Market Wizards

[TigerO]

Quote from inflector:

Yes, I've rejoined the fray.

I don't find it scary at all. I suppose being successful early on with a risky but profitable venture has kept me from developing the typical risk aversion that comes with age. Not having kids also helps I'm sure. I'm actually now about the same age as most of the Turtles were when the program ended.

I'm the same person I was at 24, just quite a bit wiser and with a bit more gray hair.

I also intend to beat my previous results by a considerable margin on a risk-adjusted basis. The experience I've gained over the years gives me more confidence, not less, that I'll be successful.

The challenge for me now, as distinct from when I quit, is that there is now an industry that has evolved. Managed Futures and Hedge Funds are exploding so building a business and in a sense coming from behind with many of my former peers having a considerable lead makes it a pretty good challenge.

Like many on ET, I suppose, I intend to be the best trader/money manager when measured looking back 10 years or so from now.

- Curtis

It's good that you haven't lost your risk appetite, I think that's a sine qua non for continued outperformance.

Paul Tudor Jones said in some interview a while back that one of the biggest problems he had was that as he got older he became increasingly risk averse, but then I think he has children

One of the things I never quite understood was why bother with all the hassle clients entail. Sure, you get a free "call" option when dealing with OPM, but is it really worth the potentially huge downside everyone from Dennis through Robertson, Soros etc experienced when having to deal with recalcitrant clients who will always be much more risk averse than what would make sense when gunning for optimal results, an experience Marty Schwartz so convincingly wrote about, when instead you can just keep compounding your own stake and not have anyone you need to answer to ?

Eg look what you did with USD 2 million...

Anyway...

In your other post you were talking about some of the adversities you faced when dealing with VCs, there is quite a good documentary about a typical VC financed Startup, and this is quite a good book about the early days of the "new paradigm" where profits didn't count much anymore as long as you had revenues: Burn Rate.

Cheers and good luck

Tiger

 

[Grob109]

Quote from inflector:

I wouldn't make the distinction between amateur and professional since there are some excellent amateur traders and plenty of poor professional ones.

I make the distinction between losing traders, successful traders, and world-class traders.

I don't think money management is the differentiator between the world-class and the successful traders, but it can be the differentiator between the successful and the losing ones.

It's more of a baseline entry requirement. If you overtrade or don't manage risk correctly, you go bust or blow up psychologically because the ups and downs get to you.

All the good traders manage risk well. There are no exceptions. Anyone who is not managing risk very carefully is just a busted losing trader waiting to happen.

How many daytrading millionaires were there in early 2000 that ended up busting and couldn't make money thereafter? Were any of them actually good traders at the time?

The best have subsequently reexamined their approach and have adopted risk management techniques including proper position sizing and have developed a better understanding of the implication of trade size, diversification, etc. on fluctuations in equity and the risk of going bust.

Unless and until a trader crosses that threshold, I would not consider them to be a good trader. Talented, perhaps, gifted perhaps, but you aren't a good trader until you understand and have internalized what can kill you.

As far as what differentiates the world-class from the merely successful, I think that the very best traders tend to be less married to a particular way of doing things and are always testing new ideas, reconfirming long-held beliefs, and growing their repetoire of approaches. I believe that Bill Eckhardt is doing this and therefore that he will continue to be among the top traders over the next several years.

The one distinguishing characteristic that I see in common among the very best is the ability to see the forest and the trees at the same time and to move their focus effortlessly between these two extremes; the ability to understand the minutia while at the same time holding the big-picture perspective of the context of the market and how the parts fit together.

- Curtis

A very good explanation as to why earnings curves flatten out.

Also a nice rationale for everyone who starts small and just when the possibility of risk and money management enter the picture for these people.

There is a gap thread in progress now and the last PP here is what all participants there do not understand nor take into account as a consequence.

 

[inflector]

One of the things I never quite understood was why bother with all the hassle clients entail. Sure, you get a free "call" option when dealing with OPM, but is it really worth the potentially huge downside everyone from Dennis through Robertson, Soros etc experienced when having to deal with recalcitrant clients who will always be much more risk averse than what would make sense when gunning for optimal results, an experience Marty Schwartz so convincingly wrote about, when instead you can just keep compounding your own stake and not have anyone you need to answer to ?

First, I don't intend to "gun for optimal results" on an absolute return basis but rather to deliver what the customers want. This is risk-adjusted return, measured in many ways, but essentially return adjusted for volatility, drawdowns, fluctuations, and other risks. Investors don't like volatility. Delivering return without high-volatility is a much harder challenge. I like challenges!

Second, I guess there are two reasons for trading: making money, and competing. If you just want to make money, then managing OPM may not make sense over the long term. It also depends on your personality and customer-facing skills.

For many, and I guess I fit this group, the real lure of managing a fund is the competition level and the visibility of the results. Initially, you compete with yourself to see if you can overcome the challenges to be a successful trader. After mastering that, you start to want to see if you can be the "best", to see if you can get even better.

If you were a world-class chess player and wanted to see if you could be the best, would you confine yourself to single-player games at the local coffee house or would you travel to the big tournaments?

Trading a personal $25 million account successfully is not the same thing as managing $1 billion successfully. If you want to compare your own trading against the best, you need to play the same game they are playing using the same rules.

- Curtis

 

[ShoeshineBoy]

Quote from inflector:

First, I don't intend to "gun for optimal results" on an absolute return basis but rather to deliver what the customers want. This is risk-adjusted return, measured in many ways, but essentially return adjusted for volatility, drawdowns, fluctuations, and other risks. Investors don't like volatility. Delivering return without high-volatility is a much harder challenge. I like challenges!

Second, I guess there are two reasons for trading: making money, and competing. If you just want to make money, then managing OPM may not make sense over the long term. It also depends on your personality and customer-facing skills.

