Quote from praetorian2:
Interesting debate. I agree with pound the rock about bright.
I would never trade prop.
Does anyone here know about those websites?
I can't speak for others, but at least for myself, I want the fund to one day be a monster. Everyone has to start somewhere. For me, I had to start small. I agree, this venture will probably not be profitable on a monthly basis until it hits 2-5m. I have had a great year so far, and I am pretty close to being profitable after management fees for the year.
I figured that the fund would not be profitable at first (are any startup businesses profitable from the start?) and I took out enough personal money for 2 years of fund and personal expenses. That is in the bank. Once I get to profitability, I intend to add those back into the fund and increase my stake in it.
I had originally had an agreement with my father where I got 50% of all profits. I wanted to redo the agreement (mainly for tax reasons, the capital was in my name) and I had a few close family/friends who wanted in and were jealous of my dad's returns. I felt bad that the "professionals" had destroyed their assets int he last 3 years and wanted to help those who asked. In fact, I let a few in for less than my quoted minimal investment level b/c they no longer had enough for the minimum.
You are correct to possibly call this a family fund, but I also have a few outside investors in it.
Finally, the reason I set up a fund is for the amazing profit potential. I honestly believe that I can return 50%+ on an account that is 30-50m. That would be 15-25m in fund profits and 3-5m to me not including my own investment in the fund. I saw no other way to make money like that. I was unable to grow my own trading account fast b/c of personal expenses, trading expenses and mainly taxes. In the hedge route, I saw a way to have a large account that I can profit from. I think that most of the other guys who are at 1-5m will agree with me as well.
Good luck. Like Aaron, I suspect you are still quite wet behind the ears.
Unfortunately, they don't track failure statistics of small hedge funds like prop, but I tend to think the failure rates are similar for one who approaches both with a long term game plan, proper funding, and the right mindset.
Aaron's statistical figures disturbed me during his on line chat. He was so specific about gains "Yes, after we topped the charts with +97% in '02 we got a lot of new investors" but talked about drawdowns of 20 to 30%.
Isn't it interesting how people know exactly the upside figures, and give a wide range of down side?
I tried to ask about the 97% number, whether that was total return, or from some valley to peak, but the question did not go through.
I had a position back in the late 80's where I was working for a firm hawking managed futures accounts. My job was to look at track records, and they are very misleading in small funds, as big gains can come easily. Big losses can come just as easily. Someone can come into the fund at the wrong time, and easily lose 50% while the fund draws down only 20% depending on how they measure the overall performance.
I wish you luck with your goal, but it is unrealistic in my opinion.
A good hedge fund over time will outperform the market, but these ideas of generating double digit returns on a regular basis for clients are just nonsense statistically speaking over a 10 year period.
The truly wealthy people I know, and I do know a few, would laugh at someone talking about the kind of returns that are thrown around.
They know the truth, and the truth is that if you beat the S&P by 10 to 15% annually on a very consistent basis, you are among the best in the business.
They also know the difference in trading a few million dollars and large funds. Not the same animal at all.
