KEVIN TEEPLE - FXstreet

PSYCHOLOGY

KEVIN TEEPLE

Evolution of a

Hedge Fund
Manager

40 AUGUST 2008 / VOL. 4 ISSUE 8

Kevin Teeple shares the steps he took along the path to become a successful trader.
His lesson – ‘learn what is true and stick to it.’

Managing a hedge fund these last nine years has After four years in the U.S. Navy, followed by four years
permitted me a rare insiders’ perspective to just of trying to stay afloat in college, I finally got around to
why investors lose more money in the stock asking myself the really important questions in life – such
market, than they ever make. These common financial as, what do I really want to do with my life? All I knew for
pitfalls are easy to pinpoint, but not so easily remedied. sure was that I wanted to learn about investing and how to
Whether it is your family’s 401(k) or $50 million being make millions of dollars in the stock market. My problem
professionally managed in a hedge fund, investing in any- was that I was really confused on where to start. All the ex-
thing that is too confusing, too complicated, or void of real perts told me that the best thing for me to do was put my
risk management all but guarantees financial catastrophe. money in mutual funds and forget about it – you know,
“invest for the long term, Rule of 72, diversify, etc.”
Identifying the remedy was somewhat more involved, re-
quiring that I not trade for years. Personally, I had lost I believed the experts had to know far more about invest-
more money than I wanted to admit at the time. Ulti- ing than I did to be able to understand and decipher all of
mately, I surrendered my grand egotistical illusion that the those complicated quarterly financial reports, graphs and
stock market actually cared about my financial forecasts, charts. Like so many other investors and traders, I was
stock predictions and trend lines. obsessed with watching the financial channels and reading
The Wall Street Journal, but embarrassingly, I still found
As I write this article, times could not be any more con- it all very confusing if not overwhelming. I was not sure
fusing for investors and traders. First, we are fighting an what was real, what was hype, and what was even essential
expensive war against terrorists. Second, Bear Sterns was knowledge when it came to making money in the stock
just gutted and now lies belly up in the street, as inves- market.
tors everywhere look on in disbelief that this institutional
mammoth was slaughtered, not by a predator, but by what “It’s a mystery wrapped in a riddle inside
some suggest was greed and corporate mismanagement. an enigma!”
There is the also mortgage meltdown to consider and ana-
lyze. – Winston Churchill

Presently, there is rising inflation, the slowing economy, As a part of my self-prescribed self-help cocktail back in
presidential debates and the increasingly uncertain future the early nineties, I found myself on the edge of my seat in
of our U.S. currency. What about the unsettling rumors a Landmark Forum seminar. Three days of pure enlight-
of a new U.S. currency called the ‘Amero’ – a new North enment followed by acute cerebral cramping. Just when I
American currency combining Canada, the United States actually thought that I was learning something, the Forum
and Mexico. How will this affect your investments, if it is Leader told the group “You don’t know, what you don’t
ever implemented? know, you don’t know.” What the hell is that supposed to
mean, I thought to myself? Well, it wasn’t until much later
Individually, any one of these can be a bit too confusing, that “I Got It!”
too complicated and too risky for the smartest of us with
our best thinking, to base our investment decisions on. I read hundreds of trading books word for word, page by
So, the question is and always will be – how do we proceed page. Moved from one expert to another acclaimed ex-
with our investments in the stock market? pert; completed countless tape programs and video courses
all promising to teach me the secrets of the professional
“Success comes from making the right traders. Mrs. Hayes, my fifth grade math teacher, would
decisions. Right decisions are learned have been so proud of my scholastic prowess. So proud
from experience. Experience is gained that she surely would have placed a silver star on my shirt;
thru making wrong decisions.” the star she somehow neglected to give me years ago when
I was in her charge.
– Anthony Robbins

