
Lenny Baum as trader (1982) [pdf] - scottlocklin
https://klendathucap.files.wordpress.com/2017/08/baum-as-a-trader.pdf
======
avvt4avaw
A couple of things I found interesting in this document, speaking as someone
working in quantitative trading over 35 years later -

1\. Baum and Simons started by using a momentum strategy to trade currencies,
years before this was commonly done (it had been used to trade commodities for
decades, but was only later applied to financial assets)

2\. As well as momentum, they used a rudimentary value strategy ("a variety of
line trading in which you sell or buy a currency according to whether it is to
far above or below its line" and "I try to buy cheap and sell expensive")

3\. At least according to this document, they don't seem to have engaged in
carry trading (taking advantage of interest differentials in different
currencies)

4\. They at least considered the impact of macroeconomic variables, albeit in
a somewhat ad-hoc and non-systematic way.

Despite starting out with a momentum strategy, Baum didn't seem to subscribe
to the most common paraphrase of momentum trading, which is to "cut your
losses short and let your winners run on", as evidenced by his statements that
"I will hold positions both losing and winning for a very long time" and "I
hate to sell in a falling market" and "I am courageous in losing positions
holding on and sometimes enlarging them". I would characterize him as more of
a value trader than a momentum trader.

It was only realized decades later (in the 1990s and early 2000s) that value
and momentum strategies were particularly powerful in combination, and this
only became part of the academic record in 2013 or so.

~~~
jeffreyrogers
> Baum didn't seem to subscribe to the most common paraphrase of momentum
> trading, which is to "cut your losses short and let your winners run on"

I don't have a source for it that I can find at the moment, but I recently
read a paper showing that this advice is actually quite bad and traders
perform better when they do the opposite. (They sell losers too early (when
they would have recovered) and they sell winners too late (after they've
declined)) Of course, prospectively knowing you're selling losers to early or
winners to late is hard to do.

~~~
scottlocklin
Such a study is practically inevitable. Studies generally need central
tendency to be statistically significant. Long trends are kind of by necessity
outliers.

Both are valid and depend on your modeling and time horizon. But if you can
find a simple statistical alpha which has more examples, you're probably
better off doing that. Which is why HFT was so profitable.

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ArtWomb
If this floats your boat you should also check out a BBC documentary from just
about that time

Billion Dollar Day - a 1986 documentary about currency (forex) speculative
trading

[https://www.youtube.com/watch?v=mNmbjQhTHnE](https://www.youtube.com/watch?v=mNmbjQhTHnE)

Two interesting things. Almost everyone retires from dealing by age 30. And
its amazing, given our current age of anonymity in markets and robo trading,
just how personal FX markets used to be. Almost akin to a sitting around a
poker table. With your counterparts halfway around the globe, setting bull
traps ;)

Regarding the role of luck. Given current global macroeconomic policy seems to
be determined on the merest whims of authoritarian regimes. There is an
interesting strategy that comes with fading spikes in EM FX volatility. Very
illiquid. It's pretty much casino gaming. But with monthly swings in 25%+
range!

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hristov
Well page 6 is missing, but this is a very interesting historical document
nevertheless.

~~~
qrybam
Gave it a stab, anything with ? were (for me) illegible characters:

    
    
      I was aided in this action by (1) my personal estimates for
      very weak economic statistics for January to be reported in 
      February which others had to varying degrees of certainty,
      (2) careful attention to what Volcker said (3) my ?????? aris-
      ing from careful reading of various components of the money
      supply statistics that there was a largely technical explana-
      tion for the rapid M1 growth - the other checkable deposits
      component was growing disproportionately (4) my carry tenta-
      tive observation that the treasury one way or the other was
      collecting more money than expected which was later confirmed
      by the treasury reducing the supply of treasury bills offered.
      
      Two years ago, I would not have been able to do some of these
      things at all and some not as well since I did not have the
      relevant knowledge. I now have a large amount of financial
      knowledge and monitor many financial and economic releases
      and cost sheets. However, since everyone has the same figures
      available to him and some people actually read them, one wonders
      how you can make money in this way.
      
      In previous years, I made money in financial futures in a non
      ??????lly way once as described to you in a previous ?ess ?
      talk by observing that the winter weather was good and selling
      bonds and bills short under the hypothesis that the economy
      would not slow up as many economists expected at the time so
      long as the weather was good.  On another occasion I bought
      treasury bills because of a misallocation of supplies of 
      gasoline causing lines to form at stations under the hypothesis
      that if Americans could not conveniently use their cars then
      the economy would slow down. Of course everyone else knows
      about the weather and gasoline lines.
      
      Here is a list of some of my trading characteristics:
          1. I don't take actions except for specific reasons -
      a news item, a prediction I have of forthcoming data etc.
      Usually I will have several reasons 2 - 15 say for assuming
      a new position.
    

_edit: some words_

~~~
hristov
Wow, thanks! This is really helpful, thanks for taking the time to decipher
this.

------
dang
Anybody know the year?

~~~
grzm
Guessing from context in the document, I'd say circa 1982.

> _" Some five years ago, Jim Simons ... persuaded me to come down and consult
> for a day in March 1977."_

Also, the latest figures for reported returns in the document are dated April
1981–March 1982, so that's consistent.

