Intersection of Emotional Intelligence and Tactics · Michael Martin

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0:47 tools to help you practice and build confidence before jumping in with real money. With over 20 years of experience and over 30 million global customers, Plus500 is your trusted gateway to the futures market. Visit us. 500.com to learn more. Like even though I was starting to get financial abundance, I didn't trust it cuz I had never had it before. I all I knew was going to work, shave my face, put on a tuxedo, weight tables. So when I started making money, I had trouble trusting it. I was afraid that it was going to go away. And I knew that it would have been my fault. Like I had enough self-awareness to know like it's not going to be a market correction that puts me out of business because I don't have that type of risk on. Right? We're carrying, you know, over the years

1:33 I got much more aggressive in the mid 2000s, but in the mid to late 90s, I would go home with maybe 10% margin to equity ratio, which is kind of like where the CTAs kind of live. When I got really really good and I had over 105 years experience when China was buying everything in the mid 2000s I'd have 70% margin to equity like I was levered up. So mental errors were don't get haughty don't get full of yourself. This has nothing to do with intelligence. Intelligence is important but it's not how you make money. Making money is about knowing good trading tactics and can you pull them off? Do you have the will to do it? And I was afraid. I was absolutely petrified because every time I put on a trade, I felt like like kind of like I do now, like I'm on the

2:19 witness stand and that you have to you have to pass muster every day. And you kind of do, but it's not because you're smart or stupid or you're lacking something intellectually. Trading is about adding risk with an appropriate dosage. What is your risk unit? Like coming from a hedging, being physically trained in commodities, you know what your needs are, so you hedge for your needs. But when you're a speculator, you don't need anything. So, how the hell do you figure what the right position size is? That I had to carve out a stone and figure out for myself. And when I lost money or more money than I had wanted, it was very, very hard on myself. And I said, "Okay, but trading is like sex in many ways or other things in life that is largely experiential. Markets, speculation, and

3:05 risk." This is the Chat with Traders podcast. [Music] Welcome to Chat the Traders, episode 299. Hey, how you doing? Today my co-host Ian speaks with a special guest, a professional futures trader of over 30 years. His name is Michael Martin. I just love his New York accent. Look, I only wish I had a New York accent. Growing up in Southern California, I kind of grew up with that valley girl B. Jackson. Like for sure. I think I like totally got rid of it by now. I'm Tessa Ian's co-host and having

3:51 a little fun with you. And I'm just so excited about sharing this interview with you. I promise it's not about cool accents. It's about this awesome gentleman by the name of Michael Martin and what he has to share with all of us. In fact, several of our past guests on the show were actually referred by Michael. Raised in a hard-working bluecollar community, Michael embraced that same work ethic. Hardworking, resourceful, an entrepreneur at heart, he hustled from cutting grass when he was 12 to working all types of jobs, including golf cattying and waitering at restaurants to starting businesses. Determined to transition into the white collar working world and being at the right place at the right time, he was exposed to the financial markets.

4:37 Michael's interest in trading commodities futures originated during his time as a student. During an unexpected work study program, he was introduced to developing seasonal models for heating, oil, and natural gas for a major hedging firm using spreadsheets. And he was great at math. He subsequently worked on Wall Street managing commodity accounts. And despite the significant commissions, he realized that he could potentially earn much more through an incentive fee. So after three years at a brokerage firm, he started his own CTA. I sense that he has a very intuitive style about him in trading business and in life. And I promise this is not just going to be another interview. It's engaging and there are lots of golden nuggets to take away

5:24 with. So you don't want to miss this. Also, we've added a bonus behind thescenes segment for this episode where I put Michael on the witness stand some more with some questions. So, you're welcome to tune into that segment at the end of the interview. Also, guess what? As a gift to you, just because Michael's cool like that, we've included a link to Michael's audio version book, The Inner Voice of Trading for free, and it's in the show notes of the episode of our website. Get it while it's available. Thanks, Michael. So, to get it, just visit our website, chatwithtraders.com, then navigate to this episode, episode 299, and you'll find the link in the show notes. Enjoy. Ladies and gentlemen, we are so

6:11 pleased to introduce Mr. Michael Martin, originally from New York. Well, Michael, I'd like to uh welcome you to Chat with Traders. Thank you very much for having me. It's a It's a great show. Honored to be here and I don't say that lightly. I I know who you've had. I've referred a few people to the show and uh it's good to finally connect. Yeah, likewise. Uh so, where are you now and where did you grow up? Right now, I'm in the Los Angeles area. Uh with my accent, you can tell I'm not from Kentucky. Uh was born and raised in New York. You know, grew up, you know, about an hour north of Manhattan. Found my way to New York. went to college, went to work, kind of made my bones, cut my teeth back in the day before the internet when stocks traded in eighs and

6:57 uh commissions were, you know, 1 to 2% every trade. It was very expensive to be an active trader back then. So that that was a a good environment for me to learn how to trade, cut my teeth, and and and only trade when I have an edge. Just prior to getting into trading, what what did you do and kind of like how did you first get introduced to the markets? um by friends, family. Yeah, a little bit of both. I had, you know, I was the baby in my neighborhood. Everyone was either 2 to 5 years older than me, which, you know, when I'm 11 and your friends are 16, there's a monster difference there, you know, in terms of human evolution and the things that are important to you. When you get older, those kind of numbers don't mean much. So, those kids had either become cops or firemen. several of them and you

7:44 know rented seats or bought seats on the exchanges you know the MX New York Stock Exchange or they became locals in the commodities markets. So that was my first introduction cuz they they were out working. was still in college and then just by being in the right place at the right time where I went to school at the time they were the third largest landlord in the city and so they were they were big users of natural gas and heating oil for electricity and for environment control in the winter you know respectively and they didn't have a hedging plan and just by luck I was in the right place at the right time with a work study job where I helped them design look at seasonal tendencies in in energy markets to design a hedging

