Next Perfect Trade: A Magic Sword of Necessity

Alex Gurevich

Description

The Next Perfect Trade articulates a set of principles that can be applied in discovering superior trades; those that will be profitable in the broadest range of economic scenarios. The book shifts focus from forces that drive markets to forces that drive successful trades. The robust performance of this approach has inspired the subtitle A Magic Sword of Necessity.If you think of investing as a rigorous intellectual battle, you need to prepare for it thoroughly. Get in proper shape. Learn your moves, acquire your armor, your shield, your helmet and your battle horse. A magic weapon will be wasted if you get killed by the markets first arrow. Every chapter in this book represents a step towards mastering the sword of necessity. Taking each of those steps has its own merit. Both aspiring and experienced investors can find value in this book long before the advanced concepts, such as necessity and dominance, are fully introduced. And with complete training and equipment, this weapon may give you a devastating advantage.

Informations

• Publié par: eBookIt.com
• Date de parution: 07 septembre 2015
• Nombre de lectures: 0
• EAN13: 9781456625559
• Langue: English
• Poids de l'ouvrage: 2 Mo

Extrait

The Next Perfect Trade
 
A Magic Sword of Necessity

Copyright 2015 Alex Gurevich,
All rights reserved.
 
 
Published in eBook format by eBookIt.com
http://www.eBookIt.com
 
 
ISBN-13: 978-1-4566-2555-9
 
 
No part of this book may be reproduced in any form or by any electronic or mechanical means including information storage and retrieval systems, without permission in writing from the author. The only exception is by a reviewer, who may quote short excerpts in a review.

 
 
This book is dedicated to Excalibur, Glamdring, Stormbringer, Callandor, Daystar Clarion, Terminus Est, Thorn, Yedinorog, Wirikidor, Occam’s Razor and other magic blades that have captured my imagination.

 
 
