Q: Doesn’t stuff like this already exist?
Moritz H.: Many websites exist which sell off-the-shelf trading systems and signals, but that’s not us. We trade our own money, live and real. Our Methods to the Madness (MTTM) newsletter opens a window into what we do at Takahē Capital and usually includes some interesting quant-driven trading ideas.
Q: Hmm. Anything else?
Moritz S.: Well, we also provide some interesting free resources which can help you become a better trader. You can subscribe to our MTTM newsletter free of charge, and you should also check out our blog posts and the podcast. Last but not least, we’d like to get you to laugh once or twice when you read our stuff.
Q: Who are you guys and are you qualified to do this?
Moritz S.: I’m Moritz.
Moritz H.: I’m Moritz.
Q: I’m confused…
Moritz S.: Yeah, funny names, but you can read more about us here if you are interested. You may call us the M&M’s if you wish. The most important thing to know is that one of us is super smart but rather shy, while the other one is a bit slower brain-wise but pretending to be good looking. This probably makes for a good team.
Q: I wanted to know if you are qualified…
Moritz S.: I’m a quant trader since more than 25 years, managing both my own money as well as other people’s money. So, I’ve got some experience in this field of work.
Moritz H.: I have a PhD in Statistics and Finance and managed money at a large German asset manager as well as at a robo-advisory startup. I can do 30 pull-ups while solving PDEs in my head.
Q: So, what exactly do you write about?
Moritz S.: We open a door into how we trade at Takahē Capital, including some of the positions we have on, what the P&L is, and what trades we’ve done. We report on our winning and losing trades and write about interesting developments in the markets and developments which can lead to interesting trading opportunities.
Moritz H.: While we analyze important market developments, our aim is to synthesize quant-driven trading ideas into actionable investment themes. We zero in on price trends, momentum, spreads, correlation, and volatility. We look at futures, equities, ETPs, options, and digital assets – and anything else that crosses our quantitative trading minds.
Q: Can you please tell me more about Takahē Capital?
Moritz S.: It all started with our 2Q Portfolio, which we used to show on this website as our best shot at the markets. You see, I was trading the 2Q Portfolio live and with my own money since 2017 and, over the years, several of our subscribers contacted us about the possibility to invest in it. Given the strong interest and positive feedback, we decided to start Takahē Capital and launch a fund to make the 2Q Portfolio investable.
The strategies we run at Takahē Capital are systematic and the result of our own quantitative research. However, we occasionally add discretionary option trades in order to exploit a specific market phenomenon or improve the risk-reward characteristics of the portfolio, for instance through delta-replacement trades. We trade directional and spread-based strategies in the global futures markets and use techniques which many consider irrelevant today. “Old school” methods such as trend and momentum. Those methods are valuable to us because they are resilient and robust. This is super important, and it is our recipe for trading success.
Q: Why the combination of systematic and discretionary trades?
Moritz S.: Over the years I’ve come to realize that quant-driven, systematic trading – if done right – is the most dependable and robust investment approach out there. When you combine several uncorrelated trading systems, for example, trend following and commodity spreads, magic happens. It’s also good for my mind: I have a system that I can follow and rely on. It anchors me, in a positive way. However, my background in derivatives trading and structuring enables me to develop an additional, non-linear perspective on markets. For the most part, we’re looking to add positively convex trades to the portfolio by buying options which replace the linear delta of existing futures positions. Sometimes we see opportunities in niche markets such as the bitcoin cash & carry trade which we managed to execute at amazingly high implied funding rates. It wasn’t a free lunch though, because there’s risk involved in every trade, but it’s certainly been a good snack and we wanted to have a bite. At other times we find markets with interesting forward pricing characteristics that lend themselves really well for options trades, and so on. It’s like a box of chocolates: you never know what you get because markets change all the time. For us, the combination of our systematic trading systems with these opportunistic, option-based trade ideas provides the best outcome.
Q: How do I know if I’m this is right for me?
Moritz H.: Good question, tough to answer. There are no guarantees in life, but if you want to move forward and make money in the markets you need to take some risks, have a plan, and try things out. We hope our work will motivate you to give it a shot. Trust me, years from now you’ll be more disappointed by the things that you didn’t do than by the ones you did do.
Q: This doesn’t sound like it’s for me.
Moritz H.: Fine. It surely isn’t for everyone. But ask yourself about the alternatives for your portfolio and your long-term financial well-being: long-only buy-and-hope with greater 60% drawdowns? Or a 60/40 blend at a time when yields are essentially zero across the board? Risk-parity with massive leverage on negatively-yielding treasuries? Short naked puts? No, thank you!
Q: You, the Moritz who trades, when did you start trading?
Moritz S.: In 1998.
Moritz S.: So.
What this means is that I’ve got some experience under my belt. Experience is extremely important because trading is not an “I’ve read about it in a book” kind of thing. It’s a journey with lots of ups, lots of downs, and many strange curveballs and breakdowns in-between. You can only learn and become a better trader with real money, not with a paper portfolio. The emotions, the pain of losing money – all of this is super important. But the most important thing in my opinion is to “survive the markets” and learn from your mistakes along the way (check out my trading friend RALF and you’ll see what I mean). To make money, you must take some risks – but you also need to know how to control these risks. Think of it as placing a series of appropriately sized bets in the markets. If your bets have an edge, the long-term result should be positive. I’ve placed a lot of risk-controlled bets in my trading career, and I’ve traded through several market crises along the way. And I’m still here.
Q: What are the main reasons for trading success?
Moritz S.: You either have a trading process, or system, that’s exploiting a quantifiable edge in the markets or you have an edge “inside your brain or gut” as a discretionary trader, or both. Whatever it is, nobody makes money every minute, every hour, every day, every month. We all have drawdowns. To have a shot at being successful in this line of business you need to be able to follow and stick to your style of trading so that your edge can eventually play out. This sounds much easier than it really is, trust me, but it’s very important. The mental side of trading plays a huge role in your success.
Q: And what makes a “bad” trader?
Moritz H.: A trader placing bets in the markets without a process, without a methodology, and without edge. This may work for a while, but in the long run these traders are bound to lose money. Even worse, these traders tend to blame the market when they lose money, or CNN, or their neighbor who has given them a stock tip that was “guaranteed” to win. Guess what, at the end of the day there’s only one person that’s responsible: you. Don’t run away from it. Embrace it.
Q: OK, understood. And what about this earlier “two quants walk into a bar” thing which people could read about on Twitter?
Moritz H.: Most quants don’t talk that much, you know. And that’s where the bars come in because good conversations tend to happen over drinks. Negronis, for example. And since we are quants, we wouldn’t do it if it weren’t scientifically proven (ha!).
Q: What else do you guys do?
Moritz S.: Outside of hanging out in bars you mean? Well… let me come back to you on that one.
Q: Last but not least, you guys are from Bavaria. Do you like soccer, pretzels and beer?
Moritz S.: Yes, yes, and yes.
Moritz H.: Only if the beer is called Moritz (check this out).