High School Jock Turned "Hedge Fund Trader" – Is Regulatory Trouble Ahead?Mark Melin
Seventeen year-old Jacob Wohl goes to Football practice in the afternoon and after establishing positions for his hedge fund in the morning, he sandwiches school work in the middle of busy day. His Twitter profile gives a nod to playing football and being a hedge fund manager. But if Wohl isn’t careful, he might be headed for real world troubles with regulators.
Jacob Wohl : The hedge fund trader
Wohl currently has 20 investors, according to a report on KTLA news, which said the student athlete learned his craft by watching Harvard and Yale courses online. However, an examination of Wohl Capital Investment Group’s strategy, available on their web site, indicates several deep topics typically not addressed in an online Ivy League curriculum: derivatives and technical trading overlays.
With nearly $200,000 under management, Wohl Capital uses a “value investing strategy“, citing Warren Buffett as an inspiration to find value in the stock market, a difficult parlor trick coming off a stimulus driven market environment that has raised the price earnings ratio of most stocks.
Overlay strategy uses options and technical trading pointing to an “active” trading method
Perhaps most interesting is Wohl’s overlay strategy. He uses options and a technical trading overlay to reduce and enhance exposure on top of his overall value investing methodology.
When questioned about how he learned these techniques, Wohl told ValueWalk he used an online brokerage firm’s educational platform to learn his derivatives overlay and technical trading strategy.
In the KTLA report, Wohl, dubbed the “Wohl of Wall Street,” sounds like someone who might be found around a derivatives trading exchange as he quips in the background: “They don’t tie up quite as much margin,” a likely reference to options leverage. Wohl expresses a fondness for leverage, calling it the “key to maximizing returns. We didn’t reinvent the wheel with this; it’s just a tried and true strategy that works again and again.”
When asked if he purchased options or sold them as an income producing overlay to his long exposure, Wohl didn’t go into detail. He also refused to answer detailed questions about his strategy, if it involved option spreads our outright individual positions. He also advocates an active trading strategy, something that studies have shown lead to investor losses, particularly if they are non-professionals. “So as long as you’re trading enough you’re going to be all good,” was the somewhat odd advice he gave on the KTLA report. It is unknown if investment funds are deposited in the name of the hedge fund or if he manages individual trading accounts, each of which have different regulatory restrictions.
He could be headed for trouble in a few respects, however. While he is up a reported 22.8 percent year to date – his performance did not appear audited. His Twitter feed also indicates he might be soliciting investors in his hedge fund, but a review of his web site and a brief review of online regulatory tools indicated that Wohl was not formally registered.
Wohl has a lot to learn about operating and marketing a hedge fund, as he says he wants to target the middle class. Regulators have purposely excluded what are known as non-qualified investors from investing in hedge funds, and Wohl appears to be headed for trouble regardless of the regulatory jurisdiction.
Based on a brief review of his strategy, Wohl is likely to be regulated by the Securities and Exchange Commission. If he were trading exclusively derivatives he would be registered by the National Futures Association and the Commodity Futures Trading Commission – regulators known to have little tolerance for hedge funds targeting middle class investors without audited returns and detailed disclosure requirements. In fact, many such regulators at one time viewed as one of their primary purposes protecting investors.
As Wohl’s program gains exposure inside Wall Street, expanding from his parents west suburban Los Angeles home on the other side of the mountains, he has a lot to learn. “No one cares who you are once you show them the numbers,” he said in the KTLA interview. Obviously he hasn’t marketed a hedge fund to institutional investors yet.