How AC/DC’s Angus Young Taught Me the Greatest Lesson in Finance
It was the summer of 1992, and Carden Capital’s Sean Wright had just seen AC/DC play at the Monsters of Rock concert in Hannover, Germany. Backstage, after the concert, Sean was talking with Angus Young, the legendary guitarist for the band, whose trademark schoolboy uniform and biting guitar sound have won millions of fans worldwide. That’s when Sean asked him, “Angus, what is the key to your success?” Angus looked at Sean and replied in his thick Australian accent, “Sean, if you take two inversely correlated assets, both with positive expectancy, and combine them into a portfolio, you will have an outcome greater than the sum of the parts.”
Sean went home that night as happy as ever, yet he still pondered what Angus might have meant? After all, Sean had never taken a finance class yet and Angus was speaking in riddles. That’s when Sean realized Angus was talking about his band AC/DC. You take a bunch of guys who all are great musicians (i.e. have positive expectancy), yet are good at different things like singing or playing the guitar (i.e. have inversely correlated returns) and by combining them together you can create a world class rock band (or a world class investment portfolio).
And that’s how Angus Young taught Sean the greatest lesson in the world of finance. You combine things that work in different ways at different times, and put them together; that’s when 1+1=3. That’s how you achieve synergies in your life, and in your investment portfolio. In fact, true diversification with inversely correlated assets is the only “free lunch” known in the world of finance. And who doesn’t want a free lunch? The problem is, most portfolios appear to be diversified but aren’t, because all the assets in the portfolio lose money at the same time when a crisis occurs. Hence, most investors actually are foregoing free lunches on a regular basis.
OK, the backstage part of the story with Angus isn’t true, as you may have imagined. However, Sean was at that concert back in 1992 and to this day he is convinced it was the best concert he has ever seen!
But, here is another story that’s actually true. Almost two years ago, it was around 11 at night and the number nerds at Carden (Gavan, Sean and Jason) were working on a fully systematic, computerized futures trading system that made short term trades in the futures market, at night only.
We could tell this product was going to be a winner because it generated high returns, yet those returns were inversely correlated with the stock market. We knew it could add a lot of value to investors in their investment portfolios because it would likely make money when their other assets were losing value.
But we didn’t know what to call it. That’s when Sean said, “Guys do you like AC/DC?” And Jason and Gavan replied, “Yeah – of course we do!” Sean said, “The last song on the Highway to Hell album is called the Night Prowler. We could call it that. After all, Angus Young taught me the greatest lesson in the world of finance…”
The name stuck against the stern advice of our marketing consultants. In fact, they unanimously thought it was an awful idea. All Sean had to say was that “sometimes, you need to manage your consultants.” Ever since then the Carden Futures night trading algorithm has been called the Night Prowler.
If you would like to find out how Carden Futures’ Night Prowler can get your portfolio free lunches through real diversification, click here.
To hear the Night Prowler song itself, click here. (no parental guidance necessary)