Colm O'Shea is the best hedge fund trader

  • Apr 19 2022
  • by
  • Analyst AZA
Colm O'Shea is the best hedge fund trader

Colm O'Shea is the best hedge fund trader

This article will attempt to give an insight into the life of Colm O'Shea, but will focus on how he became successful in trading in various markets. This article outlines the lessons he was able to learn about the market and some of the good habits he developed over time. We will also touch on specific professions, the experience of which he remembered for a long time and what he learned from them useful.
One interesting thing about O'Shea is that he is constantly implementing risk management and he has no history of his trading balance having dropped significantly. Colm is a macro trader and his strategy is based on looking for trend formation in various markets such as Forex and Commodities. When he makes a guess about where the market is going, and if suddenly the market starts to move against his forecast, then this proves that he was wrong, and he will not hesitate to close his position.

As a teenager, he became fascinated by the political events that were taking place at the time. The political sphere drew his attention to the controversial topic of government intervention in economic affairs. At that time, Margaret Thatcher proposed to the government to cut spending on social programs and remove bureaucratic obstacles that limited the participation of the private sector. This led Colm to become attracted to economics and devote his time to studying how the economy works. It was after this that he began to study the dynamics of the markets. Colm was so successful in studying economics that he was able to get a job as an economist in an investment firm. O'Shea never considered himself "knowing everything". This attitude allowed him to constantly seek knowledge in the field of trade.

In some job interviews, when he was asked a question to which he did not know the answer, he did not shy away from admitting that he did not know, and this reflected his honesty, which was taken into account by the interviewers. Since he did not have any formal education to qualify as an economist, the firm that hired him secretly used his skills by separating him from other traders and he was not allowed to interact with any clients. In some cases, O'Shea made predictions that were not in line with economic principles and were correct. Since he was hired to provide consulting services, Colm realized after a year of work that he was not satisfied with the position he held in the company, because he always wanted to be a trader. He decided to retire and start going to university. He got a degree and got a job as a trader at Citigroup.

Colm has remained consistently profitable throughout his years at Citigroup. He left his job and joined an alternative firm where he continued to make consistent profits until he opened his own fund. O'Shea is not satisfied with the way economics is currently taught in universities. He argues that in the past economics was taught philosophically, whereas now it is dominated by mathematics. The reason he dislikes this methodology is that the use of mathematics in finding economic solutions forces economists to make assumptions and believe in those assumptions in order to arrive at a reliable result. He also believes that mathematics cannot take into account the factor of human emotions in the calculations. Colm believes that markets are more important than politics. In general, statistics about the economy are more important than what politicians hope for.

This was proved by his previous boss George Soros when he ruined the Bank of England. The Bank of England had expectations about what was likely to happen when England exited the European Interest Mechanism, but the fundamentals said otherwise, and George was able to take advantage of this and made a big profit. Colm is a supporter of Keynesian theory. The theory is based on the belief that the government should run a deficit when the economy is facing a recession in order to reduce its severity to employment and business. O'Shea advises traders not to trade against the trend until it shows signs of a reversal, and to enter after it reverses. For example, during the financial crisis, when real estate was rising in price, there were some important indicators that reflected a possible downtrend.

Since people kept pushing prices higher, according to Colm, the market is the best indicator, and external indicators are not enough to make a trader go against the trend, instead it would be safer to wait for a reversal before entering. What exacerbated the crisis was the inability of institutions to get out of positions, but Colm made sure he had enough liquidity so that he could easily close out his positions when market conditions change or when the bubble bursts. It also takes into account its ability to move the price relative to other participants. For example, he admits that he is a small player in the currency markets, and this allows him to have less difficulty as he will be a pup in a game of big dogs, which is not a zero-sum game. In contrast, in the stock markets, hedge funds are big players and can influence prices to a greater extent, which adds to the complexity. Colm believes that there will be quite a few trades that you will have to make without having a fundamental reason for that particular trade.

For example, in 1998, when the Bernie Madoff fund lost 92% of its value, the news was not published, but some parts of the market reflected something important, especially in the credit markets. As mentioned earlier, when entering such positions, you do not need to use high leverage, as confidence is not enough. So let's briefly explain the Bernie Madoff saga. Bernie was a fund manager who had delivered high returns to his investors for four years in a row, and in the fifth year, the fund's value fell ninety-two percent due to highly leveraged instruments. It was based on the problem of moral hazard. This is my shock to the financial markets, but the Fed was able to contain the outrage in the end. Since he prefers to open a position in a way that gives the best profitability, less risk and limited losses in the case when the transaction is unprofitable.

For example, after liquidity in the money markets dwindled before the credit crunch, he expected interest rates to fall. Instead of expressing this trading plan in terms of only buying short-term instruments, Colm also traded the yield curve spread, buying short-term instruments and selling long-term instruments. His reason was that at the time, the yield curve was flat at the time, meaning that a rate cut would mainly affect the short-term part of the curve. If rates were to creep up for some reason, a flattening of the curve would mean that long-term rates are more likely to increase by at least as much as short-term rates, and possibly more. The spread on the curve is likely to give more profit with minimal risk. In practice, the risk/reward ratio was better than when buying only short-term rates.

It is extremely important not to become emotionally attached to the idea and always be ready to exit the trade if the price structure reflects the changed conditions relative to the original hypothesis. Colm admits that Soros has the ability to control his emotions and has made it a habit unrelated to his positions and never regrets leaving his positions. In the second quarter of 2009, Colm was not optimistic about the financial outlook, but the markets were saying otherwise. Since his bearish sentiment did not match the structure of market prices, he changed all his hypotheses to match what was happening. O'Shea's advice is to first decide where your trade went wrong and then set your stop loss, not the other way around.

When he makes a guess about where the market is going, and if suddenly the market starts to move against his forecast, then this proves that he was wrong, and he will not hesitate to close his position.


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