Capital Available for Traders

[rwk]

In reviewing collective2.com, it seems an interesting idea, but quite a different business model from RAPA's. People who create systems on collective2.com are looking to get paid subscriber fees. Presumably, a system has to have a positive expectancy to gain subscribers, but it looks to me like the earnings mentioned are from subscriber fees rather than from trading profits. Subscribers are either buying "signals" or having a broker trade an account based on signals from collective2. What strike me as issues not well covered include market selection and intricacies of order execution. There is more to trading well than signals. I suspect many of the subscribers are losing money even while the system appears profitable.

Someone mentioned the Top Step Trading 'combine' a few pages back. My impression of the combine is that it is geared toward daytrading. That is fine for people with an interest in daytrading, but it is certainly not representative of the trading business as a whole.

That leaves me wondering how easy is it for investors to find profitable money managers? In reading a couple other threads in ET, I found opinions at both extremes. I have the impression that managers who can return 20%/year with reasonable consistency and asset size are quite rare.

 

[newwurldmn]

Quote from rwk:


That leaves me wondering how easy is it for investors to find profitable money managers? In reading a couple other threads in ET, I found opinions at both extremes. I have the impression that managers who can return 20%/year with reasonable consistency and asset size are quite rare.

It's hard to find someone who can return this consistently, but it's easier than you'd think. If you a few million dollars in liquid net worth, you can get inundated by pitchbooks from your local private banker.

There are lots of established funds out there that have pretty long track records and returns like that. One doesn't need to find that jewel in the rough manager who is trading out of his garage to get 20%/year returns.

As a whole these established funds are better than than the garage fund managers, but 20%/year (net) is a high bogey for anyone.

 

[KINGOFSHORTS]

Curious how do you report trade performance/returns?

I mean reporting that some guy made a 40% return in one year on 200 dollars does not impress. I am seeing people on your leaderboard showing 100+% returns, that raises red flags in my book.


19% return on 1 Million assets under management would be more impressive than 40% return on a sub 1000 dollar account.

Also you should offer a filter. ie: Filter out anyone with less than 250K AUM.

 

[nonlinear5]

Quote from newwurldmn:

As a whole these established funds are better than than the garage fund managers, but 20%/year (net) is a high bogey for anyone.

Indeed. Here is the performance of hedge funds vs the balanced market index over the last 9 years:

Never mind the 20% returns. You'd be lucky if you ended up with a 2% return in your particular hedge fund.

 

[newwurldmn]

Quote from nonlinear5:

Indeed. Here is the performance of hedge funds vs S&P 500 over the last 9 years:

Never mind 20% return. You'd be lucky if you ended up with 2%.

The only argument I would make against that chart is that hedgefund performance is far more variable than mutual fund performance.

Convert arb (probably the most correlated strategy) has a lot of variation between managers. So you have to be smart about which manager to choose from.

But yeah. Hedgefunds aren't the path to riches that investors think they are.

 

[braincell]

Quote from nonlinear5:

Indeed. Here is the performance of hedge funds vs the balanced market index over the last 9 years:

Never mind the 20% returns. You'd be lucky if you ended up with a 2% return in your particular hedge fund.

That chart is correct if you take the entire HF index which includes a lot of "dumb money" HFs also. Many of them included in the index state clearly they only go long this and exit at that, it's not like they even manage money really, it's just that some pension fund wanted to cut in and got them AUM for uninformed investors. Lots of examples like that, so not all HFs are smart money. My point is, if you select your funds with some due dilligence (or funds of funds) it's fairly easy to find consistent HFs with >10% returns per year. Being an investor isn't easy either, especially since HFs aren't allowed to advertise.

 

[rwk]

Quote from braincell:
... if you select your funds with some due dilligence (or funds of funds) it's fairly easy to find consistent HFs with >10% returns per year. Being an investor isn't easy either, especially since HFs aren't allowed to advertise.

I know there are managers and funds with good track records, but I have the impression that the better ones often have high minimums or are closed to new money.

I don't meet the criteria for accredited investor (someday maybe?), so I cannot speak from experience. I have the impression that finding good (and consistent) returns is a challenge for investors with less than $5-10 million liquid. For working stiffs, it's much harder. Few people are able to consistently beat the returns of an index fund on their own.

 

[nonlinear5]

Quote from braincell:

That chart is correct if you take the entire HF index which includes a lot of "dumb money" HFs also.

I am not sure if the "dumb money" is is a good argument in favor of the hedge funds. The passive market index also has lots of "dumb money" (i.e., the money invested by the people who have very little or no experience in investing and trading), yet this passive dumb index outperforms the other dumb index (the HFRX index, that is) by a huge margin.

 

[vkrouglov]

Quote from nonlinear5:

With regards to the RAPA score, I noticed something peculiar. When I uploaded my trading history via the Flex XML ending Dec 24, my RAPA score was calculated as 81. On Dec 26, I had two new trades, both winners, and both within the normal size. When I uploaded these additional winning trades, my RAPA score actually dropped by a point and it now stands at 80.

That doesn't seem right to me. I understand that if it were an outlier, it could have been flagged by your ranking algorithm as additional risk. But in this case, it was totally within the normal bounds, so I expected my score to go up (or at least stay the same).

Michael, if there is an explanation which requires the disclosure of my trades here, feel free to do it. I am listed as "nonlinear" in the leaderboard.

Yes, this is correct. The score has dropped by approximately one point since your last upload of the report. The component of the RAPA Score that is related to the Sharpe ratio has stayed almost the same (even has increased). However, another component that contributes to the total score has decreased, namely the risk of loss part.

I think that the main reason for such a move in the rating is the length of the trading history as you only have about two months of performance on the leaderboard. Each new observation considerably changes the first moments of your return distribution.

 

[nonlinear5]

Quote from vkrouglov:

Yes, this is correct. The score has dropped by approximately one point since your last upload of the report. The component of the RAPA Score that is related to the Sharpe ratio has stayed almost the same (even has increased). However, another component that contributes to the total score has decreased, namely the risk of loss part.

Hmm, the "risk of loss" has gone up as a result of two new winning trades? That doesn't seem right. I suggest you guys disclose your performance formula, and we'll talk about it.