Humility is the most striking characteristic of the world’s best traders, says Steven Drobny, author of Inside the House of Money, in an interview with Yaser Anwar on his Investment Ideas blog.
Mr Drobny, who worked in Deutsche Bank’s hedge fund group before joining Drobny Global Advisors and talked to these traders for his book, says: “The popular image of big successful traders pounding their chest and always being right is really the guy that ends up out of the market after a couple of years when a secular or cyclical trend reverses. The best traders…know that they are not smarter than the markets and to be in this game for the long term one has to be flexible.”
He brushes aside unfavourable comparisons of hedge fund returns this year with those of mutuals and market indices: “This is a market in which you would expect that to occur because volatility across markets has collapsed. Long risk assets has been the trade of the year.
“Hedge funds are meant to occupy a slice of a portfolio because they are traditionally uncorrelated and provide downside protection in volatile markets. The key is producing consistent positive absolute retuns uncorrelated with other markets, and if hedge funds can do that, there will be a place for them in investors’ portfolios.”
On the ever-present subject of hedge fund regulation, Mr Drobny has this to say: “The most successful hedge funds are running their business in such a way that is over and above what any regulatory government body would require. If regulation keeps out some of the frauds and scams, then that’s a good thing for the industry. Generally, regulation tends to increase costs with questionable benefit.”
