What's the difference between trader and portfolio manager?

[Georgii]

In the end I think its a question of whether you want to strike it out on your own and take all the risk on yourself, or leverage your risk to a preexisting institution.

If you have a family to support and a mortgage to pay, it is harder to take on entrepreneurial risk than to go W2.

Its worth pointing out that finances is a cyclical job, one year you can do great, the next not so great. So much pay is derived from bonuses, it fluctuates too.

Some people have an entrepreneurial mentality, others do not. Some people simply prefer to function within the confines of a larger institution, they don't want to be bothered with the risks and details of running their own business, they are good team players and that is where they function best. Consequently, that is where they will earn the most money.

 

[sjfan]

Other than I think some of your disadvantages are either just matters of personal taste (I, for one, like expensive shirts and suits - always have, so that's not a minus for me), or just organization issues that exist in any human endeavor that require more than three people to work together.

Anyway, I think the original poster understands my message. It's not about pluses or minus. It's about risk and reward. Your good ol' (expected return - required return[*]) / risk.

[*] in career decisions, your required require isn't the risk free rate. It's your opportunity cost. If you are a high school drop out but a clever guy, your required return should be the earning of a foremen or other skilled worker - because you can at least do that.

Of course, you can make decisions based on personal preference (ie, you hate people - you don't want to work with people, etc). Again, just know why you are deviating from the rational choice.

Quote from Georgii:

I guess we can describe it thusly...

Institutional trader's plusses

* Has the backup and support of a team.
* Has access to the best fundamental research and is able to pick up the beat on the street.
* Has an opportunity to learn from people experienced in the business.
* Takes home some kind of paycheck that is correlated to performance, but still has a base.
* Doesn't have to worry about medical insurance.

Neutrals

* Has a lot of OPM to trade.

Reason? Only gets a small percentage of OPM for themselves, after everyone else's share. Can get fired from the job and therefore lose access to OPM. Larger sums are harder to trade.

Disadvantages:
* Has to deal with office politics.
* Can't trade exactly how they want.
* Has to commute to work every morning, be clean shaven, buy and maintain expensive suits.
* In some cases cannot trade for their private account due to conflicts of interest.
* Can get fired because the boss's secretary thinks they're hotter than the boss.
* Gets suckered into going drinking and partying with everyone after work and spending what they've earned.
* Have the same problem that retail traders do if they want to make the switch: developing the entrepreneurial mentality, the self discipline, living below your means, and the stomach for taking risk with their own money.

How does that sound?

 

[Georgii]

Hmm, I would agree that it is about risk/reward, and opportunity cost.

It is important of course to assess personality and personal goals. My goal is to be an independent trader, it gives me the greatest opportunity for personal freedom. That to me makes it worth the risk.

Ann C Logue had to offer 10 reasons to trade for yourself (Daytrading for Dummies, pg 281).

1) You love being independent.

Very true.

2) You want to work anywhere you like.

Very true.

3) You are comfortable with technology.

Very true.

4) You want to eat what you kill.

Done it before.

5) You love the markets.

Yes.

6) You have investing experience.

Yes, though I'm fairly new to the game.

7) You have studied trading systems and figured out what works for you.

In the process of getting there.

8) You are decisive and persistent.

I'd like to think so.

9) You can afford to lose money.

At this point, I will not risk a lot. So yes.

10) You have a support system.

Yes I do.

The main reason for me to go to work in the business would be to learn a few things while getting paid. Right now a person in my situation has a hard time with that, because of the economy. The best bet right now for someone like me seems to be an MBA while learning to trade part time.

 

[sjfan]

Great. Go for it. Like I said, if the whole personal freedom thing is so important for you to override the crappy risk/reward problem, then at least you are informed. (personally, I think there are far more interesting and potentially enriching things to do for a self-starter than day trading, which I find lacking in imagination; but that's just me).

That being said, using the Daytrading for Dummy reasons test for justification is pretty weak sauce (and sounds like a bit of "confirmation bias"). According to that test, just about every mildly ambitious individualistic person would answer yes and be a day trader.

Go trade for yourself because you desperately want to, not because you checked off a bunch of boxes in a For Dummies book.

Quote from Georgii:

, it gives me the greatest opportunity for personal freedom. That to me makes it worth the risk.

Ann C Logue had to offer 10 reasons to trade for yourself (Daytrading for Dummies, pg 281).

 

[Georgii]

Quote from sjfan:

According to that test, just about every mildly ambitious individualistic person would answer yes and be a day trader.

Go trade for yourself because you desperately want to, not because you checked off a bunch of boxes in a For Dummies book.

Checking off boxes wasn't what made me want to trade, of course. But I would say those are good checkpoints to look at when there's something you already are seriously considering.

Btw, don't knock the "For Dummies" books, a lot of them are pretty well written in my view. It's a great way to get a general overview of something before you get into the more detailed studying.

 

[theDudeAbides]

Quote from Georgii:

The best bet right now for someone like me seems to be an MBA while learning to trade part time.

Great thread.

Only thing I would add is you be skeptical of the value of a "low cost" MBA. Figure out who recruits at the school you are looking at and where its alumns have landed jobs.

I would argue that second and third tier school MBAs have very little marginal value at all...

 

[sjfan]

I second this. I went to a "first tier" business school. The education wasn't impressive. "Networking" meant a lot of late night boozing and getting undergrads to do your work; The value is that you will never not get an interview because you didn't have the right stamp on your resume.

So, with that said, unless you are getting that stamp, an MBA is pretty much worthless.

The caveat is that this is from is said for the perspective of someone who's trying to use a MBA to "reboot" his career. A 3rd tier MBA has value if you are already in a job/industry you like and want to use the degree itself to get an opportunity for promotion.

Quote from theDudeAbides:

I would argue that second and third tier school MBAs have very little marginal value at all...

 

[TSGannGalt]

Good thread.

 

[ScoobyStoo]

Quote from TSGannGalt:

Good thread.

I second that. One of the very rare threads that has something to genuinely offer on this site.

Sjfan's logic is sound but I fear many who read this thread will just assume he is one of the institutionalised oldboys and dismiss his opinion because it flies in the face of their trading dream.

He also makes an excellent point about trading in the most liquid markets. Why oh why oh why do all the newbies here bang on and on about scalping the ES? This is utter madness. Is it not better as a retail trader to exploit the inefficiencies in more illiquid instruments which the institutions can't be bothered with due to the difficulties they experience in working their large orders?

 

[Cutten]

Quote from ScoobyStoo:


He also makes an excellent point about trading in the most liquid markets. Why oh why oh why do all the newbies here bang on and on about scalping the ES? This is utter madness. Is it not better as a retail trader to exploit the inefficiencies in more illiquid instruments which the institutions can't be bothered

In the short-term yes. In the long-term you get scalability issues. Also, you will never learn to become a really good trader unless you take on the "efficient" markets.

A good boxer can beat up on bums and stiffs, win an alphabet title, avoid serious challengers and make a good living without too much trouble. But if he wants to become a respected champion, he is going to have to fight gruelling matches against the best in the world, and run the risk of loss. Same with the markets.