“It’s 70 percent losing trades, a bit like a trend follower.” – Barnaby Cardwell (Tweet)
In the second part of our conversation with Barnaby Cardwell, we dive into the details of his program, how he built his company, and what he thinks it takes to be a good manager of a trading firm.
Thanks for listening and please welcome back our guest Barnaby Cardwell.
In This Episode, You’ll Learn:
- What indicators Barnaby considers more reliable.
- How he gets into a trade.
“It’s not good if we come up with a new system and it’s correlated to existing systems.” – Barnaby Cardwell (Tweet)
- How important is the position sizing?
- How much AUM his model can handle.
- Risk management: how he defines risk and what he does to mitigate it.
- What he has learned from drawdowns.
“We learned that what we put in place works, don’t deviate from it.” – Barnaby Cardwell (Tweet)
- What keeps Barnaby awake at night.
“We’re quite strict on risk. So I sleep alright.” – Barnaby Cardwell (Tweet)
- Trading spread between markets and the research his firm is doing into that space.
- Why he focuses on the managed-account route.
- How he stands out from the crowd to attract investors.
“I think we picked up a lot of credibility by trading our own money. We’ve never had a bank’s balance sheet to keep us having a salary.” – Barnaby Cardwell (Tweet)
- About “key-man” risk.
- What potential investors don’t ask in their due diligence questions.
- What it takes to be a great trader.
“Be very patient, and pick your trades. The problem is, traders put on boredom trades.” – Barnaby Cardwell (Tweet)
- What books have inspired him in trading and life.
- What his biggest failure is so far.
Resources & Links Mentioned in this Episode:
This episode was sponsored by Swiss Financial Services:
Connect with Cardwell Investment Technologies:
Visit the Website: www.c-i-technologies.com
Learn more about Cardwell Investment Technologies on LinkedIn
Follow Barnaby Cardwell on Linkedin
“I make an effort not associating the size of the trade or the loss with money equivalents in real life.” – Barnaby Cardwell (Tweet)
Barnaby: We never really worked in an investment bank, so that was actually a hindrance when we began. But as years have gone by we picked up a lot of credibility by trading our own money, and also attention to risk having traded our money, we've always been very careful about risk. We've never had a bank balance sheet backing us and paying us a salary. We've had to be very careful. I think people over the years have got to know us and respect those facts. Also, we've built our own infrastructure. Nothing is off the shelf. Nothing is like what you would have in an investment bank. It's pretty much built by us.
Niels: Being different is not so easy in the crowded space of systematic trading. But never the less it can be important if you want people to pay attention to what you do. This was a clear motivating factor for today's guests when he was just starting out. Trading differently, using a less crowded time horizon and perhaps most importantly targeting a risk level in a very different and perhaps even unique way has certainly helped his firm to be noticed by institutional investors around the globe.
Introduction: Welcome back to Top Traders Unplugged where the best traders in the world come to share their experiences, their successes and their failures. Let's rejoin the conversation with your host, veteran hedge fund manager, Niels Kaastrup-Larsen.
Barnaby: ... quants, and he'll go and actually properly program it in and we'll backtest extensively over all of our markets. We'll go back through it for debugging, etc., etc. Then what we do, we then follow it hypothetically. We usually wait for it to go back through watermark before we even consider putting it in the real portfolio, just to give it an extra bit of confirmation, maybe like a forward test you could call it, in a way. So that's kind of how we operate.
Niels: Sure, sure. And you talked about certain models that you like. I think certainly part of the audience that are listening are people who obviously aspire to someone like you and are very interested in the trading aspect of things, which clearly is something that you also enjoy. But now-a-days there are so many indicators, I mean you can… I don't know… countless indicators, and everybody claims that they have the best indicator and so on and so forth. As a general rule (and you don't have to be super specific) but as a general rule have you come across some indicators that you just think seems to be more consistent, more reliable compared to others so to speak? You know indicators that are sort of the more commercial type, indicators that a lot of these systems will make use of, of course.
Barnaby: Not really! Niels: Okay, so how do you go about that? I mean what kind of indicators do you have to use if any, or maybe we can talk to that?
Barnaby: Okay, so… Oh okay, I would say that momentum in certain formats is useful. Obviously, I guess, moving averages are useful in the sense that you get the general gist of the trend. I mean however you slice and dice it, let's say a trend following system, you have to be long in the highs, right? So there's various different ways; one is building an indicator to give you that, which would probably be moving average. But there're other ways of doing things if you don't even, if you don't create an indicator, I guess there're other ways of doing it, identifying when a market moves essentially.
