“Creativity is just connecting things. When you ask creative people how they did something, they feel a little guilty because they didn’t really do it, the just saw something. It seemed obvious to them after a while” – Steve Jobs
For Mitch (1957 – 2018)
Let’s start this one close to where we left off in The Privatization of Alpha:
“He’s a dubious character – and, he maintains specific distinction as my all-time strangest interview; sitting there in his personal office’s gymnasium – like an antechamber – as I sat there at the leg press machine in my Armani suit and him, as Tom Wolfe wrote in A Man in Full, eventually breaking out in “saddlebags of sweat” on his spin bike as we chatted. That was 1994 – and I did not get the job.”
If it had not been for the perpetually warm and generous teddy bear known as Mitch Lester – who I met and quickly befriended to become “the Wadster” in 1990 while he and brother, Andy, were brokers for Donaldson, Lufkin & Jenrette – my 30-year highlight reel in some rare corners of the proprietary trading game would not have been nearly as colorful, nor as instructive. From Steve Cohen to Soros’ CIO and partner, Scott Bessent, and a cast of global trading royalty in between, Mitch eagerly and graciously made introductions on my behalf that few others could or ever would have been willing to make.
Mitch is survived by wife, kids and brother Andy – and I want to make sure that they know he will always be loved and never be forgotten in my house. He was like a brother…
Now, when it comes to Steven A. (“Stevie” to Mitch) Cohen – founder of legendary hedge fund SAC Capital Advisors, for those that are just joining the thread here – there are few on the face of the planet who have inspired more mythology and earned more notoriety in the annals of trading and hedge funds than this guy. Take a stroll through his Stamford, CT headquarters – at 72 Cummins Point Rd. (hence the new name “Point72”) – and it’s not long before you are hypnotized into the belief that this is more art gallery than legendary trading outfit; just a small sample of the toys and trinkets that have been assembled as dividend for Steve’s knack for engaging in financial markets…
As a result, the combined track record – and 13F filings data – for the lineage of SAC and Point72 is quite long, and therefore, representative of considerable fodder for the absolute and relative study of trading strategies. Given that, I want to keep this one tight, not bite off more than we need to chew in one sitting, and with the goal of showcasing two initial observations from the modeling so far:
- Are there any detectable changes in strategy during the transition from SAC to Point72? (If so, what are they?)
- Given what we observe among other managers, what is the apparent relationship between the SAC/Point72 lineage of core strategies and ETF exposures?
Here we go:
In the chart below, Alphacution presents the SAC/Point72 lineage of 13F gross notional long market value for a lengthy, yet disguised, period of time for the purpose of seeing if the transition from SAC to Point72 causes an easily detectable shift in strategy. Is there more than a name change in this transition that occurs in mid-2014?
Chances are that unless you know this particular view of the track record extremely well, there is no detectable shift in underlying strategy. So, to extend this exercise one step further, in the chart below Alphacution presents the SAC/Point72 lineage of 13F total positions for the same long, yet disguised, period above. Here, clues of some type of strategy shift exist…
Adding the axis labels back, the chart below presents the point at which the 13F gross notional long market value times series changes from SAC to Point72. Here, there is still no discernable shift in strategy, but one thing’s for sure: As of September 30, 2018, this piece of Stevie’s book – likely his biggest piece – is more valuable than it has ever been in his storied history…
However, when we take another look at total 13F positions, there is a dramatic consolidation in position count (from ~1,700 to ~700) during the transition to Point72, which submitted its first 13F filing for the quarter ending June 30, 2014:
Alphacution’s read of this one major shift in strategy is a consolidation, of sorts, to best ideas – which resulted in a near doubling of average position size (by value) from about $10 million each to about $20 million each, see below:
Sure, there could be other explanations for the halving of equity position count. And, we would need to look at the data for affiliated managers – Sigma Capital, CR Intrinsic Investors , SAC Global, and Parameter Capital – to dig a little deeper (which we will eventually do). However, for now, it looks like Mr. Cohen closed ranks on best ideas but boosted average position value to keep maximum capital at work during the transition to a totally proprietary trading operation…
As for point #2 above, the limited use of ETFs (less than 0.9% of long market value over 59 quarters modeled so far) is unique among strategies we have explored to date; making the information implied by the chart below extremely revealing – but, not all that surprising.
Bottom line: This is clearly a stock picker’s strategy focused on harvesting very specific information asymmetries…
It’s late. Probably best to leave it there for now. 😉
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