Continuing my never-ending pursuit of global macro education, I picked up an interesting book last year and was hooked to it immediately, reading it through in just one sitting:
It’s a fascinating insight into the process and lens of a successful discretionary macro trader, and the book is available on Amazon for purchase.
Alex Gurevich was a proprietary trader at Deutsche Bank before moving over to JPMorgan’s basis swap desk, eventually managing a global macro portfolio. His wealth of experience navigating the global financial markets is evident throughout the pages of his book, and what made it fascinating and refreshing was the angle he approached in sharing his experience.
At the very start of the book, the author made it clear that:
“The thrust of my investment strategy is not limited to analysing forces that drive markets… The Next Perfect Trade focuses on one of my personal advantages: Understanding the forces that drive successful trades…”
Gurevich goes on:
“The book is structured around ridding your portfolio of inferior trades and isolating the superior ones. The book is divided into three parts which build off each other and progress from least to most complex:
- Part I provides a framework for developing a positive risk/reward by using the market tides and avoiding the common mistake of stacking the odds against yourself.
- Part II teaches how to minimise the trades and portfolios, which have potential to lose money, even when the underlying view is correct.
- Part III provides the system for identifying dominant trades and achieving a portfolio which is profitable, even when the underlying view is wrong”
Thus, the entire book does not talk about investment strategy or about gaining an insight to the financial markets and how asset prices could move – rather refreshing for a book on investing!
Heavily emphasising the view that a trader could lose money even while the underlying view is right or that a trader could breakeven or even make money while the underlying view is wrong, Gurevich opines that it is the trade selection process and the execution that counts in order to consistently earn profits in markets.
He therefore brings the reader through the characteristics of what he calls “superior trades” and how these potential trades would be your portfolio’s ‘dominant positions’. Factors such as trend, carry, valuation pull and economic progress are discussed.
Part III of the book was the real value-add to me, where Gurevich discussed the idea of analysing all your potential shortlisted trade options using the ‘necessary and sufficient condition’ framework and applying rigorous expected value analysis. He does it by applying logical chain analysis to derive various scenarios. This allows what he wrote: “investors who bet on logically necessary, rather than on logically sufficient, market moves will achieve portfolio success in a broader range of scenarios.”
Throughout the book, the author also used examples during his professional career as case studies. He also used examples from the past 4 years (e.g. crude oil’s price plunge in 2014-2015) to illustrate his concepts and ideas, allowing the reader to gain a deeper understanding using recent market events.
This book is such a treasure. It will join the place of books such as Steven Drobny’s series on my bookshelf. I know I will be re-reading Gurevich’s book many times over, and highly recommend it for anyone serious about taking his or her investing to the next level.
*image credits to Amazon.com*