Do you compare your trading results to just buying and holding the S&P500? Why or Why Not?
- Thread starter Tall Mike
- Start date
It depends on what you do. But for trading rather than investing it is more important to be consistent profitable. So look more that you are profitable every quarter, than every month, than every week. Consistency is the key in trading. And not looking at SPY B&H is doing. You cannot compare in trading also because you go long and short and you also use leverage, so how do you want to really compare this to buyandhold SP500 ? You cannot really, except you do investing. Think about it.
It's a decent benchmark to compare to.
If you can't outperform a buy & hold startegy, why are you trading?
Granted it is an interesting hobby if your goal is to keep busy, but like all hobbys it will probably cost you money. If trading is how you entertain yourself instead of say golfing, hunting or RVing, then I wouldn't worry about beating a benchmark.
If you are looking for the most efficient method of employing your capital then you should probably have a benchmark.
The whole point of comparing to B&H is to make sure your efforts are worth more than just letting your money sit in those index funds. I mean why would you waste efforts on something when you are underperforming?
S&P buy & hold risk to reward stats are pretty poor:
Average Return 9%
Drawdowns between 30% and 80%
Sharpe Ratio around 0.85
Any trader with less than $10 million, should be able to beat that risk profile easily.
eg. 20% a year with max 20% drawdowns. Sharpe ratio over 1.
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From what I've researched, you'd be one of the top traders if you can do this.
Seems a little unrealistic, no?
Thats why i said less than $10 million a.u.m.
The more you have under management the harder it is to beat the S&P, expect if you are Rentec Medallion, then you still thrash the S&P even with a $15 Billion fund.
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0.07% per day in average isn’t unrealistic.
Well known fund managers averaged 50+ pct / year over decades.
I see you're quite new and you have a lot of questions. No need to open a new thread for each one, though.
Here is what you need to know:
1. There is trading, there is investing and there is managing money. Three different businesses with three different benchmarks, goals and skillsets.
Comparing a traders performance to the S&P is nonsense because:
2. Traders are looking for a niche to exploit and their strategies do not scale. E.g. you can easily turn 10k into 20k within a year, but the strategy is only good for 20k/year, even if you throw 1m at it.
3. Investors are looking to build a portfolio of risk premia, meaning they are diversifying dividend cash flow, interest rates and other passive income streams and mix in some crash protection. Scales insanely well, but returns are low. Here the benchmark is the S&P.
4. Money managers, especially fund managers can never be a benchmark for retail traders, because they live off of fees, have economics of scale and in general the client itself is the product.
So if you're going down this route, you have three choices:
1. You're an extremely competitive maniac with no regards for money and a gambling addiction: Trading is for you and you better aim for double digit monthly returns.
2. You are a 9-5 family man who likes to have his life under control: Investing on the side is for you. Your ego will push you towards trend following or technical analysis swing trading, but after a lot of sweat and a lousy 10% per year (aka. 10,000 USD) you start dollar cost averaging the SPY and put your time into getting promoted at work.
3. You are a lazy, but well dressed sales guy who can barely process first grade math without using fingers but you're good with people?
Managing a fund is gonna be your thing. Strategy doesn't really matter as long as it's a left tailed return distribution. Sell options, do stat arb, it will do if it has a lot of consistent wins and one (final) devastating loss.
Hire a math freshman to optimize the highwater marks for you and drive your white Porsche Cockxster to the fancy restaurants to whine and dine potential clients.
Most people here on E.T. are #1 but without the success who justify their wasted time with all kind of nonsense, so don't expect too much.
Good luck