Niels: Sure, sure. I guess because of your short term nature, everything you do is based on tick data. Or are there any of the models that actually only rely on in the end of day data or how do you diversify across that side?
Barnaby: No, we use tick data for everything. You know, sometimes we'll make up different timeframe charts just to see if the system's good. We'll have different timeframes. We'll make a 30 second bar or one-minute bar.
Niels: Sure, sure. When you get a trigger of a model, do they just jump right in or do they scale in? What have you found to be the best way of getting into a trade now-a-days?
Barnaby: Well see, that depends on the market, how liquid the market is. At the moment because of our size, because we've got quite a few iterations, we don't tend to have to use any TWAP or VWAP or anything like that, we do a little bit on sort of the more liquid markets. But generally we can usually go to market on the entry.
Niels: Sure. And you mentioned the stop being time-based. Does that mean it's time-based for everything you do or do you actually use a different kinds of stop rules? And I'm not talking about the hard stop here, I'm just talking about the exit side of things.
Barnaby: Yeah, exits, all exits are time-based.
Niels: Right. You know in trend following, I think that one part of trend following is a little bit underestimated, and that's really the position sizing of trades. I think people don't perhaps give it enough importance in terms of what really drives performance, certainly for long term trend followers. What about the short-term space? How important is the actual position sizing do you think in terms of the overall performance driver if I can put it that way?
Barnaby: Yeah, I know what you're getting at. They're not too much. The thing is with short-term trading there are liquidities, so we do sometimes put caps in. So even if it's saying we should be trading X, we'll do it less than X, but I get what you mean there in long term trend following. You know, how much of the P&L is actually due to the fact that you've got so much size on because the volatility has decreased? And you happen to be at the start of a great trend with loads of size on and then the market expands. You know, how much of the alpha is actually because of that and not actually because of the actual tick movement in the market?
Niels: Yeah! And in a sense, having the right size is how I would describe it because it's not always necessarily about loading up. I mean you could actually be having very little on because at least in long-term trend following most of the trades are losing trades, so it kind of goes… But having the right size on is really important. But on that subject actually, what are your trade stats like? I mean how much winning versus losing percentages do you see in your side?
Barnaby: That's a good question. It's more sort of like; I would say 70% losses, so 30-40% winners. Yeah, it's not anything like 50/50, it's something like a trend follower in a way.
Niels: Yeah, well that's surprising actually. I thought it would be different when you're sort of more in the short term space. Just out of curiosity, I mean let's assume you've now crossed 100 million dollar mark. Let's assume that all winds in 2015 will blow with the CTA world, and lots of investors will come back in the space and some of them will no doubt come to you. How much AUM can you handle in your style of trading?
Barnaby: Yeah, so we get asked that all the time!
Niels: I'm sure you do!
Barnaby: You know, if we were to go up to - we could go up to say 200-300 tomorrow, that's no problem. If you were to give me one billion tomorrow, no way. But we can do it over time we just need more operational structure. We need to do more iterations of what we're doing, be a little bit cleverer in the execution. But yeah, we have no doubt that we can trade over one billion. It's just if you gave it to us now, no way.
Niels: Well unfortunately anyway I'm not in the position to give it to you today anyways. But let's shift gear to another very important topic that I think actually is where again one of the differences I've noticed about you, it's risk management. First of all I'd love for you to just define for me and the listeners, how do you define risk?
Barnaby: How do we define risk? So, what we do on the portfolio basis, we actually try and start with a set amount of risk that we want to take on the portfolio, we set that at 10% arbitrarily. We're not really targeting a volatility level, we actually target a maximum draw on the portfolio. This is basically how we used to trade discretionary. If I started in my account, getting down to a certain amount of money, I would reduce my exposure and trade very small until I started winning again and then put my size up. If you do that you can always pretty much cap your drawdown. So what we do, we set our max draw to 10% and then we allocate risk off to all our systems by dividing the number of systems by that 10%. So that's essentially how we do it, and like I said, in how I used to trade, we apply that methodology to our individual systems. So if a system draws down to its historic maximum draw, what we'll do is we'll halve its exposure. If it goes to twice its maximum draw then, to us, it probably means that we've done something wrong or the system's failing, and we'll completely reduce exposure to that particular system. So that in a way gives you a very methodical way of eliminating systems. Now also what we do is we still continue to monitor, hypothetically, the system that's gone to twice max draw. If eventually that goes through the watermark, then we re-visit the system and say, "Okay, maybe we over optimized it or something." It's still a good system, it can still make money, we've just got our risk wrong. That's only happened once. That method's in place. It enables you to get rid of individual systems in a pre-determined way. Then also we can introduce and allocate risk new systems as we research new ones and bring them in.
