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Better Know A Trader: Timothy Sykes

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Sponsored by Chicago Board Options Exchange
It isn’t often that the world notices when a trader makes a million something dollars, today's BKAT entrant being the exception—most likely because he was 18 and doing it with his Bar Mitzvah money. Meet Timothy Sykes, Cilantro Fund Partners founder and today’s featured trader.
In Bonfire of the Vanities, Sherman McCoy attempts to explain to his four-year-old daughter what he does for a living. How would you explain to a four-year-old what you do?
Daddy and lots of other people like to play a game with tiny companies. These companies go up and down a lot and daddy has to predict which way the company will go. If daddy is right, he wins money from the other people. If he is wrong, other people take daddy's money.
How did you get your first job in finance?
My parents gave me permission to open an online brokerage account with $12,415 of my Bar Mitzvah gift money during my senior year of high school thinking I would lose it all and that it would be a great lesson about money. It turned into a great lesson for me as I turned it into a fully audited pretax sum of $1.65 million from 1999 to 2002. After that feat, friends and family wanted me to trade on their behalf so I created a hedge fund.
Describe your trading strategy.
I predominantly short small caps and micro caps although I do sometimes go long. There is so much volatility and surprisingly much liquidity in this market segment. I believe it is the most inefficient space in the US equity markets so there are plenty of opportunities to trade in and out of these securities' price swings.
If you were starting out in your career now, where would you want to work?
I'd start my own hedge fund all over again. The lessons I have learned over the past few years are invaluable and will serve me for the rest of my life. If I had worked at a large hedge fund, I might have made more money, but I would still be naive in a business sense like I was when I first started my fund.
What is your favorite career accomplishment/best trade ever?
Illinois Superconductor announced on a Friday that their revolutionary superconducting product would be featured that weekend on a major news channel; I think it was CNN or 60 Minutes. This was back in 2000 so the stock had already gone from $10ish to $17ish that week, but I figured even if the product was a dud, they would hype it up and make it look incredible on national TV. Back then people would "invest" in anything with hype so it would be good for a point or two on a Monday morning gap.
So, I put most of my net worth, 10,000 shares, long over the weekend at $17/share. I watched the program and sure enough everyone started talking that it was the next Microsoft. It just kept going up premarket...19..20...21 and I desperately wanted to sell by 8:30am at $24ish, but back then Suretrade didn't allow premarket trading so I was forced to wait for the market open. I put my order to sell right at the open and it still took about 10 minutes to execute because there were so many buy orders. I finally sold at $29ish and I just couldn't believe it. One day later it hit $39 before plummeting.
Who are your heroes or role models, fictional or real?
Bernard Baruch, George Soros, Jesse Livermore
What is the most important quality a trader should have?
The ability to live on money outside of their trading accounts.
What is the worst character fault for a trader?
The need for "action" and/or the need for attention/recognition.
Tell us about the lowest of low points, the time you thought should just give it all up and take a simpler, easier job?
I had lost $180,000 of my then $1.5 million fund in one day (although I was still only down $40,000 on the month) and because I was having a great month before that day, I just felt completely dejected.
What job would you have taken? What's your 'exit strategy'—how long until you retire or move on?
I can't even imagine my life without trading since there are just so many market inefficiencies out there waiting to be taken advantage of, but I could easily close my fund and just go back to trading for myself.
What is your motto?
Eat, drink, and be merry. When not involved in those three activities, be disciplined.
Whose teachings are more useful in your business—Machiavelli, Sun Tzu, Jesus Christ or Marquis de Sade? (Feel free to nominate another choice.)
The lessons from failed gamblers, traders, and hedge funds, Jesse Livermore being the most useful for my style of trading. A lot of these people are incredibly smart, but a few variables ruined them. When I first started, I was right about 95% of the time and I bet big because I was very cocky. I've learned that I could have easily been ruined if a few variables shifted, but I was lucky. I've now become conservative and disciplined enough so that I don't put myself nor my fund in a position of ruin no matter how right I think I am.
(If you missed the last installment, featuring independent trader Mick Buckley, click here. And if you think you’d make a good subject, or want to nominate someone else, please email us at tips (at) dealbreaker (dot) com (subject line: “Better Know A Banker”).