[Music]
and he has this very
compelling almost rags to riches story
he grew up
very middle class in great neck long
island which was an affluent town
his family had relatively speaking less
money than a lot of others
around him so i think from an early age
you know he felt a sort of hunger
to become rich although cohen wasn't
born
into money he had a glimpse into what
money can buy
lived in manhattan cohen's grandparents
were very wealthy
they often take home to fancy
restaurants and shows
as a child you're very impressionable i
think steve cohen's grandparents
lifestyle
had a huge impact on him he saw the kind
of life that money can buy
but at home cohen saw a sharp contrast
to the living conditions of his family
born in the summer of 1956 cohen was the
third
of eight children in great neck the
colton family were on the low end
of the financial spectrum how everyone
in this in the family sort of felt that
steve would be
you know was special their mother his
brother remembered their mother
cooking uh steak for little steve and
making hot dogs for all the other
children i mean there was a real sense
that steve was special he was really
smart he was gonna make a lot of money
um and so he was treated he was treated
a little differently
desperate for money and while still in
high school
steve cohen found out a sneaky way to
make extra cash
[Music]
as a young man cohen showed an
incredible talent
for playing poker because what poker
really does is teach you how to deal
with
probabilities and uncertainties and
that's so
integral to life you know with
everything everything we try to do you
know
should we take this route or that route
should i go here on vacation or there
it's all about dealing with with
uncertainties and probabilities of
things happening and
and poker is a very fun and easy way
to teach someone how to do that colin
will sometimes spend
all night playing poker frequently
making thousands of dollars
a night cohen realizes that there are
easier ways to make money
than a nine to five playing poker can
sometimes make
him more money than his dad even with a
time spending on playing poker
cohen still managed to achieve good
grades
which eventually helped him get accepted
to wharton
in college the socially rejected cohen
resorts to the only activity he finds
joy
playing poker but he soon grows
dissatisfied with the money
he wants to try his hands at a bigger
casino
the financial market
while still in college cohen accepted a
job
at the notorious trading firm gruntal
first job was at a small not terribly
well-respected
brokerage firm it was called gruntal and
company
and it was located in right close to the
actual wall street in lower manhattan
you know it was the place where there
were a lot of misfits it wasn't sort of
a slick
establishment corporate environment it
was it was a little bit wild and
a lot of what was going on there
consisted of brokers
calling kind of individual investors
trying to sell them
sell them on different stock investments
but uh steve was hired by
a family friend who was also from great
neck who had started
an options arbitrage desk at gruntal
brand new on the job cohen is already
confident enough
in his abilities as a trader making both
predictions about stocks
he's working for ronald eiser who
specializes in options arbitrage
the mathematically inclined iser was
suspicious
that anyone can make any predictions of
stock price
but he decides to give cohen some money
to make his first trade
to a surprise colin made four thousand
dollars in one day
and another four thousand dollars
overnight in 1978 this was some
meaningful profit
now cohen is what's called an intuitive
trader
honestly what he does is no different
from gambling
he has a sense of risk and reward
it is strange but he seemed to have this
gut feeling
about a stock market and he's more often
right than wrong
well so people used to describe him as a
tape reader and it's a bit of a strange
thing i mean it basically meant you know
before uh the whole trading mechanism
was electronic
there was a physical ticker tape and you
could sit there and look at orders
coming in and out of the market and he
was according to people who worked with
him
very very good at this he could sort of
scan the market
he could look at all the available news
and information about a particular stock
and then he could just sit there in
front of his screens and make a lot of
money trading almost like what we think
of as day trading now so
it was a certain amount of natural
talent and intuition
it was obvious to eiser that cohen is
the most talented trader
he has ever seen
during the mid 1980s the american stock
market was dominated
by mergers and acquisitions cohen was
making 10 million dollars a year
by building positions around events such
as takeovers
and ipos i think there's some beginners
luck to it
just like playing poker doesn't matter
how many hands you have won
you can lose everything in one bad bet
the dow dropped more than 22 almost
double the rate of the black monday that
signaled the beginning of the crash of
1929
but this crash of 1987 is not just an
american experience around the world
stock markets fell
faster than a skydiver without a
