raising funds

[rmorse]

Quote from traderwann:

Thanks for that point, I agree that investors factor in risk when looking at returns. So I have two questions for you:

1. What did you base your risk calculation on or how did you determine the risk level in this proposal?

2. How did you then calculate or conclude this "isn't attractive at all" and equivalent to a lottery ticket?

Most fund to funds, family offices and wealth investors don't run intence risk calculations. They look at average monthly returns. They compare that with your worst monthly draw down. They know what level of return they are looking for. They know if they're looking for a monthly 5% return, there is going to be risk. 10% per month, more risk. But then they like it when your worst month is no worse then your average positive month. So, if they want a 5% average monthly return, your worst month should not exceed -5%. They really don't like big swings, even if your end of year is great.

 

[Martinghoul]

Quote from traderwann:
Thanks for that point, I agree that investors factor in risk when looking at returns. So I have two questions for you:

1. What did you base your risk calculation on or how did you determine the risk level in this proposal?

2. How did you then calculate or conclude this "isn't attractive at all" and equivalent to a lottery ticket?

1. It's based on the information that you have provided.

2. I came to my conclusion on the basis of my personal experience.

To be sure, pls note that all I say is just my personal opinion and no more than that. I am often wrong.

 

[traderwann]

Quote from Martinghoul:
1. It's based on the information that you have provided.
2. I came to my conclusion on the basis of my personal experience.
To be sure, pls note that all I say is just my personal opinion and no more than that. I am often wrong.

I don't want to leap to conclusions, but it seems like you are avoiding answering, so in that case let me rephrase:

1. What information did I provide that you used to base your risk calculation? How did you use that info to determine a risk level?

2. Either you calculated this objectively somehow, or you gave a biased "personal" opinion that is not based on facts, calculations, etc. Which is it? It appears you are implying the latter without coming out and stating it clearly. If there is objective analysis to your personal opinion, that is what I am asking about in my original question.

Thanks.

 

[Martinghoul]

Quote from traderwann:
I don't want to leap to conclusions, but it seems like you are avoiding answering, so in that case let me rephrase:

1. What information did I provide that you used to base your risk calculation? How did you use that info to determine a risk level?

2. Either you calculated this objectively somehow, or you gave a biased "personal" opinion that is not based on facts, calculations, etc. Which is it? It appears you are implying the latter without coming out and stating it clearly. If there is objective analysis to your personal opinion, that is what I am asking about in my original question.

Thanks.

I am happy to elaborate. However, note that I have stated clearly that everything I say is my personal opinion, i.e. subjective and "biased", if you like, based on my personal experiences. Also, pls keep in mind that I mean no offence whatsoever.

1. You stated that you have backtested a strategy that returns a large amount of money per month. This information immediately suggests all sorts of issues with your approach. Firstly, because you talk about a backtest without any mention of in-sample/out-sample or any other technique designed to address the various well-known problems with backtesting. Secondly, because the sample period is ridiculously short. Thirdly, because you don't offer any sort of a risk-adjusted characteristic of your strategy, e.g. Sharpe ratio or max drawdown or anything of the sort. All you provide is a return. No offence meant, but this is only done by novices and scammers. In either case there's a large risk of a catastrophic loss for an investor.

2. Whenever I make an investment decision, there's always a part to the analysis that isn't based on tangible evidence and facts. Very often this "intangible" part is based on performing an extrapolation from past experience. That is what I am doing in this case. I am not suggesting that such an approach always produces correct decisions, but it certainly improves the odds. In the case you offered, based on my experience in and arnd the mkt, the probability that you have found an unconstrained strategy that produces an outsize risk-adjusted return is non-zero, but infinitesimally small (non-zero, because cases like this do exist). Hence, my mention of a "lottery ticket". Again, I stress that I have nothing whatsoever against you personally, but that's just how the cookie crumbles.

Hope this helps.

 

[traderwann]

Quote from Martinghoul:
You stated that you have backtested a strategy that returns a large amount of money per month.

I never said this. If you extrapolate from the follow up posts, it's very clear I am forward testing but you're right that I never explicitly said that.

Secondly, because the sample period is ridiculously short.

This is admitted and forms the basis of the question. If you go back I note that making the period any longer doesn't make sense. Hence why I say it's very clear I am forward testing if you extrapolate.

Thirdly, because you don't offer any sort of a risk-adjusted characteristic of your strategy, e.g. Sharpe ratio or max drawdown or anything of the sort. All you provide is a return. No offence meant, but this is only done by novices and scammers. In either case there's a large risk of a catastrophic loss for an investor.

I believe I mentioned a drawdown figure private to someone who asked. I'm sorry that I didn't do that up front for you, no one else seemed to think it an indication of a scam. I also originally said I was a novice in some areas. I don't see how you get to that conclusion objectively either, when I'm basically asking "what do you need from me before proceeding?" I'm not pushing anything because I wouldn't even know how to! That's the funny part. I'm not sure you read the thread based on your reply so far.

Your reasoning is:

1. risk indicator is not provided
2. best results are achieved by assuming one doesn't exist (as opposed to asking for a risk indicator to make a more objective analysis)

I'd be curious if there's a miscommunication or accident here, or, if this really is an example of the due diligence that you base your other investment decisions on as well? You do raise some good points, I'm just not sure you went about doing it the best way. Also, you speak as if "this is how it is" when just previous to you someone disagreed. I could ask you for your credentials but I'd rather just hear you refute what Bob had to say. What he says appears reasonable. Nothing was taken personally, I was just trying to make sense of what you were saying.