AUGUST 2008 / VOL. 4 ISSUE 8 41

PSYCHOLOGY

As my understanding of trading and investing grew, I went that, and therefore I am not at liberty to discuss it.
on to pay $4,995 to attend an exclusive trader’s sympo-
sium. That is right – a ‘symposium’ and not one of those “Everybody’s got a great plan until the first
run of the mill ‘seminars’ that the amateurs attend. We punch.”
were taught the in-depth, complex, and sophisticated anal-
ysis of what to buy, where to buy and how to buy stocks, – Mike Tyson
bonds, options and spreads. This event included large
binders filled with colored charts, confusing graphs and Now, for you traders and hedge fund managers reading
expert trading tips. This particular symposium included this article feeling your heart rate increase, your blood
a limited time only, one-on-one coaching call to keep me pressure rising and have veins popping out of your fore-
motivated after the symposium. I guess there were about head like trend lines on a chart – please hear me out on
three hundred of us attending this particular symposium. this. I am not bashing any management style or trading
This was a small crowd when compared to the last gather- technique here.  As a good friend and professional inves-
ing I attended in Los Angeles where there must have been tor has reminded me, ‘there is more than one way to skin
a thousand in attendance. a cat.’  Peter Lynch averaged over 20% per year for almost
15 years using mutual funds. Warren Buffett has averaged
By now, you must be asking yourself – what was the end over 20% per year for over 30 yrs using a ‘buy-and-hold’
result, the bottom line of all this training? Well, I had fi- approach. Then, there is charismatic genius Jim Cramer
nally arrived. I was ‘in-the-know.’ I was college educated, who changes his mind at the blink of an eye and he has
well informed, and up to date with the most sophisticated averaged over 20% per year at his hedge fund.  All of these
trading techniques being taught anywhere to anyone and are Masters without exception or debate, yet they are more
I was ready to make my millions. I had a sophisticated to the exception, than they are the rule.  All I am suggesting
do list and detailed trading plan at my side, complete with here for the rest of us not in the 98th percentile of IQ
my most desired outcomes, deadlines for reaching those scores; there might be an easier way to quantitatively skin
outcomes with a priority list. My confidence was at an all that same cat.
time high – I was ready to enter the stock market.
“You set enough monkeys typing and one
“Just as the U.S. Marine Corps separates of them will produce the encyclopedia
the men from the boys; the stock market Britannica sooner or later.”
decapitates the overly confident from the
competent.” – Fooled by Randomness

– Kevin Teeple After losing that $5,000 in less than ten minutes, I had
reached my vomiting threshold and Mrs. Hayes took my
I precisely followed each and every “how to” taught in the silver star back. I could no longer afford to indulge in
seminars, books and tape programs. I analyzed an ocean the fantasy that the stock market actually cared about my
of fundamental data with a fine-tooth comb; just I was trend lines, my market forecasts or stock predictions. Sur-
taught to do. I considered price and demand with all of vival dictated no more daydreaming that the stock market
the associated underlying factors I could read about, just as would value my technically sophisticated, remarkably in-
they taught me to do. I bought on triple tops, sold when genious and fundamentally sound trading techniques. I
it dropped below this or that converging moving average, knew what the problem was then, just as most traders and
shorted the ‘Dogs of the Dow,’ hedged with ‘spiders,’ di- investors do in similar situations. It is the common de-
versified with exchange traded funds (ETFs), used Elliott nominator in all bad trades and investments, all ineffective
Wave, MACD, Bollinger bands, P/E ratios, advanced sta- decision making – the problem was ME!
tistical regression models, ratio filtering, economic logic
projection … and, after all of this, can you imagine the It was time for me to take a step back, reevaluate and reas-
millions of dollars that I made? Nada, zilch, zero. I ended sess my life; it was time for me to ‘Walk on Fire!’
up with a net loss as the reality of the stock market collided
with my market forecast – and it was unscathed. Those of us whose lives have demanded change like mine
and have attended a Tony Robbins event already know that
In fact, my first real trade after paper trading for several above and beyond experiencing the popular picnic skill of
months resulted in a net loss of about $5,000 in less than walking across a bed of burning coals; that Tony teaches
10 minutes. That sum represented 100% of what I had more important life strategies designed to enhance, and
invested at that time. How did I do on my second and accelerate, our personal or professional lives to the next
third trades? Well, Christ himself has not forgiven me for level, no matter how great our lives are already.
42 AUGUST 2008 / VOL. 4 ISSUE 8