parachute
[Music]
where regan took over the presidency
american economy saw some of the biggest
growth in decades
the finance industry was prospering
attracting hundreds of thousands of
young men
to partake in the market steep coe grew
up poor
but through years of hustling he became
the start trader at a trading firm
called gruntal
during this boat market steve cohen was
breaking more profits
than anyone but little did he know a
financial bomb
is about to explode
economic growth has slowed while
inflation was still high
the strong dollar was putting pressure
on exports the valuations for stocks
have gone up to excessive levels with
overall p e ratios above
20 future estimates for earnings were
lower
but stocks were unaffected all these
conditions created
a perfect storm the black monday stock
market crash of october 1978
saw u.s markets fall 20 percent in a
single day
[Music]
qurantel along with many other firms was
practically put out of business
cohen's group lost almost half his
capital every one of the seven traders
was
nearly wiped out by losses we see
blow-ups like this
all the time sure some traders might
have some skills at predicting a stock
but once in a while a market can change
fundamentally
and when that happens you lose
everything
[Music]
a really great trader what he does is he
smells the beer
and what he does is he organizes himself
to be able to take advantage of others
fears
okay and ultimately what happens there
is he's disciplined
he's not acting from statistical
analysis he sees that as something
but what he's developed is an intuitive
intuition of being able to see the
supply and demand
and he knows the blood there and he
knows where they're trapped
that's state of mind management
as the chaos continued around him he
stayed in the game
actively trading to recoup losses he
ultimately survived the crash
but cohen grew tired of gruntl he wanted
to start his own shop instead
with the hedge fund structure cohen has
the potential of making more money
with less restrictions in 1993 cohen
started sac
with around 23 million dollars in
capital and nine employees
he put in about 10 million dollars of
his own money
and his traders and friends investors
put in the rest
although cohen's trading strategy is
hard to emulate
there are some essential principles it
always follows
[Music]
taking the lessons from playing poker
cohen believed
that investing is all about smart
risk-taking
and he was very good at managing risk he
didn't get emotionally attached to his
trades
he was very good about sort of pulling
the plug and selling something
if it just started to go against you and
you know the kinds of situations where a
lot of people will end up just losing
more and more money because they don't
want to acknowledge that they made a
mistake
he he was according to everyone who
worked with him at the time he was very
good at just being
dispassionate and analyzing risk in this
very cool detached way
and he just started to make um you know
a lot of money millions of dollars
very quickly within three years sec had
quadrupled in size
to almost 100 million dollars cohen
started buying mentions
and expensive arts he may be on top of
the world
but he fails to see there's a crisis
[Music]
looming
the late 90s and early 2000s saw the
biggest growth of hedge funds
by 2012 there were more hedge funds
than public companies
right at the top of the hedge fund
kingdom was sac
one of the most profitable shops ever
born and raised in a middle class family
steve cohen built scc capital from
scratch
making billions in the process the
success of
sec draws admiration and envies for wall
street
and also from places cohen didn't expect
[Music]
anyone working at any hedge fund uh who
involved in short-term trading meaning
every day they're coming and trading in
and out of stocks
all of those people want edge that is a
common term in the industry they want
edge
and you know there's this white edge
it's kind of useless for their purposes
there's the gray zone
and then there's black edge which is
clearly inside information
since the event of internet information
has become widely accessible
making it tougher to beat the market
now a great majority of the academics
believe that it is impossible
to ever outperform the market those that
seem to do well
are just lucky in other words the market
is highly efficient prices basically
reflect all available information so
that
in a strict view of the theory it would
say it's basically impossible to beat
them
beat the market you're always paying a
fair price basically i think there's a
merit to the argument
that it is a virtually impossible to
beat the market
i think some of these hedge fund
managers know that that is why they're
looking for
an information that gives them the edge
and unsurprisingly
many of them resort to insider trading
one hedge fund manager
raj raja rotten realized that as well
the only way to beat the market
is through cheating prosecutors want the
toughest punishment possible for this
man
the convicted founder of the galleon
hedge fund
raj rajaratnam in 2010
billionaire hedge fund manager raj
rajaratnam was sentenced 15 years in
jail
for insider trading but soon the
