Michael Platt: One of the Most Effective Risk Managers

“I am actually trading because I learn a lot of important life lessons from it. Trading helps me get to know myself. It helps me think about why I believe things and why I do things.” – Van Eekelen

Name: Michael Platt
Date of Birth: 12 December 1968
Nationality: British
Occupation: Hedge fund titan

Career
Born in Preston, England, Michael attended the London School of Economics and earned a BSc with Honours. He was influenced by his grannie who was an investor. With the help of his grannie, he got his feet wet and was hooked. He began working at JP Morgan in 1991, being a managing director in charge of value investing. He took advantage of challenges and opportunities he encountered at JP Morgan.

He co-founded BlueCrest Capital Management LLP in 2000, and that firm is now Europe’s third biggest hedge fund company. The firm manages over £30 billion and has 350 employees. They mainly employ systematic trading approaches, using computer programs to facilitate the approaches.
As of April 2015, Michael was worth £1.5 billion ($3.5 billion). He is married and currently lives in Geneva, Switzerland. He is an avid lover of arts and paintings.

Insights

1. When you make useful decisions in life, including trading, you’ll simply end up having enough. You won’t need to be striving after money. Then you will see trading as an interesting activity, not an onerous task. At the end, you’ll be so rich to the extent that big money would not matter so much to you. For example, Michael Platt has become so rich to the extent that he once turned down an offer from George Soros. The latter wanted him to manage more than $1 billion for a 0.5% management fee and a 10% performance fee. But Michael said his investors were willing to pay management fees of 2% and performance fee of 20%. Many desperate professionals would jump at such an offer.

2. Please see the quote at the bottom of this chapter. Risk control is extremely important for your everlasting career as a trader. That’s your life insurance. Michael acknowledges that risk management is the most important thing. In bear markets, many funds crashed and burned, especially when they faced credit crunches in 2008. Yet Michael finished the year with 6%. He avoided loss and even made a small profit. What do you want those who lost to say?

3. Hear! Hear! Gamblers who think it’s stupid to risk less than 1% per trade. Risk control is something that must be enforced in trading. One of BlueCrest’s secrets is to make sure that each of their traders doesn’t go below 3% drawdown, or they’re deprived of 50% of the portfolio they manage. Another drawdown of 3% (making a total of 6%) would result in a trader getting their entire portfolio allocation removed. They may even lose their job if it’s found that their trading method is suicidal. I currently risk 0.25% of my account per trade, and so I’ll need to lose 12 trades in a row before I can go down 3%. This is a good plan for survival.

4. Many so-called professionals out there give advice that helps others make money, but not themselves. Ideas from professionals are valuable in that you can make profits from them, before the professionals themselves do so (they may not even do so). You can really take advantage of comments that are made by those trading professionals.

5. There are winning strategies, and you need to find one of those so that you can attain ultimate financial freedom, as a result of consistent profits in the markets. BlueCrest Capital International fund hasn’t had a negative year since it was started – though some years were better than others. For example, the fund made a profit of 41% in 2009, earning hundreds of millions of dollars in fees only.
6. Leda Braga, featured in one of my past books, is a partner of Michael at BlueCrest. She manages a fund named BlueTrend. She is a pro trader, and she has been a blessing to BlueCrest. Great minds think alike, for like will attract like. Do you have a good trader as a partner?

7. Success attracts more success. The more successful you are, the more investors you’ll attract and the richer you’re going to be. Because BlueCrest made a profit of $4 billion in 2008, they received about $5 billion in additional investment. But know this: the more you fail, the more investors you lose and the poorer you become. So you must know what you’re doing.

8. Michael bets his own money alongside his investors. What a good trading idea! One trading specialist once advised that if funds managers’ money is tied to the portfolios they manage, there wouldn’t be rogue traders. When someone trades a fund which belongs entirely to her/his clients, they may be tempted to be careless because it’s not their money.

9. Who encouraged you to become a trader? You should be forever grateful to such a person irrespective of what you’re currently facing as a trader. The advice to start trading is really a billion-dollar advice. Michael was inspired and encouraged by his late grannie, and he is now a billionaire. I’m forever grateful to my uncle who advised me to become a trader.

10. Michael’s father was an engineer, and so Michael wanted to study engineering. Suddenly, he changed his mind and studied economics instead. This prepared him for the task ahead. Engineers can also become successful speculators; albeit the lesson is that one does not always need to take up a career one’s father loves, especially if one doesn’t like the career.
11. Michael started small and now he is bigger. Please learn from this. When your performance is good, you’ll enjoy so much success in a relatively short period of time. Michael’s firm is now perceived with a higher level of credibility, even more than those who started the fund management business before them. That’s really an ideal achievement. Learn from that please.

Conclusion:
A judicious trader doesn’t act on impulses, whatever they may be. According to Joe Ross of Tradingeducators.com, from a purely physical standpoint, it is essential to minimize the potential impact that a losing trade may have on your account balance. If you lose a lot on a single trade, it will sting. But if you limit the amount of capital you risk on a single trade, it won’t hurt at all. You can pick yourself up easily and put on the next trade. It’s much easier to take a loss in your stride when the real impact on your account balance is minimal.

This chapter concludes with a quote from Michael. Please think about it. Safety first!

“I’ve never hit the 3 percent drawdown… Ego is how you lose money in this business. I put a trade on, and if it doesn’t start working straightaway, I respect the price action and cut it fast.”

Taken from, “Insights into the Mindset of Super Traders”