After my first fire walking experience with Tony, I kept on A clever person solves a problem. A wise
walking all the way to the San Diego, California headquar- person avoids it.
ters of Robbins Research. I left my cubicle commando job
and moved to San Diego to spend three remarkable years – Albert Einstein
working for him.
As I sat in his office surrounded by signs of wealth, he
There are countless great reasons to work with Tony. One looked up at me and said, “Kevin, let me share something
reason that I found to be beyond measure was participating with you that is common knowledge but for the most part
in the numerous meetings with Tony. Instead of an audi- is not truly appreciated. The investment community has
ence of more than one thousand people, he would meet constructed a widespread and convoluted maze designed to
with about twenty of us in a small conference room. As lasso its listeners into its own brand of conventional mar-
you can imagine, these experiences ensured that life would ket wisdom, mostly through the media, print and over the
never be the same. Which brings me to my point, which Internet.” Add to this the fact that change is accelerating
is one of Tony’s most powerful organizing principles. daily, while becoming increasingly more difficult to under-
stand. Even the smartest among us, with our best think-
“Know your outcome. Take massive ing, cannot figure out how these so-called experts actually
intelligent action. Have sensory-acuity arrived at their stock predictions, or market forecasts. This
to notice if you are getting the results you is not to mention how any of their forecasting translates
desire and if not, change your approach into actually making money in the stock market.
and then continue to change your approach
*until* you get your end outcome.” Forecasting is not a respectable human
activity, and not worthwhile beyond the
– Tony Robbins shortest of periods.”

I suppose in hindsight that Tony felt obligated to hire me – Peter Drucker
due to the fact that I got stuck in his office elevator for over
an hour on the way to my first interview. All the same and There are but two paths before any trader or investor that
years later, I still consider that time at Robbins Research wants to make money in the market. First, you can join
priceless and paramount to my success today. this herd-mentality that eventually loses most, if not all, of
their money trading blindly; praying that the market will
Like so many unfortunate traders and investors, I was so turn in their favor. Or, steer clear of this herd and become
intoxicated by the dream of what might happen in the one of a few traders that identify a profit pattern in the
stock market that I was all but ignoring what was happen- stock market and learn how to exploit it.
ing as I watched my net worth diminish, one tick at a time.
Do you know any one like this? “It is in this moment of your decision making that your
financial destiny will be determined – choose wisely.”
The time had come to subscribe to Tony’s organizing prin- Choosing the second path will all but guarantee that the
ciple and change my approach immediately to reflect it. next couple years of your life, you will not trade a sin-
Then, continue changing that approach until I reached gle penny, but endeavor through an exhaustive amount of
my goal of making millions in the stock market through time and energy in search of a profit pattern. You will be
identifying a profitable pattern in the stock market. What looking for a trading strategy that you may never find at
better way to do that than by modeling the most successful all. Remember – choose wisely!
traders you can find?
His talks with me were always quite curt and to the point
Standing on the shoulders of greatness has made all the and only minutes or so each month at best in the begin-
difference in my years of trading, especially in the disci- ning. Nonetheless, it was during those times with him,
pline of avoiding that which is inessential and focusing surrounded by all the evidence indicative of great wealth
exclusively on that which is essential, in search of profiting that I finally got what the Landmark Forum was trying
in the stock market. “What is true versus what I think.” to teach me years back. He shifted my perception just
enough, to teach me, what I did not know that I did not
Thumb firmly pressed upon the pulse of Wall Street and even know about trading successfully.
finance matters everywhere, a lifetime of invaluable invest-
ment advice, commanding distinctions and acute market It was not too many years later that these roles seemed to
insight was gained when the Masters shared their wisdom reverse. As a result of the most horrendous terrorist attack
with us. ever on U.S. soil, I was the one sharing this same wisdom
with thousands of others who needed to hear it.

