Institutional Investor's Alpha Magazine - June 2008 - (Page 43)

STEVEN COHEN ALPHA HALL OF FAME How has your role changed? When we were smaller, the ﬁrm needed my P&L to survive. Today I still trade, but because the ﬁrm is now so diversiﬁed, the impact of my trading on the ﬁrm’s P&L is not what it was. I actually take more pride now in the building of this ﬁ rm than I do in whether I make money in my own trading. I take more pride in the fact that this ﬁrm is now a real business. How much time do you spend trading? Between 9:00 a.m. and 4:00 p.m., I’m usually on the trading ﬂoor. I think there’s a dimension in having me out there that provides value for the ﬁrm. I’m in the bunker with the troops. Occasionally, I’ll take meetings during the day, but most of the time I’m on the ﬂoor. And then, after 4:00, I conduct business meetings. hen it comes to the art of trading, Steven Cohen is a true connoisseur. Cohen, who spent the ﬁrst 14 years of his career trading options and equities for brokerage ﬁrm Gruntal & Co., founded SAC Capital Advisors in 1992 with $25 million of his own and investors’ money. During the ’90s, while other managers were pursuing more-elaborate investment strategies, Cohen demonstrated that his rapid style of trading could produce consistently high returns — as well as command exceptionally high fees. From 1992 through 1999, SAC had a compounded average annual return of 45 percent — after taking its 50 percent of the proﬁts — as the ﬁrm grew to $1 billion in assets. But Cohen, who says he learned to anticipate how stocks move by watching the volume of shares traded, saw that the game was changing as markets became more electronic and global. During this decade, he has expanded the now $16 billion, 800-person SAC into a variety of longer-term, more fundamentals-based strategies, including quantitative and fixed-income investing, without losing a step. (SAC’s average annual returns still exceed 40 percent since inception.) Cohen, 52, is also a major collector of contemporary art, much of which is on display at SAC’s opulent 110,000-square-foot headquarters in Stamford, Connecticut. Was it easier to make money in the ’90s than it is today? Has your trading style changed? In the early days it was a little bit more like trading the tape. The New York Stock Exchange had quotes of blocks of 500,000 to a million shares that were trading, and you could see the price action as it developed. Now, because everything is traded electronically a few hundred shares at a time, you don’t see large blocks trading. So the way I used to do it is really gone. But I could see that happening ten years ago, which is why I reinvented the ﬁrm. Can investors create alpha by trading around positions, buying or selling to take advantage of price moves? There’s no question that the whole point is to create alpha, and there are lots of ways to do it. And the reality is, if you have a great idea, you may want to trade around the position a little bit. But I wouldn’t do it a lot, because ultimately, how many great ideas does any- Absolutely. I always tell my guys, “You would have loved the ’90s.” It was different, and everyone was smaller. Plus the markets worked a lot better. When I started, the S&P 500 was up 20 percent a year for seven years. And there was the technology boom besides. So you had a lot of tailwinds. It was a good time to be in the markets. And we were managing a lot less money, so you could move it around a lot more easily. How has SAC evolved during the past 16 years? We started out as traders. Frankly, we didn’t do a lot of fundamental work. And then, in the mid- to late ’90s, we started transitioning from being a trading ﬁ rm to a fundamentally driven ﬁrm. That continued over the years. As our assets grew, to effectively manage that type of capital, we had to do real fundamental work and analysis. Today we have probably 150 analysts and 85 portfolio managers covering Asia, Europe and the United States. STEVEN COHEN Photographed by Ethan Hill for Alpha on June 5, 2008, in Stamford, Connecticut. “I don’t think any of us got into this business thinking we would make the money we’ve ended up making. But that’s the American way.” JUNE 2008 • INSTITUTIONAL INVESTOR’S ALPHA • 43

Table of Contents Feed for the Digital Edition of Institutional Investor's Alpha Magazine - June 2008

Investor's Alpha Magazine - June 2008 Contents Letter From the Editor Longs & Shorts Cover Story: Alpha Hall of Fame Bruce Kovner Michael Steinhardt Kenneth Griffin Louis Bacon Steven Cohen George Soros James Simons Seth Klarman Julian Robertson Jr. Jack Nash Leon Levy Paul Tudor Jones II Alfred Winslow Jones David Swensen Looking Ahead: Back to the Future Research Center: Europe Hedge Fund 50 Unhedged: Let the Sunshine In

Institutional Investor's Alpha Magazine - June 2008

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