PM: = Paul Mullen (Interviewer)
AK: = Anton Kreil
PM: What do you do in the city ?
AK: Well, I used to be a trader at various investment banks. I worked at Goldman Sachs, Lehman Brothers, and J.P. Morgan. I was an institutional market maker and proprietary trader. An institutional market maker trades with all the pension funds and hedge funds on an agency and risk basis, and as a proprietary trader the bank basically assigns you a pot of money to trade with, in whatever you see fit. A traders market making account is called the front book and the proprietary trading account is called the back book. They’re kept separate.
I did that for seven to eight years, then left the city in May 2007, then did a bit of travelling and took a break. The timing was obviously pretty decent but I kind of knew the markets would be in trouble. I was offered several positions to stay in the industry but decided to leave.
I then came back from travelling after a year and filmed the TV show Million Dollar Traders. Basically we set up a hedge fund on television and found eight people who had never traded before; we gave them two weeks training and one million dollars to trade with, during the summer of 2008. It was a lot of fun to do that at the time. I’d been travelling and wanted to come back and get back working, but essentially I didn’t want to go straight back into the city. It was a nice project for me to ease myself back into London. I now trade my own money and run the Institute of Trading and Portfolio Management.
PM: How did you get started in the industry ?
AK: I started really young. I started trading from home in the mid-nineties as a teenager. I got my mum to open a trading account for me with a stock broker when I was 16. Luckily my voice had broken by then and I used to call up the stock broker and pretend I was Mr. Kreil. Naturally when you start making quite a bit of money you start getting really interested in it, so I started to do a lot of research and realised that I better go to university and get a degree, otherwise I wouldn’t be able to get into the city. At university, I applied to become a trader at a few investment banks, got rejected for summer internships by most of them, and was hired in 1999 for a fulltime graduate position by Goldman Sachs.
PM: What qualifications do you need to do that ?
AK: This is a big question at the moment. There are a lot of people out there who make ridiculous claims that you don’t need to have a top degree to work at the big banks or hedge funds. I think people get confused with the two messages about what makes a good trader and what gets you into an investment bank or a hedge fund to become a trader “in name”.
If you want to work for a big investment bank or a hedge fund, you will need to have a strong degree to get in, but that doesn’t make you a good trader. What people have to understand is the big banks are all public companies and many of the big hedge funds are too, or have mandates from public companies. They can’t just go out and hire one hundred people that don’t have a piece of paper that says they’re smart.
Public companies have hiring benchmarks that are competitive because they’re shareholder facing. What do you think your shareholders would say if you were a hiring manager at an investment bank and you brought in 20 guys with no qualifications, gave them fifty million dollars each to play with, and then they lost it all? The shareholders wouldn’t like it and they would sell the company stock. The stock would go down and you’d probably get fired. If you hired 20 Harvard MBAs, and they lost the same amount of money, the shareholders wouldn’t like it, they would still sell your stock but you’d probably be branded unlucky internally and you would still have your job.
PM: So it’s a credibility issue, really ?
AK: Yes, they’re shareholder facing so they have to have benchmarks when they hire people and those benchmarks have to be as high as they possibly can be. A strong degree gets you through the door but it doesn’t necessarily make you a good trader.
To give you an idea, the numbers that actually succeed as traders are in fact a very small percentage of those that get through the door. For example on my hiring program in 2000, after two years, there were only about ten of us left out of the original one hundred people that joined Global Equities that year at Goldman Sachs.
The reality is you actually need a degree to get in to the top places but it doesn’t make you a good trader. You need to have a strong university degree and in my book you need to have a strong degree from the “university of life”. You’ve got to have a very high level of common sense and a very strong work ethic to actually get through the first few years and to learn the business inside out. Even if you get through the door as a trainee trader that has been hired from university, you’ve probably only got a one in ten chance of still being there within three years.
PM: Certainly from what you said that would actually tie up wouldn’t it, because you said there were only ten left out of one hundred.
AK: That’s my experience. There are a lot of people out there that mislead undergraduates telling them they can go to a second rate university, get a bad mark in their degree and end up becoming a top trader at a tier 1 investment bank or hedge fund. That’s possible, but it’s very close to impossible. I would say only five percent of the people that actually get through would be of that profile. It would probably be because they’ve got something very unique that they bring to the table, i.e. a track record at a very young age.