8:29 strategy. Uh so what I mean um so you were helping them design a hedging strategy. Was this before you got into actually trading or I assume this is involving commodities. So how did you learn about that? So I went to the exchange and I actually got the data. In those days you had you know combination five and a quarter floppies with and three and a half floppies. Lotus 123 was the dominant spreadsheet of the day and you had about 3,000 rows. So you could get like, you know, nine or 10 years worth of data. And what we would just look for is what are the seasonal tendencies when prices would appreciate and could cause problems because you know of all the schools under the university umbrella you know there's probably 25,000 faculty and

9:14 students who were basically on rent control and so worked into the price of the rents and the leases were energy costs and in New York you know you definitely have very very cold winters that you need to have heated apartments and rooms and dorms and this and that but also So in in the summer, you know, it's hazy, hot, and humid. You can cut the humidity with a knife. So people, you know, put their ACs on, and if someone else is paying the bill, they're not turning the AC off when they go out. They're going to come home to a nice cooled apartment. So if there was a spike in prices, it was going to cause a big problem for the school. And so I was really good with numbers and building models and stuff like that. My foray into actual trading actually started with stocks. I had built a a landscaping business and sold it and put some money

10:02 into the market. I really didn't know what I was doing, but I was kind of cutting my teeth and learning the process. The commodity thing was just like I said, a good I was in the right place at the right time. And I I understood it a lot better because I grew up, you know, in New York, you actually have a crop year. So, I understood seasonality just inherently and I could see that in prices and so it just clicked for me. Mhm. Were you ever tempted to open up a commodities account and and trade commodities? Well, shortly after that work study program, I actually went to Wall Street and I did. It was a little trickier back then because now it's like, man, anyone who could fog a mirror could basically open up a futures account and trade minis and micros. But the environment was very different back then. There weren't online brokerages. There were a couple

10:48 of discount joints. You know, Schwab was doing 30 bucks for stocks as a flat ticket price. Kennedy Kat was another one. Waterhouse might have been around before it became TD Waterhouse before it evolved into TD Ammerit trade. So I'm kind of dating myself and you really had to prove financial wares like you couldn't it was a hard process to get an account opened. You couldn't just walk in and say hey I want to trade. You had to show that you had you know substantial net worth and liquid net worth and most futures margin accounts were not funded for anything less than $100,000 and you had to be there in person. you there wasn't any you know there was no internet so there were no online applications you could scan your driver's license and send it in and within 24 hours you're up and running wire the money in and you're trading this was a 2 to 3 week process and you

11:34 actually had to pass muster and go through compliance and there were a lot of people who got rejected now I had very quickly gotten my series 3 so they gave me you know the they gave me the benefit of the doubt you know to let me do that so I would say probably within six months of of landing in my Wall Street job. I had a futures margin account as well as a stock trading account. It was all together. Uhhuh. I see. And what year was that? That was in the late 80s. So 889. Mhm. You know, when I started, it was post crash, but still pre E- mini. The S&P S&P was a $500 a point contract. Margin was 40K. there were just very very few trading

12:21 opportunities. There were, you know, sleepy little contracts. So, I kind of had to learn how to, you know, as they say, make hay when the sun shines. There weren't, you know, with commodities, most markets aren't trending most of the time. So, you really have to learn how to pick your spots and see what was moving. You know, gold was $200, $300 an ounce to give you context. It was, you know, it was a very different time. And so how did you go about um finding the stocks to to buy and kind of what was your early strategies? You know, I'm embarrassed to tell you like I really didn't have one. It you you you I was in an office with 70 other you know financial advisors and you know a lot of it's like well what are you doing? Well what are they doing? Well you know and this and that. So you don't it was the modern-day

13:07 discord you know you know what what's in the newspaper what's going you know what you Peter Lynch style like what are the things that you see that you're using in your life you know you're buying XYZ good or service and then you kind of see okay where does it trade you go to McDonald's you go to Wendy's you go you know you're using Apple uh it was called Apple computer at the time so all that technology was just coming online most people didn't have computers, never mind smartphones. So, all that stuff was new. You couldn't really see it or touch it cuz it was also very The first my first cell phone I think was $1,000. Wow. And then it was a dollar a minute for talk time. So, it was, you know, fantastically expensive everything. So,

13:54 I just kind of tried to observe a lot like what was going on in the world, what were other people doing, what were they watching? And then because commissions like you know I started with $5,000 grub stake in my trading account for commissions on stock it was 50 bucks. So that was 1% of my account balance for commodity futures. You know for some reason they had two different rates that would automatically apply. One was like if it was a day trade versus an overnight you know take it home which is more my style. And that ranged between 75 and $100. So, I was paying 1 and a half to 2% of my account balance in commissions. So, again, I had to think like a sniper, not like a sniper like entry, but I had to sit and lay and wait for hours at a time, days

14:39 upon time, waiting for trends to evolve and things to start to break out before I could put money to work cuz otherwise I was just really churning my account. It was a very difficult time because I really was full of piss and vinegar and I wanted to learn but you know the market's really there to take your money more than anything else. So I had to really learn the importance which applies to today's marketplace too. It's like if you can't express your edge you have to learn the importance of sitting on your hands you know and and and and taking advantage of things that speculators really have a huge advantage of and that is they have the right to not participate. So, uh, with the commission rates so high, were you incentivized to hold the positions for a good length of time to try to maximize,

15:25 uh, squeeze out the extra profit out of it instead of um, you know, doing short-term trading? Ian, that's 100% correct. I my goal at the time was to grow my account to 50K. And I knew that sounded ridiculous. So much so that I couldn't even tell people cuz they're like, "Listen, buddy, you don't know the backside from your backside from a hole in the ground. think you're going to do 10x in your first year, you know, trading commodities of all things at a time when the place was really a stock and bond joint. So, I was more like, look, I know I cuz I could see I could see the charting software was very, you know, you you almost had to do it by hand, but I could do the math in my head and say like, okay, in the 70s, you know, soybeans moved five bucks, you know, that's $25,000 a contract. So, I

