Interview with a Trader: Inside the Mind of Jesse Felder
Jesse Felder has been managing money for over 20 years now. He first began his professional career at Bear, Stearns & Co. and then later co-founded a multi-billion-dollar hedge fund firm headquartered in Santa Monica, California. Today he runs a family office in Bend, Oregon and publishes The Felder Report, which is a premium newsletter for individual investors.
I had known of Jesse Felder before, but what really caught my eye was an outstanding article I read about him in the Wall Street Journal, called “Here’s Why Jesse Felder Never Regretted The Costliest Decision of His Life.” An epic publishing writen by Jesse himself, it describes his walk away from the Wall Street scene and the multi-billion-dollar hedge fund firm the he co-founded. The article reads as so:
“Fifteen years ago to the day, the internet bubble peaked at Nasdaq 5,000. That same week, I quit as head trader and co-founder of what was to become a multibillion-dollar hedge fund firm, easily the costliest decision of my life.
I didn’t quit because I was unwilling to work 60-80 hours a week anymore. I didn’t quit because I didn’t like my partner, though that was true. I didn’t quit because I didn’t love what I was doing – I did!
I quit because I came to the conclusion – after it punched me square in the jaw – that the stock market, Wall Street and especially the firm I was working for, were full of shit and I just couldn’t be a part of it anymore.”
He then goes on to end the article with “Ever since, I’ve spent my career trying to figure out how to best help people with their investments in the most ethical way possible.”
Wait… hold on a second… time out. So Jesse Felder walked away from a multi-billion-dollar firm (with a “B”), which he co-founded, for the sake of honesty, moral standards and a weighing conscience? Shut the front door! Noble, to say the least.
As it turns out, karma has it’s ways. The firm he walked away from eventually went down hard (a little more than a decade later), with the other co-founder locked in a world of legal trouble. Crazy story.
Read the full WSJ article: Here’s Why Jesse Felder Never Regretted The Costliest Decision Of His Life
Inspired by Jesse’s story, I reached out to him to see if he would share some of his knowledge with me. Though not all my questions were answered, Jesse took some time to share his thoughts on several topics:
What first influenced your interest in the stock market?
“When I was about 8, my dad bought an Apple II and one of the games he got was called, “Millionaire.” It was a stock market simulator. It didn’t take me long to tire of the game but the concept got me hooked on the markets.
Soon I started essentially paper trading. I had an accountant’s ledger and would update prices and values on the weekend. I eventually started investing some real money and when I graduated college I knew where I wanted to start my career.”
What methods/strategies have you pursued that have failed for you in the past as a trader?
“It’s hard to say that any one has failed me. I try to incorporate as many disciplines that I can so long as they have some sort of value for my process. Some work better than others at different times.
I think where I’ve run into trouble is when I’ve relied too heavily on just one. I try to wait until everything lines up in a way that gives me a very high probability of putting on a successful trade. Only then do I really pull the trigger. I really believe that what distinguishes extraordinary traders is this sort of extraordinary patience and discipline.”
Who are influences/role models for you that are relevant to trading and why?
“I go through phases where I study different highly successful traders and investors.
First, it was Warren Buffett and Ben Graham-style value investing. Then I became more interested in Buffett’s evolution inspired by Charlie Munger. After that, I really got into technical analysis, eventually coming to Elliott Wave and DeMark studies.
I’ve studied Paul Tudor Jones‘ trading style and trend-following. Lately I’ve been fascinated by Stan Druckenmiller‘s methods and history. He may be the single most successful hedge fund manager in many generations. I really identify with his style of waiting for a big idea that gets you excited and then really being a pig about putting the trade on.”
How would you best describe your trading style?
“My trading style is a combination of fundamentals, sentiment, technicals and macro. Todd Harrison was really the first one I heard lay things out this way.
Ideally, I want to find something that’s very cheap and hated. Cheap because the price you pay determines your rate of return – the cheaper you can buy something, the better your return will be. And hated because something that’s hated probably has very little potential supply left to push the price lower. Once something becomes widely hated pretty much everyone who wants to sell it has already done so.
Once I find something that checks these two boxes I look for technical signs of a trend reversal to the upside. I want to see waning downside momentum on multiple time frames. All of this works in reverse on the short side.”
What do you feel sets the great traders apart from the rest?
“They are willing to step out of the herd and be different. Not only that, they are hardwired to do so in some respect.
That’s not to say money can’t be made going with the herd. In fact, most times this is the only way many make money. That said, they don’t follow the rest of the lemmings off the cliff. They form their own ideas and have the confidence to follow them regardless of what Mr. Market says in the short run.”
What can you tell readers about your risk management approach?
It really suits my personality to be long/short almost all the time. I rarely want to expose myself to general market risk. Aside from that I try not to use hard price stops. I prefer to use fundamental and time stops. If my thesis turns out to be wrong, I’m out. If the trade doesn’t start to work in a certain amount of time, I’m out.
What books, websites, or other resources would you recommend to those wanting to broaden their trading knowledge?
“I could probably read ‘Market Wizards‘ once every year, and I probably should.
Warren Buffett’s shareholder letters are also an invaluable resource for understanding markets and business.
‘Reminiscences of a Stock Operator‘ and the new biography, ‘Jesse Livermore – Boy Plunger,’ are also both excellent. Aside from that I’ve found twitter to be a terrific tool, mainly for news, but also for sharing ideas and learning things from such a wide potential network of traders. It’s become invaluable to me.”
What advice can you offer readers regarding position sizing?
“Your position size should be directly correlated to your confidence in the idea along with your skill and discipline.
Only take a big position if you are both highly confident in the idea and you have the skill and discipline to effectively pull it off. The trick here is overconfidence is a killer – in both our ability and our ideas. This is why most successful traders spend the majority of their time trying to figure out where they are possibly going wrong with an idea rather than trying to validate it.”
Now that you have developed into a successful and profitable trader, what are you doing to better your skill?
“I’m a perpetual student. I can’t imagine ever reaching the point where I feel I’ve learned as much as I can and now I should just stop. I’m always excited to look at new concepts and tactics. And I can always refine the skills I do have. That’s a never-ending process.”
Any habits or methods that you use that others might think is unorthodox?
“I think the biggest fallacy in the markets is that you have to choose one discipline. You’re either a fundy or a technician. You’re a trend-follower or a swing trader. I couldn’t disagree more. In fact, I think the biggest failure a trader can make is finding one and rejecting the rest. When you put them together they work even better.”
For those who are just beginning to get their feet wet, what advice would you give or direction would you point them?
“Study a bunch of different styles and guys who have successfully implemented them and just find something to really get excited about. When you find that you will be on your way to becoming a successful trader. But you have to find your own unique style in the end. What you don’t want to do is try to just adopt somebody’s else style, especially if it doesn’t really speak to you.
Learn as much as you can about things that you find truly stimulating and then you’ll inevitably arrive at your own version, your own unique trading style.”
I want to personally thank Jesse for taking the time to share his thoughts on the above subjects with us.
Follow on Twitter @jessefelder