If you can produce a piece of paper which says you made 30% each year for the last three years, with your own money and while at university, plus you can speak about trading in depth, as well as any trader that sits on that desk, you’re probably going to get hired.
PM: So you’re saying five percent out of the one hundred would actually be these people who haven’t got the qualifications initially ?
AK: Yeah and after three years, quite a few of those guys will still be around because they’re hungrier. That’s because they don’t actually feel like they deserve to be sitting at an investment bank. A lot of the other ninety five percent, that have the qualifications on paper, are just doing it because their parents have forced them into a profession that has a brand name attached to it. “My son works at XYZ.” They’re not doing it because they love the business. They’re not doing it because they love to trade. They’re getting up at 5:00 in the morning, 5:30 in the morning because they have to. If you feel like you have to be in the business for any reason you usually don’t last much longer.
PM: I see what you mean. That covers that quite nicely. When you were working in the city, how were you remunerated ? Did you get paid a bonus ?
AK: Absolutely, but it’s all changed recently. At the investment banks it used to be all about the PnL from your proprietary trading book or your back book. You would get paid a fixed percentage on that. I say fixed, it was a “discretionary” bonus but everyone kind of knew you’d get paid between five to ten percent of what you made for the bank. You’d go in and start off as a young trader, prove you could make money, and you’d get given more every year until you built up to a point where you were making very good money for the bank and very good money for yourself.
Since 2008 it’s really changed. To get around the government and media focus on bonuses, investment banks have pretty much trebled a trader’s basic salary from around one hundred thousand pounds a year to three hundred thousand a year. Bonus rates have been slashed massively and traders now get paid a significantly higher proportion of their bonus in shares. The golden handcuffs have got bigger. This is because risk taking has been slashed dramatically as well. To keep their good people, they’ve had to pay them in some way. That’s for the investment banks but for hedge funds, the payoff is a lot more pure. You basically just eat what you kill and that’s the bottom line.
PM: Is this the same internationally or is it the just the case is the U.K.?
AK: It’s pretty much the case across New York, London and Southeast Asia. It’s been a different situation in Japan for a long time. On a side note, this is the main reason why London property is outperforming the rest of Europe. High Street banks used to calculate a trader’s mortgage based on their basic salary plus 50% of last year’s bonus. Now they just calculate it on four time’s basic salary. Traders from investment banks can actually get bigger mortgages and bigger houses than they did three years ago. So all the people that were winging about bankers bonuses between 2008 and 2010 have ended up putting traders in a better position and gifted them bigger mortgages and bigger houses. There are of course a lot of traders that don’t have mortgages. Over every business cycle the rich get richer and the poor get poorer.
PM: That’s very interesting.
AK: That’s just a small take on what’s happening now.
PM: Very interesting. What were the hours like when you were working in the city ?
AK: There are hours when you were actually in the office and there are hours that your mind is actually focused on the job. Hours that I was in the office were generally six in the morning until six in the evening but I’d be up at five a.m., taxi to work because no tubes were running and work all day until six with lunch at the desk. Markets are obviously open eight a.m. until four thirty but you’ve got the overnight markets and you’re running proprietary trading books and risk positions on the other side of client trades. You have to be watching the overnight markets all the time and be aware of them, be aware of all the news that’s breaking twenty four hours a day. I would generally be working on the mobile at home until 9:30 or if I was in a restaurant I’d be taking calls until 10:00 in the evening and be up at 5:00 again.
PM: It’s quite a long day, seventeen hours basically…. ?
AK: Not forgetting weekends too. You never really switch off. You have to be very mindful as well that you have to get up again at five on Monday morning. You’re generally not really out partying until all hours on Saturday night because you’re in effect just jet lagging yourself for Monday. Monday is really important. You have to start the week well making money. After that the rest of the week should take care of itself.
PM: Did you have people working under you at the time ?
AK: Yes, we always had the graduates and trainees working on the desk so I used to run proprietary trading books in specific sectors and we’d have graduates and trainees doing research, basically digging for all the information and doing all the work that we had no time to do. We also had research analysts. In effect, your research analysts are working for you because they’re bringing you all the news, and all of their views to you all the time, the valuations of companies and their response to fundamental news etc – good research analysts generally know that their number one client is their in house trader.
