Coffee with Professional Commodity Trader (Part 2)

Today I continue with miscellaneous notes from two hours of sun exposure and a delish grande Carmel Frappuccino while conversing with professional commodity trader NK:

• I asked whether he has a desire to work full-time for himself and he said he has recently been doing some contingency planning since he doesn’t expect his current job to last forever. The owner of his firm is getting older and showing signs of questionable judgment and commitment to business decisions that are not in the firm’s best interests.
• NK and some co-workers have formed a trading business to manage assets for friends and family. Capital is invested in land (farms) and tradeable assets.
• NK disagreed with me that we have not had a large sample size of market shocks on which to backtest hedge strategies. Aside from fall 2008, we had the Flash Crash in May 2010, Aug 2011, Aug 2015, Feb 2018, and Mar 2020.
• NK said Brexit in Jun 2016 had a minor effect on the market. The Q4 2018 market selloff was similarly too gradual to really affect term structure and/or cause a major market shock. In contrast, China’s revaluation of the yuan in Aug 2015 had a big impact on stocks and caused IV to spike in a big way.
• With regard to stocks, NK buys stocks that look cheaply valued.
• NK thinks hogs are the best place to start if I want to start trading commodities.
• Look at weekly COT report as a directional guide because investors will not flip from significantly long one week to significantly short the next.
• If for no other reason then as a self-fulfilling prophecy, NK believes commodities are one segment where TA may actually work. He does not believe stock TA has any efficacy.
• NK does not believe short-term strategies are effective for commodities.
• NK does not believe any strategy will work forever. To always be on the lookout for new strategies or tweaks to augment currently profitable ones therefore makes good sense. I agree with this 100%.
• NK and I also agree that hefty doses of ego are on display when it comes to casual discussion about the markets and investing. For this reason, NK does not believe anything he sees on Twitter or other social media.
• NK claims to have made money trading on his own (including full-time for about six months in 2016-7 while between jobs). He doesn’t claim to have killed it, but he believes he has fared well. I would say the same for myself to date (see this blog mini-series).

I will continue next time.