My account value reaches $600,000 for the first time; launching incubator hedge fund

[Cache Landing]

Quote from the1:

If you have investors you can start an incubator fund for much less than this. When I started mine I paid a mere fraction of the costs you are mentioning. The audit was the most expensive part but even that can be completed for less than 10K. There is a lot of work you can do to make the auditors job much easier.

The costs that I mentioned are actually considered discount in the industry, and are only available through boutique shops. Any of the larger firms will cost you much more.

You could setup a simple domestic fund for around $15K legal fees but the administrative fees are a monthly expense (around $1K) and will really eliminate a lot of the headache of a start-up hedge fund. I trade about 20 round trips per day. If you are anything like me then audits and taxes are gonna cost you.

 

[atticus]

Quote from lazar206:

I bought 20 shares of apple last year for $258 each, since Steve Jobs has left because of an “undisclosed” medical condition I felt the stock is becoming more of a gamble, I sold most of the positions for $337. I still hold 6 shares.

The best performing large-cap in the nasdaq100 and you owned 20 shares in a buy and hold account? How did you earn 60% per year?

 

[lazar206]

Quote from atticus:

The best performing large-cap in the nasdaq100 and you owned 20 shares in a buy and hold account? How did you earn 60% per year?

Let me clarify a couple of things since it seems there are several posts on the forum that had some questions regarding my strategy, buy and hold, and how my account will handle a bear market.
When we are talking about a buy and hold strategy, we are not talking about buying some company for example GE APPL MSFT VZ BP WFC and sit with it for the next 20 years, the risk of each of these companies loosing earnings and their share price falling hard is a real risk. When I say “buy and hold” I mean the following; when I identify a strategy that in my opinion would succeed over the long term even if the stock market will be negative, I will NOT chicken out if the market starts to move against me in the short term. I would stick to my plan and expand my positions on a monthly basis. Over the long term these dips serve as a great opportunity.

Now you ask how I earned 60% a year. Off course I would not be able to detail everything in one post especially since my strategies keep changing; however I will give you a summery of my most profitable strategies over the last 2 ½ years. In 2009 it was buying financial preferred shares with a 15% yield, in 2010 it was taking advantage of the time decay of triple leveraged ETF thru shorting them, for 2011 it seems that shorting VXX which has severe “contango” might be the most profitable strategy. All of these 3 strategies have one thing in common; they do not depend on the market over the long term, in fact even if the S&P 500 will be lower by 30% in 2 years those positions would probably still be profitable. Besides that around 80% of my portfolio (500k) is allocated in fixed income/dividend producing shares, generating an income of more the 3k every month, which is being reinvested monthly in different securities.

 

[dwpeters]

Quote from lazar206:

Over the long term these dips serve as a great opportunity.

Most of the time, and sometimes buying the dips is a disaster, just ask the Japanese. Most non-traders seem to think traders are overly aggressive, and some are, but for me the risk of a buy and hold strategy is much too high. It is certainly much higher risk than the combination of the strategies I trade, and from my perspective there simply is no need to take such risk. Shorting VXX may be a good idea, but it would likely increase your losses in a bear market, not hedge them.

FYI, I offset the risk of trading long by trading short. Even in a bull market there are regularly opportunities on the short side. If you can outperform the market on the long side, and it sounds like you have, then you could probably do so on the short side as well.

 

[BCE]

Quote from lazar206:

When I say “buy and hold” I mean the following; when I identify a strategy that in my opinion would succeed over the long term even if the stock market will be negative, I will NOT chicken out if the market starts to move against me in the short term. I would stick to my plan and expand my positions on a monthly basis. Over the long term these dips serve as a great opportunity.

Quote from dwpeters:

Most of the time, and sometimes buying the dips is a disaster, just ask the Japanese.

Or ask the traders who bought what at first looked like the dips, or averaged into losing positions, in the Dot-com bubble crash of the late '90's. Maybe you wouldn't be investing in these types of stocks. But any company can crash. Not sure about your investing style, but you do need to have some sort of viable exit strategy in case this happens. And "buying the dips" because over time this is good, isn't always a good one. Sometimes it's not good. You need to define and refine your strategy to include these possibilities.

Wishing you all the best with your endeavors.

 

[atticus]

Quote from lazar206:

for 2011 it seems that shorting VXX which has severe “contango” might be the most profitable strategy.

You're shorting VXX for 300bps over cash? I'd like to know, in general-terms, how you're hedging your VXX short. If you're simply shorting VXX in this "80% dividend shares/FI portfolio" then you're nuts.

 

[heech]

I think we should just be clear how the industry views these various terms, and what role they serve. There's no one that's going to arrest you for using the "wrong" title... but you're going to end up confusing people.

A hedge fund is, as the name suggests, *supposed* to be hedged against downturns in the broader markets. Any fund that primarily looks for value, and "buys and holds" through the bear markets should be called something other than a hedge fund.

You might call it being the "chicken" approach, but hedge funds aren't supposed to ride a bear market down to the bottom.

This doesn't mean only hedge funds should exist in this world. But to me, based on what you've described so far... it sounds like your approach is more appropriately described as being similar to that of a traditional investment advisor, or a mutual fund manager, or just a value investor.

 

[atticus]

I don't think anyone here is confused on terms. There are plenty of long-only equity hedge funds out there, but the difference between an activist fund like Pershing and a guy buying some AAPL at Ameritrade Inst. are pretty significant.

I made a recommendation on the fee-only route as I believe that his fund would be an impossible sale to investors.

Agree 100%.

 

[lazar206]

I would use this as a reply for all of the posts above regarding strategy, buy and hold, buying at dips. I think that rather then arguing about those strategies, I will let time tell how these strategies work out over the long run. As discussed I hope to post my results in the end of each calendar month so you will be able to analyze it how it is performing, and post your comments.
Thanks all of you for your interest and comments.

 

[atticus]

Quote from lazar206:

I would use this as a reply for all of the posts above regarding strategy, buy and hold, buying at dips. I think that rather then arguing about those strategies, I will let time tell how these strategies work out over the long run. As discussed I hope to post my results in the end of each calendar month so you will be able to analyze it how it is performing, and post your comments.
Thanks all of you for your interest and comments.

Would you mind responding to this? I actually trade the product and an a bit confused what you think you're seeing.

You're shorting VXX for 300bps over cash? I'd like to know, in general-terms, how you're hedging your VXX short. If you're simply shorting VXX in this "80% dividend shares/FI portfolio" then you're nuts.