Niels: Sure, sure. So did you say that taking out a system completely had only happened once, meaning it went to double its max drawdown, and you had to take?
Barnaby: No, sorry. I was saying it has only happened once where it has gone to maximum draw. We've continued to watch it, and it's gone through the watermark.
Niels: For a system to meet its maximum drawdown and get halved in its allocation, does that happen frequently?
Barnaby: Not very often, it's happened to a few of our systems. Don't get me wrong, the method's not perfect. Obviously you can get whipsawed. You could cut at the wrong time and then it… But you know you have to have some sort of method.
Niels: Yeah, I think absolutely I agree with that, and your methods seem… You know, what I find interesting about it is the fact that you're targeting a maximum drawdown. That in itself actually is a bit difficult because we never know exactly what the market's going to give us. Actually, I guess, 2013 was a very good example where you had essentially managers who'd been around for 20-30 years meeting their max drawdown, but not just by a few percent. They were way beyond their previous max drawdown. So these things do happen, and I guess the only thing you can say is that your max drawdown is always in front of you, it's not behind you.
Barnaby: Yeah, unfortunately.
Niels: Yeah, unfortunately. But I find that that's a fascinating and different way of doing it. But as you say there's no wrong or right, it's just a method, of course. So having a 10% number, why did you come up with 10%?
Barnaby: That was just I think more to do with the exposure I had at the time when we started the program and that was probably why I was willing to risk.
Niels: Yeah sure, and have you reached this level at some point, the 10%? Barnaby: Yeah we have reached it, yeah.
Niels: Okay, and what happened then? I mean were you just trading incredibly small because a lot of systems were sort of meeting their drawdowns?
Barnaby: Yeah, exactly. A portion quite reduced. We have a layer on the overall portfolio as well so if we draw down on the overall portfolio, we reduce as well even if the existing systems, the ones that are doing well are doing well, we still reduce those as well, so we have sort of a double layer there. So we reduce and as time went by, and things started to perform we re-introduced some more size there.
Niels: Sure, sure, excellent. In terms of correlations, when you're doing short term trading, is the correlation between models or correlation between markets - what's most important for you?
Barnaby: A bit of both, but more importantly between models. Yeah so you know it's no good if we come up with a new system that's pretty much correlated with existing systems. You know we might add a little bit in but it's not really going to cut the mustard, you know?
Niels: I want to jump to a slightly different topic. It's related to what we talked about just before which is really drawdowns in general, and I've just got a couple of things that I wanted to hear your reaction to. Firstly, the drawdown that you mentioned where you did reach your 10% target, what did you learn from that experience?
Barnaby: Well we learned that what we put in place works and don't deviate from it. That was the biggest thing really is to be patient because markets always come back, something always happens, volatility always picks up again at some point you know. So just stay focused and research more and more, eventually markets do come back into life. There's a reason they exist because there's always risk in the environment somewhere lurking.
Niels: Sure, and I mean… I guess this is sort of an obvious question, but I'm not entirely sure what the answer is. What happens when you go beyond the 10%? Because we can't really control these things, and I guess you can't really keep cutting them. Maybe you can? But then again at some point you can't really trade and then you can't recover. So how does that dynamic work? It is a little bit different from a traditional way of looking at where people don't do what you do by cutting smaller and smaller. They just wait for the next opportunities, but they will probably take them with the same amount of risk that they had before. How do you deal with that situation where you end up going, you know at your max drawdown and maybe beyond that I guess?
Barnaby: I mean if it got to a state where we were going through a maximum draw and very, very little size it would probably indicate that something is completely wrong with every single system we've built. It's probably time to call it a day. That's how I'd answer that question. Probably highly unlikely because we're always researching new stuff but you know that is how I would approach that question.
Niels: Right, fair enough. In terms of drawdown from a different point of view and that's the emotional side, I know you're systematic, but we're all human beings. Is 10% something that you don't really worry about? Because in many minds I think that people would say 10% is not really a big drawdown, I mean it's something you can lose on your stock portfolio in a couple of days really. So the emotional side of a drawdown for you, how do you handle that?
Barnaby: Well like I said in sort of the beginning, emotionally how I dealt with it is just to trade less… when I was trading discretionary was to just trade less than their size.
Niels: But I guess my question is, does it help you emotionally, the fact that you…you know you've set yourself a target that is 10%, which is in many minds actually not a very big drawdown. So is that also how you get through that period because you don't really worry about it? I mean whether you're down 8% or 7%, it's not a big deal? If I can put it that way?
