Image Credit: John Rowady, Havana, Cuba “You can’t connect the dots looking forward; you can only connect them looking backwards. So you have to trust that the dots will somehow connect in your future. You have to trust in something – your gut, destiny, life, karma, whatever. This approach has never let me down, and it has made all the difference in my life.” – Steve Jobs There was a time, years ago, when I had a cigar attached to some part of my body pretty much 24/7. Like a disgustingly satisfying man-binky, if I wasn’t smoking it, I was definitely chewing on it – and it didn’t matter where I was. Polite company or public spaces did not deter the guile to sneak a chomp on the soggy end of a previously-lit robusto. And then, Cigar Aficionado magazine came along and ruined my enjoyment with the oncoming herd of the impending fad. Now, this is not to suggest that there aren’t occasions – usually a golf outing or as an accompaniment to a fine bourbon – that call for a return to old habits. Recently, one such occasion presented itself, and given today’s political fireworks, I thought to enter this tale into the record and then tie it back to our ongoing conversation: The Grand Havana Room – located at the Kushner-owned 666 Fifth Avenue building – is exactly as you might imagine it, a dimly lit speak-easy with plenty of serendipitous flair. On this occasion, Jimmy Fallon was breaking with protocol and taking pictures with patrons while, in the background, Drew Barrymore enjoyed a cigarette with a friend. Arnold Schwarzenegger was seen exiting on the far side of the room – and on the nearer side of the room sat Rev. Al Sharpton and posse… With this scene as backdrop, and as the bourbon and cigar combo kicked in, I was taken back a few years to the 8th floor of this same building, where Izzy Englander, founder of the legendary trading shop, Millennium Management, once held court to grill Quantlab Chief Scientist Ed Bosarge and myself about our new stat arb strategy. He was quintessential over-caffeinated, Brooklyn, broker. As if wielding a paint gun aimed at our heads, he pelted us with questions – moving from one to the next without allowing us to finish or stop for a breath. It was a training session of sorts. We did not have all the answers – certainly not all the right answers – but it wasn’t long after that we did. Unfortunately, Izzy wasn’t down for second chances on this go-round. Now, some powerhouse trading firms are led by engineers or scientists, and some are led by the financial equivalent of an athlete or coach. Guys like Izzy Englander – more coach than player – is the latter. They sniff out trading talent, seed strategies, and “weed the garden” without hesitation. But, like an athlete, they tend to stick most comfortably within their preferred field of play – which, in this case, is an asset class, like equities. So, when we aggregate and model the available data for a manager like Millennium, we are simultaneously looking for scope and diversity of positioning. Position count, position segmentation, and perhaps as importantly as anything else, what is not traded, can all shed significant light on the nature of the underlying trading strategies. In the exhibit below, Alphacution presents the total and equity (13F) position counts for the full sample of 73 quarterly 13F reports beginning Q4 2000 and ending Q4 2018 for Millennium Management, LLC, one of the longest track records in our library: Here we can note the obvious negative impact on total (13F) position count from the GFC period and the shift in strategy in the post-GFC period to maintain a lower overall position count. We can also see the obvious allocation of total positions to equities, which leads us to our follow-up exhibit, below, where Alphacution presents a visual of all other 13F products being traded besides straight equities: In this second chart, we get a sense for some trading in options and ADRs and very little exposure to ETFs and ETF options – all of which providing confirmation that this is mainly stock picker’s shop, and the variance in additional product usage is relevant to the strategy selections of the various sub-managers under the Millennium umbrella. At some point, it will be fascinating to look at the data on Worldquant – likely the most successful of the Millennium-backed sub-manager operations, and the rare example of a team to emerge with their own external branding – to develop additional insights on the legendary operation that has been thriving, lo these many years, high above the Grand Havana Room… If you find value here or elsewhere on the Feed, please perform at least one action item to support it. Nothing new or innovative can survive without support. In this case, it’s not time consuming nor is it expensive to show your appreciation. Ideas below… Support the Feed! Alphacution Support Options Note: Business credit cards and bank accounts can be used via our PayPal payment portal. Alphacution is in the intelligence business. We are uniquely focused on harvesting, packaging and distributing intelligence about the impacts of technology in financial markets and on the businesses of trading, asset management and banking. Our growing model library is our intelligence asset. Today, this intelligence asset primarily supports written research content, which can be accessed via standardized subscriptions and customized engagements. Occasionally, this core asset also supports video, audio and live presentation content. In time, Alphacution’s intelligence asset will support a broader platform of products and services, like data feeds and software. For the past year or so, Alphacution has been publishing most of its research content on its Feed for free, and promoting that content via periodic newsletter. The purpose of this strategy has been to assess the interest in and demand for a unique perspective and a new level of intelligence on the financial markets ecosystem. And, based on the growth in network and activity around that research, it seems that we have struck a cord with many of you – a network of senior executives representing some of the most advanced players in the global financial markets arena and their stakeholders. The recent trajectory of pageview metrics on our site is symbolic of this claim, as shown below: Now it’s time to take that level of engagement and direct it towards a more viable long term economic support model that ultimately allows us to scale our team and enhance the quantity and quality of our intelligence. So, here’s what we are going to do about that: For those of you who are eager to derive greater value from this work and apply that intelligence to your own business interests, Alphacution is offering individual introductory subscription options priced at $275 per year or $25 per month, cancellable at any time. Both of these options include a rebate on purchases of deeper, more substantive reports and case studies. In other words, the entire value of an individual subscription paid up to the point of purchasing a single report will be deducted from the purchase of that report. (Rebates not to exceed the maximum value of an annual subscription.) Examples of upcoming reports – that fall within our 2019 research strategy, outlined in the post Alphacution’s Book: Not Hiding, In Plain Sight – that will be available via the aforementioned subscription rebate mechanism include: Case Study: Citadel, LLC (~ Q1-2019) Case Study: All-Time Top 10 Hedge Fund Managers, Ranked by Profits (~ Q2-2019) Case Study: Top Proprietary Trading Firms (~ Q3-2019) Case Study: Goldman Sachs Group, Inc. (~ Q4-2019) Enterprise subscription packages and custom content/service engagement options are available upon request at info@alphacution.com.