Legendary trader Bruce Kovner is in the news for listing his 22-acre California estate for $160 million. It’s the usual stuff in the press—rich hedge fund guy, blah blah. But most of these reporters probably have no idea who Kovner is.
He’s the guy who borrowed $3,000 off his credit card to start trading and leveraged it up from there. He was one of the first trend followers, and he traded at a time when there were lots of trends. He and his disciples, the Turtle Traders, made a lot of money off commodity futures in the late 1970s when inflation was ripping higher.
(We might have another crack at that soon.)
Anyway, I’m not here to talk about Kovner specifically, the Turtle Traders, or even trend following. I’m here to talk about the idea that you only need to do one thing well to become successful. Like trading. Or maybe getting lefty batters out in a high-leverage situation in the sixth inning. Or cutting hair. Or telling jokes. Or producing electronic music in Ableton. You get good at one thing, master it, and leverage your own abilities.
Kovner found that he was really good at trading. But he tried a bunch of different things, like driving taxis and playing the harpsichord (he took lessons at Julliard). It turned out he was really, really good at trading. He’s listing a house for $160 million, and it probably isn’t even one of his top 10 trades. The result of all this is that he’s now worth $6.6 billion.
Take Me, for Instance
In my life, I have done a lot of different things. For sports, I have played soccer, baseball, tennis, volleyball, and wrestling. I’ve also done long-distance running avocationally. In music, I have played piano, clarinet, organ, and a variety of drums. I am also an electronic music DJ and producer.
It turned out that I was pretty good at trading—very good, actually—but not the best. I turned out to be better at writing about trading than trading itself. So, in 2008, I retired as a trader and began a career as a financial writer. That is the one thing I do, and I do it very well. And I have made a very nice living for me and my cats. I have dedicated my life to financial writing like Bruce Kovner did with trading. I am even writing this while recovering from COVID.
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The old attitude was that kids should try a little bit of everything. Now, the thinking is that they should focus on one thing and do it very well, whether it’s baseball, lacrosse, or something else. This is the major reason that so many pitchers end up getting Tommy John surgery. By age 27, they’ve thrown many more pitches than previous generations of pitchers had by that age.
The sad story here is that most people do zero things well. Yes, we are all innately talented in certain ways, and some people never even find out what they’re good at. I have an artist friend from high school who has two children. Unsurprisingly, his kids are getting into art. What if they would have been good at something else instead?
So, some people miss out in life because they are spread too thin—they have too many pursuits. But other people miss out because they don’t have the dedication (or obsession) that comes with trying to be the best in the world at something. The Olympics just ended, and we got to hear plenty of stories of the sacrifices that athletes made to make their dreams come true.
The same principle applies in business as well. To earn supranormal returns, you need to put all your eggs in one basket, take out a loan, put more eggs in that basket, and then dedicate your life to making it work. Basically, if you want to be a billionaire, your wealth needs to compound at 40% a year. And generally, the only people compounding at 40% a year are entrepreneurs who turn something small into something big. Bezos and Zuckerberg are obvious examples.
Even the best traders in the world need some organizational ability to attract and retain staff, raise money, and do all the administrative things that hedge funds do. It’s not just some guy in his underwear. There are guys in their underwear who can compound at 40%, but they do not become Bruce Kovner.
One last unforgettable tidbit about Kovner, from his website:
Mr. Kovner has reportedly attributed his money-making success to ‘stupid governments,’ implying that the policy mistakes of central banks and governments causes disequilibria in financial markets that can be exploited.
That’s my approach as well. Without governments and their naïve interventions mucking things up all the time, trading would just not be as much fun.
Even while sick with COVID, I managed to record a new set. Please check out my latest mix Darling You’re So, which is getting rave reviews.