Financial commentator Jonathan Hoenig, founding member of Capitalistpig Hedge Fund LLC, talks with the Opportunist’s Managing Editor Leslie Stone about his passion for free market capitalism, his contrarian approach to investing and his new documentary film about the bygone era of pit trading.
From his earliest memories, Jonathan Hoenig was always fascinated with trade. “Even as a kid on the playground I understood there were two ways of dealing with people: by force or by trade,” he says. “Violating somebody’s rights was wrong, and trade—whether dealing in baseball cards or stocks—involves both parties getting what they wanted. It wasn’t like I needed to see it in government; I saw it in school as a child. Trading and free market capitalism was about justice. That inspired me just as much as money.
Hoenig says he started investing while still in high school. “I was working at Starbucks and started buying Starbucks stock. That began my lifelong love of the markets.” His fascination with trade next led him to the Chicago Board of Trade, where he worked as a floor trader for his own account while attending Northwestern University in the mid-1990s. “Trade and capitalism is something I embraced even more than my studies,” he says, adding that he left the university before graduation. “Getting an A didn’t mean much, but earning my own money did. It provided not only income but a tremendous sense of accomplishment and pride.”
By the late-1990s when computers started replacing floor traders—a development that would forever change the way trade occurred—Hoenig decided he wanted to manage other people’s money off the floor. “In 2000 I opened up my firm, Capitalistpig Hedge Fund LLC, which I am proud to say has beaten the market by over 340 percent ever since.”
Today, Hoenig is in demand as a commentator in the financial press and is a regular panelist on Fox News channel’s “Cashin’ In,” and “Your World with Neil Cavuto.”
Jonathan Hoenig: In 2000 it was hard to convince people why they would need anything in their portfolio besides Microsoft, Sun Microsystems and TheGlobe.com. Three years after a bear market in which we made a lot of money, people finally started to appreciate the value of an asset that’s uncorrelated to the rest of their portfolio. Some of my best years have been when the broad market or economy is down sharply or the economy is in a funk. That’s essentially how we work, serving high net worth individuals with the objective of absolute return. Our investment minimum is $150,000, and we accept only 20 percent of an individual’s total portfolio, as I want my investors to have a multitude of strategies in their portfolios even beyond ours.
Opportunist: Can you share a few tricks of the trade?
Jonathan Hoenig: The biggest factor in an investor’s success is trading technique, not market prognostication. Even the best investors are right only 55 percent of the time in this game. You have to be wrong; the trick is the money management itself. It’s about how you invest more than what you invest in.
Most people look at investing like burying a time capsule. They pick positions and then dig up their portfolio a year later. But markets are not stagnant oil paintings, they’re more like a watercolor that never fully dries. So I believe in continuously monitoring the markets and my positions in them, always angling for what I believe to be the highest probability trades.
Opportunist: Which industry sectors are you bullish on and why?
Jonathan Hoenig: I don’t have predictions—I have positions, and we’re the only hedge fund that actually publishers ours, available to anybody at www.capitalistpig.com. In terms of equities, Africa is where I’m finding great opportunity right now. The majority of our long equity exposure is in Sub-Saharan Africa, Egypt and Nigeria.
Opportunist: Why those markets?
Jonathan Hoenig: They’ve got exactly what I like: strong price action and the absence of the investment herd. I see them much the same as Latin American stocks in early 2000s. People thought you were crazy to invest in Latin America back in 2002 and 2003, given their unstable economies and currency crisis. At that time, the prevailing attitude was why would anyone want to invest in Latin America when you could buy Cisco? Meanwhile, over the following decade, Latin America boomed while Cisco by and large remained flat.
We’re also short a lot of fixed income and dividend paying stocks. My belief is that the government’s manipulation of interest rates, like all intervention in the economy has led to tremendous malinvestment, from which a violent correction will come. I think we are seeing the same process unfolding right now in the bond market, which is why, for my customers, we are short bonds.
Generally, I am optimistic about the country but worried about the anti-capitalist philosophy we continue pursuing. This has gone on for two-plus administrations. How can anyone be confident in such an economy?
Opportunist: Some say wages haven’t kept pace with worker productivity. What do you think about raising the minimum wage?
Jonathan Hoenig: Minimum wage is a gun pointed at employers and employees. It’s government using force against parties trying to engage in productive trade. In a free society, employers and employees reach voluntary agreements. Moreover, the minimum wage kills exactly the low-skilled, entry level jobs that its proponents seek to protect.
Opportunist: Speaking of lower skilled jobs, you have said that unions are wrong to demonize Walmart.
Jonathan Hoenig: What is a demon? A demon is the devil. Demons are torturers and unjust. Does that sound like Walmart? Walmart succeeds by trade. The 1.4 million people who voluntarily work at Walmart aren’t being tortured. People who voluntarily shop there aren’t being tortured. Investors aren’t being tortured. The homeowners who live near Walmart who enjoyed a rise in real estate values thanks to Walmart aren’t being tortured. Seventy-five percent of Walmart store managers started out as hourly workers. That’s not a demon, that’s the American Dream.