AUGUST 2008 / VOL. 4 ISSUE 8 43

PSYCHOLOGY

“We are all drowning in information but – Benjamin Franklin
starving for wisdom.”
First, never “play the market.” When you enter the stock
– Anthony Robbins market today, it is only slightly different than walking into
the Coliseum in ancient Rome in 80 A.D. to watch in
It was just days after our country was attacked by terrorists terror as a gladiator rushed you. Just as the gladiators had
that I was honored to be an invited guest on CNN Finan- one intention when they entered the arena – too kill; pro-
cial Network, Bloomberg and the Fox Network to answer fessional traders are not too much different in that regard.
questions from callers around the United States. Unlike Professional traders have one objective and that is to make
other appearances where an informal, yet politically cor- money – they never ‘play the market.’ Fortunately, for the
rect sound byte answer was strongly advised, this time I losers in this modern day coliseum, they are seldom killed
knew that the “politically correct” gloves needed to come although to a certain extent, they are financially decapi-
off as this was unquestionably a time for straight talk. tated or crippled.

Like so many of us then and now, I had no clue what the Second, abandon any preconceived opinions that you
markets were going to do in the following days or weeks. might have about where the market will or will not go
At that time, I certainly was not going to insult the listen- because trying to convince the stock market that you are
ers’ intelligence by pretending that I did and give some right can become very expensive.
pseudo-science prediction or market forecast. However, I
did have an edge. I knew exactly how I was going to trade Third, realize that the markets are a ‘zero sum’ game. In
the markets, and knew precisely what I was going to say order for you to make money – someone else has to lose it,
on CNN. This is what I said – “This is not the time to so prepare yourself thoroughly.
invest in the stock market; this is the time to protect your
money!” If you are going to make an error, err on the side Fourth and most importantly, know that every word dis-
of protecting your investments regardless of what the mar- cussed here in this article is absolutely useless without the
kets do moving forward. proper money management supporting it.

Everything that I had learned to be true up to that mo- “Bulls make money, bears make money
ment in our history, told me this was a time to sit it out. but pigs always get slaughtered!”
You will never see a professional bull rider try to mount a
bucking bull in the ring, so why would anyone enter the – Wall Street truism
market at a time like that – the risks were far too great plain
and simple. This may not have been technically sophisti- I.First and foremost, identify causality
cated, remarkably ingenious or bold enough for some of A traders’ ability to objectively and precisely identify cau-
my colleagues who were being interviewed that day, but sality in the stock market, to recognize sequential profit-
the partners in my hedge fund and listeners did not protest patterns is the most important skill that ultimately sepa-
at all. After all, that month of September 2001, as well as rates the profitable investors/trader from the herd.
for the year, we finished with a very respectable ROI – and
that is all that matters. ‘Causality’ is defined as the directional relationship be-
tween one event (cause) and another event (effect), which
“Track Record is everything.” is the consequence of the first. We have all observed this
– Warren Buffet cause and effect in motion, as we have watched billiard
balls sequentially striking each other as A causes B causes
If you find yourself nodding your head in agreement, then C and so on. There is a parallel causality in the markets,
we probably have a lot in common when it comes to in- where one event, such as the NASDAQ trending in a cer-
vesting our money. By leaving our emotions, opinions and tain direction causes an event that sequentially causes an-
the news outside our trading office during that terrifying other that can be exploited for exceptional gains.
time in our nation’s history, it made all the difference in
our trading success. Avoid the confusing, avoid the com- How do we as traders objectively and precisely sift through
plicated and rely solely on what you have identified, as the incomprehensible ocean of data to construct a quan-
being true, your strategy. titative trading strategy, to make the incomprehensible,
comprehensible?
“The definition of insanity is trying the
same approach over and over hoping for a II. Optimize
different result.” Science explains how our brains are designed to filter, gen-
44 AUGUST 2008 / VOL. 4 ISSUE 8 eralize and seek meaning from our sensory input. The

