Aaron chat

Quote from marketsurfer:



the structure was designed to manage significant amounts of capital. Ego gratification is the only benefit to the structure at low amounts.

surfer
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I think there may be some truth to this statement, but what other path is available to us, small independent traders? I think most of them are probably trying to build a long term track record, so when they reach the $10million mark most of the legal grunt work is already behind them; also I think much easier to have dramatic % gains with small amount of money, then with large. If you read Aaron's log he appears to be pretty frugal, doing much of the paper work himself.

I would also take big Don's comments with a grain of salt, his basic thinking is if you're not trading at Bright, you must be stupid.

One thing that I did find rather amusing about Aaron is his computer setup, he has a basic 1.4GHz computer, with a DSL connection, dial up as backup, and the kicker is he uses FREE quote.com charts. What a sharp contract to most ET members who pride themselves with using dual processor computers with 8 monitors and have DSL, Cable, T1, use expensive trading platforms and pay hundreds of dollars in fees..

I wonder which trading style has longevity: day trading or discipline swing trading?
 
Quote from links:



I think there may be some truth to this statement, but what other path is available to us, small independent traders? I think most of them are probably trying to build a long term track record, so when they reach the $10million mark most of the legal grunt work is already behind them; also I think much easier to have dramatic % gains with small amount of money, then with large. If you read Aaron's log he appears to be pretty frugal, doing much of the paper work himself.

I would also take big Don's comments with a grain of salt, his basic thinking is if you're not trading at Bright, you must be stupid.

One thing that I did find rather amusing about Aaron is his computer setup, he has a basic 1.4GHz computer, with a DSL connection, dial up as backup, and the kicker is he uses FREE quote.com charts. What a sharp contract to most ET members who pride themselves with using dual processor computers with 8 monitors and have DSL, Cable, T1, use expensive trading platforms and pay hundreds of dollars in fees..

I wonder which trading style has longevity: day trading or discipline swing trading?
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Regarding Bright, it depends what you want to do, doesn't it?

Bright really should limit his comments to prop firms. Managing money for others via a fund, and trading your own account or prop money is not the same animal at all.

Apples to oranges stuff.
 
Quote from marketsurfer:




hi,

don is totally correct on this issue. these "funds" being discussed should be refered to as "micro funds" not hedge funds. let's see, someone stated their fund is now 6 million and the chat host yesterday stated he has 1.5 million in his fund including his own capital. we will take the larger amount--standard management fee--1%. that would be 60k per year, standard performance fee ( subject to high water mark of course) 20% of profits. THEN you subtract auditing fees, accounting fees, etc. . any way you cut it, it is a stupid structure to manage money if you are less than 10 million.

furthermore, these so called funds that use the supposed " up to 35 investors can be non accredited rule" to solicit tiny amounts of capital are plain and simple playing with fire.

the structure was designed to manage significant amounts of capital. Ego gratification is the only benefit to the structure at low amounts.

best,

surfer
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Oh nonsense. The LP structure is still the best way to consolidate many managed accounts. The whole point is to take a shot and make a go of it, to turn a small fund into a big fund. Yes, you'll need a couple of years to gut it out with supplemental income if you're only managing a couple million. If you don't have the balls to do it, don't do it. I'm willing to bet that Aaron can cross the $10 mill mark rather quickly.

PTR
 
[Quote from Don Bright:

I have heard from so many people lately who are in the process of starting a "hedge fund." This term is mis-leading, and has been used to deceive people into giving money to someone to trade with. Why would anyone pay someone to trade for them? If the traders themselves were any good, they wouldn't need to use "other peoples money" OPM, to trade with. I have had a least a dozen calls in the last week...this must be the latest venture into the "snake-oil" pit.

And where in the world do they get people to put up this money...family? friends? (not for long).

If you're any good, put up $25K, use the firms' capital to trade with, and keep your profits (instead of charging a few points to your buddies). If you're not any good, then this may be a short term way to pay your bills, but extremely short term.]

I would never have gone to a place like Bright. If you've developed some proprietary systems, how long do you think the edge will last in a place like that? If you've stumbled upon something brilliant, then keep it close to the vest, get the investors, and go for it.

PTR
 
Quote from PoundTheRock:

[Quote from Don Bright:

I have heard from so many people lately who are in the process of starting a "hedge fund." This term is mis-leading, and has been used to deceive people into giving money to someone to trade with. Why would anyone pay someone to trade for them? If the traders themselves were any good, they wouldn't need to use "other peoples money" OPM, to trade with. I have had a least a dozen calls in the last week...this must be the latest venture into the "snake-oil" pit.

And where in the world do they get people to put up this money...family? friends? (not for long).

If you're any good, put up $25K, use the firms' capital to trade with, and keep your profits (instead of charging a few points to your buddies). If you're not any good, then this may be a short term way to pay your bills, but extremely short term.]

