Michael Masters is a self-made man (who was once profiled in the book Stock Market Wizards). Mike never worked on Wall Street, never ever graduated from Harvard Business School or even attended an Ivy League. He does not have a master’s degree. he is just a “regular guy” from Marietta, Georgia. He graduated from the University of Tennessee and started off his career selling door to door as a full commission stockbroker.
Confident in his stock picking ability, he retired from brokerage sales and started his own hedge fund at the age of 27. Michael W. Masters is the Founder and Managing Member of Masters Capital Management, LLC. He has led the firm as its Chief Investment Officer and Portfolio Manager since its inception in 1994.
The Fund :
Masters pooled together about $200,000 from friends and family and launched his hedge fund in 1995, without any experience.
Masters’s approach can be summarized as a four-step process:
- Learn from experience. For any trade that is instructive (winner or loser), write down what
you learned about the market from that trade. It doesn’t make any difference whether you keep a
trader’s diary or use the back of business cards, as Masters does; the important thing is that you
methodically record market lessons as they occur.
- Develop a trading philosophy. Compile your experience-based trading lessons into a coherent
trading philosophy. Two points should be made here. First, by definition, this step will be
unachievable by beginners because it will take the experience of many trades to develop a
meaningful trading philosophy. Second, this step is a dynamic process; as a trader gathers more
experience and knowledge, the existing philosophy should be revised accordingly.
- Define high -probability trades. Use your trading philosophy to develop a methodology for
identifying high-probability trades. The idea is to look for trades that exhibit several of the
characteristics you have identified as having some predictive value. Even if each condition
provides only a marginal edge, the combination of several such conditions can provide a trade
with a significant edge.
- Have a plan. Know how you will get into a trade, and know how you will get out of the trade.
Many investors make the mistake of only focusing on the former of these two requirements.
Masters not only has a specific method for selecting and entering trades, A S but he also has a plan
for liquidating trades. He will exit a trade whenever one of the following three conditions are met :
(a) his profit objective for the trade is realized; (b) the expected catalyst fails to develop or the
stock fails to respond as anticipated; (c) the stock fails to respond within a predefined length of
time (the “time stop” is triggered).