The Pro’s Process - Michael Bigger

I am very excited to be able to offer the thirteenth in my series of posts asking Pro Traders about their psychological processes.  Delving a little into how it feels to them when trading.  The good and the bad.  How this has changed over time and what preparation they do mentally for performing as a trader.

One of the key features for me was that I wanted traders with experience who have been through the mill over the years and of course those who were kind enough to broach this subject publicly.  This I hope gives developing traders more to learn from.  

I’m very fortunate to have a great line up and this week is: 

Trader: Michael Bigger

How long have you been trading?

I started on Wall St in 1992. I was trading the equity derivatives book for Citibank Canada. I stayed in Canada for 2 years and then I moved to New York. Before that I was trading my own account for another 5 to 6 years.

That’s 20-25 plus years’ experience. What style of trading or investing would you say you practice?


I notice on your website that you are not just a trader but you’re also active in investing as well.

We trade, we invest, etc….. trading is about making money and opportunities are fleeting and they present themselves in different shapes and at different times. We do not have blinders on that say, oh you know, that we have to just trade value or something like that. We don’t look at the world in that fashion. Our model is that, and maybe we draw it from physics, that we are basically trading potential energy. That is basically what Buffet does. Buffet calculates the value of a company, comes up with an intrinsic value, and, if it’s below and if he likes the model of the company and stuff like that he goes ahead and buys it. So basically what he does is that he exploits a level of energy between its intrinsic value and the stock price. We do that in terms of value, in terms of statistical arbitrage, etc. We are always thinking about exploiting pockets of valuation. If we buy something, if it’s statistical, what else can we sell against it. If we buy a stock, what’s its intrinsic value, can we hedge it with the S&P. We try to rotate our inventory and do things of that nature.

Are you also market agnostic? Do you trade futures and stocks or are you stock market focused?

Yeah, I used to run big equity books so we basically do everything, but, we don’t touch commodities that much except for trading them with ETF’s.

So getting into the reality of when you are actually trading; how do you feel when a trade goes against you?

That’s a very good question. You know it doesn’t affect me like it would affect a lot of other traders. I’m not right or wrong because in the next 5 minutes something goes against me. We try to get ourselves in situations where if it goes against us we still feel good about the situation.

To give you an example: let’s say we have a stop, we would never have a stop that is so close to where the market is so that we would get pushed out of the situation. Usually we are in a situation where we are very confident of our facts and we let our positions run and it’s fine. We run big portfolios, they’re diversified so we’re not neurotic about a position in particular. We bought a lot American Apparel which is in a distressed situation, it went to 1.70 came back down to 90 cents, This reversal doesn’t affect me one bit. The thesis is still intact. If you are driven by the stock price you are going to go crazy.

Does this alter at all when you have your trading or your investing mindset in place? Obviously one has a longer term time frame and different parameters that you are thinking about. Does that effect your emotional feelings?

Aren’t they the same? We are looking at potential energy in situations. Whether it be a short term position or a long term position we don’t look at the world that way. We look at the world in terms of potential energy and where can we extract the energy out of the system. We don’t categorize in terms of ‘are we doing value investing here or there’, in a sense a little bit, but overall that is not what we are trying to do.

I think that makes a lot of sense.

We have backgrounds in physics. We have mathematicians working with us and PHD’s and so we look at the world from a physics kind of standpoint and where the energy is in the system and how we can exploit it. And you know what, I don’t care what category other people put on how things are trading, they can have their own stuff, we look at the world our own way and we’re very happy with that. It’s a little bit peculiar but that’s just the way we look at the world. So if we are valuing situations, we get those values, we look at the facts and act accordingly. And if we have to get out of a position because we are wrong we just do it but it’s never so related because the price went down or it goes up or goes against us or stuff like that.

I think that offers a very interesting perspective – especially the physics and the energy direction side of things. There is the flip side to the question about how you feel when trades or investments goes for you? Because obviously emotions are at play to some degree. How does that differ?

We try not to get influenced by it but you know mentally you are always influenced a little bit by your position especially when you have a big position on. If it goes in our favor you know we can be, maybe, a little overconfident but we know we have to manage that.

I’ll give you an example, when we traded CROC’s we bought the stock at about 90 cents it went up to 32 and then we sold a little bit, but it was just a tiny bit on the way up, and then it came down to 12 dollars. We have a very long term thesis on that company so we wish we would have sold more but we’re happy with the thesis and so it all really depends on your time horizon, it depends what you own and sometimes you wish you had sold more but that is easy to say when the stock price is down.

