"The main difference between the Pros and the amateurs is expectations"

[Cornix]

Hedge funds trade very differently and are completely unable to do the same as small traders can easily do, have a short hard stop-loss and quickly enter/exit positions for example.

So a good smaller trader can surely make much greater % returns, than the big money, but this return has a limited growth potential in absolute terms.

 

[Black Swan]

In response to the first post I think a lot comes down to personal expectations and goals.

For me I do not need huge income to make me happy as I like a simple life and never craved a flash car or fancy lifestyle.

In fact over a year ago I sold my business (unrelated to finance) and paid off my mortgage, have no debts and have been living off £180 a week from part time work. During this time I have not touched my savings as the £180 more than covers my outgoings.

For me earning £300 a week (and I would give up part time work) from trading would be great, on £500I could live very well and save but I don't have the expense that some of you have with wives and children so I guess that helps.

If you've got ten grand to put to use you should be able to make 3% per week after a couple of years of total full time dedication...

 

[Pazienza]

If you've got ten grand to put to use you should be able to make 3% per week after a couple of years of total full time dedication...

I agree that this should be very doable if you're willing to put the necessary work in. I'd only emphasise that the "per week" should be on average. I think trying for a set figure in a set short period of time like a week (or even a month in my opinion) can lead to bad trading decisions by allowing oneself to be influenced by artificial factors.

 

[brettus]

i'm not agreeing with you. my point is that if your expecting AMs to be superstars then you don't understand what they are there for. clients get what they asked for. i don't understand your point about salesman...thats something else.

again, most people who work in AMs are highly qualified (no AM in the UK will hire you if you don't have at least a 2:1 from a Russell Group Uni, even then its still very difficult and most firms will mainly take just Oxbridge, and then you have to pass the IMC and CFA or you get fired) but that doesn't mean you make money.

your misunderstanding the rules of the game, AMs follow what their clients want which is benchmarking, short term performance and small niche mandates which (when combined with clients bad timing) leads, inevitably, to poor performance. all decent strategies have multi-year periods of underperformance but clients want more than this and so AMs, knowingly, adopt worse strategies to try and get lucky because if you underperform for more than one year you lose your job. if you think people who work at AMs don't know this, then your mistaken. unsuprisingly, most of them are very worried that they can get fired for what is essentially part of the "game".

Who cares if you have a 2:1 from a uni, how does that make you a good asset manager? My point is AM's are just salesman. Hedge funds are down 2-3%. That makes sense to me. Some AM's are good, but there are very few of them.

 

[cr6196]

Who cares if you have a 2:1 from a uni, how does that make you a good asset manager? My point is AM's are just salesman. Hedge funds are down 2-3%. That makes sense to me. Some AM's are good, but there are very few of them.

there is a distinction between what makes sense and reality. having a 2:1 doesn't make you a good manager just like having CFA doesn't make you money. try getting someone to hand you over £1bn without having that stuff and see what happens. the people who work in these places are qualified to do the job.

I don't know what you mean about salesman but AMs have sales departments just like some HFs (HFs offer a far worse deal, in most cases, than AMs), there is nothing wrong with that, its a business...again, there is a distinction between what makes sense and reality. someone isn't going to hand over £1bn and say do whatever you want, i'll see you in ten years and you can't run a fund like a personal account. more likely, the PM gets phoned up every week with people asking why the fund underperformed the benchmark by 10bps this month. the fact is that good AMs have good clients who understand risk (going over the same thing but most clients don't understand that a good strategy doesn't make money every month when the reality is that 3 or even 5 years underperformance doesn't invalidate a certain strategy) and the outcome is determined very much by the process that goes in which is determined largely by clients. one thing that highlights this is the big difference between how trusts and OEICs perform. and again, most of the funds are huge and operate in efficient markets so the outcomes really aren't suprising.

 

[scose-no-doubt]

If you've got ten grand to put to use you should be able to make 3% per week after a couple of years of total full time dedication...

You've changed your tune. What happened to a grand a week easy off of 10k or pack up?

 

[jthetrader]

Hedge funds trade very differently and are completely unable to do the same as small traders can easily do, have a short hard stop-loss and quickly enter/exit positions for example.

So a good smaller trader can surely make much greater % returns, than the big money, but this return has a limited growth potential in absolute terms.

