| | | The Curious Story of Epica Capital and My Personal Kryptonite !!!
It was 2008, my eleventh year of full time trading.
Many of those eleven years, were Mark McGwire type home run years of massive gains and never a down year.
It was also my eight year of running TraderPulse.com, a trading website with a live chatroom unlike any before or since (shut down in late 2009).
My trading/work hours were really long, even on the weekends, and I was really starting to burn myself out.
For a couple of years I actually contemplated retiring and sailing of into the sunset, but at the same time that seemed quite boring to me.
I have always loved trading so much > the action, the decisions, the big swings, the huge adrenaline rush and the endless new challenges each new day provided.
However, at the time I really needed/wanted something fresh to stimulate me, but trading has been such a perfect fit for me.
After much deliberation, I decided to pursue a career as a hedge fund manager.
It seemed like a natural progression at the time and I created Epica Capital L.P.
I was about to take on an epic journey with this new hedge fund and the word “epic” kept standing out to me.
Epica is a name of a really cool Dutch metal band that I liked a lot, here is one of their songs:
youtube.com
And that’s how the name of the hedge fund was born.
Epica Capital certainly turned out epic in the end, just not the way I envisioned.
Late 2008 the market turned very bearish and most stock market participants were getting destroyed, but that had zero effect on my continued trading success..
Seemed though like a very tough environment to raise investment money for a new hedge fund, although turned out to be much easier than expected.
Many of my friends and close acquaintances at Traderpulse.com were quite eager to invest and did.
Most of them had made a lot of money following my trading success the prior 8 years.
Humorous story:
One individual invested a million and then emailed me wanting to add another million.
I replied to him that it was a bad idea and he should never invest more than 10% of his net worth into anything and diversification was critical.
He immediately replied “forget it, I will add 3 million instead” and the wire came in later in the week.
Epica Capital had one unusual wrinkle unlike most other hedge funds, which was important to me and a sign of great confidence on my part.
It was a “10% hurdle rate”, meaning no performance fees would be charged in any year, unless the fund returned at least a 10% yearly gain.
I did not want to receive any compensation unless a reasonable minimum return was achieved.
Epica Capital began trading November 1, 2008 as the market was getting annihilated every day.
In 2 months of trading, at year end the fund gained +13.38%. Certainly a decent start.
2009 was going okay, nothing great, and through September the fund was +15.25% year-to-date while the overall market was shredded.
October 2009 turned out to be a brutal disaster for the fund, losses amounting to -18.43% for the month.
After a vicious bear market, a V shaped market recovery began in October and I was too slow to adjust my trading/investing while getting stubborn on many short positions.
That was actually the last time I held any short positions overnight to this day, with just a handful of special situations as exceptions.
I do NOT hold short positions overnight in a bull market. I trade short ONLY on an intraday basis on ideal setups/situations during bull markets.
It was a lesson well learned.
In November and December I was able to recoup some of the October losses and the fund closed 2009 basically unchanged at -0.14%.
2009 was a highly disappointing year to say the least and I noticed a big change in myself that year.
I have never ever had any fear of losses with personal money, but the pressure and responsibility of managing other people’s funds started to affect me.
I cared so much about my investors, probably way too much for my own good.
I started sleeping less and less, while constantly worrying about not living up to my very high expectations, as well as the investors.
In 2010 through September the fund was sailing along and year-to-date gains stood at +34.00%.
However, my personal life was about to hit a major brick wall.
5-6 months earlier my perfectly healthy 10 year old son started having issues with his walking and muscle movements.
We went to many doctors and specialists and on Sep 30, 2010 finally received a confirmed diagnosis.
He was diagnosed with rare DYT1 Dystonia, an incurable neurological muscle disorder.
Within 6 months he went from perfectly healthy to a wheelchair along with constant massive pain due to muscle spasms.
It was devastation in its most brutal form to a parent. My wife and I were in extreme state of massive depression.
Our son would need Deep Brain Stimulation surgery, which included deep implantation of electrodes in his brain and batteries on both sides of his chest connecting to the electrodes.
That October trading became my only minor escape from the brutal reality that was hitting my son and our family.
My mind turned to mush, the fund lost -12.00% in October.
I pushed forward with gains the next two months and closed 2010 with gains of +27.60% for the year and another disappointing year ended.
At year end I heavily deliberated shutting Epica Capital down, especially with my mind shattered and surgeries upcoming in January and February of 2011.
I just didn’t want to give up on a dream and besides that, I needed a major distraction to keep some sanity.
