Everything I Learned Working For Steve CohenBy datatrekresearch in Blog
I (Nick Colas) worked for Steve Cohen from 1999 to 2001. Over that time, I learned 6 lessons that inform everything we do at DataTrek Research today.
#1: There is always a specific reason a stock is moving. In trading circles these are called catalysts: an unexpected event that reshapes the market’s perspective about a company’s prospects. Earnings reports are catalysts, but so are macro data points and the price action in comparable companies.
Successful trading and investing is a matter of time allocation, efficiently identifying future catalysts with deep fundamental research. The key is to maximize the value of your time to spot the most profitable opportunities. The work we do every day focuses on giving clients the right market and macro information to build and maintain an efficient investment process.
#2: Never sell or short a new high or buy a new low. Momentum is a key factor in stock returns. If a stock is breaking down or breaking higher, it is always better to wait for the dust to settle before betting against that move.
US regional bank stocks are an excellent example of this simple market truth. They have recently made new 52-week lows on worries about everything from deposit flight to their sustainable return on capital. We’ve been telling clients to hold off on initiating any new positions in the group until the stocks can hold current levels for a few weeks.
#3: Math is not an investment edge. Everyone on Wall Street has a calculator, which means oft-quoted numbers like price-earnings ratios are already baked into stock prices. Low PEs can go lower and high PEs can go higher.
Look no further than US Big Tech stocks for proof of this fact. They are expensive on a PE basis, but the market is confident their recent cost cutting moves and the promise of generative AI can lift their sustainable return on capital. That is a recipe for further gains.
4: Develop an approach that works for you and stick to it religiously. Traders at SAC had a uniform discipline: focus on making a specific amount every day. A newbie might start with a $5,000/day goal. Once they did that for 30 days, they would reset the target to $7,500 and so on thereafter. If they hit a cold streak, they would go back to $5,000/day since they knew they could do that.
Our approach at DataTrek is to give clients differentiated and actionable insight every trading day, no exceptions. We discuss markets, important datapoints, and developing themes in disruptive innovation with the goal of helping our readers make money and – just as importantly – not lose money in the market.
#5: Trust your intuition. At the old SAC, new traders had to meet with the house psychologist every week for the first year of their tenure. He would have us go through every trade, explaining why we chose it and how we decided on entry/exit points. After the discussion of each trade, he would always ask us the same question: “How did you feel as you bought or shorted? Happy? Tense? Confident? Worried?” His goal was to help us get in touch with our intuition by connecting our decisions to how we felt as we acted on them.
Productive intuition goes hand in hand with experience, and between the two of us here at DataTrek we have 45 years of time in the market. We’ve done virtually every job on Wall Street, from buy-side and sell-side analyst to registered investment advisor and portfolio manager. We know successful investing is hard and we use our decades of experience and hard-won intuition to make it just a little bit easier.
#6: Don’t make things harder than they have to be. In many ways, this was Steve’s cardinal rule. Focus on the basics, relentlessly, and the rest will fall into place. We think about this every day, and all our work centers on the key drivers moving markets right now and how they will change in the future.
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