 

[heech]

Quote from rmorse:

Most fund to funds, family offices and wealth investors don't run intence risk calculations. They look at average monthly returns. They compare that with your worst monthly draw down. They know what level of return they are looking for. They know if they're looking for a monthly 5% return, there is going to be risk. 10% per month, more risk. But then they like it when your worst month is no worse then your average positive month. So, if they want a 5% average monthly return, your worst month should not exceed -5%. They really don't like big swings, even if your end of year is great.

Right idea, but numbers you use don't make sense.

Most family office / HNW would be looking for 15-20% annualized returns, which is roughly an average 1.5% monthly number. Good luck finding a strategy with a worst drawdown smaller than 1.5%.

 

[heech]

traderwann, I think you are taking his comments too personally. His conclusion is correct, although he wasn't generous in sharing his logic. No one is going to invest in a strategy that returns "6-15% a month" on the basis of 30 days of hypothetical trading. There is literally nothing of value there. It would take minutes for most of us to generate a curve fit strategy that happened to return 6-15% over the previous month... hard part is finding a strategy for the next month!

Backtest in- out- sample with 5-10 years of data. Generate numbers on worst daily/monthly drawdown, generate Sharpe/Sortino numbers on a rolling 6, 12, 36 month basis. Then if you are charming, have great credentials, and a fair amount of luck... You will find a gambler ready to take a small position in you. Trade that effectively for 3-5 years live, and you will start to find other investors starting to take a serious look at you.

 

[sle]

Quote from traderwann:
For the past 30 days I have tested a strategy that is returning approximately 6% - 15% per month, but requires the capital of a HNWI.

(a) What asset class?
(b) Did you back-test it in-sample/out-of-sample?
(c) What is the historical Sharpe ratio, what is the Sortino ratio?
(d) What was your max drawdown?
(e) What is the change in Sharpe when you introduce the transaction costs?
(f) If it's an option strategy, what is it's correlation with the VIX level?
(g) How well does the strategy scale?
There are many more questions that I can ask that any FoF or HNWI will ask you. But the first one would be - if you are really running a strategy that can make 6-15% per month and requires high amount of capital, why would you let ANYONE in? Start with a few hundred grand, give it a couple years and you will have enough capital to last you a lifetime...

PS. As I have said before, it's not too hard to generate 50-100% returns on really small capital, but consistent double-digit returns are pretty hard to come by even on capacity constrained strategies.

 

[Martinghoul]

Quote from traderwann:
I never said this. If you extrapolate from the follow up posts, it's very clear I am forward testing but you're right that I never explicitly said that.

This is admitted and forms the basis of the question. If you go back I note that making the period any longer doesn't make sense. Hence why I say it's very clear I am forward testing if you extrapolate.

I believe I mentioned a drawdown figure private to someone who asked. I'm sorry that I didn't do that up front for you, no one else seemed to think it an indication of a scam. I also originally said I was a novice in some areas. I don't see how you get to that conclusion objectively either, when I'm basically asking "what do you need from me before proceeding?" I'm not pushing anything because I wouldn't even know how to! That's the funny part. I'm not sure you read the thread based on your reply so far.

Your reasoning is:

1. risk indicator is not provided
2. best results are achieved by assuming one doesn't exist (as opposed to asking for a risk indicator to make a more objective analysis)

I'd be curious if there's a miscommunication or accident here, or, if this really is an example of the due diligence that you base your other investment decisions on as well? You do raise some good points, I'm just not sure you went about doing it the best way. Also, you speak as if "this is how it is" when just previous to you someone disagreed. I could ask you for your credentials but I'd rather just hear you refute what Bob had to say. What he says appears reasonable. Nothing was taken personally, I was just trying to make sense of what you were saying.

You're absolutely correct and I should have responded to your very first post, rather than to a latest one. So I apologize for that. I am generally happy to help if you have specific questions or if you are looking for any sort of guidance.

I think sle and heech have offered some ideas and my suggestions would be along the lines of what they have given. There's a lot of information you need to provide to anyone looking to invest. On top of what had already been mentioned, I think one of the most important characteristics is the stability of the parameters of your strategy. Also, there's a generally a lot of work people do around transaction costs. Then there's the various issues of capacity etc.

 

[traderwann]

@martin, sle, heech - thanks for your comments

it might help to read this thread through from the beginning but i should state that i am trading discretionary based on my experience which is why most of the standard backtesting data was not provided, i also just mentioned this forward testing in the last reply to martin

heech - if you think the hard part is finding a strategy for the next month, what will you say after next month is impressive as well (hypothetically)? how many more months? this is getting to the point of the original question that started this thread, basically: what do i do now / next with my results so far? i should have picked a different title than "raising funds" ... what else, oh yes you say 3 - 5 years but the previous consensus is with a $100k account and scaled down, a 6 - 12 month track record should start generating interest

sle - futures (oil, gold, indexes, euro), but a chart is a chart unless whatever it is tracking looks whacky at first glance in which case not many strategies will work

finally, as for drawdowns i want to really emphasize that i MOST DEFINITELY expect this to change but for now one reason for the high ROI is because there haven't been any drawdowns, and this does touch on a problem i recognize and am currently improving on, twice i've hit up to -$100k before bouncing back, it's not unexpected but i realize that has to change

one of the last questions i asked before Martin revived the thread was how to go about raising the initial few hundred grand as you put it, to get this going, i don't want to let anyone in but i don't know how to raise funds without giving someone something, do you? one thing i hoped to gain from originally asking were some options i might have, so far it seems like the consensus is i don't have any/many, and like i said i also expect that return to drop a fair bit over time