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+17,2 % !! This is the average annual net return that Scott Ramsey has achieved over the past 11 years. Scott is a trader known and famous for his expertise in "Futures". He knows how to combine high return with risk minimization. How does he achieve such results? What are his financial and psychological techniques? Focus on a Gifted Trader like no other.
Scott is an atypical person. Unlike many other traders, who enjoy trading in the heart of financial centres such as London, Singapore or New York, Ramsey has migrated to the British Virgin Islands. He has set up his hedge funds, Denali Asset Management, in a shopping centre. But his uniqueness dates back to his student years at the University of Missouri. Scott dropped out of his final year with an excellent overall average and only 9 credits left to validate. The reason is that he knew what he wanted to do, namely trading! So there is no longer any need to study at university. Trained as a mechanical engineer, he developed a passion for economics and finance after choosing these subjects as an option, on the recommendation of his father. That's when he started reading the Wall Street Journal during the commodities boom in 1979. Almost all the values were rising. He wanted to invest and start trading in commodities.
"I really had no idea what I was doing. I would buy something, and when the price went up, I would sell."
Like any good trader, it took a setback for Scott to understand the rules of trading. He had bought silver for $50. And unfortunately, a decision by Paul Volcker, former Secretary General of the Federal Reserve, caused everything to fall apart and destroyed the upward movements. Mr. Volcker raised interest rates to stem excessive inflation. As a result, the price of silver dropped to $26. "It was an experience that left its mark on you for life," he said in Jack Schwager's book, Hedge Funds market wizards. Nevertheless, after this loss, the trader of "Futures" reacted with moderation and reflection. He took the time, he started training and read a lot of books on speculation. Scott's setbacks didn't stop there. Later, friends lent him money. He rented a trading screen and started trading again. But here again, he admits to having made all the beginner's mistakes: "I stayed with my losers and took the slightest profit."
Scott Ramsey was then employed as a broker on the Chicago Mercantile Exchange (CME). He was not very happy about this job because having customers on the phone was not exciting for the ambitious young man he was. At the same time, he managed his own trading portfolio where he made moderate gains despite many mistakes. Among these, he mentions the fact that:
- It only took into account technical factors and not fundamentals.
- He would take everything he earned instead of growing his overall portfolio.
- He didn't really want to go above and beyond
"I noticed how the most obvious technical figures were often the ones that didn't work."
In 1993, Ramsey was entrusted by a friend with $100,000 to manage. He then decided to stop his role as a broker at the CME to devote himself entirely to managing his new portfolio, which had become more substantial. Later, others came knocking on his door. The only problem was that commission costs were becoming too high. In 2000, he decided to create a fund to optimize his expenses.
Let us now look at the first investments of his fund. The atypical trader bought bonds in large quantities in 2000 because he was worried about the long period of time that was favourable to equities. The economic figures were strong, the unemployment rate was very low and stock prices were at their highest (= internet bubble). Another alarming indicator, pointing out that we had reached the end of a cycle, was that there was no inflation despite all this. This period was a turning point in his methods of analysis. He began to take into account first the fundamentals and then the technique to confirm the direction of the markets. One of the major criteria in Scott's trading is Risk Management. As soon as a trade loses out over 1 day, it systematically exits and sells its position at the end of the day. His risk aversion is high. For him, a catastrophic month records a loss of 3%. He therefore uses stop to limit his losses. For him, a catastrophic month records a loss of 3%. He therefore uses stop-losses to limit his losses. Ramsey, who is now 53 years old, applies to himself a rigorous discipline to managing his risk.
Finally, Scott Ramsey says: never buy the low values of a market thinking that they will rise and catch up with the leaders. In 2011, gold increased by $500/ounce while platinum only increased by $100/ounce. Most novice traders bought platinum thinking that it was undervalued and therefore that the price of platinum would match the price of gold. They were very wrong. The opposite is true. When precious metals fell in August 2011, the 2 metals mentioned above fell by $200/ounce. Traders who took a position on platinum lost $100/ounce while those who took a position on gold were still winners. Moreover, a few weeks later, gold again reached a record high while platinum rebounded only slightly! Invest only in leading stocks.
Gifted Trader's advice: "You need to be extremely dedicated to your work. Trading is not a hobby. Keep a log of your trades. If you make a mistake on the markets, write it down."
*Source : Hegde Funds market wizards, Jack Schwager