Barnaby: Yeah I guess so, it gives me some sort of comfort knowing that there is a figure. As I said, I mean the 10% was more… I guess it's arbitrary, so if it's a managed account, you could set your leverage to what you want. But yeah, there's some comfort there having a figure at least.
Niels: Sure. How about investors? Do you think it helps them as well the fact that you have a number? Or how do you help investors through a drawdown in your experience?
Barnaby: I think it does help investors, although a lot of them really only are interested in the volatility, they don't actually know when you fail as a fund or as a program. But when you try and get across… If it goes too much beyond 10%, then we're doing something wrong, so you know that it's probably time to pull your money. If we go stock below 10% for a very long time, it's more of a trigger point for them to say. They know to call it a day. Whereas if you just have a volatility target, you know where do you call it a day - at two times volatility or three times? You know they'll never pull the trigger to get out of it, but at least it makes their job easier.
Niels: Sure. So there's a little bit of time-based exit for the investors as well I guess?
Barnaby: Yeah! Maybe yeah!
Niels: Now Barny, what keeps you awake at night? Just sort of finalizing the whole risk aspect, what are the risks that you worry about when you lay at home, you know awake thinking? Or is there anything at all?
Barnaby: No, I don't worry about the risks. I think we've done so much homework you know, so much testing on everything that we know we've done a good job there. You know we're quite strict on risk. It's like I said, I pretty much always traded my own money. I'm very careful. I've got a lot of my money in the program, so it's… you know the way to combat that is to have those processes in place and to do your homework and backtesting properly.
Barnaby: So I sleep alright!
Niels: That's good to know! I want to jump to another topic that is just research. We've touched a little bit upon it now. Investors, they usually want managers to innovate, do research, on the other hand they don't want you to change, don't want you to have style drift and so on and so forth. How do you balance those two slightly contradictory objectives that people put on us?
Barnaby: Yeah, I think the important thing is to stick within your time frame really. If you stick within your time frame, I don't think you're going to get too much style drift anyway. I think that's probably the best way of approaching it. This is a tough question! I think that if you stay within your timeframe, it's easy for us because we're systematic, and we're never really have any fundamental inputs into it. So I think it would be very hard for us to start having any style change anyway.
Niels: Sure, and you know when you sit there, and I don't know whether this is exactly how the process works, but when you sit and make your hypothesis and your sort of kicking around in your research brainstorming meetings, what's the conversation like? What are the things that you for example at the moment, what are you talking about? What are some of the themes that you're discussing and finding interesting?
Barnaby: Well one of the things at the moment that we're looking at is finding a systematic way of trading to spread markets. But it's tricky in itself, creating the data set. That's difficult. But I still think that there's actually momentum in spreads, especially proper spreads. You know, energies, energy complex, interest rates spreads, things like that. So we're having some sort of debate on that, whether it's even worth going down the route of creating the data set. It's going to take a lot of time, but it will differentiate us. So yeah, that's one of the areas. We're also trying to implement Asian markets intraday we’ve got Asian markets on more of a sort of longer-ish systems, but because we need direct market access, it's been very hard but we're overcoming that now. So that's going to add a lot of different alpha to our portfolio.
Niels: Yeah, definitely. Do you believe that models have a certain life span? I mean do some of your models decay and stop working? And is that natural?
Barnaby: Well like I said earlier, none of them actually decayed to the point where we've completely cut them out. I said one had gone to double max draw then back through watermark. None of them actually at the moment have got to that effect. Whether they keep going in future years, I have no idea.
Niels: That's interesting, I mean I've certainly heard from other short term firms, some very big ones, who do see model decay and actually believe that part of what they're offering to investors is their constant ability to innovate and come up with new ideas and new models. So that's a very refreshing point of view that you can actually have models that last for the long term as well in the short term space so to speak.
I want to jump to the business side of your firm and talk to you a little bit about that. In my introduction, I mentioned that, to me at least, it seemed like you've gone slightly a different route when it comes to investors accessing your firm. So rather than offering funds where smaller investors can jump in, you seem to be focusing on sort of the managed account route. What lead you to go in that direction and how do you see sort of your own expansion, your own diversification of your client base evolve from here?
