In the trading literature, when the topic of money management is discussed, most traders would mention or are aware of the works of individuals such as Van Tharp, Ralph Vince, Larry Williams, and Nauzer Balsara, etc. I am fairly familiar with the works of those individuals. However, being an outsider, I get the impression that the real professional money management industry does not pay attention to them. Instead, if you look up money management in a more professional forum like wilmott, people mention books such as "Active Portfolio Management" by Grinold and Kahn, or "Quantitative Equity Portfolio Management" by Qian. I have not had time to study these works, but am curious about why there seems to be different approaches for traders and for fund management firms.
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How is "money management" for traders different from large fund management firms?
- Thread starter ezbentley
- Start date
Quote from ezbentley:
... forum like wilmott, people mention books such as "Active Portfolio Management" by Grinold and Kahn, or "Quantitative Equity Portfolio Management" by Qian.
Most people in those forums are from academia and many of them have never traded real money. Maybe they have investment accounts. For them money management means allocation between alternative investments vehicles and that is mostly what is discussed in the books you mentioned. For example, given that you have 10 stocks in a portfolio, the objective is to determine the weight of each one so that the portfolio expected return is maximized and its volatility is minimized.
For most traders money management is related to position risk.
I was directed to this post from an aquaintence of mine who is a member here.
Allow me to preface my point here with this: About a year ago I began trading solely on the basis of arbitrary timing -- there is no fundamental or technical criteria to the timing of my trades. I have only traded equities and only from the long side, and have made upwards of about 30 trades. I have yet to experience a losing trade. My basis behind my trades has been entirely quantity-based as it is the only thing I have control over in this game.
The academic texts you mention -- as well as the other academic texts, generally disregard the fact that relative allocations and leverage are inseparable. People fail to realise they employ leverage even when they are doing everything in a cash account. To separate relative allocations and leverage is to watch both dissolve. The study of relative allocations sans leverage is prima facie evidence that those doing the discussin know nothing about relative allocations, academic credentials notwithstanding.
I'm not going to go into that here. It gets a little lengthy, and I've already discussed it (and no, I'm not trying to huckster any books, I don't really make much off the books). Nor am I interested in trading other's money. I trade my own humble stake -- and have no interest in trading for others. I would rather go dig graves than put myself under the capricious microscope of neurotic investors.
I am all ears to anyone from the academic side of the fence posing an argument counter to mine. However, they best have a track record that would make me take notice to validate their argument.
Allow me to preface my point here with this: About a year ago I began trading solely on the basis of arbitrary timing -- there is no fundamental or technical criteria to the timing of my trades. I have only traded equities and only from the long side, and have made upwards of about 30 trades. I have yet to experience a losing trade. My basis behind my trades has been entirely quantity-based as it is the only thing I have control over in this game.
The academic texts you mention -- as well as the other academic texts, generally disregard the fact that relative allocations and leverage are inseparable. People fail to realise they employ leverage even when they are doing everything in a cash account. To separate relative allocations and leverage is to watch both dissolve. The study of relative allocations sans leverage is prima facie evidence that those doing the discussin know nothing about relative allocations, academic credentials notwithstanding.
I'm not going to go into that here. It gets a little lengthy, and I've already discussed it (and no, I'm not trying to huckster any books, I don't really make much off the books). Nor am I interested in trading other's money. I trade my own humble stake -- and have no interest in trading for others. I would rather go dig graves than put myself under the capricious microscope of neurotic investors.
I am all ears to anyone from the academic side of the fence posing an argument counter to mine. However, they best have a track record that would make me take notice to validate their argument.
Timbo -- yes, that is the accepted argument/ However, the caveat to that argument is "In the long run." That is, as the number of holding periods or trades increases, approaches infinity.
I have since found that this accepted argument doesn't always hold during finite periods of arbitrary length (though, the shorter the period, the more likely it is not to hold), and that we can. algorithmically, prepare for those extended periods where, given the window of an extended, losing period, we can do quite well on. In fact, evolution has hard-wired us to innately manage that.
I have since found that this accepted argument doesn't always hold during finite periods of arbitrary length (though, the shorter the period, the more likely it is not to hold), and that we can. algorithmically, prepare for those extended periods where, given the window of an extended, losing period, we can do quite well on. In fact, evolution has hard-wired us to innately manage that.
Thanks for everyone's reply here, but I don't think my question has been clarified in a fundamental way.
While it's true that the authors I mentioned focus mostly on position sizing for each trade, the trader must at some point start to think about portfolio composition and diversification, if he/she wants to maximize return and minimize volatility. So I don't see any reason why the individual traders and institutions should have different goals. I know that the much smaller account size of the individual traders do make diversification more difficult to implement than the large firms, but that doesn't mean they shouldn't worry and learn about it.
It would be helpful if someone with both institutional money management and retail trading experience to share some thoughts here.
While it's true that the authors I mentioned focus mostly on position sizing for each trade, the trader must at some point start to think about portfolio composition and diversification, if he/she wants to maximize return and minimize volatility. So I don't see any reason why the individual traders and institutions should have different goals. I know that the much smaller account size of the individual traders do make diversification more difficult to implement than the large firms, but that doesn't mean they shouldn't worry and learn about it.
It would be helpful if someone with both institutional money management and retail trading experience to share some thoughts here.
Quote from ezbentley:
...Van Tharp, Ralph Vince, Larry Williams, and Nauzer Balsara... Grinold and Kahn, or "Quantitative Equity Portfolio Management" by Qian. I have not had time to study these works, but am curious about why there seems to be different approaches for traders and for fund management firms.
You forgot to mention jimbojim, the greatest money manager all times...lol...
You sound too confused to play with real money. Portfolio management is for deep pockets. You don't need that for your simulated ES trading account....lol...
You give these threads big laughs... thank you...lol...I haven't laughed so hard for a long time...lol...
Hi rvince99,
I think you are referring to the "leverage space model" developed by Ralph Vince in his latest books. I think it is safe to say that the academic world is probably not aware of this model. You also seem to be making the claim that most academics are ignorant since they don't associate leverage with relative allocation. However, most of the money managers in the industry, successful or not, still practice what they learned from academics.
If you think the leverage space model is a superior scheme, then why is it under the radar of the academics? Or are you aware of any fund management firm that uses the leverage space approach and has a track record?
I think you are referring to the "leverage space model" developed by Ralph Vince in his latest books. I think it is safe to say that the academic world is probably not aware of this model. You also seem to be making the claim that most academics are ignorant since they don't associate leverage with relative allocation. However, most of the money managers in the industry, successful or not, still practice what they learned from academics.
If you think the leverage space model is a superior scheme, then why is it under the radar of the academics? Or are you aware of any fund management firm that uses the leverage space approach and has a track record?