..........

Trading a personal $25 million account successfully is not the same thing as managing $1 billion successfully. If you want to compare your own trading against the best, you need to play the same game they are playing using the same rules.

- Curtis

Now this makes sense -- virtually every male in particular thrives on competition. But just out of curiosity though, has anyone heard of a Lone Trader building up an account to the 500 million plus level? Did any of the Market Wizards build up that kind of account with just personal funds? Anyone know of a trader that made it huge but basically stayed out of the spotlight?

 

[inflector]

Publicly available information showed that Richard Dennis's personal account was somewhere in the $250 to $300 million range in 1985 or so, I think Forbes put it as high as $400 million, just after the Turtle program began which puts him in the $500 million plus range in 2004 dollars. This was before he started trading other people's money, and before he started spending it heavily on donations and political ventures.

- Curtis

 

[OddTrader]

Quote from inflector:

After mastering that, you start to want to see if you can be the "best", to see if you can get even better.

How would you evaluate and what would be the general terms constituting "the best"?

If you want to compare your own trading against the best, you need to play the same game they are playing using the same rules.

Do you mean Hedge Fund is the "same" game, or else? Then what are they when you say the same "rules"?

 

[TigerO]

Quote from inflector:



For many, and I guess I fit this group, the real lure of managing a fund is the competition level and the visibility of the results. Initially, you compete with yourself to see if you can overcome the challenges to be a successful trader. After mastering that, you start to want to see if you can be the "best", to see if you can get even better.

Trading a personal $25 million account successfully is not the same thing as managing $1 billion successfully. If you want to compare your own trading against the best, you need to play the same game they are playing using the same rules.

- Curtis

I suppose my ideal would be having the best of both worlds: be your own boss without having clients you need to answer to AND turn your whatever stake into a billion dollar fortune.

Taking your own real time performance as the basis there shouldn't have been any problems in getting there with compounding and living in a low tax environment.

And if you want the visibility, give Forbes a hint to start digging.

As for examples, I suppose most who earned huge fortunes through trading would cherish their anonymity if not least for security reasons, but just off hand people like Jesse Livermore spring to mind who in todays money would probably have been a billionaire and never touched client money, or Jim Rogers, the ex partner of Soros, who dropped out of running the hedge fund quite early on because he got tired of the hassles, or a guy who made a billion dollar fortune trading FX with his own money who's name I can't think of offhand etc.


But, absolutely no doubt about it, to each their own, many probably also enjoy having staff / clients to interact with.

One thing I've always wondered about, is how on earth did Dennis, with zero trading experience, waltz up on the exchange floor of the Midam with a paltry 400 Dollars to his name, and be able to start turning a profit pretty much from the outset ? I mean, he must have done as he had bills to pay.

A short learning curve is one thing, but an almost total lack of one is quite something else.

Regards,

Tiger

 

[TigerO]

Quote from inflector:

Publicly available information showed that Richard Dennis's personal account was somewhere in the $250 to $300 million range in 1985 or so, I think Forbes put it as high as $400 million, just after the Turtle program began which puts him in the $500 million plus range in 2004 dollars. This was before he started trading other people's money, and before he started spending it heavily on donations and political ventures.

- Curtis

Impressive !

 

[darkhorse]

Quote from inflector:

If you want to compare your own trading against the best, you need to play the same game they are playing using the same rules.

I share this sentiment but I'm also wary of it. It's all well and good to take on a challenge for personal fulfillment, but if the challenge becomes an obsession the element of personal fulfillment can be lost (in my opinion).

I prefer to measure my performance against my own capabilities rather than the achievements of others.

In that sense, I want to be the best (and I plan to be the best), but I'm slowly realizing "best" is more of an internal measure for me. I agree with the authors of Flow In Sports that personal fulfillment is about finding and maintaining your optimal challenge / skills balance. If that measure takes me to 10 million or 10 billion, so be it.

The other interesting thing about life is how many different spheres of excellence there are, and how it requires balance to address more than one. I want to be a great trader, but I also want to be a great teacher and philosopher as well (in the second half of life, not anytime soon). Relationships add yet another dimension. For example, a billionaire with three failed marriages is not a success in my book.

All that to say is, I appreciate a challenge as much as anyone but wonder if putting such a high priority on one measure invites the risk of letting your desires own you instead of owning your desires. Of course, it may just be a challenge to take on for fun that's no big deal, in which case none of this would apply.

 

[OneHipCat]

Quote from darkhorse:

I share this sentiment but I'm also wary of it. It's all well and good to take on a challenge for personal fulfillment, but if the challenge becomes an obsession the element of personal fulfillment can be lost (in my opinion).

I prefer to measure my performance against my own capabilities rather than the achievements of others.

In that sense, I want to be the best (and I plan to be the best), but I'm slowly realizing "best" is more of an internal measure for me. I agree with the authors of Flow In Sports that personal fulfillment is about finding and maintaining your optimal challenge / skills balance. If that measure takes me to 10 million or 10 billion, so be it.

The other interesting thing about life is how many different spheres of excellence there are, and how it requires balance to address more than one. I want to be a great trader, but I also want to be a great teacher and philosopher as well (in the second half of life, not anytime soon). Relationships add yet another dimension. For example, a billionaire with three failed marriages is not a success in my book.

All that to say is, I appreciate a challenge as much as anyone but wonder if putting such a high priority on one measure invites the risk of letting your desires own you instead of owning your desires. Of course, it may just be a challenge to take on for fun that's no big deal, in which case none of this would apply.

Very insightfull post Darkhorse, you remind me Paul Tudor Jones who also emphasized balance in life. What type of trader are you? What's your trading methodology? If you don't mind me asking.