Notes for Chat with Traders, Episode 108

Added on by C. Maoxian.

Episode 108 ... John Netto (55:25)

  • Placed first sports bet at age 8
  • He lost the first bets he placed but didn't discourage him
  • Doesn't bet on sports anymore
  • Father conservative, imparted importance of saving and investing
  • Remembers the 1987 crash, he was 13 then, age 42 now
  • Oliver Stone's movie Wall Street made strong impression on him
  • Stone didn't realize he was turning kids onto the market instead of off
  • He wasn't a bookie, he was a liquidity provider (in high school) [has a sense of humor]
  • "The Netto Number" -- redefining alpha [they didn't explore this idea]
  • Claims creating "Progressive Points Spread," not a binary outcome on sports betting
  • Poor grades in school but worked hard on his bookie business
  • Grew up in East Bay Area, Interstate 80
  • Recorded Stardust casino opening odds delivered via radio
  • Dec 1992 graduated high school and joined the Marines, 18 yo 
  • Classic underachiever, poor grades, low self esteem in high school, so Marines transformed him
  • First assignment in Japan, in two years
  • Learned Japanese language, passionate about it, 1994 (no Google translate)
  • Assigned to Tokyo (embassy detail?), continued to study Japanese, two more years 
  • Came back to US in 1998
  • Opened eTrade account
  • Studied Chinese at Univ. of Washington
  • Wouldn't say he's "fluent" in Japanese (smart to say that), it was just "effortless"
  • 2200 hours to become "professionally competent" in Level 4 language (like Arabic, Chinese, Japanese)
  • Had horrific sense of timing in the markets at first
  • He had no process then, just impulsive
  • Thought he should just do the opposite of what he naturally did 
  • Truth is that throwing darts at the wall with good money management, you'll do ok
  • But held his losers, cut his profits short
  • Left Marines in 2002, joined prop trading group
  • Joe DiNapoli's book really helped him
  • Still uses DiNapoli's Fibonacci ideas
  • Managing risk not a problem for someone with Marine-like discipline once he had a process
  • Trades futures markets and options
  • Uses eight monitors
  • "Protean" trader ... highly adaptable
  • Developed multiple strategies: mean reversion, relative value, momentum, trend following, breakout systems -- uses all of these
  • Key is knowing which strategies to apply to current market environment
  • "Global Macro Edge" -- name of his book
  • He's a fast talker
  • Three keys to be successful trader: operations, analytics, execution
  • (He has a lot of set-phrases memorized, clear military training)
  • Hired programmers to automate things, on a contract basis
  • His wife helps him organize things [she must be an angel]
  • Hires people based on word of mouth
  • Wants people certified on certain APIs
  • "Prow-ess"
  • When to lever things up and lever things down -- that's what it's all about
  • "Market Regimes" -- technical, fundamental, sentiment
  • Spends a lot of money on bespoke research (~$80K a year)
  • Makes $500-600K a year trading [on how much capital? Netto says $1MM in capital]
  • Spends $26,000 a year on his Bloomberg Terminal
  • Uses CQG as well
  • Great asymmetrical trades (paying 5 to 1) come with a great deal of discomfort
  • Wrote a 580 page book, self-published? (yes, self-published
  • Low volatility for years now ... have to adapt to that
  • Make your lack of capital your biggest strength, small positions can be an advantage
  • Trades from home in Las Vegas
  • Has patents on his process, but won't talk about it
  • Global Macro guys can be brilliant but don't know how to manage risk
  • Importance of getting out of your comfort zone
  • Want to be a little bit afraid in a trade
  • Be aware of your emotions, feelings, instincts
  • Does daily "Qualitative Self-Assessment" -- preparation, focus, routine
  • Journal everything constantly
  • Be in tune with yourself
  • You need to be uncomfortable to hold your winners
  • You need to feel the nnnngggggg, but power through it [I know what he means]
  • Overconfidence > complacency > mistakes > losses
  • Respect the market
  • Embrace your losses
  • If you're not losing money, you're not taking the risk necessary to succeed
  • Separate discomfort from fear, confidence from complacency
  • Boy he talks fast, sort of an interesting rapid-fire military cadence throughout  
  • Twitter: @JohnNetto