Trading for a hedge fund is like landing a jet fighter on an aircraft carrier at night. The penalty for the slightest miscalculation can land a trader in deep water. The hedge fund trader must have what the writer Tom Wolfe calls "the right stuff."
Todd A. Harrison, 30, is one of Wall Street's top guns. He's the head trader and a partner at New York-based hedge fund, Cramer, Berkowitz & Co. The fund was formed in 1987 by the ubiquitous and tireless James J. Cramer, co-founder of The Street.com, and his wife Karen. Jeff Berkowitz, who has been with the firm for nine years, is Cramer's partner. He oversees the firm's research as well as works the trading desk.
The hedge fund, which exclusively trades equities, has about $350 million in assets. Over the past 13 years the fund has delivered an annual average return of 24 percent. Many of Cramer, Berkowitz's clients include wealthy individuals from the entertainment and media world. The fund performs about 200 to 250 trades each day and executes its orders with approximately 30 broker dealers.
It's a day after the Dow soared 499 points, the largest point gain in history. The NCAA playoffs are in full swing. Things are humming at Cramer, Berkowitz. The firm's three traders are tabulating their closing positions while in the background a big-screen television is tuned to the Duke and Lamar pre-game show.
"It's been a crazy day," said Harrison exhaustively, as he sits for a talk just after the markets closed. "This was a triple-witching day. We had big exposures to March expirations."
Harrison, who graduated Syracuse University, cum laude, with a degree in finance and economics, started his trading career in 1991 on the derivatives desk at Morgan Stanley (now Morgan Stanley Dean Witter & Co.). Earlier, while a junior in college, he worked at Morgan Stanley's London trading office. During this period, he met the legendary Chuck Feldman, who played a big part in founding the derivatives operation at Morgan. "He gave me my shot," Harrison said.
After working at Morgan for nearly seven years and becoming a vice president, Harrison moved to the buy-side, trading for The Galleon Group, a New York-based hedge fund.
Harrison joined Cramer, Berkowitz this past January. When Cramer hired him he told Harrison he distinctly remembered him as a 20-year-old trader who always had an opinion about a particular stock. "Right or wrong," Cramer insists, "you have to have an opinion."
Harrison arrives at the Cramer, Berkowitz trading desk around 6 a.m. The firm's offices on the 24th floor of a skyscraper near the South Street Seaport, look out on the East River and the Brooklyn Bridge. But Harrison rarely has time to take a glance. "Did you ever hear of anyone making money by looking at the Brooklyn Bridge?"asked one of the firm's traders.
The first order of business for Harrison in the early morning is to trade the European stocks. "We have our five or so favorite stocks that we trade back and forth overseas," Harrison said. The next step is the technical analysis side of trading. Harrison studies charts and graphs to find trading opportunities. Then he listens to the research analysts' calls.
At 8:45 a.m. the Cramer, Berkowitz team holds their morning meeting, which is attended by partners, traders and analysts. The dividing line between trader and analyst is virtually non-existent. "We all wear different hats," Harrison said.
To Harrison there are three key elements to profitable trading: strong fundamentals, good momentum, and sound technicals. "If you have these three legs under the table, you are usually not going to lose money on the trade," Harrison said. "Trading is based a lot upon psychology," he added "If you can put your hands on the pulse of market psychology, that's as important as anything else."
Unlike some hedge funds that leverage their assets, Harrison said, it does not partake in this risky, trading strategy. When the firm takes a bearish position on the market they raise cash, although they do not shy away from shorting individual stocks.
Hedge fund managers and head traders put their own money on the table. Most have a sizable portion of their wealth invested in the funds they run. "I couldn't imagine it being any other way," Harrison said. "If you have faith in your abilities, you want to have your own money in the fund."
Harrison thoroughly enjoys what he does for a living. "If you don't love this business, you won't be any good at it," he said. "Every day is new and dynamic."