Opportunist: From your estimation, what does America need right now?
Jonathan Hoenig: To get back to the individual American principles that differentiate us from everywhere else on Earth: a government whose only responsibility is to protect individual rights. It may sound shocking and extreme, but that is the principle on which the country was founded and on which it thrived.
Opportunist: Knowing what you know now, what advice would you give your younger self or what, if anything, would you have done differently?
Jonathan Hoenig: There is a certain Wizard of Oz-element about the market. Each investor or trader has to learn the lessons for him or herself, so it’s hard to say what advice I would give my younger self other than to learn the principles and stick with them. This is one industry in the world where, ironically, nothing ever changes. The same discipline that worked in Jesse Livermore’s time worked when I was on the trading floor and still applies today regardless if you’re trading for a hedge fund or from your home computer.
Opportunist: What’s the best part of what you do?
Jonathan Hoenig: The markets. They are endlessly challenging, fascinating and frustrating. I am motivated to make money, but it’s not all about the money. In this business when you’re right it’s the best feeling in the world. No other experience beats it. I play the game for the same reason professional athletes play sports: for the love of the game itself.
Opportunist: You are on TV quite a bit. Do you enjoy it?
Jonathan Hoenig: I am so fortunate to work with an exemplary group of professionals, people like Neil Cavuto, Eric Bolling and Melissa Francis on Fox Business and Fox News. They are such engaging, thoughtful and truly menschy people. My Saturday program, ‘Cashin’ In,’ airs at 10:30 a.m. on Fox News and has this amazingly vocal and active audience, tweeting, emailing and Facebooking during the show. What I love about my show is that it’s about business and the stock market but also about ideas, about philosophy, about America and what’s right about it and what makes it good. I think that is what explains the show’s success for over a decade.
Opportunist: What’s next for you, Jonathan?
Jonathan Hoenig: I am releasing a documentary film in early 2014 called ‘Pit Trading 101,’ which chronicles many of the skills and techniques I learned in the Chicago futures pits. It was originally shot back in 1996 when the market was booming and the floor was the center of the financial world. It takes you inside what was called the University of Trading, the world’s only school that taught students how to become successful pit traders on the floor.
Opportunist: How did you become involved?
Jonathan Hoenig: I was one of those students. I attended classes at the Chicago Mercantile Exchange, one of which was shot by a documentary film crew, which sat on it for 17 years. The footage was offered to me, and from it, I created this unique film, available at http://www.pittrading101.com. Can you imagine what it was like to step into a career which required you to stand on your feet for seven hours, yelling and screaming, pushing and shoving while making bets of $50,000 or $100,000? That’s where I learned to trade. Now others can have that experience as well.
Leslie Stone is an award-winning writer/editor with more than two decades of experience covering business, finance and lifestyle issues for newspapers, magazines and online publications. Originally from Virginia, she currently resides in Florida. Follow her on Twitter at @les7989.
Follow Jonathan Hoenig on Twitter at @JonathanHoenig
Capitalistpig - http://www.capitalistpig.com
Pit Trading 101 Documentary - http://www.pittrading101.com/
The Rebirth of Americanism - http://www.youtube.com/watch?v=AgjKRLp2kSI
Real Reform in Government - http://www.youtube.com/watch?v=UDFuu0v4GB0
Collectivism vs. Individualism - http://www.youtube.com/watch?v=tuUsBfXI6m8
SELECTED FOX APPEARANCES
Give Me Liberty or Give Me Death: http://www.youtube.com/watch?v=GA6fzxlxlJo
Government Raiding Retirements: http://www.youtube.com/watch?v=hKm9vEkaCI0
Taxes on Smokers is Descrimination: http://www.youtube.com/watch?v=8IPTRy6bacY
All of Obamacare is Based on a Lie: http://www.youtube.com/watch?v=PuYlYx4C-I4
Do Animals Have Rights? http://www.youtube.com/watch?v=pxrXottkW9k
Correctly Bullish on Foreign Bonds in 2002: http://www.youtube.com/watch?v=sGeQQXGl-NU
Correctly Bearish on Palm IPO in 2000: http://www.youtube.com/watch?v=cu2IJOk0wjg
Favoring Bonds over Stocks for Most of the 2000s: http://www.youtube.com/watch?v=8KOOa9z2ggE
Art Laffer on JH: http://www.youtube.com/watch?v=M_kUrbj33Og
Hoenig “Throwback”: http://www.youtube.com/watch?v=pNgLpNG-h0k
Pit Trading 101 (Producer): https://vimeo.com/ondemand/7051/79534238
ReasonTV interview: http://www.youtube.com/watch?v=N2XXEQRM1rQ