I would never have gone to a place like Bright. If you've developed some proprietary systems, how long do you think the edge will last in a place like that? If you've stumbled upon something brilliant, then keep it close to the vest, get the investors, and go for it.

PTR
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Good luck in your search for the holy grail.

Obivously, you don't understand the difference between a good system, and a good trader.
 
Quote from PoundTheRock:



Oh nonsense. The LP structure is still the best way to consolidate many managed accounts. The whole point is to take a shot and make a go of it, to turn a small fund into a big fund. Yes, you'll need a couple of years to gut it out with supplemental income if you're only managing a couple million. If you don't have the balls to do it, don't do it. I'm willing to bet that Aaron can cross the $10 mill mark rather quickly.

PTR
More...


proper funding, data, auditing and legal resources are key to making it in the "real" world of hedge funds. if you think otherwise, you are fooling yourself.

best,

surfer:)
 
"Quote from Don Bright:

I have heard from so many people lately who are in the process of starting a "hedge fund." This term is mis-leading, and has been used to deceive people into giving money to someone to trade with. Why would anyone pay someone to trade for them? If the traders themselves were any good, they wouldn't need to use "other peoples money" OPM, to trade with. I have had a least a dozen calls in the last week...this must be the latest venture into the "snake-oil" pit.

And where in the world do they get people to put up this money...family? friends? (not for long).

If you're any good, put up $25K, use the firms' capital to trade with, and keep your profits (instead of charging a few points to your buddies). If you're not any good, then this may be a short term way to pay your bills, but extremely short term.

There may be a legitimate reason for starting a "fund" but I haven't heard of one yet. "


Don,

Here we go again. I thought this topic was discussed thoroughly a while back. Maybe a year ago on here on ET.

You wrote,"This term is mis-leading, and has been used to deceive people into giving money to someone to trade with. Why would anyone pay someone to trade for them? If the traders themselves were any good, they wouldn't need to use "other peoples money" OPM, to trade with. I have had a least a dozen calls in the last week...this must be the latest venture into the "snake-oil" pit."

Hmmm.. So, you are saying MANY of the Market Wizards were NOT good traders when they managing hundreds of millions for others? Bruce Kovner? Dennis Richards? Ed Seykota? They all must be REALLY REALLY BAD TRADERS to be using OPM?! LOL. Why would anyone pay someone to trade for them? If you have a 401K acct, then you are paying some fund manager to trade your acct right?

Come on Don! I respect your posts and your prop trading models. But there are pros and cons to both prop vs hedge funds. Prop trading is good if you don't want the hassle of managing OPM, legal paperwork, and don't need the large scale that OPM offers.

The answer lies in Jack Schwager's interview with Bruce Kovner. He asked why Bruce wanted to manage a $600M fund instead of his own substantial personal money. Bruce said managing OPM represents a CALL OPTION which has asymmetrical risk vs managing your personal money is a straight symmetrical risk. The most you can lose in a fund is either nothing or the little capital you put in. The most you can gain is almost unlimited. I think most people would take an asymmetrical risk profile anyday. Limited risk, unlimited gain.

Prop trading is a good way to learn the market and do you own thing. But it doesn't offer the scale that most hedge fund can. I think maybe 10-20(?) out of 100 in prop do that well. $25K to leverage up to 10x is 250K. If you can make 100% out of your $250K then you are doing good enough and dont' want the hassle of running a fund. But how many people can double their capital year in, year out? Maybe once in a while.. If you are doing 20-30% that's only $50K-$75K. 20-30% is like the top echelon of returns. The best managers in the world like Buffet, Richards, etc. can "only" get 30% compounded annual return over decades...

But from my reading on ET and personal experience at prop shops, it seems more likely that vast majority are breaking even, negative, or very small gain. Undercapitalization and overleverage have very serious effects on psychological execution and holding power of any strategy. Leverage is a double-edge sword. Look at hedge funds who used excessive leverage and blew up. Same goes to individual prop traders who overtrade.

good luck to all!

trader99
 
Interesting debate. .

Does anyone here know about those websites that I asked about?

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.
 
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.
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praetorian2 ,

sounds like you are man with a plan. That's good. Just keep focusing on generating great returns and the money will come.
so, did you do your own paperwork or you hired a lawyer to do it?
what kind of style is your fund?

wish you the best of luck in getting there.


trader99
 
I do think Surf's point in ego has some validity. But I also think people start funds because they want to be able to scale, ie: they're frustrated with their capital levels. There are plenty of under-funded individual traders who wish they could trade 30K instead of 5K. And there are successful traders who have 300K who want trade 2 Mil.

Is that part of your reason for wanting to start a fund, Praetorian?

André

Also, I don't think Don actually posted to this discussion, so maybe don't harangue him on this? Someone copied his post here, to this discussion.
 
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