Barnaby: Yeah, so actually just to clarify that, we actually had a co-mingled offshore vehicle when we started, but we only ever got up to sort of 8 million dollars on that. It was costing us a lot of money to run every year. We came to the decision after trying to raise assets; it's pointless having this vehicle. Everybody wants a managed account. Everybody wants to be transparent, especially on the institutional level. It was pointless having that vehicle, and so we made a decision to ditch it. I've got no regrets about that. So going forward, we'll continue to do managed accounts because that's what clients want, that's what the institutions want. In terms of who we're going to get, we fit very well within an existing bucket of CTA's, because we're uncorrelated to indices. We fit well with existing fund the funds of CTA's. We still do very well in a macro portfolio as well, even a portfolio of stocks. In long only stocks, we fit in well. So we'll continue to approach institutions, pension funds, we've already got a pension fund mandate, so that helps. Past extensive DEQ tests, so that's sort of where we'll focus our marketing efforts going forward.
Niels: Sure. Have you found a great way to stand out? I know you mentioned in the beginning that you try and stand out by not just being another trend follower. And that's fine, you know obviously performance is one way of points of differentiation but is there any other way you've found that works well, when it comes to trying to, you know, in a very crowded space now-a-days to attract investor's attention?
Barnaby: Yeah, so a few things really. What you were saying earlier, we have a quantitative approach, but we've got a nice qualitative overlay because in my and Tim's experience trading over the years, trading discretionary, very short term. And the fact that we never really worked in an investment bank, so that was actually kind of a hindrance when we first began. But as years have gone by I think we've picked a lot of credibility by trading our own money, and also attention to risk having traded your own money. We've always been very careful about risk. We've never had a bank balance sheet to keep backing us and paying us a salary. We've had to be very careful. I think people over the years who've got to know us and respect those facts. And also I think another unique point, is we built our own infrastructure. Nothing's off the shelf, nothings like what you'd have in an investment bank, for instance. It's pretty much built by us, how we want it, how we like it, how we want it to work.
Niels: Sure, sure. Now I know you don't have this challenge if you don't have a co-mingled fund, but I'm just curious anyway of your feedback and observations. Now-a-days when you run a fund and if you are a CTA, I can imagine in particular in a case like yours, you probably wouldn’t be using much of the money for margin purposes with the level of volatility that you have. What do you do now-a-days as a manager do you think with cash? I mean where do you park cash now days?
Barnaby: That's a good question. When we had the co-mingled vehicle we would literally just put it in treasuries, and they were yielding nothing, but that's what was in our offering memorandum. That's what our clients wanted. There really isn't much you can do, especially now it must be horrendous like you said, you're getting nothing basically. Maybe you're going to get negative soon? Who knows?
Niels: Sure. In where I'm sitting, the yields are negative! So that's certainly a possibility. I wanted to ask you a slightly different question that goes a little bit too again being an entrepreneur and so on and so forth. I mean you seem to be a careful chap anyway, and obviously you mentioned, you're focusing very much on the risks and that side of things. But there's something about being an entrepreneur. I mean it is about risk taking essentially. I mean you start out by taking a certain amount of risk because you really don't have much to lose. And then a few years later you succeed and you've built something that obviously is valuable. It's very natural for many people to become more risk adverse and to one, to protect that. I know very few managers actually who over time have continued to take the same amount of risk when they started to when they are much bigger and much further into their career. Only a few names actually come to mind. How do you think, or is that something you thought about as you've grown your firm now that it's something that maybe you need to consider at some point?
Barnaby: Maybe, I haven't really considered it. I guess it's easier for me because I've got a systematic program. It's different. It does take a lot of the emotion out of things anyway. I know pretty much where my drawdown is. I know how much my risk is. It's very easy for me. I can… I wouldn't say sit back, but I can just keep plugging away and getting assets in and then putting more of my own capital in. I know the where the risk is, and I know the draw drawdowns. So no, I don't find any stress there going forward. It's not easy, but it's not hard for me to carry on.
Niels: Sure, sure. In terms of infrastructure and where you are today. I'm not saying that it won't change tomorrow or next year, but at the moment do you find that people would say that there is a key man risk relating to you as a person? Or is there enough diversification now in your research team, your quant team, that people don't consider that side of things? Because that's often a question that managers who are growing and coming up in the world, so to speak, will be met by.
Barnaby: Yeah for us, not at all really anymore. You know we're at a good enough level now as the eight of us, three quants. As I said, we've got a backlog of ideas already in the bank. We could do loads more iterations of existing systems. There's very, very little key man risk anymore. And like I said, we're going to hire a couple more quants this year, it's only going to get better. So no, we don't really get that question anymore.
Niels: Sure, sure. We talked about the volatility and the drawdowns and the emotional impact that it may have and in your case not so much because you have your ways of doing it. What about big swings in AUM? As growing your firm, you probably have seen some swings I would imagine. How do you handle that side of things?
