Steve Cohen - America's Most Profitable Day Trader

[Music] and he has this very compelling almost rags to Rich's story he grew up very middle class in Great Neck Long Island which was an affluent Town his family had um relatively speaking less money than a lot of others around him so I think from an early age you know he felt a sort of hunger to become rich although Cohen wasn't born into money he had a glimps into what money can buy lived in Manhattan Cohen's Grandparents were very wealthy they often take Cohen to fancy restaurants and shows as a child you're very impressionable I

think Steve Cohen's grandparents lifestyle had a huge impact on him he saw the kind of life that money can buy but at home Cen saw a sharp contrast to the living conditions of his family born in the summer of 1956 Coen was the third of eight children in Great Neck the colen family were on the low end of the financial Spectrum how everyone in this in the family sort of felt that Steve would be you know was special their mother his brother remembered their mother cooking uh steak for little Steve and making hot dogs for

all the other children I mean there was a real sense that Steve was special he was really smart he was going to make a lot of money um and so he was treated he was treated a little differently desperate for money and while still in high school Steve Cohen found out a sneaky way to make extra [Music] cash as a Young Man Cohen showed an incredible talent for playing poker cuz what poker really does is teach you how to deal with probabilities and uncertainties and that's so integral to life you know every everything we try

to do you know should we take this route or that route should I go here on vacation or there it's all about dealing with with with uncertainties and prob abilities of things happening and and poker is a very fun and easy way to teach someone how to do that Coen was sometimes spend all night playing poker frequently making thousands of dollars a night Coen realizes that there are easier ways to make money than a 9 to5 playing poker can sometimes make him more money than his dad even with the time spending on playing poker Co

and stent managed to achieve good grades which eventually helped him get accepted to Wharton in college the socially rejected Cohen resorts to the only activity he finds joy playing poker but he soon grows dissatisfied with the money he wants to try his hands at a bigger Casino the financial Market while still in college Cohen accepted a job at the notorious trading firm gruntle first job was at a small not terribly well respected brokerage firm it was called gruntal and Company and it was located in right close to the actual Wall Street in lower Manhattan you

know it was the place where there were a lot of Misfits it wasn't sort of a slick establishment corporate environment it was it was a little bit wild and a lot of what was going on there consisted of Brokers calling kind of individual investors and trying to sell them sell them on different stock Investments but uh Steve was hired by a family friend who was also from Great Neck who had started um an options Arbitrage desk at [Music] gruntal Bri new on the job Cohen is already confident enough in his abilities as a Trader making

bolt predictions about stocks he's working for Rono iser who specializes in options Arbitrage the mathematically inclined iser was suspicious that anyone can make any predictions of stock price but he decides to give Coen some money to make his first trade to his surprise Coen make $4,000 in one day and another $4,000 overnight in 1978 this was some meaningful profit now Cohen is was called an intuitive Trader honestly what he does is no different from gambling he has this sense of risk and reward it is strange but he seemed to have this gut feeling about a

stock market and he is more often right than wrong what's so people used to describe him as a tape reader and it's a bit of a strange thing I mean it basically meant you know before uh the whole trading mechanism was electronic there was a physical ticker tape and you could sit there and look at orders coming in and out of the market and he was according to people who worked with him very very good at this he could sort of scan the market he could look at all the available news and information about a

particular stock and then he could just sit there in front of his screens and make a lot of money trading almost like what we think of as day trading now so it was a certain amount of natural Talent uh and intuition it was obvious to iser that Cohen is the most talented Trader he has ever seen during the mid 1980s the American Stock Market was dominated by mergers and Acquisitions colon was making $10 million a year by building positions around events such as takeovers and IPOs I think there's some beginners luck to it just like

