Hedge Fund

[NickLeeson]

Originally posted by darkhorse



It's just simple common sense. No different than a 300 pound fat guy trying to squeeze into a movie theatre seat or an aircraft carrier trying to do a 180 degree turn.

If you are big you need more time to move from point A to point B and more room to turn around.

Nothing mystical about that at all.

In terms of raising money, I think that this is where the pride/greed problem kicks in. It's also a phenomenon that the bigger these guys get, the bigger a portion of profits comes from the management fee as opposed to the profit incentive fee. If you have a billion that you earned w/ your reputation, you can slack off and still live like a king off the 2% mgmt or whatever.

True about size, although different markets - and I believe a market is a market and trading is trading - have hugely different liquidity limitations.

I'd say you're also right about that livin-off-of-the-management-fee stuff as applied to the huge majority of bunglers out there, for them that's a highly cushy no risk proposition.

But in all fairness to some of the very few true longtime outperformers like Ole-Soros-Who-Thinks-He-Is-God and at whom I presume your remark was directed, he always had all his own money in his funds (and a bit in some others he funded) - that is the reason he's worth $6 Billion - so not least for that reason was he actually interested in good returns.

Or take Robertson, who actually closed down his funds when he had that what 50% drawdown, rather than wait a longish time until he made that back beyond his high water mark again and to only then start profiting from the incentive again. Even though his asset base was still in the billions, even after the obligatory scary hands had left the ship, and the 2% on the AUM would have been pretty spiffy.

Something that struck me with some of those stars was that they, as opposed to their much lesser in terms of performance brethren, where as a rule always more interested in win/win than more one sided propositions.

Take Tudor Jones or Bacon who both spouted off about one reason that led them to leave broking was that they were earning money even when they'd lost some for their clients, and that they simply didn't feel comfortable about that.

 

[traderbambu]

"Out of curiosity, say you consistently beat the indexes for several years in your own personal account. What are the chances you could be hired by a hedge fund based on your personal brokerage records? Would they ever hire someone simply based on pure performance? Or is that like trying to skip the minors and play pro?"

I was a stockbroker for several years and made money for my investors during good times and bad. So it was easy to approach them a year ago when I said that I was setting up a hedge fund and wanted them to follow me (and bring their money). 99% of my clients transferred their money from the brokerage company to my new Fund. The benefits for everybody were obvious.

This is a "Show me the money!" business - if you consistently make money with little drawdowns, nobody would ever want to know what kind of formal education you have. It is ridiculous to see all those freshly graduated guys wanting to manage money just because they have an MBA or whatever. (Would you let a new doctor perform brain surgery on you just because he has just finished medical school?)
Again: it is based on trust and the ability to consistently make money with small losses.

I do not hink that anybody will hire you as a fund manager purely based on your past performance (managing your own account) - unless you traded seven digits. I would recommend you to show your trading results to some friends/relatives/business associates and try to raise money from them. Trade their money, make some nice returns, get your results audited then you can start thinking about the next step. I wish you good luck!

 

[darkhorse]

Originally posted by NickLeeson


Take Tudor Jones or Bacon who both spouted off about one reason that led them to leave broking was that they were earning money even when they'd lost some for their clients, and that they somply didn't feel comfortable about that.

abso friggin lutely!

do you know how rotten it feels to make big bucks off a guy who just got burnt to a crisp? that used to bug the heck out of me when i was a broker.

the other thing that bugged me was realizing that 70% of my clients had no business trading in the first place. And there wasn't any correlation to job either. I worked with cattle hedgers, russian hedge funds, energy consultants, you name it- and a lot of those so called "pros" were worse traders than some of my retail guys looking for excitement away from their normal 9 to 5's.

and trying to teach them was a major downer too. For every one client who understood reality and had a real desire to improve their trading, there were nine others who were too impatient or too slow or too unrealistic or just plain didn't have what it takes, and they would go back to methodically destroying themselves no matter what you said or did.

what a sad racket.

 

[NickLeeson]

Originally posted by darkhorse



abso friggin lutely!

do you know how rotten it feels to make big bucks off a guy who just got burnt to a crisp? that used to bug the heck out of me when i was a broker.

the other thing that bugged me was realizing that 70% of my clients had no business trading in the first place. And there wasn't any correlation to job either. I worked with cattle hedgers, russian hedge funds, energy consultants, you name it- and a lot of those so called "pros" were worse traders than some of my retail guys looking for excitement away from their normal 9 to 5's.


what a sad racket.

Haha, can I ever believe that.