16:13 kept thinking like, man, if I could just catch that and put the money to work and sit on it and live with the day-to-day fluctuations, then I could increase my wealth cuz I was clearly in the wealth acc I didn't have any room for error with 5K. I mean, you don't have it now. Back then, you didn't either. And there were me much more like think think about AI and smartphones and technology and everything internet related and mobile technology. All of that didn't exist. So almost all of the names except for like Apple and Microsoft really weren't even trading, right? AOL was AOLN. It traded over the counter, you know, and and so you really had to pick your spots and be very judicious in your selection, security selection, and when you would

16:58 put things on. But I learned, and again, I'm I'm environment really shapes us. I was grateful to grow up in that environment because it was so expensive to trade. I almost had to think in buying and selling commodity futures. I had to think like an investor. And that has brought more gains and wealth than I probably deserved. You know, just learning to sit on my hands and not offset a winning trade because I was so excited to have the winning trade in the first place. Let the winners run. I said like, I'm worth it. I had to convince myself in my head like, okay, a lot of it comes from my background. Like I cattied golf bags at Wingfoot and Quaker Ridge. I worked, you know, at mob owned restaurants and I made a lot of money. You know, I would make 5,000 you over the summer. I was

17:45 making 5K a month back then cash. Wow. Wow. And I'd always think like, okay, I made $1,000 in trading. That would be like a week of of golf, you know, trade, you know, working at uh the restaurant and this and that. So, I had to get out of that that bluecollar way of thinking and saying it's just the start. You're up a,000 bucks. You're up 20%. I always I always wanted to think in terms of the big thing that helped there was converting things into percentages because the dollars were overwhelming for me because once I got to be 100% up I was like okay that's the whole summer and I kept thinking cuz that's what I could that was my reference point but I thought okay well if you're going to be up 200% like the guys at commodities corporation you have to have been up 100% first so you can't panic you you

18:30 know this is your big moment you can't panic and do the small-minded thing and always live in like a make it and take it kind of mindset. You have to let your winners run and and that's what I learned to did. Thank God. In your quest to 10x your account from 5,000 to 50,000. How tempted were you to use leverage? And did you Well, your honor, I'm guilty as charged. My whole point in putting the 5K in and going to commodities was for the leverage. Mhm. I knew cuz I I was a math kid. Like I could calculate numbers in my head. So I could see stuff. I could see I'm a visual learner and I could see patterns, not chart patterns, but I could see patterns in human behavior. I can just see patterns. It's a it's

19:16 something I was born with. And the math, my dad was a math wiz and he taught me how to calculate numbers in my head. So I was a year ahead in math in school. I had passed out of a lot of classes that I would have had to have taken in math. And when I when I got there, I was like, "Okay, I want to commodities to me are even better than real estate." In those days, if you bought a house, you'd have to put down 3K or or not 3K, but 10%. And then you could finance the rest. Well, commodities were even better because you'd put down somewhere between 2 and 5%. And you didn't even have to borrow anything because the leverage was implied, right? It was it was the the margin deposit is considered a good faith deposit on the full notional value. So if you look at it with 5K under regulation T, I could trade 10K of of market value in equities for things

20:02 that were marginable. For futures, if 5,000 is the number and that's 5% of what number? That's 100K. So I could control 100,000 in notional value of of commodities. So there was almost like a 10x. And when I thought about notional value under reggg t, I can control 10k with futures margin. and I can control 100k. Okay. Well, if those notional values went up 10%, what was the value or the impact on my 5 my, you know, $5,000 grub stake? So, I immediately gravitated to futures uh commodities trading with a with a strong understanding that with futures, you have unlimited loss potential regardless of whether you're long and short. So, if you smell smoke, you have to assume it's

20:48 a five alarm fire. There is no like, well, I'm just going to wait and see how things go. Uh-uh. And that complicated things because like I said, it was a $100 commission to get in and out of the trade. So, I had to always fight my emotions like I don't want to get knocked out of a trade that I could otherwise sit with through a small near-term pullback if the trend kind of still resumes. And that was that was really the hazing process where I had to thicken my skin. How did you apply risk management back during that time and and kind of what did it consist of? Gez, you have done a lot of preparation. And these are great questions. So I developed what I later kind of come to understand as progressive exposure. Now some people call that pyramiding. I it was more like how can I add to my

21:33 winners and steal second base without taking my foot off first. So what I would do is I'd buy like a sleepy little corn contract or sugar is even better is a better example cuz sugar's never in the newspaper. like you'll never see a headline on the Wall Street Journal or Baronss or on F you know Yahoo Finance where someone's talking about sugar and that was perfect for me because I didn't want to get buried in what we called the Fab Five and the Fab Five is an expression I borrowed from Michigan basketball and that would be like the yen, the S&P, 30-year bonds, gold and crude oil because those were the commodities that would get written about in the newspaper and would cause a lot of volatility. Again, remember there's no internet. There's the C-section of the Wall Street Journal. There's a business section of the New York Times, which nowadays basically doesn't even

22:19 exist. Then there was Baronss on the weekend. So those media plays could really impact the price of a commodity, and I didn't want to wake up to heartache. So I would trade these sleepy little contracts that no one ever talked about, cocoa, cotton, sugar, you know, this and that. And so what I would do is as the market would move in my favor and I knew I was going to be able to risk say $250 to $500 of my account because I really didn't have a choice. I was underfunded. When the contract got up a few hundred, I would immediately put my protective sell stop at break even. Now I didn't want to get knocked out, but I also didn't want to lose money. And so I honored that system really from day one. I just put in protective stops and I've been doing it ever since. So then what would happen is is like if I added a