playing poker this doesn't matter how many hands you have won you can lose everything in one Bad Bet today the Dow dropped more than 22% almost double the rate of the Black Monday that signal the beginning of the crash of 1929 but this crash of 1987 is not just an American Experience around the world stock markets fell faster than a sky diver without a parachute [Music] when rean took over the presidency American economy saw some of the biggest growth in decades the finance industry was prospering attracting hundreds of thousands of young men to partake in

the market steep Coen grew up poor but through years of hustling he became the start Trader at a trading firm called gruntal during this boat Market Steve col was raking more profits than anyone but little did he know a Financial bomb is about to explode economic growth has slowed while inflation was still high the strun dollar was putting pressure on exports the valuations for stocks have gone up to excessive levels with overall PE ratios above 20 future estimates for earnings were lower but stocks were unaffected all these conditions created a perfect storm the Black Monday

stock market crash of October 1978 saw us markets fall 20% in a single [Music] day gruno along with many other firms was practically put out of business Cohen's group lost almost half his Capital every one of his seven Traders was nearly wiped out by losses we see blups like this all the time sure some Traders might have some skills at predicting a stock but once in a while a market can change fundamentally and when that happens you lose [Music] everything a really great Trader what he does is he smells the fear and what he does

is he organizes himself to be able to take advantage of others fears okay and ultimately what happens there is he's disciplined he's not acting from statistical analysis he sees that as something but what he's developed is an INT intuition of being able to see the supply and demand and he knows the blood there and he knows where they're trapped that's State of Mind management as the chaos continued around him he stay in the game actively trading to recoup losses he ultimately survive the crash B grew tired of grunt he wanted to start his own shop

instead with the hedge fund structure col has the potential of making more money with less restrictions in 1993 col started sa with around $23 million in capital and N9 employees he put in about $10 million of his own money and his Traders and Friends investors put in the rest although Cohen's trading strategy is hard to emulate there are some essential principles always follows taking the lessons from playing poker Cohen believed that investing is all about smart risk taking and he was very good at managing risk he didn't get emotionally attached to his trades he was

very good about sort of pulling the plug and selling something if it just started to go against you and um you know the kinds of situations where a lot of people will end up just losing more and more money because they don't want to acknowledge that they made a mistake he he was according to everyone who worked with him at the time he was very good at just being of dispassionate and analyzing risk in this very cool detached way and he just started to make um you know a lot of money millions of dollars very

quickly within 3 years SEC had quadrupled in size to almost $100 million Cohen started buying mensions and expensive Arts he may be on top of the world but he fails to see there's a crisis looming [Music] the late ' 90s and early 2000 saw the biggest growth of hedge funds but 2012 they were more hedge funds than public companies right at the top of the hedge fund kingdom was sa one of the most profitable shops ever born and raised in a middle class family step col built SCC capital from scratch making billions in the process

the success of SC he draws admiration and EnV for Wall Street and also from places Cen didn't expect anyone at working at any hedge fund uh who involved in short-term trading meaning every day they're coming and trading in and out of stocks all of those people want Edge that is a common term in the industry they want Edge and you know there's this white Edge it's kind of useless for their purposes there The Gray Zone and then there's black Edge which is clearly inside information since the event of Internet information has become widely accessible making

it tougher to beat the market now a great majority of the academics believe that it is impossible to ever outperform the market those that seem to do well are just lucky in other words the market is highly efficient prices basically reflect all available information so that in a strict view of the theory it would say it's basically impossible to beat them beat the market you're always paying a fair price basically I think there's a merit to the argument that it is a virtually impossible to beat the market I think some of these hedge fund managers

know that that is why they're looking for an information that gives them the edge and unsurprisingly many of them resort to insider trading one hedge fund manager Raj Roger rotten realized that as well the only way to beat Market is through cheating prosecutors want the toughest punishment possible for this man the convicted founder of the gallion hedge fund Raj rajar ratnam in 2010 billionaire hedge fund manager Raj rajar ratnam was sentenced 15 years in jail for insider trading but soon the prosecutors realized he is just a small fish and there are bigger sharks to catch

by 20 8 SEC managed $14 billion in equity at recovering from the housing recession and growing faster than before in that year sa portfolio manager Matthew martoma started building large positions on two pharmaceutical companies Elon and WTH who were developing promising drug trials for Alzheimer's there were several analysts and Traders who felt very bearish on Elan and WTH and they could not understand why martoma and Cohen were building up these pretty substantial unhedged positions and uh Cohen would say well martoma knows a lot about this it turned out Mara's information came from a special Source