The sales traders are a trader’s distribution, so when you have a take on what’s happening in the market, you’d write it up very quickly or go out “over the top” (on the microphone) to the whole trading floor and push your view to do business. The Sales Traders go out and sell that view, and bring in the orders. That’s your distribution basically. Pension Funds and Hedge Funds then trade on the back of what you’re saying or in a lot of cases against what you’re saying. The important thing is you’re saying something. Traders that don’t have a view aren’t traders.
The industry was and still is generally supported by the intelligence or intellectual property of traders. Generally, everything in the markets, everything on the trading floor, when something breaks, when something happens, or you want to know something about a stock, your first port of call is the trader. They will be able to tell you everything that’s going on.
PM: Who did you report to when you were in that role ?
AK: I just reported direct to the head of Europe.
PM: Can you talk through what a typical day is for you ?
AK: Typical days now well, I generally get up around six thirty to seven o’ clock, watch the financial news for half an hour and have a coffee. I’ll know things probably haven’t moved much overnight because I generally go to bed at midnight but its good discipline for me. It gives me an appreciation of all the major levels and what the media are reporting. A lot of people in the industry say you shouldn’t watch the media because they’re reporting what happened yesterday, but it actually gives me some really good clues for trade ideas.
If they’re already reporting what’s happened its useful for me because it tells me what the “unoriginal” trade ideas are in the market, so kind of what the idiots in the world are doing. I take a mental note of that and it might trigger some interest in looking up certain trade ideas. I kind of spend most of my day writing my own research, reading other peoples’ research and building spreadsheets for myself and for other people through the institute.
It’s really not as glamorous as most people think. I’ll do this until 7:00 or 8:00 p.m. and then I’ll watch more financial media to get their synopsis on what’s happened in the world today. Then I’ll unwind for a few hours and go to bed.
PM: How has the credit crunch affected you ?
AK: It hasn’t really affected me at all, except having to watch it on the bloody news all day every day. I don’t have any debt, I don’t particularly want any debt and the whole thing to me is becoming pretty boring, to be honest.
PM: Were you affected by any of the rescue packages and new legislation regarding activities of financial institutions ?
AK: No, I left the industry in May 2007, a good few months before the rescue packages started getting rolled out.
PM: It was pretty good timing, really, and that’s one of the key things; picking the top or bottom of the market. Does your role attract much media attention and if so, is it warranted ?
AK: It does, yes, mainly because I’m associated with the business pre the credit crunch and after doing the Million Dollar Trader show, I got quite a lot of media interest on a general level in my life. Is it warranted? I don’t really mind it to be honest, as long as it’s not over the top and affecting my life too much, then its okay.
PM: How did you get involved with the BBC series Million Dollar Traders ?
AK: I was coming to the end of my travels and I was living in southern Brazil. I was on a beach and got a call asking me if I wanted to get involved in the project. It sounded pretty interesting so I booked a flight over and just told the guys at the BBC and the production company that they had a week to convince me. It was obviously quite a big career risk to go on television in the middle of a financial crisis, give people two weeks training, a million dollars, and watch them sink or swim against the professional traders. After a week it sounded like a pretty good project and the group actually ended up outperforming the professionals over the period of filming.
PM: That sounded quite good. What projects are you currently involved in at the moment ?
AK: I’m obviously trading my own money and I run the Institute of Trading and Portfolio Management.
PM: What’s that about ?
AK: We’re an independent organisation that educates retail clients on how to trade the financial markets properly. Around 90% of retail client accounts lose money, so I run independent seminars around the country that give people the tools required to be successful in trading. We don’t have any agenda other than helping people to make money, which is really important. So we try to solve this problem for as many people as we possibly can without it becoming mainstream. We restrict the events to a select few people so our methods don’t get too much mass appeal. This means our traders stay profitable for a long time. I’m currently preparing for the upcoming tour which starts in Glasgow on the 23rd of October.
PM: It sounds like a change but an interesting change, education based. Linked into that, what advice would you give someone who wants to become a trader ?
AK: I would say you’ve always got to do your own homework. You’ve always got to make your own decisions. Don’t let other people make decisions for you and don’t be afraid to walk away from your own ideas. Always stay disciplined, honest, and true to yourself and always stick to your game plan. Maintain your dignity and integrity at all times.
PM: Thank you for your time Anton.
More information is available at the Institute of Trading and Portfolio Management