What It's Like to Meet With the King of All Hedge Funds
Senior Editor, CNBC.com
James Altucher has written a heartbreaking tale of how he managed to score a meeting with hedge fund overlord Steve Cohen, parlay that into a potential business deal, then bungle the whole thing when he lost confidence in himself.
Altucher had been a well-known columnist at TheStreet.com. In 2004, he'd just published a book called "Trade Like A Hedge Fund." He was running $27 million of money but finding it hard to raise capital while also making money trading. He wanted to give up on the capital raising part of the business and concentrate on trading.
One way to do this, he figured, was to get a job with an existing hedge fund and trade for them. So Altucher decided to seek out the most successful and reclusive hedge fund manager in the world, Steve Cohen of SAC Capital.
Let's not beat around the bush: this was an insane way to go about things. Altucher was a very good trader at that point. He hadn't had a down month, or even a down week, in nearly a year. His trading strategy was to look for patterns that had worked in the past 5, 10, or even 50 years, and watch for them to re-emerge. When he spotted the pattern repeating itself, he'd take a position that the pattern would continue. It sounds simple but takes both intelligence and fortitude to execute well. Altucher had both.
A sane trader might have tried to hook up with an established hedge fund manager. You'd send an email explaining your strategy, maybe try to get mutual friends to make an introduction. Perhaps a guy with some extra capital to put to work would give you a chance.
Alternatively, you could try to set yourself up with a start-up and piggy back on their fund raising. Or just go and find a great client-side guy and get him to start shaking hands and pitching to the fund of funds guys.
Instead, Altucher decided to start emailing Cohen out of the blue. They'd never met. For all Altucher knew, Cohen had never head of him. Cohen is an extremely private guy, despite being the "king of hedge funds." He has probably only given two or three interviews to journalists in his life. There's an almost magical a cone of silence around him, as even disgruntled former employees rarely talk about what it's like to work for SAC Capital.
What's more, Cohen is a very big deal. Writing to him because you think you are a good trader is like writing to Barack Obama because you think you've got some ideas about how to get businesses hiring again. Actually, that's not quite right. Obama might well be open to good ideas about hiring, since nothing else he's tried has worked. So let's say it is like writing to Mark Zuckerberg with your ideas on how to make Facebook a more successful social network.
Altucher didn't even have Cohen's email address. He just emailed every address he could think of that might be Cohen's email address. All told, he sent about 30 emails. Nothing came back. So the next month, he sent out another 30.
The next thing that happens is even crazier: Cohen responded. They exchanged instant messages. Cohen invited Altucher in for a meeting at SAC Capital's headquarters in Stamford, Connecticut. Altucher, however, doesn't drive. So he got a local car service to take him over there. An out of work friend promised to drive him to work every day if he got a job.
So Altucher goes to SAC Capital. Here he explains what it was like to meet with the king of hedge funds.
I waited for about a half hour. It was near the close of the trading day so I assumed he was busy. People were walking in and out of the building. They were all wearing these fleece jackets that said SAC Capital on them. They were like a big family. They all loved each other. I could tell. I wanted to be part of the family also. So I could love them and they could love me. We would joke around at lunchtime. Maybe we would make fun of Cohen and all laugh but all nervously looking around to make sure he wasn’t there. Slowly we would get to know each other and, when they were comfortable with me, maybe they would invite me over to dinner to meet their family. “This is that new guy I was telling you about. Thank God Stevie Cohen hired him!”
Finally, someone came to get me, “He’s ready for you now.” She brought me to another person who wasn’t Stevie Cohen. And then this person took me to Stevie Cohen’s office. His office was the size of a small football stadium. I had always heard he sat out in the center of the trading floor with his traders but this was his private office. If he were Dr. Strange from Marvel Comics this would be known as his Sanctum Sanctorum. He was sitting on the couch.
“So this is the famous street.com columnist!” he said. I sat down across from him.
“Why do you want to start trading for me?” he asked.
“Its hard to trade, raise money, manage a business,” I said. “I think the economics work a lot better if I’m managing money for you.”
“You’re absolutely right,” he said.
We went over my strategy. I gave him a copy of my book, “Trade Like a Hedge Fund” that just came out. My basic strategy that I traded was similar: look for patterns in the market that have worked over the past 5, 10, even 50 years. If those patterns occur again, then trade them.
“I like this approach,” he said, and he took my book from me, “I like to look at market history.”
He got up. The meeting was over after about ten minutes of talking. One thing he told me as he got up was that this was his worst trading day in about six months. But he didn’t seem bothered. Or at least I couldn’t tell. Which is very different from how I react when I have my worst trading day in six months. When I have my worst trading day in six months, everyone around me can tell. They can smell it on me. That what separates the greatest trader ever from a trader like me.
We started to walk together out the door, down the hallway. “Lets do this,” he said, “ why don’t you instant message me before you do a trade for the next few weeks. We’ll see how it goes in real time.”
Somehow Altucher had just won the interest of the greatest hedge fund manager in the world. But instead of being elated, Altucher immediately finds himself burdened with self-doubt, almost self-loathing. He walks out of SAC Capital alongside Cohen. No one says a word to Cohen, likely because they are too intimidated by him, worried that they'd have nothing worthwhile to day.
Altucher should feel elated that he has the ear of Cohen, that he's chatting with the king of hedge funds while the employees slide by silently. Instead, he assumes that everyone at SAC Capital communicates psychically. They don't even have to talk. The flip side of this that Altucher thinks he is still on the outside, excluded from the secret mental language of the SAC Capital folks. He imagines that when strangers aren't around, the SAC Capital people hug each other a lot.
What an epic conquest of self-doubt over reality: here you are chatting with Steve Cohen and yet you are imagining you are being excluded somehow.
The next day, Altucher starts sending trades to Cohen. They aren't working. The first seven lose money. Cohen writes back: "Don’t worry. This happens.”
But Altucher has failed. He doesn't send another trade to Cohen. And when Cohen, the king of all hedge funds, reaches out to Altucher to ask where he'd gone, Altucher just doesn't respond. His shame had conquered all the boldness that had put him in the office of Cohen in the first place.
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