Book: Black Edge
Author: Shelaah Kolhatkar
This is an excellent narrative of how the Justice department and the SEC tried to nab Steve Cohen, and were only modestly successful (SAC pleaded guilty, not Cohen himself; Cohen can start managing money again in ’19). The book is extremely readable and gives a good history of uses and abuses of expert networks by some participants in the industry, and the history of Steve Cohen (and SAC) itself. I highly recommend it.
I learned the following new things from the book:
- After losing money on a large trade, Steve Cohen implemented a strict discipline when it came to losing money: if a trade is going against you, you set a limit, and then you sell, no matter what.
- One can debate whether this a good strategy once the trade is on, but I think what the strategy has unequivocally going for it is a simple discipline that helps screen trades that are put on to begin with.
- SAC used to have its analysts go through something called Tactical Behavior Assessment training by CIA operatives, where the analysts learned how to read people’s body language for signs of deception (to tell whether co. execs of their investments were being forthright with them). One of things that they taught in the training was not to use words such as “honestly” and “frankly” as these are common signifiers of dishonesty.