How the US Military shaped this futures trader
"A lot of people will say that you can't predict the markets and you can't, but the markets are impacted by fear and greed and you can model that. The question is how the market will react. Will it be an under reaction or an overreaction?" said Scott Andrews, Principal at Numeri Capital Management Inc.
Numeri, a commodity trading advisor that leverages intraday strategies to pursue alpha in a manner uncorrelated with the equity markets is one of the most recent Program Managers to join Hehmeyer Capital Management, LLC. We sat down with Andrews to talk more about his background, his trading strategy and how his time in the military has shaped him as a trader.
Andrews attended West Point (The United States Military Academy) where he first met his future business partner David Skowron.
"Dave was actually the only cadet I knew that traded stocks back then in the 80's," said Andrews. "He was always trying to make money in the markets and I was intrigued. He was also the President of the math club and convinced me to join."
Andrews and Skowron ended up being stationed at Fort Bragg together but went in different directions. Andrews became a helicopter pilot, while Skowron served as a transportation officer for the Special Forces.
"After Fort Bragg, I left the military and took a job in laboratory product sales. I had an idea to take product catalogues and put them online to make them searchable," said Andrews. Dave had become a computer scientist and I recruited him to help me."
The two friends turned their idea into a software as a service company powered by an interactive database consisting of millions of scientific products. Pharmaceutical companies, universities and government agencies used their software to source critical research supplies and manage their budgets.
They took the company public on the Nasdaq exchange at the height of the doc.com bubble in 1999.
"Nasdaq lost about 80% of its value from March 2000, the peak of the doc.com bubble, to 2002," said Andrews. "Not many people realize this but we did because we watched our company's stock, and our own fortunes, rise and fall."
The company survived and Andrews left the company in 2003 and started looking for a less risky way to manage his capital.
"Dave and I wanted an investment approach that could avoid the stock market's volatility while also taking advantage of it," he said.
The Birth of Numeri
After several years of studying short-term market behavior, the friends developed a pattern recognition system and used it during the 2008 financial crisis. In the ensuring years they evovled it into a "system of systems." In 2014, they raised angel investment capital and teamed up with Daniel Egger, the Director of Duke University's Center for Quantitative Modeling to refine their quantitative "ensembling" techniques. In 2018, they launched Numeri Capital Management.
Numeri is managed by Andrews and Skowron and supported by a team of data scientists, developers and traders. Their goal is to help investors better protect their wealth by focusing on intraday investments. Their trading strategies monitor index and bond futures and their overnight movements.
"In the overnight session, there is less liquidity but a lot of activity - after hours earnings announcements, economic reports coming from around the globe and geopolitical events," he said. "All of this impacts the US futures market and causes them to move, often significantly away from the prior day trading levels."
Andrews explained that when these economic events emerge, they often create an opportunity to exploit the reaction of the largest investment firms who typically wait until the open of the New York Stock Exchange to make their moves.
"For example, the monthly jobs report can cause an initial shock during the pre-market that creates an opportunity for us," he said. "The market's reactions are often excessive when investors are nervous and equities are going sideways or down. This is when our edge is often greatest."
Preparing to Fly Strategies
In conclusion, one of my last questions in speaking with Andrews was if he thought his time in the military influenced his trading career.
"Ultimately, successful trading and investing is all about risk management. There are more things that could go wrong than right," he said. "As a pilot, I was always preparing what could happen next. This impacted how I think about trading because I think about what could go wrong. You want to fly your strategy the way it is supposed to fly, and identify what could go wrong before it happens."
If you would like to know more about Numeri or other Program Managers at Hehmeyer Capital Management, please register for access to view the Investment Portfolio.