About the site
In this blog, I’ll explore and develop my thoughts on what works in trading, generating alpha and investing in general. I’ve been trading asset classes for the past 20 years for myself personally, and since 2001 as a portfolio manager of an active global tactical asset allocation strategy that specializes in trading asset classes.
I’m writing this blog for several reasons.
Improve my trading and investing skills
I want to get better at trading asset classes, and perhaps improve to that next skill level in my trading. Mastering trading (and investing) is a lifelong pursuit, and as part of this effort, it’s time for me to start writing and reflecting.
I’m a scientist/engineer at heart. I’ve always been involved in R&D, solving difficult problems and figuring out how stuff works. That is what I love to do. I realized early in my career that writing is a critical part of learning and doing research. The process of writing helps to organize and clarify thoughts. Flaws in logic are exposed when writing (and preparing presentations). You get a better assessment of the strengths and weaknesses of your arguments through the writing. Writing can also be a creative source of new ideas.
Due to the benefits of writing, I have created this blog to get better at trading.
Help traders and hedge fund managers improve their skills
The financial markets are brutally competitive. Enhancing wealth by trading is extremely difficult – if it was easy, everyone would be doing it. There is no formula for success, just like there’s no formula for creating a multibillion dollar start-up, becoming CEO of an S&P 500 company or winning an NFL Super Bowl. Very few can add value by trading, and it’s not something you learn through studying for a CFA, MBA or Ph.D.
While I can provide a list of attributes and skill sets that good traders have, probably most important is passion. You have to love everything about trading, because you’ll be competing with thousands of individuals with better skills and resources, who are obsessive about getting better and winning the trading game.
To further complicate things, the signal-to-noise ratio in this business is annoyingly large. Depending on the trading style, the feedback process to determine “if you’ve got skills” can take years, or even decades. The financial services industry produces an enormous amount of information every day, which can be extremely seductive to analytical types like myself, leading to a lifetime of endless data tinkering in search of an elusive trading edge.
While financial services marketers emphasize how easy it is to outperform, on the other side of the spectrum is the dogmatic advice from the efficient market guys. They offer a simple and elegant argument that because there is so much competition, every tiny opportunity to systematically harvest enhanced returns from the markets will be seized upon by thousands of traders, which will thereby rapidly eliminate the opportunity.
I’m very sympathetic to this argument. It makes a lot of sense to me. For the great majority of investors (as well as professional investors), the best pragmatic approach is to take an efficient markets view of the world, and passively invest in a diversified portfolio of ETFs or Vanguard mutual funds. That’s Warren Buffett’s recommendation1, and he’s arguably the most talented investor ever known.
In this blog, I want to explore the subtleties and nuances associated with trading and conceivably identify moments in time where exploitable trading opportunities can be found. It’s like finding a needle in a haystack, and hopefully this blog will help a sophisticated trader narrow down where to look in the haystack for that next trading edge. Understanding the nuances and why there’s a trading edge (or not) can hopefully allow an individual to cut through the noise a little easier and speed up the mastery process.
Ultimately, I hope my blog can help accelerate the self-discovery process for someone considering becoming a hedge fund manager, a professional trader or devoting serious hobby time towards trading. If you’re reading this blog, most likely you’re a very talented person. The quicker you realize that trading and the pursuit of alpha is not for you, the quicker you can shift focus to becoming a good investor and using your time on a different pursuit.
Help professional and hobbyist investors get better
I’ve worked at a large registered investment advisory (RIA) firm since 1999, serving as Director of Research and Chief Investment Officer for the majority of my time. The firm is called Merriman, based in Seattle. Merriman has helped thousands of individuals achieve their financial goals through investment and wealth management advice since Paul Merriman founded the company in 1983. Our primary investment approach is essentially a diversified portfolio of low-cost passively managed index funds.
What makes my situation unique is that I’ve also managed an active asset class trading strategy since 2001. We’ve become experts on the nuances associated with the variety of investment product sold to advisors, pension plans, and individuals. I sit on both sides of the table when it comes to hearing sales pitches from the myriad of investment product suppliers, while also being a provider of investment product myself.
When examining investment product for our clients, I like to put on my “asset class trader lenses”. Is it a new asset class that will attract investors? Can the product be exploited by hedge funds if it’s poorly constructed? Our passive-investment clients have no doubt benefited from our ability to sort through the bad product as we search for tradable edges in our active trading strategies.
Finding investments that are the least exploitable by hedge funds and traders is a good start to successful investing. Also sorting through all the noise can be very intimidating and time consuming. Hopefully this blog can help an investor understand the various nuances associated with the financial markets and become better investors.
I always wanted to write a book
Writing a book has been a lifelong goal of mine. It doesn’t really matter what the subject matter is or how many copies sell. I just want to write something I’m proud of. This blog will form the basis for such a book, and I expect many blog entries to be eventual chapters.
You might ask why not just write the book privately, rather than dealing with complicated SEC non-solicitation rules. The act of writing something for all to see greatly sharpens the focus and intensity of trying to get it right. It also allows for feedback along the way and I encourage you to email me with comments and questions. Feedback always improves learning and makes the final product better.