why do funds perform so poorly?

Quote from psytrade:

They have basic indicators showing the flow of cash into the mutual funds and its at a 5 or 7 year high, and we're also past the peak of the SP500. Always happens, dumb money chases after money's been made.
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I'm not defending individual investors here. I make a good living off dumb investors and their dumb money. However, if you think (as malaka and blunt seem to) that institutional investors earning a mere 12% are the dumb money then you don't understand the markets.

For trading systems, if you run $1 billion you can get 30-40% annually out of the SP500 but if you run $50 billion you'd be hard pressed to get 25%. Anyone have any data on the decline of returns as capital increases?
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"Here's some numbers I pulled out of my ass. Hey, does anyone have numbers they didn't pull out of their ass?"

I can't believe I'm teaching you guys arithmetic. If (as you claim) you'd be hard pressed to make 25% with $50 billion, then any 50 money managers with $1 billion each are also going to be hard pressed to earn 25% returns. Some of them are going to make 30-40% but some of them are going to make 10-20%. Broadly speaking, the average dollar in large funds does no better than the average dollar in small funds.

Martin
 
I was talking about liquidity and access to the good trades. Theres only so many opportunity trades.

Apparently your talking about something else.
 
Quote from Hydroblunt:

The markets are not academic and never will be. Financial economics still try to push the idiotic efficient market hypothesis.
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My point has absolutely nothing to do with efficient markets or any other academic constructions beyond basic arithmetic. It holds even in wildly inefficient market. Go back, read it again, maybe you'll understand.

It's just dumb money & smart money, the poor and the rich, fear and greed. Just different variations of the tools & tricks used every generation.
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*shrug* If that's all you're saying, who can argue with that?

Martin
 
Quote from psytrade:

I was talking about liquidity and access to the good trades. Theres only so many opportunity trades.
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That's precisely what I'm talking about.

Martin
 
Quote from Grob109:

Thanks for your comprehensive reply and the specific related data.

You make a strong connection between between risk of a given portfolio and its ROI. Your division of total capital into the three venues probably satisfies a lot of wealth building goals for you.

It is very possible to consider wealth building from alternative viewpoints than the traditional one you have articulated and follow. To say that these traditions are entrenched is an understatement.

You can easily imagine how any person who does not share those views feels while circulating in the domain of these practitioners.

As an entrenched sailor who never misses a Block Island or Edlu (sp?) it was always fun to pass the time as an invited strategist to debate the traditions.

I still revere having experienced the financial transitions from pre computer to computer mainfraimes to PC dominated global orientations. The pre quant world was something to behold where the traditions you speak of came into prominence.

It definitely was a C+ history Ivy league world for striving for striving for the ultimate balance in everything. My daughter swiped my wooden shaft putter and would never concede it back to me. It was the "right' putter for her.

My view is this. A person can go through a cogent reasoning process to escape these traditions. The fact that university X's tenured Professor comes to a conclusion using a comparative analysis of two wrong minded subjects does not prevent one of his protegees from escaping his confines. todays or tomorrow's Nobel prizes will go to these escapees, I believe.

Being told that I am going to learn my lesson by stars of the industry, was and is conventional I guess.

For me, I could just never refrain from the logic that I perceived. It is my perception that the best investments are attained from the best opportunities. Best opportunities are defined by quality assessment.

The PC has lead to the entry of the public into investing, where heretofore it was the domain of the few. Letting the heritage issues fall away and not be a foundation of investing based upon tradition, led to two paths. Quants and the man in the street are moving to the STREET and beginning to occupy niches. I left the scene of tradition and saw that mainframes could handle data and simply tried to use an 024 to punch out daily decks to deal with daily price movement in the markets. Punching was an exercise in futility compared to using brownlines and a pencil.

It is something like being an engineer just out of school and having been told how to read the WSJ (by a prof at that engineering school) and seeing a light bulb go on for "making money" all in the context of the NY Social Register and its traditions for wealth.

I recommend to anyone to simply use their talents to discover and learn about making money considering the potential of the markets to give it to you (or allow you to take out the potential the market offers).


The money is there continually and irrefutably by any quality statistical or financially measured manner. Poor analysis and measurement yields accordingly.

Once the traditional approaches are mapped onto the market universe, you can see that the alternative spaces for high money velocity wealth building may or may not overlap. Considering market shares vis a vis trades completed by a particular venue, it turns out that various approaches do not compete for wealth protions and upper trade limits quantification has only to do with the approaches strategies.

So all of this shows that market risk is not a function of the market's operation but merely a function of the trader's approach. Specifically in an approach the risk comes down to the rules for remaining in the market as the market behaves.

Any approach that is designed to meet a goal of high money velocity for wealth build automatically goes to areas on the universe that eliminate all risks while being in the market.

Once you invent five or so tools for handling this in the application of a given approach, they handle most of the use of capital over time in the markets.

Make a list of a 100 inventions and see how they are distributed by use over the universe of the markets and the approaches for those parts of the markets universe.

As an example, take DELL. I advocate that it is good for about 60 to 70% a year for capital appreciation. Therefore, I cannot make it part of my list for investing since it does not perform adequately. Other do use it to make profits, however.

It could be used in all three of the partitions mentioned by drS that I am responding to. Each would make differing levels of ROI/per year. Personally, I cannot stand the risk of any of those three situations; nor could I settle for only 70% a year from DELL.

I am attaching, once more a possible way to approach this. No one can easily reason a pathway to the traditional approaches of the industry.
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1. Thank you for not flaming, particularly since you do not agree with me. That is a mark of gentility, which is one of the commodities in shortest supply around here.

