GIO VALIANTE: Welcome Real Vision participants. As I was saying before the broadcast began, this is the first time I've worn a jacket during the pandemic, which reveals how excited I am for today's guest and the amount of respect I have for him. Peter Borish has been a market participant for over 35 years. I'd heard about him well in advance of the chance I got to meet him during the talk several years ago. When Real Vision offered to put this together, I jumped at the opportunity. Peter, I'm excited to spend time with you today.
PETER BORISH: Thank you, I am too.
GIO VALIANTE: Now, for those of you who are going to be watching this, Peter and I met yesterday and he gave me a broad and wide length to be able to ask whatever questions interest me. For those of you who know me, I have a background in psychology, PhD in Psychology. I've coached investors as Peter, I put on the mental side of things. I've coached athletes for years. We're going to have a little psychological slant today, with the intention of tapping the mind of one of the most articulate people I've met in the investing community, and a market participant, like I said, for over 35 years. We're going to tap into that mind and hopefully learn some good things today.
Peter, I want to begin with just an opening statement, as a participant and an observer of the market, having a president of Computer Trading Corporation now but being mentored by Paul Tudor Jones, one of the legends, and seeing the invention, innovation, evolution and adaptation of the markets. Talk to me in retrospect about how the market has evolved in broad terms in your view, and what's evolving in front of us in real time?
PETER BORISH: Wow, great initial question. I don't have 35 years to go over 35 years, so I'll try to do it relatively quickly. The major change is the speed of technology is not technology. I think that that is an error that many people make. Speed has always been important. Back in the earliest days, if the price of gold was higher in New York than the price of gold in Philadelphia, the fastest horse that went from-- sell in New York and ride to Philadelphia, and buy gold in Philadelphia, arbitrage has been around forever. Markets work.
If you start from that premise, then everything comes out. You don't even need to be that old. If you've got a child of nine or 10. If you ask them why are the Knicks tickets less expensive than the Warriors tickets, well, people want to see Steph Curry. It's as simple as that. They get it. Markets are inherently understood.
What has changed is the number of markets that one can participate, the ease of access and the speed of the response mechanism both from your orders execution and the speed of news which is disseminated. All that comes together and says, okay, what's signal and what's noise? That, by far and away, is the most important evolution in terms of I think trading today is you have to trade your own personality. I know you spend a lot of time on this. I can't trade like Paul Jones. I can't trade like Steve Cohen. I have to trade like Peter Borish. Unfortunately for me, that's not as good as them.
GIO VALIANTE: One of the things I really respect about your mind and about how you think about the world is you tend to take a lot of disparate information and synthesize it and distill it. Even so far, here today, markets work. You have to trade who you are. You're a born teacher. Let's talk about that statement for a minute. What's the belief undergirding the idea that markets work? What do you mean by that?
PETER BORISH: I mean that when we're successful as individuals, we tend to take credit for that success. When we're not successful, we tend to blame others. When we're blaming others, we're essentially the large they, or the markets don't work or there's a manipulation or the government's done this, the Fed has done this or a big trader has come in just we've seen with the volatility today in the markets by the way, just as a total aside. Today is rollover day in the futures which is an inherently volatile day. You need to know these things going in.
Is it useful information? It just has to be there in the back of your mind in terms of your risk, which I'm sure we'll get to. Markets work, as I said, at the most basic premise. In the short run, it's always a supply and demand for money. If your timeframe is longer than that, then you don't have to worry about it, but if you're trying to trade actively, and in the short run, you must have a discipline. One of the things I'm going to say two lines that I always took away, for me, from Paul Jones. One, discipline before vision, and what's obvious is obviously wrong.
GIO VALIANTE: Discipline before vision, extrapolate on that just a little bit for us.
PETER BORISH: We like to think, and this is part of the business of markets, that we're smarter than everybody else. The markets don't grade on a curve and so you go in there so you may have a view. Wow, Tesla's overvalued, I'm going to short it. Well, you have to have that discipline to get out, because that's there. You can probe and lose a little, you can probe and lose a little, but if you don't have that discipline, you are going to be taken away. It's the same thing as in markets, as in sports. The mentality, in my mind, is extraordinarily similar.
If I could just go for another minute, one of the things that I know that you always talk about, and having started in research, I hope you don't mind but I listened to a number of your discussions and talks on your website, is you talk about ego. Many people feel that if you have a big ego, you don't have discipline, but the people with the largest egos have that discipline. They can say, you got me today, but I'm going to get you back tomorrow with 100% interest. I'm wrong on this position. I'm strong enough to get out, but I can get back in.
