General Q&A #1 - Past, Present, and Future of White Gem Capital

By: WGC | 2016-06-06

General Q&A #1 - Past, Present, and Future of White Gem Capital

 

In this first general Q&A we ask the founder and CEO of White Gem Capital, Baron Kimble, questions ranging on his motivations, thoughts, opinions, and ideas about past, present, and future events.

 

The Past

 

What is your motivation for managing not only your own money, but the money of others?

The underlying reason I do White Gem Capital is that I enjoy it; it makes me happy. It is very challenging and it culminates all of the skill sets I have learned over my life into one profession. Also the money is great, and I enjoy making money for clients.

Also it is entrepreneurial; running your own business, which is also something else I enjoy. I like taking on new challenging problems, and being your own boss.

 

How did you begin trading?

I began trading about a decade ago when the 2008 crisis happened. Like some Americans I pivoted my career path at the time. I saw more news articles about finance, and started to show more interest in it. I began to predict what I thought would happen in the future, and it began to happen; it then was only a matter of time before I could actually make money by implementing these predictions.

 

You seem highly educated, having several degrees, and are even a Certified Public Accountant (CPA), what effect does this have on WGC and trading?

It seems like a strong educational background can't hurt, but I'm unsure if it is a major advantage, and could be even a disadvantage, as you get trapped into group-think, with those who have also went to school, and are trained to think and act a certain way.

A major benefit to being a CPA though is that it is in the sector of finance, and in the School of Business Administration it is the hardest degree to obtain. I'm sure if my background was more in forensic analysis, say from a big 4 accounting firm this could give some more relevant experience to formulate ideas to make money.

Also another benefit a CPA has is work ethic. It is a character trait I have discovered about myself: obsession.

If I were to recommend something to learn, it would be programming of some kind.

I recently saw another trader say his background was a ballet dancer. This could be an edge in my humble opinion.

 

What are some major aspects that transformed you from a retail trader to a professional trader?

Reducing portfolio volatilities, and by nature, returns, to manage drawdowns.

Acquiring the correct resources to allow strategy execution.

Trading with more capital.

 

What is number one aspect that changed you from a retail trader to a professional trader?

A complete overhaul and basic understanding about risk management.

Trading signals and identification are important in the short-term. In the long-run, the risk management, or trade sizing, determines the long-term viability.

Risk management has become the sexy part of the business, not trade identification.

 

Old and Bold Traders

 

 

The Present

 

How has your trading style changed from the past to the present?

Multi-dimensional, good diversification, strict risk management, frequent but smaller drawdowns, highly adaptable, good discipline, definable goals.

 

How you feel about WGC at this moment?

I feel WGC is at a break-away point. It is beginning to pass the point of no return as far as AUM.

I expect AUM to 4x or more in the next 1.5 years.

 

Do you have any goals that you have already met in running WGC?

Doubling the money from profits since inception.

To me this means that even the most risk averse investor could have essentially made the initial investment risk-free. This is done by removing the initial capital, and letting the rest of capital made from profit trade "free," creating a zero-risk investment based from the initial capital amount.

 

Have you ever taken a salary, or drawn money from the fund for personal reasons?

No. I'm actually discouraged to do so because the rate of return is so high.

 

I have heard other traders say: "that dollar amount matters, not percentage," is this true?

It depends if you are a retail trader or a professional trader.

Compounding is the greatest strength of the market. As long as the market is liquid enough to allow the strategy, the dollar amount made or lost is irrelevant. The underlying system is what is important; discipline and time are then all that is required.

From the view of a client, in a more professional setting, the percentage gain is all that matters. To a retail trader, who sees trading as income, or his or her personal salary, the dollar amount matters.

The dollar focused trader is short-term focused, the percentage trader is long-term focused.

 

If your best strategy where to suddenly stop working, would you still produce the same returns?

Most likely. WGC is not one-dimensional and has many strategies to fall back on. I try to adapt WGC the best I can. In fact, if the best strategy currently stop working, I would work harder, search for another one, and I have a feeling I would probably even make more money.

 

Is having a high rate of return skew perception?

Yes.

To expand on this, this is basically opportunity cost. Whenever a dollar is outlayed it must be assessed against the rate of return. Often most things do not exceed this hurtle.

Personal and business related purchases are harder to make knowing that they cost essentially 50% more (but in fact, can cost much more based on future value models).

