Gordon Linn started working in the cash grain business in Des Moines, Iowa and figured he would return there. But after coming to Chicago in the early 1970s to hedge for Lincoln Commodities, he found a new home.
“I started a trading subsidiary for a large grain company,” Linn says. “I never made it back because I liked the action, I liked the challenge of the markets.”
He came at the right time, at the onset of the 1970s commodity boom. “Immediately we had the Russian markets, crazy volume, crazy price action. Here I was a young naïve farm boy straight out of the cash grain business trying to cope with a new industry, so I had to learn all the little things like doing back office, calling people for margin, balancing books and seg reports and all the rest of it. The business got so busy in such a hurry that I couldn’t make it back to Des Moines and have been in Chicago ever since,” Linn says.
In 1977 Lincoln Commodities was sold and Linn launched futures commission merchant Linn Group.
“We used to trade back in the 1970s for accounts as a business, but the hedging business got so busy that we had to abandon that,” Linn says. He was forced to decide whether he wanted to be a trader or a broker and the execution business was good.
Linn perfected technical and fundamental knowledge of the grain markets as he built a thriving brokerage business and became a leader at the Chicago Board of Trade, where he served as a director for two terms and pushed technological advances and served as chairman on various committees.
Linn says that it was the right decision at the right time as was his decision in 2005 to get back in the trading game with the launch of his commodity trading advisor Linn Hare & Huckabay and the Atlas One pool. The CTA operates the Apex trading program.
“We decided to move our company more in the direction of asset management. We weren’t afraid of it because we’ve done it before. We started to develop programs in 2005 and in January of this year we completed our first full year.”
And what a year it was. Apex returned 38.24% in 2007 and is up 37.82% this year through March. The huge returns are less reflective of Linn’s risk temperament than the wildly volatile grain markets. “The velocity in 2008 is significantly above 2007. What that means is that the markets move faster [and] give you more opportunities if you have a system that can capitalize on those opportunities,” Linn says.
At the risk of repeating a cliché, Linn says his recent strong performance was a matter of letting your profits run and cutting your losses. “If you are in a market and happen to hit something right in January or February of 2008, you had a big winner almost immediately. It became more of a challenge also to limit your losses,” Linn says. “The velocity of the markets is much different. We are getting markets that are limit up and limit down routinely, all through March and February particularly. If you can let your profits run, you can potentially get some outstanding returns, and we did.”
The Apex program is a discretionary strategy that uses both technical and fundamental factors with a slight edge to the techncials. “You have to be technically oriented. You have to understand what these guys are looking at,” Linn says.
During his years in hedging, Linn developed the concept of “price counts” to determine market direction. “If beans get through this level they should go to $12, then $12.80, then $14.60 — those would be the price counts. Sometimes we might come at it the other way and fundamentally want to be long beans and we are looking for the technicals to line up.”
The program will trade futures, options, inter- and intra-market spreads, but those of just the vehicles he chooses. Linn basically forms an opinion on direction or volatility and then chooses the vehicle.
Apex mainly trades grains but will trade any market that is fundamentally related. “We might trade cattle, the dollar, gold. We will trade cotton [or] sugar because those are markets that fight for grain acreage,” he says.
“We use those counts to lighten up positions or to change a strategy. We are projecting where the markets could go and then we are moving [to find] the best strategy for that market. We are only trading six to eight markets actively, so one of the keys is to be in the right vehicle.”
One example is a recent short wheat trade. “We started in bear spreads because we felt that the market was going to take time, then moved into futures and then we went into short calls because the volatility was so high and then we went into short strangles because the volatility and because we felt that the market we were in was more of a sideways choppy market.”
While the CTA is relatively new, the strategies are based on three decades worth of knowledge in the grains. “The hardest thing for people to do is realize what kind of a market they’re in. What kind of velocity is there; how aggressive to be in getting in or getting out of a trade,” Linn says.
While the recent outsized returns may be somewhat of an anomaly due to historic volatility, Linn understands the grain markets well and is an expert at knowing where they are headed and choosing the right vehicle to get there.
