Discover more from Capital Flows
The Research HUB: Ken Griffin Interview
One of the greatest hedge fund managers in history
Hello everyone, I hope you're having a great weekend!
A friend sent me this interview with Ken Griffin, and it's truly exceptional. For those of you who don't know, Ken Griffin is one of the most successful hedge fund managers in history. Ken is a wealth of wisdom and knowledge. I wanted to share my notes and thoughts from the interview because they directly relate to how I think about macro, business, and this Substack.
Ken is speaking to students at Yale. His first point was that you should be seeking as much risk as possible when you're young. There will be a time when it's harder to take risks, so take as much as possible when you're starting out.
I think about this all the time. It doesn’t matter how old you are, you always wish you took more risks the year before.
Ken spent a lot of time advising the audience to find exceptional mentorship. So much of your trajectory will come down to the people who invest in you. You need to avail yourself to people who have more experience than you when you're young.
I would challenge everyone reading this. If you're younger, reach out to 5 people more experienced than you and just pick their brains about how they think about the world or their specific domain. Your youth is an asset because people want to help the younger generation succeed.
To the older and more experienced individuals reading this, I would encourage you to help as many young people as possible. It's in your best interest to mentor and help young people because they are functionally free out of the money call options. You could be chatting with the next Ken Griffin.
Several connected thoughts:
Great entrepreneurs have excellent toolkits to solve problems during specific periods of time.
Trading is simply the monetization of research.
Learn how to learn. So many people get off the learning treadmill after some success, and life passes them by.
The most value you will create is your career equity and education.
When I think about solving problems, there's always a time element to it. Fundamentally, when you're solving a problem, you need to time your decisions correctly. This is why when people say market timing is impossible, it makes zero sense to me. Timing how I provide the service of liquidity to the market is foolish, but you want certainty about the timing of your Amazon package? Ridiculous! It doesn't mean timing will always be correct, but to completely reject the premise of timing your decisions is contradictory to how success actually works.
This process of solving problems connects with the research and trading process. Something I find absolutely absurd is when people separate the research and trading process. These should be intricately connected and seamlessly flow. Traders who scorn research or analysis will always limit themselves.
Like Ken said, trading is simply the monetization of research. This is why information and the quality of your ideas in the market are so important. What I find is most people have issues with simple execution and risk management. This limits them from understanding how to generate quality ideas through rigorous research.
Ken told a story about Long Term Capital Management which was quite surprising to me. I had not heard it before. Basically, right after LTCM blew up, he went over to learn how and why they blew up. Apparently, LTCM had lost 90% of their equity and was still functioning as a business. I was not aware of this. Honestly, it's pretty impressive to lose that much equity and still maintain a business. Obviously, they eventually blew up, but Ken is the only person I have ever heard talk about this perspective.
What I usually hear is how stupid LTCM is from perma bears. Ken clearly knows how to see through the noise and learn valuable lessons from these types of situations. He did the same thing with Enron.
Always Think in Distributions of Outcomes:
Always think in distributional returns and outcomes, regardless of the field. Leadership is about making informed decisions and acknowledging you're making decisions under uncertainty. The process is what matters. People make mistakes when they become reductionistic and say if I do x, y will happen.
The world is constantly changing. Thinking in the distribution of outcomes allows you to be flexible and thereby be a survivor under uncertainty.
When I began to think in a distribution of outcomes with scenario analysis, as opposed to believing x event NEEDED to happen, my progress exponentially increased.
Don't play to win, win by a landslide.
Ken is clearly a very competitive individual. In recent cultural shifts, many “gurus” (not risk takers) have talked about how life isn’t about winning and that you only need to focus on yourself. Depending on the domain, there can be elements of truth to this. However, when you have competitors, the game is very different.
What I see is people taking the example of Steve Jobs and Apple as a business model for every business. News flash, Apple really doesn't have competitors. Operating a monopoly is very different than operating a local grocery store. Also, especially in markets, when you're generating alpha, someone else is losing money.
So, this whole utopian view of the world where you shouldn’t think about competition is ridiculous. When you're an active practitioner, you can’t afford to ignore competition. Also, some domains have more of a zero-sum nature than others. This directly impacts how you operate and think as well.
I really enjoy interviews like this because they delve into the fundamental principles of how to think. I am less interested in hearing Ken's macro view because I know he won't tell me anything that holds some special edge. However, hearing how he thinks about making decisions is wisdom that can pay dividends for a lifetime.
When I think about trading and operating successfully in markets, I always want to think in terms of running a business. When I look at my entire research and trading process, I view it as a business that I constantly improve and operate. When you begin to adopt this type of framework, the subject lines of the Substacks will make more sense.
This is in the “About” section of this Substack:
These steps are specifically set up to frame the information flow and business operations of a trader. You need constant research to identify edges, a macro view to know if this edge currently has a high expectancy, a strategy to extract the premium from this edge, and finally, the actual trade execution.
I'm just getting started sharing how the flow of my entire process works. I appreciate all of the encouragement, kind words, and feedback from you guys. It would mean a lot if you could share this Substack with other people who you know would benefit from it. You can also pledge in the Subscription section.
Thanks for reading!