The best traders in the world, they understand that. They say, okay, you got me, but If I take a series of small losses, and this is the school I grew up with, which is if you're always-- you get paid in our business if you make new highs, if you're in an incentive fee territory. As long as I'm close to sticking my head out, I can get paid. If I fall too far in the ditch, it's going to take me a long time to get back to even make money and of course, that's the inverse property of negative returns and we don't need to get into that.
GIO VALIANTE: You brought up an interesting concept, this idea of ego and in pop psychology, it's all the rage these days to vilify the ego but psychology-- ego is synonymous with self, with identity. Everyone has an ego. Everyone has a sense of themselves and I think where it becomes dangerous is when people-- because the ego is a filtering mechanism. We see ourselves a certain way. When the markets are not rewarding our view of the world, that's an offense to the ego and therein lies the source of many cognitive biases. I agree with you on the point that ego is required, a healthy ego is required, largely because of the psychological punishment that the markets can take.
Jack Nicklaus talked about confidence, confidence being an expression of ego, as being the buffer against the demands of golf, that you need a bit of a buffer from the demands of sports. I think there's a real parallel in professional golfers and professional investors, quite a few commonalities. Let me ask you a question. One of the things that is a bit of a known in golf is that there's a lot of different ways to get it done at the professional level, proverbially a lot of different ways to skin the cat. For example, Rory McIlroy is arguably one of the most talented golfers of this generation. He's got the same golf swing he had when he was six years old, he rolls out of bed and hits the ball straight. It's just pure talent.
There are a number of investors I've met who I think have a version of that. For people who don't have that talent, the IQ point is the horsepower, they compensate. They either compensate in the golf world through work ethic, they'll just work harder than the more talented people, or they'll compensate to be more organized. I've seen a version of that with professional investors, that there's horsepower. I'm not going to give my list.
I'd like to hear in your vast experience having participated in so many different types of investing with at this point, I would imagine thousands of people and thousands of hours of dialogue and have you being a mentor and a teacher, what are the profiles that work in investing? What do you see that works, and for the viewers of Real Vision who might be new to the forum or new to investing, young investors, what cautions or guidance might you give? It's a big question but let me break it down. What works, what might not work and what advice can come from that for young investors.
PETER BORISH: I think what works by far and away most importantly, is to take away the emotion of the moment, and therefore, pregame and try to do most of your work when the market is closed. You want to be an actor, you don't want to be a reactor. This is the difficult part about this business. You can work all weekend, you can have a game plan, you can do some research and then the cash stock market opens at 9:30, and that could all be out the window by 9:40.
GIO VALIANTE: I'm laughing because I have a portfolio manager I worked with. For him, that describes their day to day, the reality of their life. It's a very real thing. Yes.
PETER BORISH: I think that's really important because if you don't do that, when you're reacting, there's 1,000 reasons to talk yourself out of a trade. You will talk yourself out of that trade, and then it'll work your way. Then you're going to lose your discipline because you're really mad at yourself for not having done that. Then you'll force yourself into that direction of that trade, because you lost your discipline, and you'll have bad trade location. To me, trade location is everything. We talked before about personality.
I'm a terrible spread trader because I'm too competitive. I want to win on both sides of the trade. Being long gold and short silver, I can't do that. Because yeah, I want gold to go up more than silver does. If silver's going up, I can't stand myself for being short silver. I have to recognize that. I'm not a good spread trader.
I'm also terrible at averaging into positions. If someone says, Well, I'm going to buy XYZ, and then if it goes down, I'm going to buy a little more and if it goes down, I'm going to buy a little bit more, that is not the way that I was taught under Paul Jones, who says losers average losers. It becomes trade location, so you have to deal with that.
If you pregame, which means not just the entries, so I have this whole trading presentation and my first slide is always entry as easy, exit as hard. I'll also say just keep in mind that's just like relationships, and it's so important to maintain that fact that before you do the trade, you have to have an exit, both in terms of risk, of loss and a profit. One of the things I've worked with a lot of CTAs, who are on here and have done some great revisions is that when you have a model based trend following CTA, their point of entry, their risk reward is fantastic. Except the minute they start making money, it gets backwards.
In fact, because the faster they make money-- so sec trading is a second derivative world. It's the rate of speed. If you make a whole bunch of money, but you can't move your stop, then you can give it all back. Again, that's not how I was taught. That's not my personality.
Process, we think that really good traders wing it. That's not true at all in my mind. Really good traders have a process and they stick with it. Of course, they evolve as new information and new tools and new techniques become important. For all you at home who are comfortable with their screens that are up, it's really hard to get them to change over time. The best example is that is everybody that hung on to their Blackberry for so long and now, they can't imagine how they survive without iPhone or an Android.