23:05 second contract, I could see the volatility and say, "Okay, if it goes here, this is where I have to adjust my stop." So that even if I have several more contracts in the account, I'm still not risking any more than the original 250 to say 500 that I was risking on the original trade. So I kind of built in like free call options. It wasn't exactly free and sometimes the market would come back and knock me out and that was frustrating, but it was a way that I could sleep at night and live with myself and build into larger positions so that when they did take off, that's kind of how I made, you know, several thousand on a trade was not because I had one or two contracts risk on, risk off. It's cuz I I kind of unknowingly was pyramiding into into

23:51 things, but very strictly managing the risk, you know, not taking on more risk. 30 40% of the time the mark the markets would continue to move in my favor and then I was making really asymmetric returns for the risk that I was taking which was the whole point because I knew the math. I knew enough about playing poker and blackjack that this was a game of expected value not about accuracy per se or being right all the time and I could emotionally live with that. I was good at I I didn't have a problem taking chances. So how did you uh decide on when to get out? like what did you have a a system or a target to tell you when time to time to exit the position that has moved in my favor all this way? Chat with Traders is sponsored by Plus 500. Trading futures might sound

24:39 complicated, but here's the thing. Everyone starts somewhere. Plus 500 futures could be your first step. With Plus 500's powerful platform, you can access a wide range of markets. S&P 500, NASDAQ, Bitcoin, natural gas, forex, metals, crypto, and more all in one place. The platform is simple, intuitive, and mobile friendly, so you can trade from anywhere, anytime. Open your account with Plus 500 and start trading with as little as $100. You don't want to risk even a penny? I understand. Plus 500 offers an unlimited risk-free demo account packed with real charts and tools to help you practice and build confidence before jumping in with real money. With over 20 years of experience and over 30 million global

25:24 customers, Plus500 is your trusted gateway to the futures market. Visit us. 500.com to learn more. Trading in futures involves the risk of loss and is not suitable for everyone. Not all applicants will qualify. You know, the honest truth is, and I'm red-faced even though people can't see it, like I didn't I didn't have a strategy on how to exit winners. It's probably the hardest trade I think even today for for people alike. It's like when do you know when the move is over? And you really get to operationally define that yourself. So, what what I did cuz again, I'm self-taught, you know? So again, this is this is you're going to laugh, but I didn't have anybody to show me like the guys that I eventually met who who mentored me when I became a pro, you

26:11 know, were obviously already very very successful. But there wasn't someone to kind of say, "Hey kid, when this happens, there was no 50 or 200 day moving average crossover kind of system like there is in stocks." There wasn't like a Dow theory like Victor Spirandio uses, you know, for equity risk management. So, I had to do it by the seat of my pants. And the answer, the simple answer, Ian, was I I thought by putting like I every day I would put the open, high, low, close in and then mark to the market where my equity was if I had say three or four contracts in the sugar or the corn and say, "Okay, at the open I was up 30 ticks and this is what I would have been." because I wanted to calibrate my system to not have this hair trigger response to knock myself out of winning trades just because I was

26:56 up big at the open. So I went through these case studies of looking at other moves in commodities and saying okay if I had my my proper risk management on risking say you know depending on where my equity in my account was you know between 200 $250 and $500 you know per trade could I live with these types of drawdowns knowing that the trends would persist eventually because of forces that I might not have even fully understood. So, you know, I just tried to stay with the winners for as long as I could because I knew I wanted my money to work for me later in life. So, so I kind of did it by saying 250. I have a $250 trailing stop on my equity at any given time. That was how I did it in today's language. I didn't know it at the time, like that's what you called it. Like, who knows what the hell

27:42 trailing stop is, but that's effectively what it was. And if I was really making money, you know, and I got to like 67 8,000, I can remember giving it a little bit more room because now I wasn't losing my corpus. I wasn't losing my original grub stake. It wasn't house money, but I was willing to go a little bit more aggressive because I was then risking money that I had already earned from my trading activities, right? So, I always look at it at my money. It's always my money. It's not house money. But I I and I still do that today. If like my equity is up, I'll I'll I'll tend to trade larger. When I feel like not necessarily I'm in the zone, but if I have the P&L to prove it, then I can afford myself more risks. I go back and I do this case study and say, "Okay, how much of this am I willing to risk in

28:28 order to stay in the trade?" Because the odds change, Ian, like once you're in the trade, it's like that old Monty Hall thing, like if they show you what's behind door number one, this and that, and there's a whole science around it. when you're in a trade, you know, risk on, risk off, you might have like a 3 to one payoff with 40% accuracy. So, you know, your system has positive expected value. But what you learn over time, and this took me a couple years to learn in studying the data, is that your odds might change. So, now you have to use conditional probabilities or base theorem to say like, okay, I'm up x% in the trade or it's moved this amount. What's the probability of event B? like the move continuing up x amount given the known probability of event number A that I have a 40% accuracy and a three

29:14 to one payoff. So you can really apply that math to make better decisions. It's it's not probably for for beginners, but it was math that I could understand because like I said, I was a math guy. And then the light bulb kind of went off and said, "See, this proves my theory that I should stay with winners even if there is going to be a pullback because the math supports staying with the trade." And then maybe even adding another contract or another 50 shares or something at that point because the probability might be like, okay, you have a 5 to1 payoff with a 30% pay uh 30% accuracy. So the expected values change over time. It's not static. Um so over time as um as the technology develops and technical indicators are introduced and become easily accessible,

30:01 did you zero in on a few technical indicators that could easily replace your mathematical thinking um so that you wouldn't have to crunch those numbers? You know, I did. And again, I'm redfaced about it because I failed at all of them. They they they never really were worth all the all the the binary code that that's used to write them. They in the in the book I call them emotional band-aids. And that's really what I looked at them for. Like can I increase my sense of accuracy by using indicators? And they're not really indicators. I don't I I I use that term with you, but I think of them more as validators or confirming indicators because anything