Dr sney giltman Who was affiliated with a company the two drug companies were scheduled to announce the final results of the trial on July 28th 2008 in Chicago but through Dr Sydney Gilman mtoa knew the trial was a disappointment SEC started to aggressively unwind its large positions in Elon and WTH and in fact ended up going short those two socks to make bet against them the share prize fell through a cliff in the meantime Coen made $276 million betting against the two companies while enjoying this incredible profit steep Coen did not realize that this is

the beginning of his downfall martoma was convicted in 2014 as what federal prosecutor claimed as the most profitable insider trading conspiracy in history at the same time the SEC brought charges against a number of other s AC employees before long Cole himself was charged by the SEC for his failure to supervise his employees Cen settled his civil case with The Regulators in January 2016 and was banned for managing outside money until 2018 fortunately to Cohen with the help of his team of prestigious lawyers Cohen himself was able to avoid any criminal indictment this is a

devastating blow but Cohen refuses to give up he now must look for a new Edge one that allows him to continue to make great profits by 2014 SEC closed his door and converted to 72 a family office and so the ability to have your own family office controlling your Investments controlling your cash flow without every other big firm knowing about it is very important and I think that's a lot of the reason you're seeing more and more of them start up essentially colen gets to run his hedge funds made out of his own money he

also realizes that he could stake other hedge funds run by his former [Music] employees majority of the return is from the investment at Melvin Capital that made 47% in 2020 without the black G B enabled by insider trading Point 72 has not been able to make large returns like what Sac used to his only hope is allocating his money to other hedge funds who may possess the black Edge known for his audacious bets and crazy returns gate plin was a superstar portfolio manager at ACC with Mr plin it seems like really really strong stock picking

um he's had experience managing for a long period of time he was at um sac and then 72 since 2006 gate plen has been consistently outperforming the market over the past years reminiscent of OG Steve Cohen but neither Cohen nor plen could anticipate a group of amateur Traders from Reddit will bring them down to their needs hedge funds are raking billions for their wealthy investors at the Forefront of this growth was step Cohen who single-handedly turned a smalltime fund into a $50 billion Empire almost doubling every year it turned out his secret was insider trading

after being dismantled by the authorities Steve Cohen is forced to think of new ways to make money7 2 the new firm Co founded started to make height returns after allocating to other hge funds started by his students Point 72 was R gaining its past Glory but Cohen's new found success will soon be challenged by the most unlikely group of people on January 22 2021 approximately 140% GameStop public shares have been so short with such a large amount of shares being shorted they could trigger a short squeeze that the stock market will be brought down by

the wild actions in stocks like GameStop that's that retailer Place game You' go in you buy video games and the you know you buy the hardware uh this GameStop is really something we must talk about because it's been bit up a higher and hire by enthusiastic Traders by the end of January 2021 Melvin Capital had a loss of 53% of his Investments now struggling for Life Cohen partnered up with a citadel putting $2.75 billion to bail out milin Capital both hedge funds lost a lot of money during this incident it was like the high tower

surprise to all hedge funds it is safe to say that PO 72 has lost its Edge recent years Cen has expanded his investment into Venture Capital qu strategies and so on this is all in search for new Alpha but with The Regulators constantly watching them at the negative public Cent ment against hedge funds Cohen has essentially retired from the active role Follow Your Passion um it's not all about money right the money comes from success comes from being passionate about something and then doing it to the best of your ability whatever it is [Music] [Music]