The Anti-Buffett: Avoiding Steve Cohen's Tactics
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The Anti-Buffett: Avoiding Steve Cohen's Tactics

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Steve Cohen was ridiculously good at what he did, but investors should shy away from day-trading and focus on Warren Buffett's time-honored buy-to-hold style of investing.

Steve Cohen was ridiculously good at what he did, but investors should shy away from day-trading and focus on Warren Buffett's time-honored buy-to-hold style of investing.

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The Anti-Buffett: Avoiding Steve Cohen's Tactics The Anti-Buffett: Avoiding Steve Cohen's Tactics Presentation Transcript

  • The Anti-Buffett: Why You Should Avoid This Hedge- Fund King’s Tactics Steve Cohen got his start by simply reading the tape.
  • Who is Steve Cohen? Founder of SAC Capital, at one time a hedge-fund with $14 billion in assets Personal wealth valued at $11 billion
  • It all started when…  Steve has a high school freshman in Long Island, and spent his days playing poker.  By the time he was a junior, he was making between $500 and $1,000 per night from poker alone!
  • When he was in college…  Cohen would sit outside the Merrill Lynch offices in Philadelphia, and watch the stock ticker whiz by.  Over time, Cohen believed he could guess the direction of stocks, without knowing anything about their underlying business.
  • After 14 years at a mid-level brokerage firm… Because of his early success as a stock trader, Cohen was ready to form his own hedge fund He named the fund S.A.C. Capital, and put roughly $12 million of his own money behind the service. He kept 50% of all profits his fund made—which was actually a step down from the 60% he enjoyed at his previous job.
  • For years, S.A.C. spanked the market, but…  Here’s where it gets a little dangerous to try and follow in Cohen’s footsteps.  Though he achieved mind-blowing results, he did so as a result of day-trading. Never holding any single position for long at all.  In fact, at one point, roughly 2% of all trades on the market emanated from S.A.C.  Study after study has shown that, for almost every investor, this is a losing proposition.
  • Cohen did have some variables working in his favor… When he started his first job out of college, the bull market of the 1980’s was just starting When he started S.A.C. Capital in 1992, the roaring bull market of the 1990’s was just picking up. Hedge funds were tiny back then, and there weren’t many people doing what Cohen was doing.
  • That being said, he was good at what he did  While many openly speculated that Cohen was trading based on inside information, those who cleared his trades deny those claims: “I’ve seen all his records, hundreds of thousands of trades, all of it, and my conclusion is simply that the guy is an artist. He looks at the stock market in chaos and sees order. He was just right over and over and over…he is the best that ever was at what he does.” -Gary Goldring, CEO of firm that cleared S.A.C. trades
  • This is how Cohen built his empire, by watching stock tickers, but…  Over time, he realized that, as more hedge funds were entering the game many were copying his tactics.  With the concurrent realization that market wouldn’t always go up as it had in the late 1990’s, he began to diversify his approach in more “Foolish” ways.  Certain divisions began to act as investors—holding shares of companies for much longer time frames—instead of simply day-traders
  • However, that party has come to an end  Over the last two years, S.A.C. has been hit with insider- trading charges that have landed some of Cohen’s former employees in jail.  S.A.C. itself agreed to pay a $1.8 billion fine  S.A.C. is no longer able to manage anyone else’s money except for Cohen’s, which is still sizeable.  Cohen’s new entity—which manages this money—will be called “Point72 Asset Management”
  • Here at the Motley Fool, we espouse a different approach  Instead of day-trading, we believe in the time-honored tradition of buying stock as long-term investors, knowing that we own part of a living breathing company, not just a virtual piece of paper.  No investor embodies this approach more than Warren Buffett, CEO of Berkshire Hathaway.
  • And we have just the thing for you… A special free report detailing Warren Buffett’s Greatest Wisdom