I could have done the same thing with Amazon when it went from 100 bucks to 34 bucks in 2008. We had that big gap down but man you look at the stock price now. On American Apparel we have a huge position in that name and we think the company is going to earn its stock price in basically 5-7 years from now so that puts the stock to 10-15 dollars if it doesn’t go bankrupt and bankruptcy is a potential. We have our own odds on that. Does it matter if the stock goes to zero? It doesn’t. I mean we are going to lose money but in terms of how you look at it right now and the probabilities and stuff like that you know what your bet is and zero is part of the scenario.

So Michael your very scientific based approach and viewpoint means that you never let your emotions override a thesis that you have?

Oh….. I don’t know. We’re very emotional. I’m a very emotional guy but I know what I’m dealing with. Like in the case of American Apparel the reality is that it could go to zero and it has potential of 10 to 15 dollars so we know that probability, so of course I am going to be emotional if we lose all that money and it goes to zero, of course, but that doesn’t change the nature of the bet that we made. I guess we are a slave to that bet unless the facts change for some crazy reason, which can happen too, and then we would unwind. But we’re emotional.

Michael I notice reading your bio you come from a very scientific background and obviously you have been speaking about science and physics with regards to your company’s way of trading but have your feelings changed over the course of your trading career or have you always had this sort of background where the emotions aren’t going to effect your models?

Well I think one of the best lessons I have learned was when I was in New York trading the single stock derivatives book, it was never my calling to say ‘oh Microsoft comes out today they want to sell say a million put on the stock and hey Michael do you want to buy them or……’ you have no choice. You have a market to make, you have a market for size to make, and, then you make your market. If you get hit because the companies sell puts now you own like a few million puts on Microsoft, I’m just giving you an example, or Dell or whatever the companies were in those days, so you have a huge position. So you have this huge position and most of the time you don’t like what you have because it’s big and it’s very hard to get out of it. So you get very very good when you have a big position like that, you get very very good at working your butt off and going to the market and trying to find other things you can sell against it or buy… you know what you need to do to reduce the overall exposure. So when you run big books like that you get very very good at dealing with having a position and then starting to work your way out of it or reducing the risk and things of that nature and that’s basically how we approach our trading. We have a lot of positions and we are trying to move value from one to the other. So for us it’s more about that process, exploiting value and sometimes not having the stuff you want to have but working very hard to exploit that potential of energy. It is very hard to explain in words but if you get dropped a massive position and you have to deal with it, I tell you, you learn very quickly. And you know the charts don’t matter and sometimes the volatility doesn’t matter if you have a huge position what matters is how the heck can I trade out of this, how can I find other opportunities to trade against it, if you buy something that is quite cheap or fair value what can you sell… this is a very different discussion to what many talk about like the chart looks good aghhh come on guys.

With a lot of that stuff, particularly having very large positions, obviously your internal system or your emotional system gets bombarded by it. Do you have any practices that you do away from the office or the trading screen to help handle things mentally or emotionally?

Well I play hockey and I do a lot of kite boarding.

Michael do you find that actually gives you a balance to your market operation? A mental or emotional balance?

Yeah, kind of. Well hockey is more like hustling. You have to hustle when you play hockey so it’s a little bit like trading as you have to make things happen, you have to produce. So that doesn’t get me too much away from the trading mental framework. The kite boarding is definitely more meditative: more of a meditation or relaxation as it is just such a totally different atmosphere.

Have you always had some sort of approach to balance yourself personally away from the markets? What about when you were back on Wall St?

Yes and no. I guess not really. You know we’re thriving in that commotion of trading the market and just going around and finding opportunities. So that is almost like a mediation too although it doesn’t sound like it. If you like it so much, and are passionate about what you do, for me it is like playing a hockey game you know?

Do you feel you are naturally attuned to the market game and the involvement in it? Is it something that just came naturally to you?