GIO VALIANTE: Well, I loved the keyboard on those Blackberries though, Peter, I got to tell you. They typed really, really well. Peter, I'm going to ask you a bit of a personal question, if you don't mind. This is rooted in the research I used to do in golf psychology where I would ask, in my first book, Fearless Golf, one of the two of the questions I asked 100 different professional golfers was, what's the biggest obstacle that you've overcome to reach your success and then how did you overcome that obstacle? Because one of the things that we know is the path to the type of success that you've had is not linear. I would imagine.
I don't know that could be the case, but I imagine just like a portfolio and just like the stock market, it's not up into the right. Although risk managers always want profits to be up into the right in a straight line, that's generally not the reality. That's true of the pattern of success in life. If you were to look back at your 30-, 35-year career, share with us-- and let's make it stellar, trade specific or investor specific, if you think that's relevant, what was the setup? Then what was the obstacle that blindsided you? What hit you, and then how did you overcome it?
PETER BORISH: I'm going to be-- I think maybe that's your skill set. I'm going to be very personal here and go back and try to be very honest. When we were starting at Tudor, and Paul was a true entrepreneur. He bought me on and even to pay the bills, you would have to go back down to the floor until we raised any money. Then we had success, and I had a lot of success as being known as the guy that called the '87 crash. Here I am as a 28-year-old, just like an athlete. I had tremendous success and for the first time, was making serious money.
I think I made a lot of the mistakes that I see in young athletes today that make a lot of money when they're young. I went to public school. I went to the University of Michigan and I got at the Fed and I thought I was on this path that I could do no wrong. I lost some discipline, I think, because of that, and in the sense that my research was going to be right. The things that I said earlier was about the market being right and me being wrong, I just thought it was going to be the opposite. That, hey, I had this success. I was smart. I was using these tools, we were using this technology.
One of the things that we were able to do is we applied this new technology to markets very early on, the discipline of Paul's trading on the floor and in futures, which were more leveraged than traditional equity markets and as the financial futures around the world came on board. We saw that in '89 near the end where we thought, well, Japan is going to be another one of these issues. I'm pounding the table, but thank goodness that Paul Jones had that discipline as a trader, and then he goes strong enough to probe and get stopped out. Finally in 1990 when it turned, we got paid.
The lesson for me at a very young age was, hey, I had success, but success is not 100% dependent on yourself. Flash forward a half a decade or a decade later, the hardest thing for me when I left and started CTC, and they seated me and they had a CTA and we had models is when I had a bad day, I could walk down the hall. I could sit on Paul's couch and go, why the hell am I in this business? He could, as the boss and that's better trader than I am, focus me and get me pumped up. Sometimes, it's just as simple as hey, this is the last If you chose. This is the way it is. If you don't want this personal volatility, then you shouldn't be in this business.
When I started my own business, I couldn't do that. I had to be the person that other people came to when we did this, and we had more volatility, we had more markets so by the end of the '90s, you had to have a 24-hour trading desk, you had to deal with cross correlations. I never got the phone call at three in the morning. I'm still waiting for it, by the way, saying, hey, Pete, I just want you to know you're making money. I never got that, I [?] for.
GIO VALIANTE: The 3 a.m. phone calls are never infused with joyful news, are they?
PETER BORISH: No, never. That's a long way of saying is that young guys have all the moves, but old guys win championships.
GIO VALIANTE: It's a game that rewards mature champions, I [?]. One of the things that-- and this is really the forum where you and I first connected, where I first met you, has to do with Robinhood, which is such a wonderful organization, that I believe you're a co-founder of, correct?
PETER BORISH: Yes, thank you.
GIO VALIANTE: I tell you, I was pretty new. I'd come out of sports psychology and academia in academic research into the world of investing. I've always coached a few investors but Steve Cohen is really the one who brought me in full time at Point72 about six years ago. It's interesting because my view of Wall Street in the investment community was largely informed by movies that I'd seen, The Wolf of Wall Street, In Wall Street with Michael Douglas and so forth. One of the things that I've discovered firsthand was that it tends to be populated with a lot of really wonderful people. In fact, I would say disproportionately really incredible people who have all the characteristics I like in somebody, rigor and discipline and intellectual honesty, compassion, emotional, EQ, IQ, but also real heart.
You embody that and maybe having been trained in the helping professions and in the liberal arts really appreciate that, which is maybe why I'm such a huge fan of yours. You spoke earlier about, I started making real money and we talked about wealth and the world of