I sure wish I made the decision at that time to shut it down and save me and all the investors all kinds of stress/grief that was to come.
Still don’t know how, but I managed to push through all the family turmoil and 9 months into 2011 the fund’s year-to-date gains stood at +27.66%.
My son had 3 surgeries in early 2011 and by midyear his muscle movements started to improve and the wheelchair was gone, as was most of his pain.
The long journey to find the ideal brain stimulation settings began and the light at the end of the tunnel became much brighter.
Then another October debacle occurred for the third consecutive year, although this one was a bloody massacre !!!
When things were finally moving in the right direction and settling down, I finally broke down into pieces and a complete meltdown occurred.
Maybe it was a delayed reaction on my part, fried brain, self-pressure and responsibility of managing other people’s money or a combination of all.
Frankly the whole thing is a fog to me right now, as I only truly remember 1-2 trades now that occurred that month.
I distinctly remember that anything and everything I traded that month was a minefield/nuclear warhead that blew up in my face.
To this day I still don’t know how it was possible for me to lose so much in a month, but in October the fund lost an enormous and unbelievable -41.89%.
Between my own investment in the fund and my personal trading my net worth suffered a -3.5 million drawdown in Oct-11 although for the whole year was only -303k and my first and only ever losing trading year.
I notified all the investors with tears in my eyes with incredible guilt and returned all the remaining funds to everyone while closing the fund forever to outside investors.
The 3 year journey ended with an EPIC failure. After exactly 36 months, the investors of Epica Capital lost -2.88% since the inception of the fund.
3 years of hard work were wasted and it was a very huge bitter pill to swallow for me and all the investors.
After I notified all the investors I was just blown away by their responses.
All were obviously highly disappointed, but many were extremely understanding and some tried to encourage me to continue.
One investor in particular (truly a class act) left a lifelong impression on me of immense respect towards him. He is actually a very well-known and highly respected (by all) member of the Twitter trading community.
He didn’t even blink for a second and told me he would be thrilled to invest with me again at any time in the future.
On the opposite end of the spectrum, one of my great friends, a person I mentored for 10 years and helped him make millions slapped my face with a giant salmon (figuratively speaking) which ended a great friendship.
When it comes to money, often is when you truly learn about someone’s true character, good or bad.
In Nov-Dec of 2011 I did a great deal of soul searching while trying to reconcile the events that took place.
I was very seriously leaning towards retiring and never trading again, but how much fishing can I actually do without getting bored and besides that, I am an action junkie.
I returned to personal trading in January, 2012 followed by great/huge trading gains ever since.
I decided to keep Epica Capital open and am the ONLY investor.
One of the reasons was to always have that constant daily reminder of my epic failure.
Not a single day goes by that I don’t think of all the Epica Capital investors and how I failed their high expectations.
Amazing how many times I tried to mentally reconcile that October, 2011 meltdown.
Guess some things just weren’t meant to be and we all have our own limitations and kryptonite.
Even though I am fearless with personal funds, I guess in the end the pressure and responsibility of managing other people’s funds really got to me.
Obviously, my son’s situation didn’t help either.
There is no way for me to go back in time and replay Oct-11, what’s done is done and now I have to live with that burden/failure forever.
I have said the following many times in my life to many different people:
“the most important lessons learned in life or trading for that matter are learned from massive pain and/or failure”
Such lessons and how you bounce back or not will forever define you in your future.
Never ever run from your mistakes/failures. Instead admit to them, learn from them and never ever forget them.
6 months ago I started sharing my trading knowledge/experience on Twitter.
It is my way of perhaps earning some redemption, at least in my own eyes, for my Epica Capital failure and it is the reason why the handle on the account is @EpicaCapital.
My mission is to inspire and open some eyes to amazing trading possibilities and financial success, offer food for thought for aspiring traders who seek knowledge and hopefully change a few lives in a positive direction along the way.
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My son Jared is now 14 years old and is doing great.
He did have a small setback 5 months ago and needed another surgery.
Considering all the hardship he has endured, he is the happiest kid with always a smile on his face even during the darkest hours of 2010 and 2011.
He is such an incredible inspiration to me and a true HERO I aspire to.
For the last 2 years he has been hard at work raising awareness and funds towards Dystonia and Parkinson’s through his website:
jaredspaintings.com
He sells his personal art and also fabulous iPhone/Samsung phone cases with his personal art imprinted on them and donates 50% of the proceeds to:
dystonia-parkinsons.org
Please visit his website and check it out and perhaps support a great charitable cause.
Thank you !!!
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Happy Trading
Michail Shadkin
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