2. Yes, my division of capital does satisfy my primary goals at this time in my life, number one, two, and three ofwhich is : Not losing all my capital.

Brief aside - I am not a professional. I come from a "wall st." family. My dad had a seat. Big deal. Dad did not follow rule #2 & died quite broke.

3. I used to chart on paper too. And we had one of the original computrek programs running on an 8088. How's that?

4. B- in my Ivy league school, thank you very much. It disturbs me how quickly you identified that.

5. I can't tell if your discussion is a sales pitch or an honest entreaty to get me to change my mind about my approach to asset allocation. If it is a sales pitch - sorry, not interested. All the best information I have ever received has been either free, nearly free, or most importantly self-discovered.

6. Assuming you are genuine, your high velocity technique sounds interesting, but your further discussion devolves into jargony gobbledygook. More meat please! And yes, I agree with the "shift your paradigm" ideas out there but 'keeping it real' is necessary also.

7. Your list is a useful beginning for self- exploration. However, many successful traders have potentially done this exercise innately and may have arrived at the same place by skipping over some of those areas of discussion. Why? Because they just know it. Why do you need to question what you know innately to be true (if you are true to yourself?)

8. Traditional pathways yield traditional, average, and mediocre results. But consider the purposes behind those pathways and the people who choose them. We have definite life goals. Once those goals are assured, even greater risk can be taken because the fear of being unable to achieve those goals has been removed. You have, in effect, 'set yourself free'. This, I argue, is what real wealth is.

9. Bulls and bears make money, but pigs get slaughtered. See #2. You wouldn't believe how useful annuities, a lack of personal debt, and cash in the bank are for your trading. But everyone laughs at the values of thrift, living within ones means, liquidity, and lack of indebtedness in our 'modern' society. Why? It's just not sexy enough.

10. My final point. I will pass along my acquired wisdom, which will probably be ignored.

The market is what the market is. The market does not care if you make money. The market does not care if you lose money. The market does not care if you need new car, or if your baby needs a new pair of shoes. The market does not care about you. The market simply is what the market is. If you are long and prices go up, you make money. If you are short and prices go down, you make money. If the reverse happens, you lose money. And at the end of the day, that's all there is. Try not to lose money.
 
Quote from drsteph:

1. Thank you for not flaming, particularly since you do not agree with me. That is a mark of gentility, which is one of the commodities in shortest supply around here.

2. Yes, my division of capital does satisfy my primary goals at this time in my life, number one, two, and three ofwhich is : Not losing all my capital.

Brief aside - I am not a professional. I come from a "wall st." family. My dad had a seat. Big deal. Dad did not follow rule #2 & died quite broke.

3. I used to chart on paper too. And we had one of the original computrek programs running on an 8088. How's that?

4. B- in my Ivy league school, thank you very much. It disturbs me how quickly you identified that.

5. I can't tell if your discussion is a sales pitch or an honest entreaty to get me to change my mind about my approach to asset allocation. If it is a sales pitch - sorry, not interested. All the best information I have ever received has been either free, nearly free, or most importantly self-discovered.

6. Assuming you are genuine, your high velocity technique sounds interesting, but your further discussion devolves into jargony gobbledygook. More meat please! And yes, I agree with the "shift your paradigm" ideas out there but 'keeping it real' is necessary also.

7. Your list is a useful beginning for self- exploration. However, many successful traders have potentially done this exercise innately and may have arrived at the same place by skipping over some of those areas of discussion. Why? Because they just know it. Why do you need to question what you know innately to be true (if you are true to yourself?)

8. Traditional pathways yield traditional, average, and mediocre results. But consider the purposes behind those pathways and the people who choose them. We have definite life goals. Once those goals are assured, even greater risk can be taken because the fear of being unable to achieve those goals has been removed. You have, in effect, 'set yourself free'. This, I argue, is what real wealth is.

9. Bulls and bears make money, but pigs get slaughtered. See #2. You wouldn't believe how useful annuities, a lack of personal debt, and cash in the bank are for your trading. But everyone laughs at the values of thrift, living within ones means, liquidity, and lack of indebtedness in our 'modern' society. Why? It's just not sexy enough.

10. My final point. I will pass along my acquired wisdom, which will probably be ignored.

The market is what the market is. The market does not care if you make money. The market does not care if you lose money. The market does not care if you need new car, or if your baby needs a new pair of shoes. The market does not care about you. The market simply is what the market is. If you are long and prices go up, you make money. If you are short and prices go down, you make money. If the reverse happens, you lose money. And at the end of the day, that's all there is. Try not to lose money.
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Thank you so much, again, for your response and initiatives.

Prudence, of course, prevails.

I think it would really be worthwhile to exchange views on what you have neatly scoped and bounded here.

We are both on the same page and I sincerely feel that you are wanting to understanding that I am just in discussion with you on potential mutual interests. If you read "sales" it is probably just more an advocacy orientation instead.

Serendipity allowed me to set myself free early on (see 8 above). I was able to use stock collateral at Farifield C. Bank and Trust to purchase my first family sailing cruiser (King's Cruiser US 122) with a 2 year loan. Meaning I traded the stock in street name to double down in two years meaning their security standards for collateral. They sent me a check for the price of the boat at the end of two years and I had, in effect, a free boat.
My son was born half way through the loan which was another "freedom" when we weren't expected to have children; meaning we went first class financially at the Greenwich Hospital.
 
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