Barnaby: To be honest we've been pretty stable, it's been slow but been pretty stable. So we haven't had to experience that yet. So don't get me wrong because we still have been going forward. As I said, and again it's important to plan our business, it's important to build up a war chest, it's important to know what you can cut it down to if you needed to. You know, and we have actually thought about all those things going forward.
Niels: Before we sort of jump on to the next section of questions, I wanted to ask you something. And that is either you've probably been in quite a few due diligence meetings over the years, and probably even more due diligence phone calls and conference calls, people asking you lots of questions. But what are the questions you think that investors never ask you? That you really think that they should be asking you when looking at a strategy like yours?
Barnaby: There have been so many questions, I'm trying to think… well I'll say one thing, I don't think they do enough on the background, the character of the person.
Niels: Okay, and why is that important do you think?
Barnaby: Well, I think it's very the psychological aspect and the personality of the person. Like you were alluding to earlier, what's the probability of them continuing, for instance? That's an important factor which has never been asked. You know, are they about to start a family, or this or that? You know, these things affect people, and I think there maybe should be a bit more profiling on the head people possibly.
Niels: Well yeah, absolutely. I mean again it's a balance isn't it? Because some people might find it a little bit offensive if in a due diligence meeting you're asked, "So how many children are you planning to have in the next five years?"
Barnaby: Yeah, well maybe?
Niels: "Let me just talk to my wife, and I'll get back to you on that one." But it's interesting because you're right I mean, it does play a role, of course. And I think this is also why I do what I do, which is, I spend a lot of time trying to document these stories. Because I don't think you can really understand the numbers of a manager if you don't understand their story. Usually there's a quite clear link between the two, yet most people certainly in the initial phase only really judge the numbers. They never get to talk to the manager and maybe even go back in their story so much.
Barnaby: Yeah, totally agree there.
Niels: Let me jump to the last section of our conversation Barny. I call it general and fun, so it's a little bit of everything so to speak. But I wanted to ask your opinion as to what does it take to be a great trader? What are some of the key traits that you need to have in order to succeed?
Barnaby: Yes, so I would say some sort of competitive edge. You want to win basically. On many levels, I think that that's got a lot to do with it. That keeps you in the game when it's tough, that desire to win. I think that's very important. Also… I wouldn't necessarily say… well yeah, ability to take risk, but it's calculated risk, it's ability to take calculated risk and not fret when things go wrong. It's a tough question. As I said, I've backed a few traders over the years.
Niels: Why did you do that?
Barnaby: Well, just to give some guys a go. To see if I could teach some of what I was doing. I would say it was partly successful. A lot of them didn't make it; some of them went on to make some good money. You know I've got sort of mixed feelings about it.
Niels: What did you teach them? So they come to you, and you decide to back them, you give them some trading capital. What did you teach them before you allowed them to trade your money?
Barnaby: Very basic stuff, you know a lot of a bit of technical analysis, bit of fundamental analysis, it wasn't too much really. It's more about actually getting stuck. We were lucky because we had simulators back then so you could do a lot of work there. The biggest thing I was trying to have a home to them was to be patient. I guess that's one thing I forgot to mention was to be very patient. Really wait to pick, pick your trades because they do come along. The high risk of all trades does come along now and again. You know, the probability of winning comes. They do come along. You do get some good ones and the problem is traders get impatient. They're stuck in front of these screens, and they just put on boredom trades and lose, just trickle away money when you shouldn't be trickling away money. You know that's so important. I also use to hammer home about cutting your losses. You know if it's just not right, get out. If it's just not going right, get out. That's easy to do if you've got very small size in the markets, you're trading it liquid. The again, it's a different ballgame if you're doing a few sizes in liquid markets. That's something I'm probably not an expert in. But if it's liquid, chop it. You can always get back in again, no problem. You've only lost a bit of commission.
Niels: Yeah. The people who didn't make it, were there any common things that were the reason why they didn't make it?
Barnaby: Yeah, I guess some were I guess just scared. They couldn't increase their size, had a lot of problem mentally increasing size. You know it was never a problem for me. To me, it was just numbers, whatever. I never really cared about the P&L it was just about here's whatever. You're doing a 10 lot in the Bund, you're doing a 50 lot in the Bund, or 400 in the Bund, whatever, it's just a number. Whereas some people really associate the trade with the actual money, and what money can buy. You know sometimes you hear some traders say, "Oh I could have whatever, bought this and that. I could have bought a car for what I lost today." I've never… I think I've said it once in my whole entire career that, "Oh I could have bought this today." I make an effort not associating the size of the trade or the loss with things in real life, money equivalence in real life.
