Hedge Fund Market Wizards

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 ...