Dear Connors Research Traders Journal Subscriber:
Lessons learned from a hedge fund which has average over 40% a year for 20 years.
Here is a fascinating article from Institutional Investor magazine on Joseph Edelman, a hedge fund manager who has achieved over 30% annual returns after fees for two decades. Edelman runs Perspective Advisors, a multi-billion hedge fund which primarily focuses on one sector – the biotechnology sector. I’d suggest you read the article first and then we’ll together look at, and learn from, the likely reasons he’s been able to achieve what few others have been able to do. The 41% Man
The 7 Likely Reasons for Their Success
Edelman is in an Industry which is predominated with stocks that have the potential to make asymmetrical returns. Nearly year a number of biotechnology companies have major breakthroughs and see the price of move up hundred and sometimes thousands of percent. This is like the venture capital industry / you can have plenty of companies go to zero and still make tremendous returns owing an early stage Facebook, or Uber or any other tech company that has risen tens and even hundreds of times its value. Move like this don’t happen in the majority of industries – they do happen in technology and biotechnology.
He uses superior Money management principles. In my opinion, it’s as powerful as his stock selection.
They buy on the way up. It appears analysts underestimate the impact of the event ties further to the study finding investors under react to 52 weeks – gives these guys opportunities to buy lower.
They are single-minded in one industry.
They don’t need a big staff with hundreds of PhDs and quants to achieve these returns. Streamlined decision making makes for smarter decision making.
They trade both on the long and short side. They know stock prices go both up and down – they’re short book either smooths returns or is an alpha generator for them.
They wisely use options. Most great trades and investors do – even Warren Buffett who may be one of the most profitable options traders in history. Options trading, applied correctly, become weapons for the best traders and funds.
You may not trade biotechnology stocks but you can replicate the process above. In summary, this process is:
Buy stocks (or any investment) that has the potential to achieve asymmetrical returns.
Money management is as important as stock selection.
This one is for investors, not traders – if you have conviction, and the fundamentals support it, buy more on the way up.
Be single-minded in your focus. They’re great in one industry. Unlike CNBC which bounces everyone all over the place, Perspective focuses on only one thing.
Streamline decision-making processes.
Trade both on the London side and the short side. Yes, this is the longest bull market in history. It’s a wonderful anomaly. Eventually, a bear market in the US is going to occur because that’s simply the way markets work.
Make options a weapon for you. They potentially limit your risk, potentially allow you to achieve asymmetrical returns and they potentially add to returns by bring in additional income. Many of the greatest traders and investors use them – you may want to do the same as they do.
I hope you enjoy and learn from this issue of the Connors Research Traders Journal
Connors Research, LLC.
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