Lessons From Steve Cohen And Jerry Seinfeld
By Nick Colas of DataTrek Research
This week we’re considering the concept of “Mastery”. The word can mean either “a high level of skill” or “control over something/ someone”. Steve Cohen and Jerry Seinfeld both have mastery of their respective crafts, for example. As different as trading and comedy may be, their process of gaining mastery is actually quite similar: work every day, no excuses. This builds “skill”, of course, but also confidence (i.e., mastery over self, and self-doubt).
Two stories about “mastery” to share with you:
#1: Steve Cohen. When I (Nick) got to SAC in 1999. I heard a story about how Steve had developed his style of catalyst-driven trading. When he left Gruntal and set up his own shop, he started by only trading one stock: IBM. He got to know the floor specialists who made the market, read all the analyst reports and financial filings, and traded only when he thought he had an edge on specific events. Once he was satisfied his process worked, he started scaling the business by adding traders and training them in this approach.
By the time I got to Steve’s shop, there was an additional process layer on top of “know your edge”: a specific daily trading profit goal. You started with, say, a $1,000 budget – make that profit every day for 30 days. It didn’t matter if you made it at the open, the close, or sometime in between. Once you made the grand, you basically took all risk off and started working on the next day’s trade ideas. Once you achieved a 30-day continuous string of profits, you set a new one – $2,000/day, say.
What if you stumbled at some point, and had a few days of losses as you ramped up your profit goal? Well, then you went back to the $1,000/day goal. You already knew how to do that, after all. String together a few weeks of those gains and try for $2,000/day again. We all met weekly with the in-house shrink, who helped us understand the psychology behind our successes and failures, but always in the context of that daily profit goal number.
Takeaway: Steve and IBM is a great example of mastery as “comprehensive knowledge” built through daily discipline, and the $1,000/day goal is mastery as “control over someone”, namely yourself.
#2: Jerry Seinfeld. Ok, not an investment guy, obviously, but he clearly has mastery over his craft. How did he do that? Here’s his hack, as described to a fellow comedian many years ago:
“He said the way to be a better comic was to create better jokes and the way to create better jokes was to write every day.
He told me to get a big wall calendar that had a whole year on one page and hang it on a prominent wall. The next step was to get a big red magic marker. He said for each day that I do my task of writing, I get to put a big red X over that day.
After a few days you’ll have a chain. Just keep at it and the chain will grow longer every day. You’ll like seeing that chain, especially when you get a few weeks under your belt. Your only job is to not break the chain.”
Takeaway: Just like Steve, Seinfeld sees mechanized, disciplined routine as the path to mastering a skill and mastering yourself. In his episode of “Comedians in Cars” with Dave Chappelle, the two have a long exchange about how it can take years to craft the perfect joke. One word might make all the difference, and the only way to find it is to search for it every day.
Wrapping up with a few other thoughts on the subject of mastery:
As Henry Ford said, “If you think you can do a thing or think you can’t do a thing, you’re right”. “Mastery of knowledge” gets so much attention in investing that it’s easy to shortchange “mastery of someone”, namely yourself. Behavioral finance covers some of this ground, but too often in a way that makes decision-making mistakes look unavoidable. The important thing is to keep trying to overcome them with a specific process, executed daily.
Small wins mean a great deal. The $1,000/day trading profit goal had two very specific purposes. First, it forced junior traders to learn P&L discipline and risk management – especially the idea of cutting losses early. Second, and just as important, it gave them confidence. There is nothing like a 30-day string of wins – in any field – to give you the impetus to keep crossing off the days on a Seinfeld-style calendar.
Achieving mastery – of knowledge, or self – is an ongoing process more than it is a destination unto itself. Back at SAC I knew a trader who would mark down the individual closing positions on his personal P&L software (not the fund’s books and records, of course) so that he showed a smaller daily gain (say $2 mm instead of $4 mm). Why? Because at the next day’s open his real-time P&L would always be positive by a million or two regardless of overnight volatility. He simply found it easier to make good decisions if he was “making money”. Unorthodox as that may sound, it reflects the right priorities – mastery is often as much a brain hack as it is based in empirical knowledge.
Final note: we obviously follow the daily approach to “mastery” at DataTrek, something that actually started in our prior gig right around 2010 when we first read about Seinfeld’s routine. To us, it made more sense than Malcolm Gladwell’s 10,000-hour rule (it takes that long to achieve a high level of skill) as described in his 2008 book “Outliers”. After +30 years on Wall Street, I have come to the conclusion that mastery is first and foremost a process, and one that requires daily, sustained attention. The minute you stray from that path, you quickly start to lose it. As Seinfeld said, “Your only job is to not break the chain”.
Jerry Seinfeld’s Daily Routine: https://www.balancethegrind.com.au/daily-routines/jerry-seinfeld-daily-routine/
Sun, 05/09/2021 – 21:35