 
ACKNOWLEDGMENTS
It is impossible to mention by name everyone who contributed to the content of this book or helped me to obtain the requisite knowledge, experience and skills. All of you - you know who you are and so do I.
I thank my business partner, Chris Lutton, for his tremendous effort and enthusiasm during the process of rolling this book out; Christen Chen for her assistance with building out background data and charts; my writing teacher, Minal Hajratwala, for helping me to express myself; and the friendly staff of Philz Coffee, Sausalito, where most of this book was written, for the great ambience.
Stephen Duneier provided last moment rigorous critique; Jim Leitner engaged me in a very elucidating discussion on the use of options; and the team at eBookIt.com helped to push the project on deadline.
Jeff Bosland, Even Berntsen, David Puth, John Anderson, Mark Zarb, Sheldon He, Greg Parr and Qin Zhu are among my bosses, mentors and colleagues who generously shared their market experience.
My other guides were my math professors and teachers, who trained me in the intellectual rigor which has become the foundation of this book. Those include my thesis advisor Prof. Carlos Kenig, Prof. Robert Fefferman, Maria Yurievna Filina and Nikolai Moiseevich Kuksa.
I owe much to my oldest friends: Eugene Fink for starting to write himself and giving me no option but to do likewise, and for being my first fan; Mary Anne Mohanraj for her advice and for inspiring me with her own journey through the world of words; and David Rubin for the final proofread and for correcting this book as well as everything else I do or say.
Finally, I am grateful to my wife, Christa, who is upholding our agreement to encourage each other’s creativity, and my daughter, Anabelle, whose very presence is a continuous inspiration for me to push forward.
Disclaimer
This book represents the opinions of the author, Alex Gurevich, and should not be construed a recommendation that any particular security, portfolio of securities, transaction, or investment strategy is suitable for any specific person. To the extent any of the information contained in this book may be deemed to be investment advice, such information is impersonal and not tailored to the investment needs of any specific person. Under no circumstances should any material in this book be used or considered as an offer to sell or a solicitation of an offer to buy any security, future or other financial product or instrument. This book does not represent, and has no connection with, any current business activities of the author whatsoever.
An investment in any strategy involves a high degree of risk, including total loss of capital. The author’s past performance of the strategies described herein is not necessarily indicative of future results. It is incumbent that readers conduct independent research and do not rely on the investment philosophy and viewpoints of the author expressed in this book in making investment decisions. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment will be profitable. Readers should consider what investments are suitable for them in light of their financial condition and risk tolerance.
References to the author’s past performance are for discussion only and illustrate the impact of economic, market and other factors on the author’s decision-making process. Past performance does not guarantee future results. This book cannot and does not guarantee or predict any outcome with respect to any future investment. The author makes no implications, warranties, promises, suggestions or guarantees whatsoever, in whole or in part, that by adopting the book’s principles and ideas, readers will experience investment results similar to the author or earn any money whatsoever.
Historical data is provided solely to illustrate how the author uses what has happened in the past to construct a framework for how to view the present situation and make informed decisions. Certain hypothetical scenarios described herein are for illustrative purposes and are not intended as a recommendation to purchase or sell any security. Any projections, forecasts and estimates contained in this book are necessarily speculative in nature and are based upon certain assumptions. In addition, matters they describe are subject to known (and unknown) risks, uncertainties and other unpredictable factors.
The information in this book has been obtained from outside sources believed to be reliable, however, the author makes no representation as to the accuracy or completeness of information obtained from outside sources. The charts in this book have been provided for informational purposes only to provide readers with some clarity and context to the written text. The charts are sourced from Bloomberg, except where explicitly stated that a chart was taken from the author’s blog. The underlying sources for such charts are documented in the author’s blog and may be accessed by readers. The author cannot guarantee the precision of the charts or calculations.
INTRODUCTION
The Next Perfect Trade is a result of many years of “financial soul-searching” by a sophisticated modern investor. The underlying quest has been to articulate my own set of principles to prosper from financial markets.
If you think of investing as a battle, you need to prepare for it thoroughly. Get in proper shape. Learn your moves, acquire your armor, your shield, your helmet and your battle horse. A magic formula (or magic weapon in this context) will be wasted if you get killed by the market’s first arrow. But with proper training and equipment, this weapon may give you a devastating advantage.
This book prepares you to use one specific kind of magic:
the sword of necessity .
It is a consistent intellectual approach to finding trades which work in the broadest range of economic scenarios. Every chapter in this book represents a step towards building this approach. Taking each of those steps has its own merit. Both aspiring and experienced investors may find value in this book long before the advanced concepts, such as “necessity” and “dominance,” are introduced.
Before speaking of specific weapons, I need to describe the battles in which I fight.
I am an investment manager that specializes in long-horizon, discretionary global macro trading. It’s quite a mouthful. This long string of adjectives is needed to identify my “sub-genre” in the vast universe of trading and investing. Here’s what they mean:
• Long-horizon means that I primarily look for trades and investments that might (and often do) take years to pay off.
• Discretionary means that I, a human being, make all of the decisions. It is the opposite of automated, algorithmic trading. I sometimes do use quantitative models, which can be a useful tool. But I am not the one who develops and interprets them.
• Global means that I consider opportunities around the world. There is nothing I must trade, and nothing I may not trade. I have my preferences; for example, U.S. interest rates are my bread and butter, and I seldom trade corporate or emerging markets bonds. I trade major currencies; I like getting involved in Turkey and South America, but seldom in Eastern Europe. I monitor energy and precious metals, but know little about agricultural commodities. I invest in financial and tech stocks, which are more interesting and understandable to me than others. There are too many financial products in this world to track them all, so I choose based on my experience, investment history, and, frankly, some intangible aesthetic preferences. Still, my world of trades is large and far-reaching. I will discuss in detail the advantages of having such a wide reach.
• Macro means that I bet on directional moves of assets. It is the opposite of arbitrage , which is when you take advantage of price discrepancies among very similar, or even economically identical, assets. Typically, macro is associated with sourcing your market views from macroeconomic principles.
• Trading is a term that, in my experience, is loaded for laypeople with countless assumptions and preconceptions. For me, trading just means making money by taking positions using financial instruments. I use it almost synonymously with investing. But many people draw a distinction, using “investing” to mean buying assets, and “trading” to mean making bets, both short and long, on financial instruments. (Not all financial instruments are assets; for example, derivatives are not assets.) By that definition, I am certainly a trader. But I also think I am an investor. Most of my money is invested in a single asset: myself. The performance of this asset is defined by how well I make use of the capital.
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Now that I have spelled out what I do, a question remains: Why does what I do make money? And if what I do makes huge piles of money, then why isn’t everyone doing it?
I’ve been called a genius, a rock star, a star trader, and on occasion less flattering names, depending on how well the most recent trade went.
Once a colleague at J.P. Morgan said, “I wish we could throw out 95% of the trades we do every year and keep just the goo