30:46 that you need to see about whether the trades working out, you can see in the damn price of the instrument itself. So ADX, well, great. You're never going to see ADX like is one that I've studied. And yes, you can see trends emerging or the strength of a trend emerging once it starts to come out of the 20 to 25 range and kind of trade up above 25, but you're never going to find a strongly trending market that doesn't have a high ADX number already, right? Um you could look at MAC D. There's a lot. So, so I just looked at all those things and I said, why am I doing this? Like what is it intellectually that I want and what do I want out of it from an emotional and psychological standpoint? And I realized after, you know, two or three years looking at all these newer newer prefab indicators that I was really looking for some kind of

31:32 emotional security and it doesn't exist. There is no, you know, external solution to the internal things that you're feeling. And I don't want to layer up my charts with these things cuz it just doesn't work. They they can only kind of confirm things that you can already see on the chart or that you can see in the price. very few of them like relative strength for stocks can matter. You can use ATR to normalize risk in the commodity markets that came out in 1978. So that had already existed. I didn't know about it again cuz it wasn't an internet and I hadn't seen Wells Wilders's you know book. So the answer is yes. I tried to uncover every stone but I found that the efficacy or the value that any of them would bring was wasn't going to help my profitability.

32:19 It was more to calm my nerves. And that even still didn't didn't really work. During this time, uh did you say you were working on Wall Street? Uh the trading obviously became a passion of yours uh the way you're describing it, but did you ever envision that trading by itself would eventually replace um your actual jobs or were you trying to get it to replace your jobs? Yeah, great stuff. again. Um, my without getting into the whole history, which, you know, I'm more than happy to get into, you know, I was a working-class kid. I was a day player. I'd go to the golf course and I'd go home with a pocket full of cash. I'd go work at Glen Island Casino and I'd come home with a bunch of cash. And I was used to the being a day player. And, you know, my parents were

33:04 depression era. And so, we had enormous amount of grit. We were hardworking people. Like, that was the culture that we grew up in. A lot of Irish Catholic, Italian Catholic people who left the city, wanted their own piece of property. and, you know, instilled in their kids, put your head down and make something of yourself. So, when I first got to Wall Street, it was really I wanted to be several months ahead. When I left, I had $1,000 a month rent. I had uh, you know, $1,000 a month go to student loans. And that's before I had any food, you know, dry cleaning for my suits and all that kind of stuff. So, uh, my my goal at Wall Street was to learn intellectual property. I wanted white collar. I I I I wanted to stop

33:49 have I wanted to stop exchanging my time for money. I was very clear about that because I was and what did I do? I went to Wall Street and I was working 15 hour days putting in blue collar hours on a white collar job which is what you do because you don't know I didn't know anything else. What's that? Did you like your job on I did not I didn't like it. I wanted to get a trading job but in those days I actually hated the job. The people were okay. I met a really a couple of really good folks who I'm still in touch with but you know they were financial adviserss and they made the mistake of thinking of themselves as Peter Lynch like they just because you have a series 7 or any other type of license that just allows you to do marketing. It doesn't

34:36 really teach you anything about creating alpha, but people start to think like, hey, I got access to the, you know, because in those days again, there's no internet. So, there was a club and if you didn't go to one of the five or six big bulge bracket firms, the brokerage firms, you were out of the market because there was no other way to get entry. Now, it's like you could do it on your phone. You could trade for free. That's a complete culture 180 from where I was raised. So, I was like, you know, I'm just as good as any of these people. They all think they're smarter than, you know, everybody. Well, I'm just going to grow my capital so that I could replace, you know, I figured, look, if I got money markets were paying 5% in around 1995 and they I remember them saying like five and five and 95. And what they meant by that was the Dow was going to

35:22 hit 5K, interest rates were going to be 5K, money markets, right? And and that was all in 95. And my thought was like, I don't know how the hell I'm going to do this, but I'm going to put myself in the energy of having a million dollars at 5%, that's 50K or 4K a month, and I could pay my bills and have money to enjoy my life. Not a spend thrift. I didn't want a Ferrari, you know. I didn't want any of these. I'm not I don't buy stuff. I didn't want to accumulate goods, especially things that are going to depreciate. So I just thought like how could I grow my wealth so that my money can finally work for me. Right? You either work for your money or your money works for your money. And I had no experience. I was a complete virgin in that area. So I had to teach myself cuz it wasn't in my

36:08 family in my nuclear family. There weren't really any investors. There were some well educated people but they weren't really investors. They were savers and workers and they had pensions and that's not what I wanted for myself. So I knew I had to grow my capital. My Clark Kent job though was being a financial adviser. So you can imagine I was really leaving living a I was a double kid like they said in the department on the weekend I would drop my ars and sound like I'm from Dorchester and Charleston and then you know during the day I'd be like yes you know let's talk about the confluence of religion in the Middle East and its effect on your elasinary concerns and I'd become a completely different guy. So um I didn't like that part of it. I didn't like to have to fool anyone or do something that, you know, try to be somebody that I wasn't. But, you know,

36:55 the branch managers were looking at, you know, they didn't grade you on profitability. They graded you on how many new accounts did you open, households, new accounts, what were your net new assets that you brought in that either existing clients gave you or that you brought into the account, you know, transferred in, and how much did you generate in commissions and fees? Nowhere in there was like if you made money for the client. And I knew that I was going to be an alpha generator. And they were not concerned with alpha generation unless it added up to their commissions because that's how they got paid. We had the whole floor and I'm sure the rent was 100,000 a month back then. So, you know, I didn't like that cuz I wanted more. It so I but it was the only way I could get in. You know, it was the you know, if they don't let you through the front door, you go through the bathroom window

37:41 kind of a deal. Well, that was kind of how I did it cuz I figured from that perch I might be able to move horizontally. like at least I could learn how the business is run. Before that it was I was looking from the outside in. I said let me get into the business and then I could move around. It was a lot harder than I than I thought it would be because they kind of pigeon hole you. And in those days they weren't don't laugh. They they were hiding hiring traders on the desks if they had MBAs. And I was like that's got to be the stupidest thing that they ever did on Wall Street. But that was how they cut the pile and called the herd down to to keep the interview process. So I had no interest in getting an MBA. It you know I I like knowledge for knowledge sake but there was never any proof that

