How’s it going, everyone? Today, I want to tell you how Citadel made billions!
Citadel’s CEO is Ken Griffin and he is managing $67 billion today across his multiple hedge fund strategies!
Citadel netted $16 billion dollars last year! As a reference, Walmart netted $11 billion last year.
Ken started day trading in college and eventually found a strategy that he loved.
He made a few thousand bucks and decided to go all in.
Griffin was following the convertible bond strategy: consisting of stock and bond investments, it provides fixed income (like bonds), but gives the investor the right to convert it to stock and common equity later down the road.
He would go long on these convertible bonds, and then, betting the stock price would go up, he would short the stock itself. So, anytime there was movement or volatility, he would make money.
Additionally, he noticed that these convertible bonds were mispriced, so he created an algorithm that would identify them.
Note that all of this was happening in his sophomore year of college!
His algorithm wasn’t updating as fast as he wanted it to, so he got permission from his landlord to install an antenna on his dorm roof!
Shortly after, Ken met his first mentor, Frank Meyers, co-founder of Glennwood Partners.
Ken went and worked for Frank for 1 year and produced a 70% return for Franks investors!
Then, with some help from Frank, Ken launched Citadel.
Ups and Downs
Since its inception, Citadel was a wild success. They have altered strategies but still remained on top.
However, they almost went bankrupt in the early 2000s due to the ‘.com’ bubble, and then they struggled through the financial crisis in 2008.
Later, Ken talked about one of the lessons he learned:
Long-term capital management: they learned that they were able to operate even with a 90% drop in Aum; typical firms close shop when they drop 50%.
“One of the core factors that have attributed to their success is their ability to introduce new products to the market at appropriate times.”
For example, here are 6 product strategies that they’re in right now:
- Fixed Income/Credit
- Market and Global
- Multi/Fund of Funds
Ken stated that you should start with multiple strategies, but I agree to disagree.
He was successful with his firm becuase his first strategy was a success.
“If you’re a new manager, start with one strategy, validate proof of concept, demonstrate to the market that you can make money, then introduce subsequent products to the market.”Lincoln Archibald
Ken Griffin started with a few thousand dollars, managed it well, and now he’s built an empire of $67 billion.
It hasn’t been an easy ride, but he built a good firm with good, diversified products, and it seems to be paying dividends!
That’s how Citadel made billions!
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DISCLAIMER: This content is for educational and informational purposes only. It is not to be taken as tax, financial, or legal advice. You should always consult a legal professional before taking action. Furthermore, this is not a recommendation to buy or sell any security. The content is solely just the opinion of the author