 

It seems that you already have a successful fund, why take the risk an accept outside money?

  • Because it makes me happy to make money for clients.
  • Currently there is a of the tax benefit - carried interest, based on performance fees.
  • Because the strategies are scalable, and it accelerates the goals of WGC.

 

What are your thoughts about technical analysis vs. fundamental analysis?

From research and belief is that technical analysis works with shorter time frames and with managing smaller capital. While fundamental analysis can allocate much larger capital, which is more predictive than technical analysis, which is reactive.

However for everyday purposes, and for the average trader both work, and both can make money if executed correctly.

 

What do you think your win rate is currently?

60% or less. Almost half my trades are losers.

As AUM increases, this will approach 50%.

 

When evaluating risk, or returns for WGC, why you emphasize monthly returns over daily returns?

  • Daily returns are often noise.
  • Being longer-term focused, I try to emphasis longer dated metrics as a result.
  • Day-to-day the trades are often not realized. Monthly results tend to capture the realized trades, especially over many months.

 

What do you think accounts for WGC recent success for this year?

  • One is to press bets when you are right. Often this can cause a jerk in drawdown if the market pivots and reverses quickly, which is acceptable.
  • Reduce risk when losing.
  • Correct feelings and perception about current and future market events.
  • More discretionary trades based in alternative ideas across many asset classes.
  • Accepting risk when placing larger bets as the fund scales relative to previous periods.
  • Accepting the drawdowns that naturally happen.
  • Having high drawdown tolerance, and dissolving painful emotions during times of drawdowns.

Anton_Kriel

 

dissolves

 

What new arrows are you trying to add to your quiver?

FOREX, and cycle system trading.

 

What is the most important aspect of managing WGC?

Discipline.

 

 

The Future

 

What do you feel about those who are on the fence about investing?

The first step is the hardest to take. You have to build a trust. I always suggest starting a position you feel comfortable with, to begin the process. After time passes, then evaluate the investment and then decide to add or subtract.

 

If you weren't running WGC, but it was being run by someone else, would you invest?

Yes, I would invest a starting position at $100k.

 

Will you invest in other hedge funds in the future?

Yes, but just personally.

 

What do you think the reasons are for someone not to invest?

There are very few reasons that someone would not invest.

  • They do not have the capital to invest.
  • The frequency, duration, or severity of drawdowns is too severe.
  • They have a very low risk tolerance.
  • An alternative investment exists that is more appealing.

 

Is there reasons you have turned down money?

  • If the initial investment is immaterial
  • The investor is not serious about his or her money
  • If the initial investment puts the investor in a financial bind.

 

If I knew the symbols WGC was trading, or the strategies, could I duplicate them?

An investor recently asked me this question. I would have to say no. The reason being is that there are a lot of intangibles that go into the paradigm of WGC. These intangibles are difficult to duplicate. Often success of a investment philosophy depends on the trader which is trading it, because it is personality based.

Pushing the button is less than 1% of the work, knowing why the button was pushed, and all the work behind why, is 99% of the work.

 

What is a near-term future goal that you have?

To manage $30M in AUM.

 

What is a unique feature you are working on?

A proprietary application, to aggregate and analyze data across many asset classes across the world.

A feature application will also automate some executable functions of WGC; this feature be ready by the end of 2016.

 

What do you think WGC needs to improve upon?

One major goal is to work on back-office support. This means either in-housing or out-housing support functions, like lawyers, accountants, marketing, software development, etc.

For front-office there are traders I am observing and would like to interview and possibly hire.

 

Will you ever change the fee structure of the fund? Include a management fee?

The implementation of a management fee could occur to pay for back-end and front-end, however the performance fee would be likely be reduced to compensate.

 

Do you think 25% performance fee is high?

No. The investor keeps 75% of the profits.

 

What do you feel about what will happen by the end of the year (2016) regarding returns with WGC?

I feel WGC will be significantly higher based on current and perceived market events.

 

What will happen in regards to the front-end when WGC acquires even more AUM?

Inactive strategies will be activated; easier and more execution options; lower cost structures and increased returns as a result.

 

It was recently reported that this is the worst year in 18 years for managed money. Thoughts?

Like in most aspects of the market 80-90% of traders will lose or underperform. However, what this could mean is that the market is changing and traders and managers are failing to adapt.