You ever read this here, although you experienced that first hand anyway:

Title: An Analysis of the Profiles and Motivations of Habitual Commodity Speculators
Author: W. Bruce Canoles (Merrill Lynch Pierce Fenner & Smith Inc.) and Sarahelen R. Thompson (University of Illinois at Urbana-Champaign) and Scott H. Irwin (The Ohio State University) and Virginia G. France (University of Illinois at Urbana-Champaign).
Contact: thompsons@CES.ACES.UIUC.EDU
Comments: Type of Document - Microsoft Word; prepared on P.C.; to print on HP Laser Jet; pages: 46. Office for Futures and Options Research (OFOR) at the University of Illinois, Urbana-Champaign. Working Paper 97-01. For a complete list of OFOR working papers see http://w3.ag.uiuc.edu/ACE/ofor
Keywords: speculation, commodity futures
JEL: G, G0, G1
EWPA-references:
Report-no: OFOR-97-01
Abstract:
The focus of this study is the habitual speculator in commodity futures markets. The speculator's activity broadens a market, creates essential liquidity, and performs an irreplaceable pricing function. Working knowledge of the profiles and motivations of habitual speculators is essential to both market theorist and policy makers. Responses to a 73 question survey were collected directly from retail commodity brokers with offices in Alabama. Each questionnaire recorded information on an individual commodity client who had traded for an extended period of time. The typical trader studied is a married male, age 52. He is affluent and well educated. He is a self-employed business owner who can recover from financial setbacks. He is a politically right wing conservative involved in the political process. He assumes a good deal of risk in most phases of his life. He is both an aggressive investor and an active gambler. This trader does not consider preservation of his commodity capital to be a very high trading priority. As a result, he rarely uses stop loss orders. He wins more frequently than he loses (over 51% of the time) but is an overall net loser in dollar terms. In spite of recurring trading losses, he has never made any substantial change in his basic trading style. To this trader, whether he won or lost on a particular trade is more important than the size of the win or loss. Thus he consistently cuts his profits short while letting his losses run. He also worries more about missing a move in the market by being on the sidelines than about losing by being on the wrong side of a market move; i.e., being in the action is more important than the financial consequences. Participating brokers confirmed that for the majority of the speculators studied, the primary motivation for continuous trading is the recreational utility derived largely from having a market position.

 

[darkhorse]

Makes sense.

I'd have to say most small time commodity traders are more in it for the thrill than the money. They are bored and want some excitement in their lives. They have trouble treating it like a business because the grind of business is what they want to get away from, they just want to have a good time.

What the excuse is for the "professionals" who lose day after day I couldn't tell you.

 

[darkhorse]

Originally posted by traderbambu


I do not hink that anybody will hire you as a fund manager purely based on your past performance (managing your own account) - unless you traded seven digits. I would recommend you to show your trading results to some friends/relatives/business associates and try to raise money from them. Trade their money, make some nice returns, get your results audited then you can start thinking about the next step. I wish you good luck!

Bingo. I agree 100%.

Build on trust, then build credibility over time, then go big time if you still want.

 

[NickLeeson]

Originally posted by darkhorse
Makes sense.


What the excuse is for the "professionals" who lose day after day I couldn't tell you.

They felt called but simply were never chosen.

 

[darkhorse]

Originally posted by NickLeeson


They felt called but simply were never chosen.

Quoting Seykota by any chance?

I met him once, at a little restaurant on the north shore of Lake Tahoe. I was on my way in, he was on his way out, I recognized him, we chatted for about two minutes. Just a normal dude, kind of strange though.

 

[NickLeeson]

Darkhorse: Quoting Seykota by any chance?

I met him once, at a little restaurant on the north shore of Lake Tahoe. I was on my way in, he was on his way out, I recognized him, we chatted for about two minutes. Just a normal dude, kind of strange though.

Did Seykota say that?

Haha, I've used that so many times already that I'd started thinking I-was-the-genius-coining-statements-that-hit-the-nail-on-the-head...

When I was just quoting something from a book:eek:

But, what, you let him go after just 2 minutes??

Just kidding, haha, once you've found your style I couldn't care less what others do.

BTW, one thing Seykota said and I actually remember that it was he who said it and not me having discovered it, haha, is, everybody gets what they want from life, even if they may not realise that because they are subconsciously sabotaging themselves.

That is so true.

 

[darkhorse]

Originally posted by NickLeeson

Did Seykota say that?

LOL, actually Christ said it first. It's from somewhere in the new testament.

But Seykota said it in his mwizards interview too, and I figure that the typical elitetrader is probably not super familiar with the scriptures.

I didn't want to grab him by the lapels and ask him twenty questions because I know I would hate that if the roles were reversed. That was a few years ago when I still didn't have much confidence and was losing more than I was winning, before I tore apart everything I thought I knew and rebuilt from the ground up. But I got a boost from chatting with him briefly just because it helped add to my conviction that market wizards aren't supermen, they are just regular guys. He was one of the ones who helped burn into my brain that there is no magic, no secrets. Just talent, tenacity and lots of hard work.