Prop Trading Steve Cohen SAC Style

I write mostly about commodities here, but stock trading at SAC and Steven A. Cohen are too good to ignore. Only one down year (2008) since inception in 1992 should be enough for anyone to want to learn to trade and give up being an employee.

Steve Cohen is the cover story in the April edition of Bloomberg Markets magazine.

Here are a few great motivating blurbs from the article which you can get to from the link above:

- Cohen left Long Island for the Wharton School of the University of Pennsylvania, where he would often skip class to watch stocks at a local brokerage. He taught himself to be a master “tape reader,” according to people who know him, able to predict the direction of a stock by watching each tick of the price and the volume of shares traded.

- After graduating in 1977 with a degree in economics, Cohen joined Gruntal, a New York brokerage firm. Cohen came on board as a proprietary trader, buying and selling stocks with Gruntal’s money. He thrived and in 1985 became the firm’s head proprietary trader, a job he held until 1992, when he quit to start SAC.

- In his own trading, Cohen solicits ideas from everyone at the firm, people familiar with the arrangement say. Send “Stevie” an idea that makes money and you get paid something extra, they say.

- Unlike many hedge funds, which tend to have a handful of executives making investment decisions, SAC runs what amounts to 100 small funds. SAC borrows as much as $4 for every $1 of its own from prime brokers, including Goldman Sachs, Morgan Stanley and JPMorgan Chase & Co., then distributes the hoard to various teams.

- Managers’ contracts have “down-and-out” clauses: lose 5 percent from your peak assets, and SAC can take away half of what remains. Suffer a 10 percent loss, and you could be out.

- Each team manages from $300 million to $500 million, on average, according to an SAC marketing document.

- Whether the stock is cheap or expensive is irrelevant. There must be a catalyst that will make it move