A Fund vs. Your Own Money

[actionzip54]

Lol at the people saying that it's very rare to meet a successful trader that trades at home and has made millions of dollars. How many business people have you met that have made millions of dollars? Not many. Obviously they are going to be few and far between. Bottom line is that most people won't put in the work to be good at whatever they choose to do. How many hedge fund managers run money as well as Steve Cohen? Paul Tudor Jones? Not many. No, most guys running money in this world are just borderline scam artists drawing fees while they put up worse returns than the S&P. How many people can play golf like Tiger Woods? How many people can build Apple out of a garage like Steve Jobs?

Well, you get my point.

 

[Rationalize]

I think the landscape has moved on a bit from there.

It's more like trying to fabricate a silicon chip in your garage, imo.

Need scale to justify the cost of tooling up.

 

[SeventhCereal]

most people are lazy, but i have to admit, i am still working on the art of separating a fool from his money. the con artists make it look very easy. most people are absolute tightwads with their money.

Quote from actionzip54:

Lol at the people saying that it's very rare to meet a successful trader that trades at home and has made millions of dollars. How many business people have you met that have made millions of dollars? Not many. Obviously they are going to be few and far between. Bottom line is that most people won't put in the work to be good at whatever they choose to do. How many hedge fund managers run money as well as Steve Cohen? Paul Tudor Jones? Not many. No, most guys running money in this world are just borderline scam artists drawing fees while they put up worse returns than the S&P. How many people can play golf like Tiger Woods? How many people can build Apple out of a garage like Steve Jobs?

Well, you get my point.

 

[Rationalize]

Quote from SeventhCereal:

most people are lazy, but i have to admit, i am still working on the art of separating a fool from his money. the con artists make it look very easy. most people are absolute tightwads with their money.

Unless they are punters. Then you can pitch them all kinds of dog ship..and they lap it up like crack, until they zero themselves out. Degenerates..

 

[Smoker]

Quote from chipmunk:
It's a hell of a lot more lucrative running a fund than investing in one! For sure.

Only if you are a successful fund that generates alpha and attracts allocations from the professional and not exclusively retail sector.

The free call is a biggie but another huge benefit is using the fund to manage your own money. You don’t pay yourself fees and if you are successful at generating alpha you attract professional money to pay the expenses.

Like in every kind of endeavor you have to be good to make a lot of money. You don’t hear about them but a lot try to do it but fail so it is not a freebe or a sure thing.

Quote from Epic:
Very different when you are talking about managing OPM…….. Therefore, any time you are dealing with OPM, Markowitz's version of risk is more correct than Graham's.

This is not my experience. I have been trading OPM all of my career and in my experience the professionals use Graham risk as an overall measure and only use Markowitz as a speedometer.

I have seen asset allocators keep a guy open that went through a 60% drawdown due to his track record, style and fit in the overall portfolio. I have also seen single digit drawdown guys closed for opposite reasons.

I think the reason you believe this is your backing must be coming from retail market rather than the professional asset allocators that handle the serious money. Those guys are consummate pros and are more Robin Hood investors than retail performance chasers.

The holy grail for them is a very robust trader having a rough patch and they pounce in the opportunity negotiating great fees because they are coming in when the retail guys are pulling out. This is how the asset allocators out here in the sandbox crush the indexes year after year.

It is the classic Robin Hood model.

It sounds to me like you need to figure out how to replace the retail backing with professional backing. The fees will be a lot less in % terms but the absolute $ put in your pocket will be substantial.

All you have to do is attract their attention by being better than the competition and then pass due diligence.

And after you knock that one off all you have to do to be the fastest man on earth is to run faster than Usain Bolt.

Good luck to all of us.

Cheers Smoker

 

[Smoker]

Hi Seventh Cereal and Rationalize,

Quote from SeventhCereal:

most people are lazy, but i have to admit, i am still working on the art of separating a fool from his money. the con artists make it look very easy. most people are absolute tightwads with their money.

Quote from Rationalize:

Unless they are punters. Then you can pitch them all kinds of dog ship..and they lap it up like crack, until they zero themselves out. Degenerates..

The problem you have is no one with any serious money to allocate is lazy, just a punter or a degenerate etc.

By definition in the real world the guys allocating serious funds are professional, experienced and pretty darn good at their jobs or they wouldn’t have the job in the first place.

The fact is even if they slipped through and scored the job by BSing then very quickly the lack of talent would be exposed and they would be gone.

For a con artist the fact is that the easy mark doesn’t have any serious money to steal and the guys with the wedge are almost impossible to trick due to IQ and experience.

It is a really bitch but the only way to get serious money allocated is to actually deliver alpha.

All the best,

Cheers Smoker

 

[sle]

Quote from Smoker:
Only if you are a successful fund that generates alpha and attracts allocations from the professional and not exclusively retail sector.

Big? Yup, you have to be big. Successfull - well, being big IS successfull. Generates alpha? No real need. I will repeat one more time - there is no observable alpha in the performance of big funds.

HFRX has underperformed S&P500 by 32% since the beginning of 2008 and we are talking about a market littered with opportunities. In fact, since 2007, HFRX is down about 2% annualized. Once you adjust their performance to the beta (yup, HFRX is 72% correlated to S&P 500), investing in large funds makes zero sense - I would rather invest 20-30 of money in S&P and let the rest sit in short-dated debt.

 

[Smoker]

Quote from sle:

Big? Yup, you have to be big.

Just if you want to leverage your talent and get seriously rich.

Quote from sle:
Successfull - well, being big IS successfull.

Don’t really follow your thinking.

To score a big allocation from the professional market you have to be a successful trader. There is simply no other way to do it.

You might be able to trick the retail market aka Maddoff but the pros will not fall for that stuff.

Quote from sle:
Generates alpha? No real need.

I needed alpha to score a professional allocation and I need alpha to keep the allocation. If my numbers slip or it appears that my edge is eroding I will lose my chair. That is simply the facts of life in this game.

Quote from sle:
I will repeat one more time - there is no observable alpha in the performance of big funds.

What big funds are you referring to? Do you consider Maddoff types to be “big funds”?

I personally group hedge funds more by the profile of their customer base than anything else.

Billions can be raised from retail so in an absolute sense the guys with mostly retail customers are big but they are not what I personally classify in the category of the professional hedge funds whose customer base is the professional allocators.

Quote from sle:
HFRX has underperformed S&P500 by 32% since the beginning of 2008 and we are talking about a market littered with opportunities. In fact, since 2007, HFRX is down about 2% annualized. Once you adjust their performance to the beta (yup, HFRX is 72% correlated to S&P 500), investing in large funds makes zero sense - I would rather invest 20-30 of money in S&P and let the rest sit in short-dated debt.

I don’t know who or what funds make up this HFRX index but would guess most of those guys are backed by retail rather than by allocators from the off shore professional allocators.

With that high a correlation to SPOOs it would be a brutal experience to try to pitch to the professional allocators and an even more brutal experience to try to maintain an allocation if somehow you scored one.

Being able to generate alpha on billions not millions is a rare skill that gains serious reward.

All the best,

Cheers Smoker

 

[cornix]

Smoker, how do you think, what is the best place (geopraphically, legally and politically) to run a fund these days? Just theoretical interest.

 

[OddTrader]

Quote from Smoker:

With that high a correlation to SPOOs it would be a brutal experience to try to pitch to the professional allocators and an even more brutal experience to try to maintain an allocation if somehow you scored one.

Any indication for the professional allocators' preferred (range) values of correlation and beta (against SP500), in general? Thanks!