🔊 STS 015 – Over a billion dollars in a single day – Rob Carver, an ex-hedge fund manager about a professional approach to systematic trading

Robert Carver worked in the City of London for over a decade. For seven years he was a portfolio manager at AHL — one of the world’s largest systematic hedge funds — before, during and after the global financial meltdown of 2008.

In this interview, we talk about many trading topics, mostly around the systematic approach and why it’s so important for most of us to base the decision-making process on rules rather than discretion. Robert also explains why the most important factor to consider when investing is risk.

You can hear how people managing billions of dollars were considering liquidation of market positions during the 2008 crisis, while at the same time, mechanical strategies made over a billion dollars in a single day. The fund’s computer system had stuck to its preprogrammed set of trading rules and mechanically exploited the market moves almost to perfection, while terrified humans had discussed closing it down.

Although we discussed many negative aspects of trading and investing, there’s a positive message to all of us as well. With enough discipline and work, most of us may construct an investing vehicle at home and build our own capital successfully.

Some people think that gambling is bad, and investing is good, with trading perhaps somewhere in the middle. I disagree. All involve putting money at risk, with an uncertain outcome. What is bad is when someone is betting when they are guaranteed to lose on average, or when they put too much of their capital into a particular bet, or both. This sort of behaviour is rare amongst professional poker players, but is common amongst amateur gamblers and traders alike. There is nothing wrong with gambling, investing or trading; as long as you know what you are doing and never bet or invest when the odds are against you.

In this episode

• Rob’s career and trading experience
• Is working for a hedge fund is a good way to learn about investing?
• May an average retail investor learn professional’s skills at home?
• A short overview of Rob’s books
• What’s his trading approach?
• How much time does Rob dedicate to his investments per day?
• Is there a difference between trading and investing?
• Is it reasonable to invest money through an active fund, for example, a mutual fund?
• Does use robo-advisors make sense?
• What are risk and volatility?
• How to measure risk?
• Trading styles:
  • static vs dynamic
  • positive vs negative skew
  • trading speed
  • technical vs fundamental analysis
• Why is the trend following a reliable approach to investing?
• What is mean reversion?
• Why is day trading tougher than most people think?
• Does technical analysis work and why it has such a bad reputation?
• What is systematic trading all about?
• Types of system traders/investors:
  • asset allocating investor
  • semi-automatic trader
  • staunch system trader
• Computers vs humans: a story about how mechanical trading strategy made over a billion dollars in a single day
• Why doesn’t systematic trading look appealing to most of us?
• What is a well-designed system?
• What does Rob think about advanced techniques like genetic programming algorithms, machine learning, or other artificial intelligence applications?
• How much data is needed for system testing?
• What is the minimal number of transactions to trust the system?
• What tools/programming languages does Rob use?
• What does Rob think about High-Frequency Trading?
• Should an average investor be afraid of HFT?
• Rob’s investing advice for the beginners
• Robs review of the latest book about Jim Simons (The Man Who Solved the Market: How Jim Simons Launched the Quant Revolution)
• Recommended books/blogs/podcasts/other sources?

About Rob Carver

Robert Carver is an independent systematic futures trader, writer and research consultant; and a visiting lecturer at Queen Mary, University of London.

He is the author of “Systematic Trading: A unique new method for designing trading and investing systems” (Harriman House, 2015), “Smart Portfolios: A practical guide to building and maintaining intelligent investment portfolios” (Harriman House, 2017), and “Leveraged Trading: A professional approach to trading FX, stocks on margin, CFDs, spread bets and futures for all traders” (Harriman House, 2019).

Until 2013 Robert worked for AHL, a large systematic hedge fund, and part of the Man Group. He was responsible for the creation of AHL’s fundamental global macro strategy, and then managed the funds multi billion dollar fixed income portfolio. Prior to that Robert worked as a research manager for CEPR, an economics think tank, and traded exotic derivatives for Barclays investment bank. He spent his early career in the Middle East.

Robert has a Bachelors degree in Economics from the University of Manchester, and a Masters degree, also in Economics, from Birkbeck College, University of London.

People mentioned in this episode

• Warren Buffett
• Andreas Clenow
• David Harding
• Jim Simons
• Nassim Taleb
• Ed Thorp

Some useful links

• Rob’s website
• Rob’s blog
• Rob’s favourite links
• Recommended literature
  • Systematic Trading: A unique new method for designing trading and investing systems” (Rob Carver, Harriman House, 2015)
  • Smart Portfolios: A practical guide to building and maintaining intelligent investment portfolios” (Rob Carver, Harriman House, 2017)
  • Leveraged Trading: A professional approach to trading FX, stocks on margin, CFDs, spread bets and futures for all traders” (Rob Carver, Harriman House, 2019)
  • The Man Who Solved the Market: How Jim Simons Launched the Quant Revolution (Gregory Zuckerman, Portfolio, 2019)
  • Rob’s favourite books

Comments are welcome!

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