How Commodities Corp Created the World’s Best Traders

Commodities Corp doesn’t typically come to mind when we think of the most successful hedge funds or trading shops in the world. 

In fact, most have never heard of it.

While it didn’t rise to the global fame of some firms after its acquisition by Goldman Sachs in 1997, Commodities Corp was a popular training ground for traders, responsible for shaping some of the world’s most successful traders (especially in the global macro space).

Traders like Bruce Kovner, Louis Bacon, and Paul Tudor Jones got their start at Commodities Corp. 

It emphasized a structured approach to trading that emphasized discipline and strategy by writing down rules and following them in a strict way (until iteration and change is necessary).

We’ll look through what made Commodities Corp so successful at churning out trading talent.

Key Takeaways – How Commodities Corp Created the World’s Best Traders

• Documenting philosophies – Traders were encouraged to record their strategies, creating a resource for refining market approaches. Taking philosophies and writing down rules to be tested, then refining, and implementing was key.
• Rules and criteria – Commodities Corp emphasized a structured approach to trading, focusing on discipline and clear strategies to avoid emotional decisions. Writing down rules and criteria and applying them, step by step. 
• Risk management – Traders were taught to size positions based on criteria, scaling in or reducing exposure depending on the setup.
• Gradual entry – Traders like Druckenmiller emphasized the philosophy of scaling into trades as the market confirmed their thesis, reducing initial risk.
• Exit plans – Knowing when to exit – whether to cut losses or lock in profits – was a key part of Commodities Corp’s trading success.
• Applying logic in a consistent way – This approach is the foundation of modern systematic trading, just applied in a discretionary context back in CC’s heyday.

History of Commodities Corp

Commodities Corporation (CC) was founded in 1969 by Helmut Weymar and Amos Hostetter Sr., with $2.5 million in capital, including investment from Nabisco. 

Weymar, a commodities expert from MIT, and Hostetter, a seasoned trader since the 1930s, created CC to exploit trading opportunities in physical commodities. 

Key co-founders included Nobel laureate economist Paul Samuelson, MIT professor Paul Cootner, and Nabisco colleague Frank Vannerson.

Through the 1970s, CC brought many PhDs onto its payroll, expanding into futures like currencies. 

In 1980, CC gained attention by successfully betting against the market, leading to its partnership with Paine Webber and the launch of the $23 million Princeton Futures Fund. 

In 1997, Goldman Sachs acquired CC for over $100 million, renaming it Goldman Sachs Princeton LLC, which now operates as Goldman Sachs Hedge Fund Strategies under Goldman Sachs Asset Management (GSAM).

At the time of the acquisition, CC managed $1.8 billion in assets.

Key Figures in Commodities Corp History

Co-founders of Commodities Corporation included:

• Paul Samuelson – Nobel laureate economist
• Paul Cootner – MIT finance professor, known for developing the Random Walk Hypothesis

Prominent traders who started their hedge fund careers at Commodities Corporation:

• Paul Tudor Jones – Founder of Tudor Investment Corporation
• Bruce Kovner – Founder of Caxton Associates
• Louis Bacon – Founder of Moore Capital Management
• Ed Seykota – Technical trader and pioneer in System Trading
• Michael Marcus – Leading commodities and currency trader
• Jack D. Schwager – Financial author (most known for the Hedge Fund Wizards series) and hedge fund manager
• Marty Schwartz – Technical trader, author of Pit Bull: Lessons from Wall Street’s Champion Day Trader

Commodities Corp: A Breeding Ground for Trading Legends

Commodities Corp was akin to a trading university. 

Michael Marcus described it as a place where traders honed their skills through a highly structured approach to market analysis. 

Traders were asked to document their trading philosophies, which were archived as something valuable to learn from and iterate. 

These philosophies, based on real-world trading experiences, offered deeper insights into the market than what could be offered through traditional academic learning (of which there wasn’t a lot dedicated to finance and markets at the time), and over time, became a quality educational resource.

But what exactly made this hedge fund so successful at producing top-tier traders? 

The answer essentially lies in its rulebook, a guide that offered wisdom on how to approach the markets, trade strategically, and manage risk. 

This rulebook – though what was publicly released was from 1977 – contained some of the most important lessons for anyone serious about improving their market approach.

The Fundamentals of a Successful Trading Approach

At the heart of the Commodities Corp’s rulebook is a paper titled A Successful Speculator’s Approach to Commodities Trading from September 1977.

Despite its focus on commodities, the teachings in this paper extend to all forms of trading.

It offers insights into the mindset and strategies that underpin successful trading.

