A good post from http://rapacapintro.com/journal/journal/Alexinterview
Dear RAPA members.
Welcome back to the trading year, we have been holding back on our communication to give you all time to settle into the work groove, especially those of you in the southern hemisphere enjoying the summer. Our community continues to grow in the 2+ months we have been live with 547 members at last count, $19.7m of real accounts reporting daily PnL, and a slow but steady growth in posts coming through the Wall feed. Don’t be shy have your say and get noticed.
In the next few days we will be launching an update of our RAPA scoring algorithm; as well as a download feature to assist the research community, but I thought it would be appropriate to kick start the year with an interview of a new member who has an interesting story.
This January 2013 we welcomed Alex Rabinovich and his hedge fund Chessica to the RAPA community. Chessica Asset Management is unique in that its two principals are both Chess Masters. On 20 January 2013, Michael Berman CEO of RAPA caught up with Alex to find out a little more background.
Hi Alex, I am speaking to you from a sun scorched Sydney Australia where the mercury has been hovering around the 40 Celsius over the last week. What is the weather like in Toronto?
Alex: It is not too bad and not as cold as people think. It was actually on the plus side most of the last week. Obviously not as warm as in Australia.
I read somewhere that you were the world junior Chess champion, can you tell us a little bit about your background, where you are from what you studied and a little bit about your chess accomplishments? Full disclosure I am a huge chess fan but not very good.
Alex: I was born in USSR, but my family moved to Israel when I was 12. This is where my chess really moved to a new level. I represented Israel in many European and World championships between 1993 and 1998. In 1996 I took the third place in Europe under the age of 18 and in the same year I took the gold medal in the world team championship for high schools. A few years later I became an International Chess Master. Through my career I was lucky to play famous chess players like Garry Kasparov, Bobby Fischer, Victor Korchnoi, David Bronstein, Peter Leko and more. I quit professional chess when I was 19. I obtained my Software and Management Engineer Degree in Tel-Aviv.
I believe chess styles are very reflective of the player’s personality, how would you describe your chess style?
Alex: My chess style is a mix of strategy and tactics. Looking back, I think my strength was always in my ability to exploit opponent mistakes and opportunities in general.
Tell us a little bit about Chessica who are the players involved and how did you get in business together?
Alex: Chessica is Victor Plotkin and Alex Rabinovich. Victor and I met through our chess circles and found mutual interests in chess and investments. We launched Chessica in 2010. Victor is a FIDE Master which is a very high level in chess. In fact, Victor is much more active a chess player than I am these days.
Can you summarise the Chessica funds trading style and tell us about what instruments you trade?
Alex: Chessica uses a proprietary options strategy. We are market and delta neutral most of the time. Our preference is always to apply our strategy to the most popular and liquid indices like NDX, Russell and similar. It allows for higher profitability and lower risk.
You have had 3 years of profitable performance
2010 = 19.7%; 2011 = 0.2%; 2012 = 37.3
The returns have been outstanding except for one very volatile period in August 2011, this question has probably been asked of you at every single meeting but what went wrong that summer?
Alex: August was a very volatile month on the markets and we would have lost 5%-6% in that month. Unfortunately Victor and I made a mistake with our choice of infrastructure at that time and during a 3 day storm, we had serious outage of internet and access to our investment platform. We have resolved that by adding backup infrastructure. The following months made up for that loss. It was a very expensive lesson to learn, but I am happy it happened when we had a lower AUM.
Chessica appears to be an option trading strategy, can you zone in on some of the aspects which you believe makes your strategy robust and likely to continue to produce market returns?
Alex: The beauty of our strategy is that we make decent returns in almost any market condition. We barely take side (Bullish/Bearish). Our strategy has been making double digit returns since 1995. Obviously the market is getting smarter and it is harder to reproduce those high numbers, but our 2012 returns do show that it is still doable.
When I look at your returns they display a strong beta to the broad markets, what is your typical market exposure that you are comfortable with, in other words does your fund always display a long bias to the markets?
Alex: Most of the time we are market and delta neutral, unless there is a clear sign for a market direction as for example in the beginning of 2013 when it was obvious the market is going up in the short term. In our letter to investors we outlined our outlook for the early 2013 as positive and that we took a bullish position. Having said that, in most cases we will establish a neutral position and will try and keep this balance for the investment term.
What kind of returns are you targeting on an annual basis and what type of volatility can we expect to encounter on the journey?
Alex: Our goal is for the investor to make 10%-15% a year. Anything beyond that is a bonus. We always prefer to lower the expectations and surprise our clients rather than underperform compared to their expectations. The volatility was drastically reduced with the new risk management policy that we implemented in 2012. We had 15 consecutive positive months. I think our last 15 months performance is around +60%. Currently the fund doesn’t charge any management fees. I think that combined with our modest returns is what makes Chessica a lucrative opportunity for investors.
Is there a daily limit of risk you are prepared to tolerate or is it an annual amount, can you tell us a little about your risk management process and tolerance?
Alex: We don’t have day limits as we are not day traders. We apply our risk management approach to our strategy. Our strategy already dictates the size of the portfolio, the exposure, the risk and what our position should look like to avoid unpleasant surprises when the markets open tomorrow.
Trading can be a stressful occupation, what do you do to relax, what interests do you have outside of the markets?
Alex: I am a big sports fan. I play Soccer, Volleyball, Basketball & Tennis.
What personal characteristics do you have that makes you feel that you are well suited to your chosen career of money management?
Alex: I can’t speak of my personal characteristics, but I think money management is about several things: (1) Experience in different market cycles (2) Understand the current market (3) Robust and profitable strategy (4) Discipline. If you have all 4, you are doing the right thing. If you are missing one of them, you better have another big advantage, because I truly believe these are fundamental to a successful investment manager.
Who are your hero’s?
Alex: I wouldn’t call them Heroes, but these people in this or another way had a positive influence on my decisions. My family, Amiram Kaplan( Israeli Chess Federation executive and a friend), Michael Jordan( my addiction to sport is probably because of him), Garry Kasparov( extraordinary chess player and person).
Alex it was great to talk to you.
We hope you enjoyed meeting Alex and we will try and do an interview with our members on a regular basis. Stay tuned for the upgrades I mentioned.
Michael Berman, Ph.D.
CEO & Co-Founder