#58 S2N: Meet 2 Legends

S2N Spotlight

Legend No. 1: Jim Simons

On Friday, May 10, the greatest trader in history passed away at age 86. He was the 51st richest person in the world when he died. I cannot overemphasise how brilliant he was. He is famous in academic circles for his famous Chern-Simons formula in geometry. However, he is much more famous in investment circles as the founder of Renaissance Technologies, the world’s most successful hedge fund management company. I think every trader dreams of cracking the markets with some genius insight. Simon’s did it. I urge you to read one of the great biographies, “The Man Who Solved the Markets: How Jim Simons Launched the Quant Revolution.”

He is less known for his philanthropy, but here is a man who grew up in a middle-class Jewish family and has already donated $4 billion in his lifetime, and I am pretty sure he will leave the bulk of his wealth to charity.

For people not from the industry, I don’t think you can understand how great an achievement it is to have a track record of 66% gross annual returns since 1988, making over $100 billion in trading profits. To me, this is better than ChatGPT version 100.

Legend No. 2: Peter Brandt

On the weekend, I enjoyed a particular thrill when trading legend Peter Brandt joined my newsletter mailing list. Peter has a 42% annualised return over 5 decades with only 3 losing years. As a trader who reads anything about trading I can lay my hands on, I had heard of Peter as this great trader who had gone decades without a losing year. Peter was also particularly low-profile compared to the big names with lesser track records. However, I knew who he was.

In 2018, I was invited to give a talk at the CMT annual symposium in New York. It was there that I met Peter, who was giving his first public lecture in something like 2 decades. It was such an honour to have met him and for him to show interest in my work. The great thing about Peter’s trading, which is very different from Simon’s, is that none of what Peter does is a secret. He is old-school and trades classic chart formations. This resonates with me on a personal level as someone who follows ancient religious traditions.

What is also so great about Peter’s approach is that it is available to everyone. You don’t need to be particularly brilliant academically or come from wealthy background to trade his approach. However, he is one in a few hundred million, so you clearly need something special. That we can explore another time.

Peter is a true gentleman, but he is unafraid to share his views. I am thrilled that Peter, who runs a newsletter service, is enjoying some well-deserved fame. His Twitter account has nearly 1 million followers; I encourage you to follow him for some timeless wisdom.

Takeaway

My takeaway from spotlighting the legends above is that true wisdom comes with age. We live in a world where instant success is glorified but true wisdom learned through experience and brilliance is often passed as lacking relevance in today’s modern world. I think longevity in this industry is a far greater badge of achievement than simply how much money you have made. I also think that ancient philosophy likes the stoics is more relevant today than ever before. Ok, let’s see if we can learn something new.

S2N Observations

One of Twitters most famous FinTwits shared a long term chart of the SP500’s 200 day moving average without the stock price just the moving average. I recreated it and it is beautiful. It is a classic case of signal without the noise, the signal being clear long trends without the daily noise of prices randomly going up and down. The classic saying is “the trend is your friend.” So is this all you need to trade a trend? The short answer is NO.

The strategy buys the SP500 when it is above the 200 day moving average (green arrow) and sells it when it is below its 200 day moving average.

So what is my point? The point I am trying to make is don’t always believe pictures with a caption until you have done your homework. Our minds are prone to deception.

At the risk of contradicting my earlier comment about being fooled by pictures with a caption. I am sharing something that I feel is worthy of further investigation. The chart above is of the Vix of the Vix that means in layman’s terms the volatility of the volatility. If you prefer a more technical term its called Volga, which is a second order derivative measure of the sensitivity of the volatility. So what has got my nervous system twitching?

I don’t know if it is just me but it feels like the world is on fire, there is conflict everywhere and we have the longest yield curve inversion since 1929 telling us a recession is coming or maybe already here. Yet the VVIX is telling us to relax everything is fine, no drama on the horizon. The VVIX is lower than it has been in more than 8 years. I am not convinced all is well in financial markets.

Finally my last 2 charts of the day. I have been saying over the last month that the Chinese stock market and the Hang Seng have been getting slaughtered and are probably looking like a buy. I am still nervous to invest in China directly as one never knows what the government might do. According to Bloomberg, China is set to switch off a live feed of foreign flows for stocks as early as Monday, the latest policy move to shore up confidence by removing a potential source of negative data.

On a relative basis I favour the Hang Seng over the SP500 over the medium term. The orange line is the SP500 which is up 79% for the last 5 years and the blue is the Hang Seng with a negative 29.9%

Here is some more perspective of the divergence of performance since 1993.

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