Observation on Trading Success

The introduction begins with a simple, yet impactful observation:

“It is a source of amazement to me how many traders start with a correct idea and end up with no profit, even though the move occurs just as expected.”

This quote perfectly sums up one of the most frustrating aspects of trading that we’ve all felt – having the right idea but failing to execute it properly.

Many traders get an idea right but end up losing money due to poor strategy or emotional decision-making.

Common issues are:

• Cutting the position prematurely as soon as it records a profit
• Increasing the position by a lot for no logical reason if it goes against them

This highlights the importance of having criteria and rules.

Now, as referenced in the final paragraph of the above…

Key Questions to Ask Before Taking a Trade

One of the most valuable lessons from Commodities Corp is the importance of asking the right questions before entering a trade.

These questions force traders to think critically about their decisions, so that they’re not entering trades based on gut instinct or random market movements.

Common Mistakes Traders Make

Many traders, especially beginners, are guilty of trading randomly – entering positions without a clear strategy or set of rules.

This behavior is often fueled by emotion, with traders reacting to markets impulsively.

They might seek action.

They might be bored.

Or various other random or semi-random reasons for putting trades on.

For instance, when a market appears bullish, traders may feel tempted to go all-in without considering critical factors such as risk management or entry criteria.

The Commodities Corp approach, on the other hand, emphasizes taking trades only when they meet a specific set of criteria.

If these conditions aren’t fully met, the trade should either be avoided or entered at a reduced size.

For example:

• Full size when all criteria are met.
• Half size when one condition is missing.
• 25% of normal size when the setup is uncertain but still compelling.

This flexible approach to trade sizing allows traders to participate in the market without overcommitting to trades that don’t meet all their criteria.

The Power of Scaling Into Trades

A critical aspect of trade management that Commodities Corp emphasized was the matter of scaling into trades.

One of the best examples of this approach comes from Stanley Druckenmiller, a legendary macro trader who developed a strategy of gradually building positions as his thesis played out in the market.

Druckenmiller’s approach was simple yet powerful: rather than going “all in” at the start of a trade, he would begin with a small position.

As the market confirmed his thesis, he would scale up the position, adding more to the trade as it moved in his favor.

This strategy lowers risk in the beginning while letting the market dictate how much exposure to take.

This method of testing the waters before committing fully is a key principle for any trader looking to build confidence in a trade without being overly exposed to market volatility from the outset.

Of course, there are other approaches as well, such as Greg Coffey (not affiliated with Commodities Corp) who starts big and goes smaller.

Questions to Ask Before Exiting a Trade

Just as important as the entry strategy is knowing when to exit a trade.

Many traders perform suboptimally not because of their entries, but because they don’t have a clear plan for closing their positions.

The Commodities Corp rulebook stresses the importance of having exit strategies in place before the trade is even entered.

Why these questions?

Exit Strategies

Every trader should know exactly when to exit, both when the trade is working and when it’s not.

A stop loss is important for managing risk in many traditional forms of trading, so that a position is closed if the market moves against you beyond a certain point.

Nonetheless, sometimes traders need to close positions before the stop loss is hit, especially if conditions change.

The Importance of Discipline and Control

Ultimately, the greatest takeaway from Commodities Corp is the emphasis on rules, discipline, and control.

These are the foundational principles that separate successful traders from those who struggle.

Trading is not about luck or instinct (especially in the short term), but rather about following a well-defined strategy, sticking to a plan, and managing risk at every step.

Control Over Emotions

One of the hardest parts of trading is keeping emotions in check.

Nonetheless, adhering to strict rules and maintaining control over your actions can help traders avoid what trips up most traders.

Having clear entry and exit rules can help traders remove much of the emotional element from their decisions.

Conclusion – Why Commodities Corp’s Lessons Still Matter Today

The lessons from Commodities Corp are just as relevant today as they were decades ago.

While the markets have evolved, the fundamentals of trading remain the same.

Discipline, risk management, and a structured approach are the keys to long-term success.

Traders who internalize these lessons will find themselves well ahead of the competition.

In an industry where success is difficult, having a clear plan and following it rigorously can make all the difference.

The rulebook from Commodities Corp offered a template and mindset that helped shape some of the greatest traders of all time.

Adopting these principles (or at least the principles that align with your own vision and personality), traders can improve their strategies, manage risk more effectively, and ultimately achieve better consistency in their results.

While Commodities Corp was eventually folded into the Goldman Sachs Asset Management arm, its legacy lives on through the traders it created and the lessons it left behind.