38:27 having an MBA was going to help you be a better sales trader, market maker, institutional salesperson or prop trader at like a bear sterns. Did you ever meet any of these uh MBAs and and get a chance to uh learn what the traders are doing in the firm? Uh maybe get some ideas from them. uh you know I did and I didn't I got to know a few of them because I was trading enough size that I could call to the traders and the market makers and negotiate better prices cuz again in those days the spreads weren't decimaliz decimalized decimalization had not come to pass so everything was trading in eighs so you know if you could find you know in those days there was something called 19c3 where you could take a New York stock exchange listed stock and trade it like it was over the counter so I remember you know

39:12 buying Wendy's quicks service restaurant that was quoted 16 bid offered at a quarter. But if I could buy like 3 4 5,000 shares for my own account and for my clients, I could call the market maker and negotiate them to get a better price. So I'd fill the trade at an eighth and and to put an eighth commission. So I'd be in for 16 and a quarter net. My clients would love that kind of stuff. So I learned how the game was played cuz they had a P&L which was based on the spread. I had a P&L which is based on my commissions and fees which was completely bass backwards on doing the right thing for the client. But that was the game that we had to play and I did that for three years of finding things that had different you know spreads that they were moving and then using my institutional size to

39:57 negotiate better prices. They didn't really teach me how to make money. They taught me about how to ungame the system to benefit the client because they were not really prop traders the way say like a Leman Brothers or Bear Sterns were, right? So I applied to all those places cuz after 3 years I had the track record, but they were still in the mindset that they wanted to hire you coming out of business school or sponsor you to get an MBA. And I was too smart or too stupid to lie to them. Like I didn't want to get an MBA that had nothing to do with trading. It was to me it was like I have to put now two more years as a buffer between me and my goal like that's not going to happen. Um, so I I the interesting thing was that to a name like most of those companies are

40:44 out of business except for like David Shaw, Long-Term Capital, you I had I'm sure I had cattied for John Merryweather at Wingfoot sent I you know, sent a cover letter, resume with my track record with documented track record and you know I don't think I got a call back like I was just completely shut out. So I started my own company and that's what I did. Interesting. So, you you uh quit your job there on Wall Street and you started your own company uh doing what exactly? I feel like Paul McCartney here. There's no short answer. Just again, I was in the right place at the right time. In You have to remember in July, I had a lot of clients in Chinatown cuz they really liked the action and they liked to see money being made and I was

41:29 getting really good at trading commodities. Long story short, I was in the right place at the right time with the right people, not mentioning any names, who had a big impact on delivering the Chinatown vote to Mayor Giuliani for his first term as mayor. And I helped those people because around July 1st of 1997, Hong Kong was going to go back to being China controlled from the UK, right? And so everybody, there was a lot of people from Cowoon and a lot of Hong Kong folks in Chinatown in New York City and they were all scared. So they wanted to get their money out of Hong Kong cuz they thought the China would close close the border. So we called it political flight capital and because I had done a good job making relationships with these people and perhaps because I wasn't

42:16 involved in like organized crime or a tongue and I was at a big kind of gum shoe not a gum shoe but a you know you know I was a white boy right I was a white boy and they they were they was at a reputable firm that they could trust. So all that capital came to me then I made those people money and commodities. So when I said, "Look, there's no vertical or horizontal movement for me here as a trader where I could do an even better job for you because we could cut commissions by 90% on the institutional side. I'm going to go start my own company and work under a 2 and 20 structure." And I realized like if I did that with the money that I had made my clients over the past few years, I would have done six times the gross commission that I did and that all would have been mine. So I figured even So I left and I took about 15 million worth

43:03 the client's assets in a 2 and20 structure and I really haven't worked for anyone since. Oh wow. Um so during this time as start of the uh the dot boom were you tempted to uh to get into stocks as well uh or were you strictly commodities? You know I was I was I'd probably say 3 to one commodities to stocks. The reason being was you have to pick your poison. You know, look, Paul Tudtor Jones could probably trade any any asset class on any time frame, right? I was developing that skill, but I was still a super sophomore. You know, I knew what the sometimes what the right things to do were, but I'd find my way doing the wrong thing anyway. The saving grace was that I always kept my losses small. I

43:49 knew I did not want to go into protracted draw downs that would crush me emotionally. I didn't mind losing the money, but I didn't want to be in a 20% draw down needing because then you put a lot of pressure on your money, right? 20% draw down. You need 25% to come back. That could take you two years. Like I I don't need that crap in my life. And what I didn't want to do is I kind of understood the technology. I understood things were trading. You know, I was just getting my first email account on Sprryet and Mind Valley or whatever. Mind Mindpring, excuse me. And I didn't want to tie up my cash in stocks because of reggg t when I could do 10 times more notional value with futures margin. So it was more an allocation decision to run a CTA. You know, I was probably running

44:37 concurrently an RAIA as well for the stock side, but also the profitability. Like if you have $10 million and you make 20% and you're getting 20% of that, right? So now I'm getting 400k. It was harder to do that with stocks without taking super gigantic positions and I didn't want to do that because I knew if I I was on to something good and I was finally living not the dream but I was I was becoming the person that I had envisioned of becoming. I was a white collar person using my brain managing risk keeping losses small and I knew that if I screwed that up that I could be back at the golf course next week. And that was a big motivating factor to

45:22 not necessarily to have to eat croakkes because I never had that kind of ego, but it would be just such a complete personal failure to have to have this thing blow it get so close to the promised land and then blow it up and then be relegated back to waiting tables which look you work hard, you earn money. There's nothing wrong with it. I made a fortune waiting tables and catting golf bags. But then I wanted to evolve over the years. Um uh did you calculate kind of what would what was the minimum percentage annual return you would need to have um when you were working for yourself to um to meet all your expenses? I did I know cuz I kept I still to this day I have every I have this gigantic Google Google spreadsheet that literally has every number mapped out like what do I spend on Calendarly

