Julian Marchese began investing when most of us were still learning multiplication tables. He started day trading on his own at age 11, and by 18 he had started his own investment management company, Marchese Investments.
Now 20, Marchese is well on his way to reaching his dream of running a hedge fund (he even dropped out of NYU last year to commit more time to managing money). Benzinga caught up with Marchese to discuss how he started trading, his investment philosophy, and the Marchese Investments model-based approach to the markets.
First off, how does an 8-year-old get introduced to investing?
I was always interested in entrepreneurship. This was something my parents taught me early on, about wealth and how wealth in our society gives you freedom to do a lot of things. From a pretty early age I understood that concept, and that concept was what really drove me initially to learn about entrepreneurship and business.
I remember very clearly after one of my lemonade stands, I'd made some money. I asked myself ‘Well what do I do with it now?’ It’s not like I had much to spend it on. I guess I could have gotten toys, but I think I had all the toys I could have wanted at that point. I didn’t know what to do with it. That’s when I Googled ‘What do I do with this money?’ and I started learning about investing.
What was your first exposure to trading?
I don’t know how I saw this movie at that age, but when I was 11 I saw the movie Trading Spaces. You know, with Dan Aykroyd and Eddie Murphy. At the end, when I saw that scene of them trading on the exchange floor, I was hooked. And for the longest time I wanted to be a pit trader.
It was that movie, and that scene, that got me super interested in the trading aspect of things, the shorter term stuff. Being the impatient 11-year-old I was at the time, instead of buying and holding things for years I realized you could hold them for minutes and hours and make comparable returns.
Do you remember your first trade?
Yes I do. This was before the trading experience. I made my first stock investment was when I was 8. Technically it wasn’t my first trade - in spirit it was.
I used to watch my mom log in to her bank account. This was when I was getting into investing, learning a bit about it and learning about companies. On a Saturday morning I logged onto the computer and sent an order to buy a stock. I couldn’t tell you today what that stock was. I think it was a uranium company. I was looking at uranium at that time.
I woke my parents up with an order confirmation I printed out. I said ‘Look you guys, I bought my first stock. Obviously they were like “What!” They got up and called the bank. Luckily it was Saturday and the markets weren’t open and they canceled the order.
In actual live trading, My parents helped me put a little money into certain stocks, very small amounts because they saw I was putting a lot of time and effort into it. My parents put like one or two thousand toward the stock.
When did you begin trading as a profession?
The actual day trading stuff I started in the summer of ‘08. I remember being at a seven-day stock trading seminar. It was literally the week where the first bailout package was rejected. Us students, who were new to all this were just watching the Dow plunge like 500 points in two or three minutes. Total chaos. I remember the instructor’s face, he was shocked at what was going on. That was my first entrance into trading, I experienced '08 at the worst part of day-trading stocks.
What has your experience been like as a trader?
It’s changed drastically. I started out day-trading penny stocks and mining stocks in Canada (Marchese is Canadian). That’s just what I was looking at at the time. Then I moved over to U.S. stocks, mainly liquid stocks after the crash of '08. Then I started learning about futures, I’d say early to mid ‘09. I was never profitable at the start. My day trading career was probably negative.
For someone as competitive as I am and as driven as I was, especially at that time, it was a very frustrating experience not seeing any profitability or consistency. This was the first thing I put passion and effort into, and I didn’t really get anything back.
So I started reading books about successful hedge fund managers and investors in general. I noticed that some of them used technical analysis, but for the majority, their type of thinking was at a different level. At the time, there wasn’t any other layer to my thinking. I was going with what people told me and what I was taught. I never really started questioning it until I started reading these profiles that showed there were other ways to do it.
It was a prolonged humbling experience realizing that these dreams I had of turning $3,000 into millions were completely unrealistic. Since I didn’t even have basic profitability at the time, I was either not very good at what I was doing, or I was doing something wrong. When I started questioning what was taught, that was the pivotal point in my investing career. I stopped day-trading at that point because I realized the real wealth to be made was on a bit longer time frame.
How did you move away from that subjectivity?
I started questioning things and testing patterns in the market. If I noticed something unique, let’s say the market dropped 2%, I’d do something like run a little test, and look at all the different days the S&P 500 dropped 2%, what happened on average the next day, the next two days, etc. If there was anything useful in that information, I’d log it and keep it in a database.
When I started testing quantitative data, I began seeing some success, and I noticed that most of the time my models were doing even better than I was. This was around when I was 15 or 16. From then on it’s only been about quantitative trading. It just made the most sense to me. Nothing gives me more confidence to trade something than good data in front of me.
At around 14 or 15 I decided to focus in on trading the S&P 500 and made it my goal to master that. I would use these models in this database that would only get better and have more data over time, and use them to drive my discretionary trading.
How has that model-based trading informed your current strategy?
With quantitative trading, you can let the model run on its own. Obviously you moderate it, but it allows you to incorporate a lot of different strategies at once. Now I can have managed futures strategies alongside long-short equity strategies. And since they both have positive expectancy, I can further diversify my trading, not only in the assets and the time frame that I’m trading in, but the strategies as a whole. For me, quantitative and automated trading is the most valuable way to do things.
Day-to-day, I focus on monitoring the strategies that I currently run, and developing new ones that I can add to the portfolio. I look at my portfolio strategy and I ask “What’s missing? Do we have any strategies that look at earnings announcements?” If not, why aren’t we looking at them, I want to add them to my book.
You recently dropped out of school to focus full time on running Marchese Investments. How's that going?
We started managing money on October 6, 2015 - the first year up about 14% net of fees. We started with about $250,000, this was capital contributed from one of our equity partners. I raised about $375,000 for, at the time about, 10% of the company. Now I've raised in total about $675,000. I've sold about 21% of the business to raise that capital, so I've got about a $3 million valuation, which is great.
In October we got a third [account] which was an institutional investor, and we've got about $5 million in assets under management.
Marchese investments is quantitative and multi-strategy. Right now we’re only trading U.S. stocks, large caps and ETFs, very liquid stuff. This is to accommodate my investors. But down the road as the business grows, we want to be trading everything.
Photo courtesy of Julian Marchese
See more from Benzinga
- Vetr Crowd Downgrades Twitter
- Vetr Downgrades Alphabet Following Range-Bound Month
- After Firearms Drop, Vetr Crowd Picks Smith & Wesson For An Upgrade
© 2016 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.