 

What do you think about NIRP (Negative Interest Rate Policy)?

Abominable. Unnatural. Insane. Desperate. Predictable.

 

Thoughts on programming and artificial intelligence (AI)?

Programming an application takes imagination, and lot of trial and error. A single character can render code invalid, so it is also fragile. This combination of a complex pathway of logic rooted in fragility, as well as the great chasm divide in imagination to accomplish a man-made objectives poses, in my opinion, an insurmountable obstacle for a machine to self-program.

A machine will be able to assemble a widget, or do a remedial physical or mental task, often set by a human, but higher machine learning, frontal cortex of the brain stuff, is probably 50 years or more off.

Think of the more "Why" questions than "How" questions.

 

Thoughts on Bitcoin?

Bitcoin relative to other assets will underperformed.

  • Bitcoin is connected to the idea of a safety trade. In human nature when people get fearful, then tend to believe less in the intangible, and more in the tangible. Bitcoin is purely intangible.
  • Bitcoin market cap of Bitcoin is around $6 billion.
  • To buy and sell Bitcoins occurs through a convoluted system which costs a lot of money to enter an exit the market to return to the native desired currency. This often raises the cost, and is uncompetitive compared to traditional fiat currency exchanges. Unless one were to purely transact in bitcoins.
  • It could be argued that money is already intangible. But unlike Bitcoin, cash has a tangible option.
  • It will be very difficult for the government(s) to cede power, and taxing power, to a deregulated currency.
  • 1/4 of the world's population does not have electricity, and rely on physical mediums of exchange.
  • Bitcoin is tech related, often tech becomes obsolete in several years.
  • There has been many cases of extreme theft regarding Bitcoin exchanges with no governmental repercussions.
  • Bitcoins are not insured by the FDIC.
  • There is no interest rate I can invest with Bitcoin.
  • Governments backs its currency because of its tax structure. Having governments ability to tax is essential to stable society.
  • Bitcoin is not a currency, it is an asset based on the perception that it can be used as a currency.
  • Living in a cashless society would be difficult.
  • Mining gold requires high skill, prospecting, capital equipment, investment, moving mountains. "Mining" in Bitcoin requires much lower capital costs to initiate, and requires just running a computer calculates. Equate this to pulling thousands of tons of earth thousands of feet in the earth's crust (real mining), to turning on a light switch (Bitcoin Mining).
  • The market cap of just one average large cap gold miner $NEM is $16 billion, almost triple that of the market cap of Bitcoin. However Newmont mining shares are not labeled as a currency.
  • The average daily money volume on Bitcoin is $50M, and on a good day $200M.
    • The average daily money volume $NEM is $250M consistently. This is just one stock, essentially picked out of a hat.
    • Global FX volume reaches $5.3 trillion a day in 2013. In context Bitcoin accounts for 0.00094% total trade volume.
  • "There is incredible upside in Bitcoin based from its market cap." This could be true of any asset with value denominated in a fiat currency that is being debased.
  • There is no such thing as bug free software.
  • In my opinion there is a large amount of educational knowledge to understand Bitcoin; the public already understand cash; it will have to require a massive re-education to transact in Bitcoins.
  • Bitcoin does not have the 10x factor over USD.
  • Bitcoin exchanges are not professionally regulated by the USA or democratically, impartial, governmental body. We don't know who owns the coins, or how (accountability). The work required to do so would be incredible. (As I said before, there have been many cases of large scale theft.)
  • Some experts claim the architecture behind Bitcoin is flawed (see video below).

(Note: I originally went long Bitcoin at $6, because it had aspects of a mania emerging.)

 

Thoughts on driverless cars?

Years ago reading in my cognitive psychology book, I remember a boring, yet lengthly discussion about vision and the brain. Vision is something extremely complex.

Driverless cars only work in sunny weather, no fog, or rain, or in clear driving conditions, and typically in a controlled environment.

Does this place sound familiar? Of course, Southern California, near Silicon Valley.

If driverless cars do exist, they should already be implementing this technology immediately into commercial trucks. We could have trucks running 24/7 on the highways, and there is a large shortage of truck drivers.

There is a movie that kind of addresses the cognitive idea of this. It is called At First Sight with Val Kilmer. In it there is a scene where he sees an apple, but he doesn't know if it is a real apple, or a picture of an apple.

 

Thank you for reading.