Hedge Fund Market Wizards by Jack D. Schwager

Part One
MACRO MEN

Chapter 1
Colm O’Shea
Knowing When It’s Raining
When I asked Colm O’Shea to recall mistakes that were learning experiences,
he struggled to come up with an example. At last, the best he was able to do
was describe a trade that was a missed profit opportunity. It is not that O’Shea
doesn’t make mistakes. He makes lots of them. As he freely acknowledges, he
is wrong on at least 50 percent of his trades. However, he never lets a mistake
get remotely close to the point where it would provide a good story. Large
trading losses are simply incompatible with his methodology.
O’Shea is a global macro trader—a strategy style that seeks to profit from
correctly anticipating directional trends in global currency, interest rate,
equity and commodity markets. At surface consideration, a strategy that
requires participating in directional moves in major global markets may not
sound like it would be well suited to maintaining tightly constrained losses,
but the way O’Shea trades, it is. O’Shea views his trading ideas as
hypotheses. A market move counter to the expected direction is proof that his
hypothesis for that trade is wrong, and O’Shea then has no reluctance in
liquidating the position. O’Shea defines the price point that would invalidate
his hypothesis before he places a trade. He sizes his position so that the loss
from a move to that price level is limited to a small percentage of assets.
Hence, the lack of any good war stories of trades gone awry.
O’Shea’s interest in politics came first, economics second, and markets
third. His early teen years coincided with the advent of Thatcherism and the
national debate over reducing the government’s role in the economy—a
conflict that sparked O’Shea’s interest in politics and soon after economics.
O’Shea educated himself so well in economics that he was able to land a job
as an economist for a consulting firm before he began university. The firm
had an abrupt opening for an economist position because of the unexpected
departure of an employee. At one point in his interview for the position, he
was asked to explain the seeming paradox of the Keynesian multiplier. The
interviewer asked, “How does taking money from people by selling bonds

Hedge Fund Market Wizards by Jack D. Schwager