example Ed Thorp (yes the blackjack guy) comes to mind.

In Kelly betting the percentage of the current bankroll to be bet is proportional to your edge. If you're edge is 10%, it means that you have 55% winners in a game where the 2 outcomes are doubling your bet or losing it. So this means your supposed to be betting 1/10th of your roll! If your edge is 20% (so you have 60% winners), you're supposed to be betting 1/5th! While you'll never go bust the variance of such a strategy is extremely high.

Therefore, even half Kelly is too much risk and quarter Kelly seems to be much more optimal.

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my question would be, can an average joe do this? can an average joe pick up a bunch of books, learn the market and make himself rich if he is good enough and lucky enough? don't you need money to make money in this field? (unlike poker where a small deposit can lead to great things if you're good)

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Short answer is no. I work on an energies trading floor (gas, coal, electric power), one of the very few to have survived and prospered over the last 10 years. (I've been there 7 years.) IMO:

1. Poker skills would and do transfer well: successful traders are analytical, highly disciplined, almost never tilt. But,

2. Successful gas traders know much more about the gas market than could be learned from books (and there are some pretty specific books). It's complicated, and they need to be 100% up on its structure and on current events. The books only get you to rank amateur status.

3. Successful traders require significant organizational support: capital, custom analytical tools, colleague traders working related markets. It's a team game. While the distribution of return results is going to be insanely broad (6-10% one-day moves in gas occur with alarming frequency), trying to go the gas market alone would amount to infinite arrogance.

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This sounds a lot like: "Let's connect to where the gas is actually coming from." And well, that sounds like a good reason to me.

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They had about 5 possible tie in spots planned when this project started about 2 years ago. They made a decision on this spot and have ran with it from day 1. Now that most of the pipe is actually in the ground, they've decided to change the tie in spot.

Notice that you can't just say "put the pipe here" and go that next day and install it. It's at least a year process to do all the studies you have to do and then get approval for it.

This is just normal for them. They change things at the last minute constantly. Up to the time we submitted for the permits, we had two seperate reports made up for two different routes. Only on the deadline date did they decide which route they were going to use, which meant all the money put into the other route was thrown away. Their amount of waste is just insane.

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stox,

Let me translate for you:

Barronspeak: "guy who owns the hedge fund i work at is easily worth 20bil."

English: "guy who owns the hedge fund i work at may be worth over a billion dollars."

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yeah only 4ppl are at 20billion in the US, 1billion could happen

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barron - 20billion?

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i may be off as i tend to exaggerate. el d translated for you a bit too much on the downside. its a very large amt. though and not near 1bil.

he has been managing this fund 2/20 for ~ 15 years. we've generated about 12% annual excess return at about 11.5% risk over that time (risk-adjusted return of like 1.0). that is just the hedge fund. we also have a passive only asset management business that is 50bps on net asset value in fees + admin fees etc. we have in total including everything >160b in aum.

He is basically the sole owner as he has retained a vast majority of the business. the rest is to the next 3-5 top guys.

20bil may be excessive but 1bil is also excessively low and off.

i think the value of this firm right now is like $6-8 billion. maybe a little more. he has reinvested everything he's earned back into the business (passive only which has had a total return of ~11%/year at about 11% risk. in excess return space the risk-adjusted return is like .7). this is separate from our AUM (on which we charge fees).

all in all, i would be SHOCKED if he was worth less than $7-8billion. so while i may be wrong about 20, the # is still staggeringly high.

and the POINT is that you dont hear about the skilled guys not trading for public funds. and you dont hear about the consistent winners, who, in expectation would kill the top traders. you only hear about the guys who have had a ton of luck in the past.

we would expect at least 1 person to have Buffet's track record over the history of time that investors have been in the market even if we assumed nobody had an edge.

only reason i wrote the initial post was to make a point that the really rich guys are actually "really lucky guys" who have had more luck than skill in all liklihood given where they are now.

i would be more impressed if they stayed at that level for some extended period of time.

It's like the period of 1990-1994 in the bond mkt or 1990s-1998 in the EMD market. there were a few guys who just freaking killed it time and time again. top 10 list every year for like 4 years, but eventually, the market didn't act like it did in their memory or the recent past and blew them all up.

this will DEFINITELY happen to people soon as the volatility & implied volatility in mkts now is exceedingly low on even short term charts. on long term charts it is laughable. to compensate, those who have return targets to hit use too much leverage. the blip that occurred in feb was regarded as HUGE, but it was just a blip. mkts have already reverted to jan. levels of confidence.

if the yen has a big move, or some event occurs that isn't just a blip, the next day-week's papers will probably have at least 1 or 2 incredible stories of some "golden kid" gone busto.

his response will probably be "but the markets hadn't done anything like that for a long time. it was a rare crazy event that caused me to blow up." sure, but you didn't take into account that rare crazy events do happen in fat tailed distributions like markets. you would have almost certaintly blown up in any case over time.

sorry i'm babbling too much here. i think you get my point.

and i apologize for the exaggeration. i'll try to translate my claims to reality or el d speak... until the next time i exaggerate by too much (i'm a realist...it'll likely happen again).

l8r nick.
B

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barron,

if your boss is in the 7 billion range, it should be pretty easy to find him here: http://www.forbes.com/forbes400/

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Barron,

I don't get this:

"he has retained a vast majority of the business. the rest is to the next 3-5 top guys."

"i think the value of this firm right now is like $6-8 billion. maybe a little more."

"he has reinvested everything he's earned back into the business"

"all in all, i would be SHOCKED if he was worth less than $7-8billion."

BTW, all accounts I've read have him "only" earning between $100-200 million each of the last two years.

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don't you need money to make money in this field?

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For the most part yes, although anyone can get lucky with some penny stock that ends up curing cancer or something.

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Maybe there is an investor with Buffet's exact skill who blew up after 10 years and nobody knows about him. And there might someone else who made good money for 30 years but not money people know about him because he didn't take on too much risk.

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Someone who has Buffett's skill set would never blow up. He takes little risk, never uses leverage except in some small merger arb subsets of his portfolio. He's got 50+ years with only one down year (-6%) so his results aren't volatile. Most top value investors follow the similar strategies, which is why they don't blow up either.

The most interesting traders to me are Cohen (SAC) and Simons (Renaissance). Both charge massive fees, have large funds and still crush the market after fees for long periods. Simons supposedly uses much less leverage than other funds. Both of these guys should be figments of our imagination according to "A random walk down wall street".

Re: Really Rich Guys - Top 10 Traders
 

New York magazine had a pretty in-depth feature this week on the hedge fund industry and some of the major players. For anyone interested in finding out more, its worth checking out.
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