The Most Sure-fire Hedge Fund Possible

B

brettman9

You start a hedge fund. You hire 100 novice traders. You match their capital 3:1. You set up a trading floor with individual trading stations.

BUT - and here's the kicker - you have a trading interface with the buttons switched. Everytime they think they are buying, they're actually selling. They see their p/l * -1 (i.e. when they think they're having a bad morning, and they start to trade emotionally and lever up to get it back, they're actually having a hugely good day).

When they think they have lost all their original money, you let them go and hire replacements, telling them that you absolve them of their losses and refund them their original money (which, of course, is a small portion of the huge gains they have made for you).

The details of exactly how to set it up are unimportant...the key point remains: If you believe that trading is hard, on average, and the odds are that most traders will fail, at least at first, then you also believe, ipso facto, that the inverse of those statements is also just as true for an inverted trading interface (ie, trading is easy, on average, and the odds are that most traders will succeed, at least at first). Their decision-making would be a consistent money machine.

I think this would actually work in practice (except for possible legal issues).

I also believe that it is proof, for the trading nihilists who seem to show up on this website from time to time, that consistently winning trading is possible.
 
Very good idea, however, what happens if you get an outlier and someone hits a 'home run' and you are on the hook. It's like selling options, most will expire worthless, however, your downside is unlimited and on the rare occasion you get a big event, your gains may be wiped out entirely and then some. I suppose you could monitor them to see if someone actually has some natural talent, however, very hard to do in practice I think.
 
Would make for a funny reality tv show. Maybe not a hedge fund but just a small group of traders each given a few grand.
 
Quote from NTB:

Very good idea, however, what happens if you get an outlier and someone hits a 'home run' and you are on the hook. It's like selling options, most will expire worthless, however, your downside is unlimited and on the rare occasion you get a big event, your gains may be wiped out entirely and then some. I suppose you could monitor them to see if someone actually has some natural talent, however, very hard to do in practice I think.
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You're probably right, in that it would force you to "trade" the traders (bench one when he's doing too well, activate him when he's not, etc) which is probable harder than trading.

Perhaps there's a solution. And maybe we can flesh it out here. But the more important point to me is in the last sentence, because I know how tough it is argue against someone who's decided, as an unassailable premise, that trading is impossible over time.
 
I think your idea would work, but would not make more money than a random moving average cross system, and would cost a lot more to set up.
 
Quote from sub0:

Would make for a funny reality tv show. Maybe not a hedge fund but just a small group of traders each given a few grand.
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It would be an incredible study in trading philosophy, and the best teaching tool I can think of. Here's what you decided. Here's how you handled this pattern or that market or this trade or other...and now, just invert that thinking.

Take on more size when you're up and it's going seemingly too far your way. Take less size when the opposite is true. Etc...
 
It reminds me of that Seinfeld episode when George was hating his life and just decides to do everything exactly the opposite of what he would normally do. It worked well for him but I forgot how it ended.
 
Quote from NTB:

It reminds me of that Seinfeld episode when George was hating his life and just decides to do everything exactly the opposite of what he would normally do. It worked well for him but I forgot how it ended.
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Nice one. Good enough for me:

Castanza Capital Management.
 
It won't work, because taking the "wrong" entry position is not why most traders fail. 98% of the time, across all markets, you can enter either long OR short and come out ahead.

It's choosing the exit point that is the problem, and that is impossible to "invert".

The "right" way to do this is to simply bucket all their trades, secure in the knowledge they will most likely go bust anyway. But that idea isn't new - it's been around for centuries.
 
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