Lessons from Steve Cohen

Lessons from Steve Cohen

Steve Cohen made his name trading high-volume equities long before algorithms took over Wall Street. The Point72 founder and New York Mets owner is defined by his aggressive risk management and refusal to let losses run. These notes outline his mechanics for cutting bad trades and developing talent, along with the psychological discipline required to survive the markets.

Part 1: Risk Management and Losses

1. On Batting Averages: "My best trader makes money only 63 percent of the time. Most traders make money only in the 50 to 55 percent range." — Source: AdvisorPedia
2. On the Necessity of Losing: "That means you're going to be wrong a lot. If that's the case, you better be sure your losses are as small as they can be, and that your winners are bigger." — Source: Business Insider
3. On the First Danger: "If you're in illiquid stuff, that's a problem." — Source: Business Insider
4. On the Second Danger: "If you're using too much leverage, that's a problem." — Source: Stray Reflections Podcast
5. On the Third Danger: "And if you're too concentrated, that's a problem." — Source: LuxAlgo
6. On Compounding Risk: "If you have one of them, maybe that works. If you have two of them, uh oh. If you have three of them, you're whistling past the graveyard." — Source: Stray Reflections Podcast
7. On Cutting Exposure: "If the market is moving against you, and you don't know why, take in half. You can always put it on again." — Source: Goodreads
8. On Removing the Problem: "If you do that twice, you've taken in three-quarters of your position. Then what's left is no longer a big deal." — Source: Goodreads
9. On Analyzing Losers: "I'm focused on my losers. Am I missing something? Is there something changing? If I feel like something is changing or I feel like I don't know why, I will reduce." — Source: Stray Reflections Podcast
10. On Market Drawdowns: "Everyone has scars in the markets, and you should take it as a badge of honor." — Source: Sohn Investment Conference

Part 2: Trading Psychology and Reaction

1. On Control: "You can't control the market, but you can control your reaction." — Source: Quantified Strategies
2. On Taking Action: "Move with your feet if you think you're wrong." — Source: Real Investment Advice
3. On Paralysis: "The thing is to start moving your feet. I find that too many traders just stand there and let the truck roll over them." — Source: YouTube
4. On Ego: "Do they want to be right or do they want to make money?" — Source: Business Insider
5. On Being Wrong: "If you insist on being right, you will often get rolled over by the markets." — Source: eFinancialCareers
6. On Guts: "I can't teach someone how to take a loss, but I can teach them how to trade if they have the guts to be in the game." — Source: Quantified Strategies
7. On Self-Awareness: "You have to know who you are as a trader and not try to be something you aren't." — Source: Stock Market Wizards
8. On Love for the Game: "First you got to love it. I used to say I hated my weekends. I couldn’t wait to get into work Monday because I just found the markets so dynamic." — Source: Goldman Sachs Exchanges
9. On Discipline over Emotion: "To outperform, it is about doing it day in, day out, no matter how it feels, how you feel." — Source: Business Insider
10. On Tenacity: "I am relentless. I am hardwired. I just don't give up. I am just tenacious." — Source: Sohn Investment Conference

Part 3: The Mechanics of the Trade

1. On Market Drivers: "Forty percent of a stock's movement is driven by the overall market." — Source: Stock Market Wizards
2. On Sector Influence: "Thirty percent of a stock's movement is determined by its specific sector." — Source: YouTube
3. On Individual Fundamentals: "Only thirty percent of a stock's movement comes from the individual stock itself." — Source: Stock Market Wizards
4. On Tape Reading: "I started as a tape reader, watching price action and order flow before I ever cared about fundamental analysis." — Source: Stock Market Wizards
5. On Tape Reading Today: "Tape reading is a lost art that today is not very useful." — Source: QuoteFancy
6. On The Final Hour: "Actually I think the most important part of the day is the last hour of the day." — Source: YouTube
7. On Weekend Reflection: "Weekends are a really good time to think about things because your mind is a little more free." — Source: Business Insider
8. On Avoiding 'Hard Work' Traps: "Analyze why it is happening and be thoughtful about it as opposed to just attributing it to, 'Oh I'm not working hard enough, I'll work an extra two hours.'" — Source: Business Insider
9. On Preparation: "Preparation. Great preparation takes care of a lot of potential mistakes." — Source: Sohn Investment Conference
10. On Volume: "In my early days, we relied heavily on high-volume, short-term trading to capture small inefficiencies." — Source: Stock Market Wizards

Part 4: Talent and Team Building

1. On Industry Standards: "The talent in this industry is exceptional." — Source: eFinancialCareers
2. On the Ambassador Philosophy: "I want to bring in the best talent I can... If they leave, I want them to be ambassadors for the firm. I want them to say great things." — Source: iConnections Global Alts
3. On Homegrown Talent: "We focus on building a farm team, developing skills so our people become the next great investors." — Source: Point72 Academy
4. On Young Hires: "I just think we are attracting the best and brightest... they are the future generation of our firm." — Source: YouTube
5. On Fresh Perspectives: "Young talent is open to new ideas, up on new techniques, and they lack the bad habits of older generations." — Source: eFinancialCareers
6. On Differentiation: "When interviewing, you got to bring out who you are... what makes you unique." — Source: Podwise
7. On Collaboration: "I want them collaborating, I want them interacting. The siloed models of the past are done." — Source: eFinancialCareers
8. On Developing People: "We are there all the way to help them develop their skills." — Source: Point72 Academy
9. On Retaining the Best: "You have to create an incredible experience if you expect the highest performers to stay." — Source: iConnections Global Alts