Niels: Sure. Did you always have an entrepreneurial gene do you think, or was that more coincidental?
Barnaby: I don't know, probably more coincidental. As a kid, I wouldn't say that I'd been very entrepreneurial. I hadn't set up any businesses or anything like that. You know I had a few jobs, tried to make some money. But I didn't know that really until I got out of University. I guess my focus was always to get through school, get good grades, go to University, and then deal with that side. But I guess a lot of entrepreneurs are doing it from a very young age.
Niels: Sure, sure. And what about your own aspirations? Meaning… or maybe I should rephrase that. People that you aspire to as you grow your business, as you started out looking at these firms out there, was there anyone, in particular, where you said, "Gosh, I think 'so and so' is doing a great job, I would love to build a business that looks like this!" Are there any people that you've looked up to in that regard?
Barnaby: I guess there's a few. Jim Simons, Renaissance - that's an amazing business, how he's built it, also, Paul Tudor Jones, you know he was in the first Market Wizard's book. I think he was in the first book? Or was it the second book? I don't remember. But I've got actually a friend who works there as well, so it's even more interesting to me now seeing how they operate and how they allocate risk and whatnot. Who else? QIM, because they're quite new… new-ish. I guess they're slightly similar to us in some respect as well. They've done a great job. They're growing pretty quick. Yeah so a few, I wouldn't say anyone in particular but they're all great stories, they're all fascinating to watch.
Niels: Yeah, absolutely. And what about, I mean you've obviously, clearly were inspired by the Market Wizard books for good reason. What other books have inspired you? Not necessarily just for trading, it could be other kinds of inspirations that helped you along the way?
Barnaby: Let me think, well in terms of other trading books, there's one called Trading In The Zone, which really addresses the physiological aspect of trading. It was very, very useful when I was a discretionary trader; it goes very in depth. That's a really, really good book. I forgot the author. I think the author's like Mark Douglas possibly - off the top of my head. That was a really fascinating book.
Niels: As an entrepreneur, Barny, we have our wins, we have our failures. What's been the biggest failure for you so far?
Barnaby: Biggest failure, I think one of the biggest is probably not being a bigger AUM now. I think we thought that we would be a bigger AUM now, but I sort of realized that most of it has to do with market cycle, and I've learned a lot from that. You can have a great business, but if you get in at the wrong time with the business cycle, you know things are against you. So I've learned a lot there from an entrepreneurial point of view. What are the failures? Not too many. I'm quite pleased with the way things have gone, to be honest.
Niels: Well that's good! That's great! What's the most difficult thing that you do as a hedge fund manager or as a CTA? What's the most challenging thing that you deal with now-a-days?
Barnaby: Challenging, things least on my order of liking is probably doing investor conferences, phone calls. I'd rather just be in the office, you know helping the quants researching new stuff. That's what I enjoy, and then having to go through our brochure for the 100th time - it's quite hard. It's nice to have this interview actually, it's a bit of a different, a breath of fresh air. But yeah I don't particularly like that part. I've got a marketing guy; he's pretty good. He takes a lot of that work off me. So does the co-founder, Tim Marchant as well, he's good there.
Niels: And regulation I guess might also be on the list?
Barnaby: Yes, yes! That one as well, regulation, due diligence documents, updating due diligence documents, stuff like that. But you know, it has to be done.
Niels: It has to be done, absolutely, absolutely. Now based on everything you've learned to date, if you were going to start all over today, what would you do differently this time?
Barnaby: Yeah, that's a good question. What… in terms of the fund, the program? Or trading overall?
Niels: Yeah, or yeah maybe. I mean it could be pretty much anything really. It's your choice, but is there something that you feel you really learned from doing it over many years where you said, "Yeah, I wish I knew that 10 years ago?"
Barnaby: Yeah I mean maybe our approach to the fund, the program at the beginning, we could have I think maybe hired more people quicker. I think we could have done our pitch a lot better in hindsight. We could have marketed ourselves a lot better. We wouldn't have bothered spending all that money creating a co-mingled vehicle. We would have just done managed accounts from the off. You know we weren't really to know the marketplace would change like that. There's probably loads of things if I go back and analyze it in detail. I guess it's all hindsight right?
Niels: Yeah exactly, that's very true. You mentioned you have children if you could pass on one of your skills to your children, what would that be?
Barnaby: Don't be afraid to take calculated risk, don't worry about failing you know?
Niels: And why is that so important do you think to distil into our children?
Barnaby: You'll just get more out of life, you'll get further. Don't worry about failing because you won't learn if you don't fail.