46:10 every month like what do I spend for premium Spotify like I know my numbers. The good news is is when I left when I left the brokerage firm to set up my own CTA, I started with 12 and then another three came over time because the people wanted to think about it and all this and that. But eventually over the next 6 to 12 months, that money kind of came. So I had a full 15. And for some of them, I cut breaks, but I was earning between 1 and 2% as a management fee. So, I really didn't have to sleep with one foot on the floor and worry about paying my bills because I'd have, you know, a couple hundredk come in, you know, to to handle my my my finances, which, you know, I had earned the right, you know, to do by doing a good job with those people. And also,

46:55 cuz I was, you know, clearing I cleared EDNF, man. They were charging me. It's a lot by today's standards, but I went from paying say $90 to $100 to $10 round turn. It was like a 90% discount and everyone loved that because they were they definitely were aware of the commissions they were paying me when I was an upstairs you know guy at the warehouse. So I did think about it but it wasn't a concern. I did my biggest concern was not getting into or having like a my big thing is like I'll never be in a 10% draw down. If I smell smoke, I'm going to puke it out. And I'll even call the people and say, "Look, I'm going to take a month off because the markets are not amendable to my trading style, but I won't charge you the management fee." Like, I was very good

47:41 at communicating with people. If they had to hear bad news from the before Kramer's, a guy named Dan Dorfman who was kind of like the carnival barker for the markets. You're just one man's opinion, you know, and I get it. He's entertainer, but both basically kind of useless. And I figured like, man, cuz Maria Baroma was just kind of coming online, you know, and CNBC was evolving and this and that, and I didn't want my clients to have to hear the bad news from the TV. I had to be the person in control of the relationship. So, I spent a lot of time communicating with people saying, "It looks like this could set up. If it does, here's what I'm going to do with gold. Here's what I'm going to do with crude. Here's what I'm going to do with Deutsch Mark. Blah blah blah blah blah. And if it doesn't pan out or

48:27 I don't you don't see the confirmation come through, it's because it turned out to be a sub-optimal, you know, opportunity. And I did I don't want to throw good money after bad because what we don't lose, we don't have to earn back. There'll always be another opportunity. But if you put yourself in a bad spot draw downwise, you know, you lose your confidence, you lose your nerve. And that's the last place you want to be as a trader. You know, I don't mind losing the money. I don't want to lose my mental edge. The mental edge is the whole thing. I see. We'll go go more into detail on that. Um what are the some of the um common mistakes or common uh mental edge issues that you faced early on and how did you overcome them or how did you minimize their impact later on? You honestly are a great interviewer cuz you're not giving me any

49:12 room to breathe like every Yes, your honor. Yes, your honor. No, your honor. Like I am absolutely testifying here. Um, so again, I was in so much Ian, I was in so much fear about money. Like even though I was starting to get financial abundance, I didn't trust it cuz I had never had it before. I all I knew was going to work, shave my face, put on a tuxedo, weight tables, and this and that. So when I started making money, I had trouble trusting it. I was afraid that it was going to go away. And I knew that it would have been my fault. like I had enough self-awareness to know like it's not going to be a market correction that puts me out of business because I don't have that type of risk on right we're carrying you know over the years I got much more aggressive in the mid 2000s but in the mid to late 90s

49:59 I would go home with maybe 10% margin to equity ratio which is kind of like where the CTAs kind of live when I got really really good and I had over 101 15 years experience when China was buying everything in the mid200s I'd have 70% margin to equity. Like I was levered up, you know, I was taking gigantic, you know, big five figure numbers out of gold and copper and sugar. I caught the sugar move from 9 to 18. So mental errors were don't get hotty, don't get full of yourself. This has nothing to do with intelligence. You know, when I went to Wall Street, I had had teachers who had Nobel prizes. So I thought I was going to go in and trade every asset class, every time frame, and all I did was lose money and and prove that that doesn't work. Not at least at the beginning. So I said like I just have to

50:44 stay in my lane. I have one skill. I understand commodities. I never would have guessed that that was and I was an utter failure at foreign exchange. Plus I hated the fact that it was 24/7 and you basically needed a Bloomberg and I couldn't afford a Bloomberg and still to this day I wouldn't pay 2K a month for 2 years to have data access to data. It's like it's just not how I'm built. options were very clever, but there was so many moving parts with Vega and Charm and Theta and implied volatility, historical volatility, you know, it was too much for me given that I had my Clark Kent day job where I had to look and smell and feel like a financial adviser and kind of be a closeted Superman trader, you know, and so the the you know, hubris, you know, pride

51:30 has said, it's been written, pride's a big banana peel. I couldn't fall in love with my P&L. I would never sit and bask like I've got a gigantic position open where, you know, you could have 250 $300,000 of unrealized gains. You know, for a for a blueco collar kid when you started Wall Street, that could have been like 3, four, five years of of total compensation pre-tax, right? So, I had to forget that thinking and just saying, "Okay, well, if you have $10 million, $12 million, $15 million and you have a $300,000 unrealized." You have to think percentages to give yourself context. So, that really helped was to stop thinking in terms of dollars and cents and like, okay, I lost 10K on a trade. Big deal. That was like that would have been like a whole summer or or 6 months of working in my bluecollar

52:18 jobs. Then coming to understand that intelligence is important but it's not how you make money. Making money is about knowing good trading tactics and can you pull them off? Do you have the will to do it? And I was afraid. I was absolutely petrified because every time I put on a trade, I felt like like kind of like I do now, like on the witness stand and that you have to you have to pass muster every day. and you kind of do, but it's not because you're smart or stupid or you're lacking something intellectually. Trading is about adding risk with an appropriate dosage. What is your risk unit? Like coming from a hedging, being physically trained in commodities, you know what your needs are, so you hedge for your needs. But

