As someone who works as a coach/psychologist with portfolio managers at hedge funds on a regular basis, I have the opportunity to see the business from several unique angles. I find that, for the most part, writings from trading coaches and psychologists don't capture much of my experience. Just as there is a large gap between what is written about successful trading techniques and the actual techniques employed by professional traders, there is a significant gap between what is written about the success of traders and how success actually manifests itself in settings such as hedge funds. Here are five lessons I've learned from coaching hedge fund traders/portfolio managers that differ from the common wisdom in the magazines, seminars, and books.
1) Success is Individualized - Many writers and coaches, understandably, promote particular models of success, emphasizing common features of successful traders. While I do think there is a common *process* to developing expertise, the notion that successful portfolio managers have a common set of personality features or trading approaches simply does not hold water in the real world. It's much more important that portfolio managers understand and operationalize what works for them than fit a preconceived model of success. What works in one set of strategies and markets may not in others; what works for one trader is not helpful for others;
2) The Game is Different - This should go without saying, but it is rarely acknowledged: portfolio management in the hedge fund context is a different process from trading in the prop firm or retail context. As the name suggests, much of the success of portfolio management comes from managing ideas and positions over time, with multiple ways of expressing and hedging each idea. Too, many of these ideas are relational (relative strength based), not directional, and cut across markets and asset classes. This requires different knowledge and skill sets than trading in and out of individual markets with a directional bias. In particular, I find that writers give short shrift to the knowledge component of portfolio management expertise.
3) The Environment Matters - Many writings on traders attribute success to individual trader characteristics (personality, mindset, etc) and give very little mention to the role of the environment in the success of portfolio managers. The research, platform, risk management, and managerial support of traders matter quite a bit--so much so that portfolio managers who are successful in one setting may fail at another despite employing similar strategies. How a portfolio manager is managed matters quite a bit, and this is poorly understood.
4) Success Starts at the Beginning - Even very large hedge funds and investment banks are surprisingly unscientific when it comes to the hiring process. Much of portfolio manager/trader success or failure simply comes from putting the wrong people into positions. Because a portfolio manager has made money over the last X years, does not necessarily mean that they'll make money in a different setting, in different market conditions, or in a different regime of money management. There is much to be said for the fit between portfolio manager and the hedge fund as a firm, yet the fit is often not well understood--even by the firms themselves.
It would be great if helping hedge fund managers succeed was as simple as keeping them unemotional, as many writings suggest. The reality of the work I do week in and week out is that success is far more a function of applying specific skill sets to specific market conditions and cultivating/maintaining unique ways of viewing market relationships that capture opportunity. One size fits all approaches to coaching are of very limited utility in the real world of money management. It's all about helping professionals utilize the experience, skills, and resources at their fingertips in ways that work for them.
Coaching Professional Traders