Note: This profile by Chris McMahon originally appeared in the November 2008 issue of Futures Magazine.
"It was not uncommon for someone I would meet to have a wallet full of different currencies. Not for any sort of show," he says, but to spend while bargain hunting as they traveled from one country to the next. "As a starving student, any sort of marginal change gets your attention," he says. "If there was a way for me to save $10, well, that's a day's worth of meals back then."
Charles, 49, describes his investment philosophy as a hybrid. "I classify myself as global macro discretionary, with an emphasis on quantitative analysis," he says, combining themes and statistics to understand the basis of his positions and then execute the strategy. "I incorporate all kinds of quantitative analysis to find the best trade location, which then determines how much leverage I use. If I have great trade placement, I use extra leverage. If I do not have great trade location, I have to tone down my leverage."
Charles says the cornerstone of his trading strategy is rigid risk-management, adding that his margin to equity is about 2%, and that the investors he seeks are those who appreciate low volatility drawdowns and high volatility profits. "For me drawdowns are death by 1,000 cuts," he says. "A bad day is losing 20-basis points. A really bad day, where I need to go to bed early or go for a 10-mile run, is when I am down 50-basis points. On a million dollar account, that would be a $5,000 loss. That would be a horrific day."
The volatility of the past several weeks has been unprecedented, he says, creating an extremely dynamic and challenging trading environment. "Currencies used to move in packs against the dollar or with the dollar," he says, and if you missed a move, you could anticipate the next one because currencies typically moved in a 'dirty float,' a narrow band enforced via central bank intervention. "Those bands have been obliterated. Banks and central banks have much more important issues to address than whether there is currency volatility or even currency dislocation."
Charles does not limit himself to the six major currencies or any specific currency pairs; he trades wherever there is liquidity and actively trades currency futures and gold. He takes his preparation very seriously, waking up between 3 a.m. and 5 a.m. weekdays to review his trading journal and plan his day. On Saturdays, he is up at the same time to strategize for the coming week. "I am very opinionated, but often wrong," he laughs. "I have a plan, but I am not married to it," he says, and he will not sacrifice the integrity of the portfolio to prove that he is right. "I have long-term global macro views and those at the basis of my strategy." Every strategy has a hard stop and stops are in immediately after opening a position, he says, adding that the recent increases in market volatility have resulted in him being stopped out of medium-term positions with greater regularity.
As a trader, Charles says his greatest strength is his adaptability to changing markets. "Whether we are in crisis, panicked or stable markets, what determines my consistency is the ability to accept and plan based on what conditions are current in the market," he says. "That doesn't mean that I don't have a plan that I am trying to manifest; I am visualizing outcomes. I believe that my life can change significantly at any moment and that I am open to that possibility."
Note: This profile by Chris McMahon originally appeared in the November 2008 issue of Futures Magazine.