Niels: No, that's very true. Now is there a fun fact, Barny, that you can share that something that people who might even know you may not know about you?
Barnaby: Oh dear, I'm trying to think there. Like what? Give me an example.
Niels: Well, I've had people who had skills you know from imitating other people. I had a very large global macro guy saying that actually most of his ideas come when he is taking his shower in the morning, so he actually keeps some kind of… I don't know exactly how he does it, so he can write down his ideas while having a shower. Some very interesting answers, I can't even remember them. But just something that people might not know about you, something that could be fun, it could be different. I don't know. I want people to get to know you Barny as you can clearly hear.
Barnaby: Yeah, well one ridiculous thing I'm quite good at is I can recognize a pop song very, very quickly, like literally within like a couple of seconds. It's very weird. I just, yeah, good for a pop quiz.
Niels: Oh yeah! I was going to say, yeah maybe that's what you should sign up for!
Barnaby: That's what I'll do, yeah, when I retire.
Niels: Your investors might be a little bit shocked when they see you on a Saturday night pop quiz show. But you never know, you never know. Now I said earlier in our conversation that investors, when they come in, may not be asking you the right questions. So I'm going to turn it on myself today. Is there anything that I've missed in our conversation today? Something you want to bring up so I can do justice to you and to your firm?
Barnaby: Let me think. You've been pretty thorough; I'll tell you that! I think you pretty much touched on everything we've done. I mean maybe the fact that we've managed to go through watermark every year, since inception. I'll be it by not very much, but considering the state of the indices, I think that's quite an achievement. You know even if our sharp ratios don't reflect that, I still think it's quite a unique point to us as a program.
Niels: Sure. I want to end up with something that I've not done before, so bear with me here. But you mentioned… and so I wanted to test you as well as a little bit here Barny if I may? You mentioned the thing about improving the pitch. Now-a-days, I don't know whether you tried it in London, but recently I got into this world of Uber, where you can get your taxi, your Uber, by pressing a button on your smartphone and it tells you exactly when the Uber will arrive. So if you were standing on a corner with a potential investor, and you pressed your Uber button and it says, "Two minutes.", how would you pitch your firm in two minutes to a potential investor? What's the real Cardwell that you want to convey to people here that we're ending up today, our conversation?
Barnaby: You want me to give you a two-minute pitch?
Niels: No, I just want to give you, sort of summarize everything we talked about so that people who have patiently been listening for two hours who may have forgotten the first part of it, actually get a chance to just get your summary of why they should reach out to you guys.
Barnaby: Okay, so just to summarize, we're a managed futures program. We're short term duration. We're fully automated. We're fully auto-executed. We try and cap our drawdown to 10% that is fairly unique. We don't just target volatility. We've remained uncorrelated throughout our program history to the existing CTA indices. I've always traded my own money. I pay careful attention to risk because I've always traded my own money.
Niels: You've never had a losing year Barny; you need to mention that.
Barnaby: Well, we've lost a little bit on management fee, but yeah generally never had a losing year, like I said, gone through watermark every year.
Niels: Sure, that's the Uber pitch! That's what will be the new.
Barnaby: We've been going for two hours now! I'm a bit drained!
Niels: Absolutely, and good on you. So before we finish Barny, what's the best place where people can reach out and learn more about you guys?
Barnaby: Yes, so, well you can find us on LinkedIn. We're also redoing our website at the moment, so at the moment it's C-I-Technologies.com. We'll probably keep the same web domain. We're doing nice website for people to look at as well. In general LinkedIn is a good way to find out about what we do.
Niels: Sure, great stuff! And, of course, there will be lots of details and, of course, all the contact details will be on the show notes page for this conversation on the Top Traders Unplugged.com website.
So that really only leaves me Barnaby to say you know, thank you ever so much. I thoroughly enjoyed our conversation and your willingness to be transparent and open and talk about all these weird and wonderful things that we do in the CTA space. So I appreciate that, and I look forward to catching up and checking in on what great work you do, and wish you all the best!
Barnaby: Great! Thank you very much, it's been good! Fun!
Niels: Excellent! Take care! Bye.
Barnaby: Take care, bye!
Ending: Thanks for listening to Top Traders Unplugged. If you feel you learned something of value from today's episode, the best way to stay updated is to go on over to iTunes and subscribe to the show so that you'll be sure to get all the new episodes as they're released. We have some amazing guests lined up for you, and to ensure our show continues to grow, please leave us an honest rating and review on iTunes. It only takes a minute, and it's the best way to show us you love the podcast. We'll see you next time on Top Traders Unplugged.
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Date posted: 05 Mar 2015no comments