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
valued at $11 billion
It all started when…
Steve was 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
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
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
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
Here’s where it gets a little dangerous to try to follow in
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 1980s was just starting
When he started S.A.C. Capital in 1992, the roaring
bull market of the 1990s 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 1990s, 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
However, that party has come to
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
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