Steve Cohen, known as the “Michael Jordan” of the hedge fund world, was once all-powerful on Wall Street. “Young traders desperately want to work for him, and wealthy people line up to give him their money to manage.” The SAC he leads is well-known on Wall Street. As a super aircraft carrier in the global hedge fund world, SAC has been consistently ranked among the top of Wall Street’s investment performance lists for many years.
In the 18 years since its establishment in 1992, SAC has had an average annual return rate of over 30%. Among them, at the turn of the century when the technology bubble burst, SAC had a return rate of 68% in 1999 and as high as 73.4% in 2000.
In 2013, SAC was charged with insider trading. The fund was forced to close to external investors and pay a sky-high fine and settlement fee of 1.8 billion US dollars.
Obsessed with playing cards and laying the groundwork for a trading career.
Steve Cohen was born in 1956 into a middle-class family in Great Neck, Long Island, New York.
In middle school, because he often made money when playing Texas Hold’em with his classmates, Cohen was very obsessed with playing Texas Hold’em.
In high school, Cohen quit his part-time job at a supermarket with a salary of $1.85 per hour because he found that working was not as profitable as playing poker.
But in fact, for Cohen, the most important thing about playing cards is not winning money. What attracts him is the excitement brought by playing cards, a sense of competition, and the weighing and thinking of risk and probability.
Later, during his school years, Cohen used all his tuition fees to open a brokerage account, thus starting his trading career.
Junior trader with astonishing results
In 1978, after graduating, Steve Cohen took a position as a junior trader on the options arbitrage team at Gruntal & Co, a small investment bank and brokerage firm on Wall Street.
On his first day at work, Cohen showed astonishing talent and made $8,000, which really stunned everyone. In 1984, Cohen, who had performed outstandingly, had his own team at Gruntal & Co. On October 19, 1987, the U.S. stock market plunged 22.6% in a single day. Cohen believed that the brokers on the New York Stock Exchange had undervalued the stock market prices. Later, he bet $50 million of the company’s funds on the stock market. The stock market rebounded the next day after the plunge. His bold bet helped the company make up for the losses.
Cohen made $100,000 in his first year and $1 million in his second year. In years when the market was not good, he could also earn $5 million. In good years, he could earn $10 million.
Later, Cohen, who had accumulated rich experience and capital, decided to leave Gruntal & Co. Before he left, he managed the company’s $75 million investment portfolio and six traders and made $100,000 for the company every day.
Establish S.A.C. Capital Advisors.
In 1992, Steve Cohen established S.A.C. Capital Advisors with an initial fund of $23 million. In the first year of SAC’s establishment, the return rate was 17%. The following year, the accounts invested in S.A.C. had an astonishing return rate of 51%. From then on, S.A.C. became famous. Many investors sent their money for management.
In 1995, SAC’s funds almost quadrupled. According to the Wall Street Journal, in 1998 and 1999, SAC Capital achieved an annual profit margin of as high as 70% for two consecutive years.
In the early 1990s, the great bull market in the stock market began. This great bull market lasted for nine and a half years in total, and the index rose by 417%. And Cohen entered the hedge fund industry at this perfect time.
At its peak, SAC had 1,200 employees, managed $17 billion in assets, was the largest contributor of commissions in Goldman Sachs’ equity department, and paid millions of dollars in commissions to investment banks every year. It became the most influential organization on Wall Street.
Be fined 1.2 billion dollars for insider trading.
In the 21st century, after the bursting of the dot-com bubble, it was difficult for hedge funds to make profits. Wall Street giants increased their investment in high-frequency trading one after another, and the track became crowded. SAC Capital, which mainly uses high-frequency trading as its strategy, could no longer make easy profits.
At this time, Steve Cohen chose a gray but extremely profitable path. He did everything possible to obtain trading information, even including illegal insider trading. The powerful information acquisition ability allowed SAC Capital to maintain a profit as high as 30% when other hedge funds were having a hard time.
SAC’s high rate of return aroused the suspicion of competitors. Even at the end of 2009, Cohen’s ex-wife exposed that he was suspected of insider trading.
On November 4, 2013, the U.S. Department of Justice announced that Cohen agreed to plead guilty in the insider trading case and pay a fine of 1.2 billion dollars to the U.S. government. This also became the largest fine ever issued for insider trading in U.S. history.
Return of the king, still glorious.
After the once extremely glorious SAC withdrew from the historical stage, Steve Cohen quickly turned the situation around and established the family-managed company Point72.
In February 2018, Cohen made a comeback again and started managing finances for outsiders. Point72 transformed into a hedge fund open to external investors. It raised a hedge fund with a scale as high as 20 billion dollars. The legendary road of the king of trading is still continuing.
Steve Cohen’s investment philosophy.
- Attach importance to market sense: Cohen said that watching the market is an art. He cannot explain market sense exactly. It is the recognition of patterns.
- Bear risks: Cohen has been very fond of playing cards since middle school. Cohen once said that playing cards has taught him how to bear risks. He admitted that he has always been not so sensitive to money. This is the same as doing trading. He pays attention to risks and trading itself, but does not consider money. Playing cards has played a decisive role in his process of learning to bear risks.
- Focus on strengths: In 2005, Cohen expanded his business from stocks to bonds, currencies and private equity. But he was not smooth and experienced the first low tide in his career. Later, he began to return his attention to what he had done the most in his early career – short-term stock trading.
- Information analysis: Since the 1980s, Cohen has begun to seriously study the situation of individual companies and frantically collect various information from the extensive network of relationships on Wall Street.
The American TV series “Billions”, which is based on Steve Cohen, can make people feel Cohen’s legend more intuitively. Interested friends can watch it and experience the trading road of the king of hedge funds – Cohen.
Reproduction Notes：InvestFancy » Genius Trader: Steve Cohen