Absolutely. Another way to explain it is that when I came to Wall St, when they moved me from Montreal to New York, I asked the big big boss of the trading floor “What the heck, why did you guys hire me? There are so many people in the US etc?”. I mean there were pretty big books back then and 500 traders on the floor and I was just always puzzled why I was given that book in New York. Junaid Rubani told me how to play the game: “Look you’re a street fighter. You know we go into a fight and you go in there and you make things happen. You hustle, you make plays happen. That’s what it is.” You see it’s never the same and there are different fights that you have to fight. You have to create things. You have to make things happen on your own without resources. It’s like entrepreneurs… that’s trading. I think what he said captures the essence of trading, which is a little confusing for me as people approach trading saying it’s stop losses, and, set-ups and all that stuff. For me it’s not all that stuff. It’s more like, you know, walking down the street and getting attacked and you have to defend yourself. It’s a totally different thing. The last two weeks with the fiscal cliff made it a totally different ball game. You have to readjust how you see the market and do it very quickly.

I find it very interesting with your comments about a street fight and having to defend yourself as well as the context of the recent fiscal cliff. Do you find trading is more about having a good defense rather than an offense?

I think it is having a killer offense when people are panicking. That’s where the street fighting comes from. During the fiscal cliff episode when people start shaking you have to go into the market and if they need liquidity you have to provide it. That’s basically how I trade. What the charts look like and all that stuff is irrelevant. The money you take is the money you get from other peoples mistakes in one way or another; because they are mis-pricing securities. So when you sense that the market is nervous and is mis-pricing you have to go in there. You can’t wait for the sun to show up because it doesn’t work that way. You have to go in there and provide liquidity and extract money out of the system. That’s how we look at things.

This is brilliant stuff Michael. I am conscious though not to take too much of your time so let’s wrap up with: If you could give one piece of advice, with all of your years in the game street fighting in the markets, to aspiring traders about emotionally handling the market what would it be?

I think, maybe it’s going to surprise you, but I think if you can have a little bit of the emotion that the market has and be able to step out of it and look at yourself and how your emotional in that situation, it gives you a good read for how the market participants are acting. So it’s almost like you need to be emotional to get the vibe of the market and how fearful people are and then you are in a much better situation to exploit that. It’s almost like getting the good read on the emotional state of the market and then overriding your own emotion to take the proper position which is never easy. I have quite a bit of experience in the market and even during that fiscal cliff period when I had to buy futures and then it goes down against you, you get emotional and others are emotional but no one wants to get in there, just a few people want to go in there and buy the market. So it is a case of how do you go in there and override that emotion. It’s important to have that emotion because it gives you a good read on the market but you need to be able to override it and then just go and be confident in yourself. For me that’s how I approach it. I think this notion that you have to be a rational agent is rubbish.

The idea that you are some kind of Doctor Spock or Data from Star Trek with no emotions and very passive?

Yeah it doesn’t work that way! It’s impossible. I mean we’re people on that mission so we shouldn’t be too emotional.

So despite the fact that you’re a scientist and most of those that work for you are scientists you can’t take out the human emotion side of the market?

No you can’t take out the human factor. We have a little model that is called the ‘Levy flight’, you can search it on my blog as we wrote about it, it’s basically a mathematical model that represents how animals go and search for food and their random process that they use to gather food depending on the conditions of the environment. The model accounts for that and when we think about this we think about the news and journalists and the media. The media and those people are always looking for food as they have businesses to feed so they create a lot of anxiety etc and the Levy Flight is just a great model to use to visualize how things evolve in the media. Then you can look at that and then you can spot when the media moves, when the media goes totally all in, like with the Fiscal Cliff. That’s when you want to look to get involved as that’s when there are tremendous opportunities. You see that is one way we use science to understand emotion. We are all animals with that kind of instinct but we just try to use mathematics to model some of those things.


I’d like to thank Michael Bigger for sharing about the way he tackles the market from an emotional / mental side of things and for his willingness to allow me to post this as a free resource in the hope that traders who have been in the market for less time or are thinking of entering can perhaps pick up some A-HA’s.

If you are interested in finding more out about Michael Bigger you can find him:

On twitter: @biggercapital

At his blog:


Previously in the series:

Charles Kirk - read it…

Matt Davio - read it…

David Blair - read it….here

Mike Bellafiore - read it….here

Mark Holstead - read it ….here

Brian Shannon - read it…. here

Mike Dever - read it…. here

Anthony Crudele - read it… here 

Derek Hernquist - read it … here

Ivan Hoff - read it… here

Brian Lund - read it… here

Greg Harmon - read it… here


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Disclaimer: Embrace The Trend / Richard Chignell does not provide investment, financial or product advice.  I trade my own capital exclusively.  I eat my own cooking as should you.  If you are going to trade / invest it’s at your own risk and you must take responsibility for your actions.