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PEOPLE<br />
too conservative for some investors, but it’s another case<br />
of the turtle and the hare.<br />
TRADERS´: Many Hedge Funds tend to hire more and more<br />
PhDs of physics, statistics, biology, cybernetics. In my own<br />
trading, however, I still find the easy methods do work best.<br />
What do you think about that<br />
Kaufman: That’s a sensitive issue in the Hedge Fund<br />
business. Firms that allocate money to hedge funds seem<br />
to hold value in the number of PhDs in the company,<br />
assuming they are going to keep the strategies on the<br />
“cutting edge.” My personal experience is that’s not<br />
true. You need someone with solid math skills but also<br />
market experience. You can’t create a good strategy by<br />
discovering it on a computer. It must be a sound premise,<br />
and that will only come from observing the market and<br />
understanding the fundamentals. So a new PhD is not likely<br />
to be productive until she gets real market knowledge.<br />
On the other hand, an experienced floor trader can tell a<br />
quant an idea about the way the market reacts to, say an<br />
earnings shock, and the quant can then implement that.<br />
But then so could a regular smart programmer. So it’s the<br />
concept, not the math, that’s most important.<br />
TRADERS´: If you were handling $100 million in trading<br />
capital, how would you manage it in order to produce<br />
absolute returns Which markets, strategies, time frames<br />
Kaufman: You must know that’s proprietary information!<br />
If I tell you how I would manage that now, I would no longer<br />
have a competitive edge. I will say that large amounts of<br />
capital require either many fast trading systems or a few<br />
slow trading ones. That’s why probably more than 60 per<br />
cent of all systems traded are long term trend following.<br />
It works over time and you can trade large amounts on it.<br />
The faster the system, the less liquidity, so if you’re a firm<br />
with $20 billion under management, you’ll favour slow<br />
and concentrate on risk management.<br />
TRADERS´: Is there any other piece of advice you’d like to<br />
share<br />
Kaufman: Yes, I want everyone to remember that the<br />
market keeps changing and that there are patterns that<br />
will occur in the future that we’ve not seen in the past. I<br />
highly recommend a book by Dietrich Doerner, “The Logic<br />
Book Info<br />
Trading Systems and Methods, Fifth Edition<br />
Author: Perry Kaufman Pages: 1232<br />
Publisher: John Wiley & Sons ISBN-10: 1118043561<br />
Language: English ISBN-13: 978-1118043561<br />
of Failure”, originally published in German (“Logik des<br />
Misslingens”). I’ll let the readers figure out the solution<br />
themselves, but the lesson learned will be important for<br />
trading.<br />
TRADERS´: Besides markets, what do you enjoy in your free<br />
time Also, any future projects you’re looking forward to<br />
Kaufman: Free time You think I have free time I used to<br />
play more tennis, go skiing, and diving but these days I<br />
seem to be in front of my computer more than I should.<br />
But then, I really enjoy developing systems and trading.<br />
I tried retiring twice and ended up starting a new company<br />
and writing another book. I guess I’m just lucky to do<br />
what I like. «<br />
The interview was conducted by Marko Graenitz.<br />
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