Part 5: Continuous Learning and Adaptability

1. On Redefining Yourself: "You have to be constantly redefining who you are." — Source: YouTube
2. On Adapting to Markets: "The markets change... you got to be adaptable. You got to have a process that you believe in, but you should be constantly refining." — Source: Point72 Podcast
3. On the Mandatory Nature of Learning: "Constant learning is mandatory for any employee." — Source: Business Insider
4. On Looking Stupid: "I am not afraid to look stupid if I do not know something." — Source: eFinancialCareers
5. On Soaking It Up: "At hedge funds especially, you should be soaking it all up from other employees." — Source: YouTube
6. On Asking Questions: "In any given room, I strive to be the one asking the most questions." — Source: eFinancialCareers
7. On Flexibility: "If I wasn't flexible and adaptable, I'd be out of business today." — Source: YouTube
8. On Learning from Data: "You have to trust the data and market signals over your internal biases." — Source: Quantified Strategies
9. On The New Environment: "It is hard to find ideas that aren't picked over and harder to get real returns and differentiate yourself." — Source: QuoteFancy

Part 6: Leadership and Ownership

1. On Delegating: "I decided to stop trading because I had this vision of being 70 still behind screens and I was like, 'that doesn’t make sense.'" — Source: Goldman Sachs Exchanges
2. On Legacy: "It is not about me anymore. It is about how I affect other people and how do I do things that are bigger than me." — Source: Sohn Investment Conference
3. On Being Irrelevant: "I consider myself irrelevant to the day-to-day trading now; my job is to build the firm." — Source: Sohn Investment Conference
4. On Micromanagement: "I am not a micromanager. I will hold my people accountable, but I give them a lot of rope to run." — Source: SNY
5. On Trusting Talent: "I am not going to sit there and second-guess every decision my managers make." — Source: Larry Brown Sports
6. On Impulsiveness: "If you want to attract good people to this organization, the worst thing you can do is be impulsive and win the headline for the day." — Source: YouTube
7. On Attracting the Best: "You are not going to attract the best talent because they are not going to want to work for somebody who has a short fuse." — Source: YouTube
8. On Taking Responsibility: "There is plenty of blame to go around. I will take responsibility; I am the owner." — Source: YouTube
9. On Organic Leadership: "I will never name a captain as long as I own the team. Leadership has to be organic." — Source: Sports Illustrated

Part 7: Market Environment and Change

1. On the 1990s: "I always tell my traders that they would've loved the 1990s because it was a fairly easy time to make money." — Source: QuoteFancy
2. On the End of Easy Returns: "We are entering a new environment. The days of big, easy returns are gone." — Source: QuoteFancy
3. On Information Flow: "The speed at which information travels today requires a completely different operational setup than twenty years ago." — Source: YouTube
4. On Structural Changes: "The rules and the structures of the market are constantly shifting; standing still is a guaranteed loss." — Source: Business Insider
5. On the Irrelevance of the Past: "What worked yesterday is already priced in today." — Source: eFinancialCareers
6. On Technology: "You have to embrace new technologies and data models, or the market will simply run you over." — Source: Point72 Podcast
7. On AI: "AI is going to change the way we process information, but you still need human judgment to interpret the edge cases." — Source: Goldman Sachs Exchanges
8. On Regulatory Vagueness: "The way I understand the rules on trading on inside information, it is very vague." — Source: Business Insider
9. On Competition: "The barrier to entry is higher now, and the competition is significantly smarter." — Source: eFinancialCareers

Part 8: The Mets and Organizational Culture

1. On Expectations: "If I do not win a World Series in the next three to five years—I would like to make it sooner—I would consider that slightly disappointing." — Source: Larry Brown Sports
2. On Mediocrity: "I am not in this to be mediocre. That is just not my thing. I want something great." — Source: SNY
3. On Civic Trust: "I actually view it as a civic responsibility. You hold the team in trust for the community and for the fans." — Source: Substack
4. On the Goal of Ownership: "I am not trying to make money here. I have my business at Point72; I make money over there. Here, it is about building something great." — Source: Larry Brown Sports
5. On Strategy vs. Hope: "Hope is not a strategy." — Source: YouTube
6. On Player Accountability: "I can't pitch and I can't hit. It is on the players. They are veterans; they've been there before." — Source: YouTube
7. On Building vs Buying: "You build champions; you don't buy them. We want to create a blueprint for winning... a sustainable franchise where we are good every year." — Source: SNY
8. On Integrity in the Workplace: "I want professionalism. I want integrity. I am not going to put up with the type of stuff that has happened in other places." — Source: EssentiallySports
9. On Passionate Fans: "I would rather have emotional fans that are passionate than fans that do not care. I think it is phenomenal." — Source: EssentiallySports