Bruce Kovner of Caxton Corporation and the GAMut Fund
October 08, 2005
Market Wizards Index: +87%
Compound annual over 10 years
Fund or affiliation
Caxton Corporation
GAMut Fund
Methodology
Make currency and futures trading judgements based on analyzing the worldwide political and economic events.
Research/ Analytical Techniques Employed
Spend tremendous amount of time to follow and analyze intricately the economies of many different countries and integrate these various analysis into a single picture.
He gets a gurus report daily. Includes Prechter, Zweig, Ned Davies, and Eliades. He looks for consensus that the marketing is not confirming. He wants to know when a lot of people are going to be wrong.
Uses technical analysis a great deal, but he can’t hold a position unless he understand why the market should move. Technical analysis is like a thermometer.
Important to have the ability to imagine configurations of the world different from today (alternative scenarios) and really believe it can happen. Also, stay rational and disciplined under pressure.
Trading Techniques Employed
To make money, you have hold a position with conviction. It is hard to do so when you are following someone else’s.
He gets call 24-hours from his staff when currencies breaks out of a redefined (revised at least weekly) range, or if the prime minister resigns, say.
When you have a fundamental view before a piece of major news, wait til the news is out and see how the market "vote".
Kovner usually goes with breakouts.
Risk Management Techniques Employed
Place stops at where, if reached, will reasonably indicate that the trade is wrong, NOT at a point determined by the maximum dollar you are willing to lose.
Pays strict attention to the correlation of all his positions, measured by total risk in the market every day.
Loss of money slows him down, and the change in technical picture will also prompt him to reevaluate his view.
Whenever he enters a position, he has a predetermined stop.
Philosophy and beliefs
The reason Kovner is in this business is that he find the analysis of worldwide political and economic events extraordinarily fascinating.
The first rule of trading is don’t get caught in a situation in which you can lose a great deal of money for reasons you don’t understand.
A trader has to be willing to make mistakes regularly- Marcus taught him about making the best judgement, being wrong, make the next best judgement, being wrong, make the third best judgement, and then double the money.
The Heisenberg principle - If something is closely observed, the odds are it is going to be altered in the process. The more a price pattern is observed by speculators the more prone you have false signals; the more the market is a product of nonspeculative activity, the greater the significance of technical breakout.
Managing OPM represnts a call.
Believes that under a stable, moderate rates of inflation, technical trading systems will kill each other off.
Stock market has many more short-term countertrends. Whereas, commodities markets are more trending.
The market usually leads because there are people who know more than you do. e.g. Soviet Union was a very good trader in currencies and grains.
History and other facts
Worked with Michael Marcus and was colleagues of Jack Schwager at Commodities Corp.
Studied political science and economics at Harvard, also taught political science at Havard and U. Penn.
Performance Record
87% over 10 years: "During the past ten years, Kovner has realized a remarkable 87% averaged annual compounded return." MW, Jack Schwager 1989.
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