result is often that our perceptions are distorted and or This is vitally important to any trader because by being
emotionally biased causing us to make decisions that are so selective in entry points, you accomplish three things.
less than productive or profitable. First, the confusing, complicated or undefined risk scenar-
ios are filtered out. Second, money is saved for the trades
On the other hand, computers are a series of binary tools that have the best chance of winning. Third, irrationally
designed for absolute objectivity and preciseness. Compu- placed trades are never made when you do not know if the
ter technology can distill a lifetime of market experience odds are in your favor.
into moments of processing time, enabling us to search for
profit-patterns that have occurred over the last 30 or more These predefined surgical-strikes are quantitative and sys-
years across an unlimited number of global markets. Profit tematic with no discretionary overrides, and serve to elimi-
patterns that have occurred hundreds if not thousands of nate the discretionary or emotional trade that has histori-
times during a time period (large sample size) and correlat- cally cost investors the most.
ing to a predefined “what is true” marker allows for high
probability entry and exit points. “Whether you are playing blackjack or
trading, your profitability depends on your
“What can be done with fewer assumptions edge and how many times you get to apply
is done in vain with more.” that edge.”

– Occam’s Razor – Blain Hull

III. Simplify the search by finding “what is true” In summary, all I would like to leave with you is this –
Defining “what is true” in an ocean of incomprehensible Avoid the confusing, the complicated, the void of any real
data is an exercise in stubbornness and persistence. You risk management by focusing exclusively on what you have
will surely identify what is not true, infinitum, before ever quantitatively identified as true and leave your opinions,
arriving at – “what is true.” Nevertheless, one significant your ego and your predictions at home away from any
example of “what is true” is, “the traded price;” that pivotal trading decisions.
“aha” moment in an ocean of incomprehensible analysis.
Kevin Teeple has appeared as a featured expert on CNN, Bloomberg, the
What can be simpler to analyze than the traded price? FOX Network in addition to the NASDAQ’s market site in New York City.
What is truer than the mirror reflection and decisive finale Days after the attack on the World Trade Center, Kevin was honored to be
of when sellers meet buyers in the stock market? one of a select few appearing on the CNN Financial Network to respond to
the questions and concerns of Americans regarding their investments, the
“Things should be made as simple as market and the economy.  An invited speaker in the United States, Europe
possible, not simpler.” and in Asia - Kevin is a sought after authority in the area of quant trading
systems, risk management and dynamic asset allocation. His precision
– Albert Einstein approach to the stock market is rule based and disciplined. His trading
methodologyisquantitativeandsystematicwithnodiscretionaryoverrides.
IV. Quantify and systematize before a penny is invested
Once you have identified what is true, technology allows Prior to founding KTM Funds, which now manages the financial assets
us to mathematically isolate the market conditions that from clients spanning the globe, members of TIGER21, as well as actresses
correlate and lead up to highly profitable trades by quan- in Hollywood, Kevin received a B.S. in Telecommunication Management
tifying the highest probability entry and exit signals. (The from DeVry Institute of Technology.
historical tendency of one thing to move in tandem with
another.) Priding himself as being a master student of the most successful people
in the world - In 1997, Kevin got his start while at Robbins Research
These profit patterns are identified when, and only when, International (RRI), corporate headquarters for Anthony Robbins, the
you know the following: world’s foremost peak-performance coach. Mr. Robbins has personally
coached some of the world’s top traders, including a man who made 1/2
• What to buy a billion dollars in one day. During this time at RRI, Kevin capitalized on
• When to buy the unprecedented opportunities to be coached by these top traders as he
• When to sell was personally selected and thoroughly educated in the trading strategies
• Amount of profit made historically and success psychology, needed to be successful on Wall Street.
• Amount of losses incurred, historically
• Market weightings and exposure 

AUGUST 2008 / VOL. 4 ISSUE 8 45