Interview with Victor Haghani - Chat with Traders Episode 129

Victor Haghani started his career in 1984 at Salomon Brothers in a starting role before moving on to join their prop trading desk. Victor left Salomon Brothers in 1992 for Long Term Capital Management as one of its founding partners.

Long Term Capital Management became a super successful hedge fund. Using a lot of leverage, some years the fund would generate a return of over 40%. That was, until 1998 when the company failed spectacularly. In fact, the Federal Reserve had to step in and organize a bailout to help prevent the chance of a collapse in the global financial system.

Victor ended up taking a ten year sabbatical and in 2010, after the dust settled, founded Elm Partners, an active index investing fund.

We didn’t discuss too much about Long Term Capital Management due to Victor’s request, but there are lots of information online about the company if you’re interested in finding out more. I’ve also linked to a few resources in the show notes.

However, we did talk at length about optimal bet sizing, which is quite interesting. We also talk about how this method alone can really alter outcomes if you do it over a lot of bets or trades.

You’ll get to learn about an experiment Victor did with Edward Thorp. It involves the patterns of how sixty-one people would bet on a biased coin using real money.

I do apologize about the sound quality of this episode but there’s so much information packed into this one you definitely don’t want miss out.

What’s Covered in This Interview:

Insights into the varying outcomes of an experiment Victor did which involved sixty-one people. They came from different financial background and were asked to bet on a biased coin using actual money.
Why many of the experiment participants bet on tails even though the odds were 60% in favor of heads. Victor also dives into why a third of them went broke.
How someone would calculate the optimal bet size for the experiment, how to determine expected value, and how the overall outcome would be affected using the Kelly Criterion.