53:04 when you're a speculator, you don't need anything. So, how the hell do you figure what the right position size is? That I have to carve out a stone and figure out for myself. And when I lost money or more money than I had wanted, it was very very hard on myself. And I said, "Okay, but trading is like sex in many ways or other things in life that is largely experiential. You can read about it and study books and God knows I've read every trading book that's out there. I still have them. I've got, you know, first editions of Edwards and McGee for stocks. I have Chester Kelner's book on, you know, how to make money in commodities, which is the actual title. And and those are all interesting. And obviously, Market Wizards had an enormous impact on me, but not because of how they made money, just because they were regular people and I could identify with them based on

53:51 the feelings that they had to feel when they were learning to develop their craft and and cut their teeth at this. So, could you go uh into a little bit about your strategy kind of what how did you trade? What did you specifically look for? uh presumably just in the charts assuming you're not um are you were you doing anything with uh fundamentals at all looking at reports or you know commitment of traders reports or anything like that or or were you just just looking at the charts inside the wirehouse I had access to research reports but what I learned was that the research reports the way that they were written were really just compliance approved data points points

54:37 that I could use to speak with clients to get them to do trades to generate commissions. It wasn't really about the accuracy of the report, you know, cuz crop reports change like the wind. Uh, you know, sometimes there'll be a seasonal dislocation or there'll be a blight or or you know, in some of the grains, especially physically settled commodities are are seasonal and can have those types of disruptions more than say currencies or cash settled. you know, commodities in my in my humble opinion. So, I did read everything I could get my hands on for to one to learn the vocabulary and the vernacular of the space. I did, like I say, have friends. And so this has kind of never

55:22 been disclosed before, but when I set up my CTA in New York and registered as a as a commodity trading adviser and became a member of the NFA, two or three times a week, I would go to the floor of the various exchanges to meet with the people who were actually dealing with the physical commodities because they're the ones who have all the information. They're actually involved on the physical side. Now again I was physically trained but I would go to the floor and I would stand by man's EDNF man you know they had seats on every exchange and so I would stand by their post and learn like what was the crowd doing when were they you know where were my levels what were the inflection points where were were we at day daily highs weekly high monthly highs life of

56:08 the contract highs where were we in the history of things and see what how what how did they behave at those inflection points what kind of volume, what kind of open how would it change open interest and then calibrate that and kind of market to the market to see if I could incorporate that into my decision-m process, you know, because there is public, you know, for example, if you see this doesn't work for equity people, but if you see like a commodity going up in price and volumes steadily increasing but open interest increasing, you can ascertain that it's probably new longs that are coming into the marketplace. And being a smaller speculator compared to the bigger people of the day, I always wanted to be buying when there were other buyers because I knew that they had the money to punch out my lights and they would also come back into the market perhaps and even support

56:54 their existing positions that would give me buoyancy for my smaller little positions which, you know, they seemed big for me. They were small in the context of the overall market. But on any given day, I'd be down at Coffee, Sugar, Cocoa, and Cotton. I'd be at Comx. I'd be at NYX and I'd be trying to execute my orders kind of from the floor and just giving the orders to the clerk, you know, right there because they would bring me onto the floor as a guest, which you could do. You'd have to wear a suit and tie, no, you know, leather shoes and shave and then look, you couldn't come in looking like in cargo pants and flip-flops. So you'd have to dress you'd have to dress neatly, but my friends would bring me on as as a as a guest and I would stand, you know, politely out of everybody's way and then

57:39 watch and see like where was the action and then if gold kind of closed down, I would go to Comx, you know, or trade copper or silver. I'd look and see, okay, is there anything going on energies? But rarely a week went by from 97 to I moved to LA in April of 98 that a that a that a week went by when I wasn't at one of the floors like learning that not just how they behaved but also the culture like it's really sad for me when I reminisce about that culture like there were some great little things and traditions that they did. I remember being on the floor in natural gas and one of the guys who was a longtime local died and you know

58:26 when you're down there in the crowd you're fist fighting with people but there is a type of brotherhood like they love each other they really love each other like they're in this together and they are competing but they still love each other and one guy and one guy he was a local he died and I remember it was very emotional for me even as I think about it they they shut the exchange change really or a moment of silence and they held the guy's picture up. You're never going to see that anymore. It was very remarkable to see. Oh, did did that feel like kind of like a a second family to you given? Absolutely. Yeah. Absolutely. because yes, they wanted my clearing business. Um, and they I kind of had a reputation

59:11 of becoming a younger Turk, but it was more like it's good for the business if the young guys make it and become the next wave, right? We don't need the stories of Gibson greeting cards and Mattel Gazelle Shaft and these other guys taking on these big positions and getting crushed. Like, it's not good for It's why Charlie Luchiano, Lucky Luciano put together the mafia commission. It's when you kill people and they find dead bodies, the cops get involved and they start investigating. We might as well decide to have peace among us and determine things behind the scenes so that we can all make money, right, and not draw the attention of the the, you know, the cops or the FBI. And I'm not saying that you should go, you know, go go do this, but

59:58 the broker, the the clearing member community and the floor traders, they're not jealous. They they are competitive and they might take your success as an input to to go out and succeed more. But it's good for the business when the young people come in and succeed, right? because it's it's hard for some of these larger places, they can't trade, for example, smaller markets because they're too big. They're beached whales. So, if you look at like the softs, coffee, sugar, cocoa, cotton, there's certain points where these entities that run 50 to$100 billion, they can't really trade those markets because even if they bought the the exchange limit that you can buy, it wouldn't move their need the needle on their bottom line. Plus, it would still

1:00:43 give them enormous amount of risks. So young guys like me would come in and say, "Look, I got 20, 25 million now, and I could very regularly trade, you know, a methodology, you know, short-term, intermediate term trend following stuff where I could catch those moves and provide additional alpha to you." So, what what would you say were the top lessons you've learned from your biggest

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