Last Updated on May 13, 2022 by Quantified Trading
Ahmet Okumus was born in Turkey. His interest in the financial market began when he visited the Istanbul stock exchange at age 16. He began trading in 1992 with $15,000 from his mother. And by 2000, he had turned that into $6 million, that’s an average annual return of 107%. He founded his hedge fund — the Okumus Opportunity Fund, in 1997.
In 1998, he made only 5%, though the S&P 500 rose by 28%. Shortly after his worst trading year, Jack Schwager interviewed Okumus in 1999.
He explained that he had a 30% return at the beginning of December 1998. But he shorted internet stocks — Amazon and Schwab (at that time, Amazon was just an online bookshop) in particular, too soon. Perhaps more than a year sooner because the market peak was in March 2000. All of the reports (EPS to price to sales, to cash flow, and to book value) were at record values, and company insiders have started to sell a lot of stocks. Okumus lost 29% of his equity on those two trades.
Following those trades, Ahmet stated:
“Don’t get involved when there is too much mania. You can’t forecast mania. If a stock that should be selling at 10 is trading at 100, who is to say it can’t go to 500.”
It turned out that he had a much worse trading month than December. In August of the same year, his equity was down 53%.
For the second time, gearing was the culprit— Okumus was 200% long when the market dipped. The loss he had earlier did not upset him that much, because his stocks ended up with an average PE of 5, and he knew they would recover. But with the internet stocks, he couldn’t predict when the rally would stop.
He updated his trading rules after the August loss to never be more than 100% long or short (he was 200% long in August).
He started using options for the specific purpose of reducing downside risk, this was partly due to investor’s feedback — they didn’t like the monthly volatility.
His trading style hasn’t changed much since his days of trading in the Istanbul market.
“When I was managing money for only myself, my family, and a few clients, my sole goal was long-term capital appreciation. [Now] I’m focusing a lot more on the monthly numbers because I want to grow the fund much larger.”
Okumus bought stocks that had been down 10% for three days and sold when the price retraced. He also looked for stocks that are down and offer value. He traded them using fundamentals analysis.
He spent more than a hundred hours every week on research. He paid close observation to stocks making new long-term lows. He added that he doesn’t consider buying any stock unless its value is down 60 to 70% from its high.
He bought companies with a good balance sheet, consistent business track records, good management, a high book value, and large insider buying. In addition, Okumus holds up to ten positions at a time. He puts it, “My top ten ideas will always perform better than my top hundred.”
“The maximum I would hold on any single stock is about 30% – it used to be 70%.” He added.
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