Kovner was born in New York in 1945. He did his first degree at Harvard, followed by postgraduate study at the university’s school of government, but did not finish his PhD, instead working as a writer and commodity trader. Kovner made his first trade at 31, using cash from a credit card, turning $3,000 into $22,000. That year he joined pioneering hedge fund Commodities Corporation as an assistant. Later he set up Caxton Associates, which he ran until 2008.
What was his strategy?
Kovner used a mixture of fundamental and technical information, arguing that technical analysis could reveal information available only to insiders. He would hire researchers to help him find and analyse large amounts of data to spot relationships between various variables, such as interest rates and the price of gold.
Did this work?
At Commodities Corporation, Kovner produced consistent returns of around 80% a year. This inspired him to set up Caxton Associates, which returned around 14% a year between 1983 and 2013, compared with 9.5% for the stockmarket, and with much less volatility. Caxton has assets of around $10bn under management, while Kovner has a net worth of around $5.3bn, according to Forbes.
What was his best investment?
One trade that illustrates Kovner’s strategy was his discovery of mispricing in the markets for currency futures – derivatives that allow you to hedge against moves in exchange rates. Kovner worked out that the market usually overestimated the extent to which currencies would fall, because a lower forward price increased the likelihood of a rate rise.
Rate rises usually boost a currency, and so currencies would end up falling by less than the futures market anticipated. Kovner made a lot of money in the 1980s buying currencies in the futures market that were predicted to fall and holding them to maturity.
What can we learn from Kovner?
Kovner’s late success shows that investing is not just a young person’s game; it also shows that combining technical and fundamental factors can work well. Kovner argued that a trader who ignored technical factors was “like a doctor who says he’s not going to take a patient’s temperature”. Colleagues said he had a strong capacity to take large risks while holding his nerve.