prosecutors realized
he is just a small fish and
there are bigger sharks to catch
by 2008 sac managed 14 billion dollars
in equity
at recovering from the housing recession
and growing faster than before
in that year sac portfolio manager
matthew martoma
started building large positions on two
pharmaceutical companies
elon and wyeth who were developing
promising drug trials
for alzheimer's there were several
analysts and traders who felt very
bearish
on ilan and wyeth and they could not
understand
why martoma and cohen were building up
these pretty substantial
unhedged positions and
cohen would say well martoma knows a lot
about this it turned out
martoma's information came from a
special source
dr sidney giltman who was affiliated
with the company
the two drug companies were scheduled to
announce the final results
of the trial on july 28 2008
in chicago but through dr sidney gilman
murtoma knew the trial was a
disappointment
scc started to aggressively unwind its
large positions
in elon and wyeth and in fact ended up
going short
those two stocks to make bet against
them
the shared price fell through a cliff in
the meantime
cohen made 276 million dollars betting
against
the two companies while enjoying this
incredible profit
steve cohen did not realize that this is
the beginning
of his downfall martoma was convicted
2014
as what federal prosecutor claimed as
the most profitable
insider trading conspiracy in history at
the same time the sec brought
charges against a number of other sac
employees
before long call himself was charged by
the sec for his failure to supervise his
employees
cohen settled his civil case with the
regulators in january 2016
and was banned for managing outside
money until 2018.
fortunately to cohen with the help of
his team of prestigious lawyers
cohen himself was able to avoid any
criminal indictment
this is a devastating blow but cohen
refuses to give up
he now must look for a new edge one
allows him to continue
to make great profits
by 2014 sac closed his door and
converted
to 0.72 a family office and so the
ability to have your own
family office controlling your
investments controlling your cash flow
without
every other big firm knowing about it is
very important i think that's a lot of
the reason you're seeing more and more
of them start up
essentially cohen gets to run his hedge
funds made out of his own money
he also realizes that he could stake
other hedge funds
wrong by his former employees
[Music]
majority of the return is from the
investment at melvin capital
that made 47 percent in 2020.
without the black gas enabled by insider
trading
0.72 has not been able to make large
returns
like what sac used to
his only hope is allocating his money to
other hedge funds
who may possess the black edge
known for his audacious bets and crazy
returns
gabe plotkin was a superstar portfolio
manager at
sec with mr plotkin it seems like
really really strong stock picking um
he's had experience managing
money for a long period of time he was
at um
at sac and then .72
since 2006. gate plotkin has been
consistently outperforming the market
over the past years
reminiscent of og steve cohen but
neither cohen nor
plotkin could anticipate a group of
amateur traders
from reddit will bring them down to
their knees
[Music]
hedge funds are raking billions for
their wealthy investors
at the forefront of this growth was
steve cohen who single-handedly turned a
small-time fund
into a 50 billion empire almost doubling
every year
it turned out his secret was insider
trading
after being dismantled by the
authorities steve cohen is forced
to think of new ways to make money
point 72 the new firm confounded started
to make height returns
after allocating to other hedge funds
started by his students
point 72 was regaining its past glory
but cohen's newfound success will soon
be challenged
by the most unlikely group of people
on january 22 2021 approximately 140
percent
gamestop public shares have been so
short with such a large amount of shares
being shorted
they could trigger a short squeeze that
the stock market will be brought down by
the wild actions and stocks like
gamestop that's that
retailer place game you go in you buy
video games
you know you buy the hardware uh this
gamestop is
really something we must talk about
because it's been bit up higher and
higher by enthusiastic traders
by the end of january 2021 melvin
capital had a loss of 53
of his investments now struggling for
life
cohen partnered up with a citadel
putting 2.75
billion dollars to bail out melvin
capital
both hedge funds lost a lot of money
during this incident
it was like the high tower surprise
to all hedge funds it is safe to say
that 0.72 has lost its edge
recent years colton has expanded his
investment into venture capital
quan strategies and so on this is all in
search
for new alpha but with the regulators
constantly watching them
at a negative public sentiment against
hedge funds
cohen has essentially retired from the
active role
follow your passion um it's not all
about money
right the money comes from success comes
from
being passionate about something and
then doing it the best of your ability
whatever it is
[Music]
you