I imagine hedge funds could make those returns, or at least some of them could, but the incentives are just not there. If you were running a HF with $200mn under management, if you could get that to $230mn by year's end the management team will make ($230mn x 0.02= $4.6 mn+ $30mn x 0.2=$10.6mn). So, by pursuing a 'paltry' 15% annual return you can make a bundle and there is little chance of getting wiped out. If you wanted to stake the entire fund on one massive bet, assuming this wasn't precluded by your agreement with investors, you could; but you would probably end up disgraced, the fund would end and you wouldn't collect a management or performance fee.

Nickel in front of a steam roller type thing. How much money do you need? Is it worth it to risk everything when you can make a lot of money just going through the motions and cranking out some double digit returns. If you were in charge of billions would you put it all on the line to try and make billions more or just aim for 10% returns, enough to be beating the bank and one year CDs, and take home an 8 figure bonus?

I sense that the hardest thing about becoming a hedge fund manager is convincing people to invest with you, after that it doesn't seem too difficult to become wealthy. Is there anything special about them? Are they really that much better than the average amateur trader who frequents this forum, I think the financial crisis proved they are nothing too special. You just need to become one just before a major bull market, leverage yourself to the hilt for a few years during the bull market, collect some cheques and quit before the bear market.

 

[jthetrader]

Who cares if you have a 2:1 from a uni, how does that make you a good asset manager? My point is AM's are just salesman. Hedge funds are down 2-3%. That makes sense to me. Some AM's are good, but there are very few of them.

:clap: This is what I've been feeling ever since I knew what hedge funds were, they can just get you to give them money and then follow the trend. Some of them, like Nicholas Taleb's Black Swan fund, are different; but generally they don't seem very special.

What makes a good asset manager though? One who gets excellent returns in the good times or one who doesn't lose much in the bad times? I suppose if you can get better-than-the-market returns during 'the good times' and lose less than the average during the bad times you qualify as a 'good asset manager'.

 

[jthetrader]

I totally disagree. |ts all in the way you interact with yer broker. Amateurs treat their brokers with respect, in the words of Anton Kriel I treat my broker like SHE IS MY BITCH.:smart::smart::smart::smart::|whistlingwhistlingwhistling:whistling

I saw that on Million Dollar Traders. Kreil is a legend.

 

[Cornix]

I imagine hedge funds could make those returns, or at least some of them could, but the incentives are just not there.

Still, one should not undervalue the difference in trading say 10 cars of 6E and 100,000 cars of 6E. In the first case you can safely and easily play it all day in all directions, even during the relatively thin time of the day, being pretty sure your orders are filled with minimal slippage.

In the second case you have to pile up a position over the course of a few days to not move the market heavily against you.

 

[jthetrader]

Still, one should not undervalue the difference in trading say 10 cars of 6E and 100,000 cars of 6E. In the first case you can safely and easily play it all day in all directions, even during the relatively thin time of the day, being pretty sure your orders are filled with minimal slippage.

In the second case you have to pile up a position over the course of a few days to not move the market heavily against you.

True, but there is an advantage to being big; not so much with non-necessities (e.g. indexes) but when it comes to commodities (esp.oil due its low price elasticity of demand). If you owned, presumably you would have to do it through multiple entities since there may be restrictions on how much one entity can own, 10% or 20% of all outstanding WTI futures contracts you could get a higher price for them than you paid(notwithstanding a massive fall in the price due to things going on in the physical markets or wider economy). Whereas someone with only one or two contracts is at the mercy of the movements of the big players.

What I meant was, if fund managers were allowed to take big risks, then a market for it would develop (i.e. I bet you $100mn that the price of X will fall in the next 3 months). As it is they have to spend an inordinate amount of time allocating capital to various things because they can't take out huge positions.

 

[brettus]

there is a distinction between what makes sense and reality. having a 2:1 doesn't make you a good manager just like having CFA doesn't make you money. try getting someone to hand you over £1bn without having that stuff and see what happens. the people who work in these places are qualified to do the job.

I don't know what you mean about salesman but AMs have sales departments just like some HFs (HFs offer a far worse deal, in most cases, than AMs), there is nothing wrong with that, its a business...again, there is a distinction between what makes sense and reality. someone isn't going to hand over £1bn and say do whatever you want, i'll see you in ten years and you can't run a fund like a personal account. more likely, the PM gets phoned up every week with people asking why the fund underperformed the benchmark by 10bps this month. the fact is that good AMs have good clients who understand risk (going over the same thing but most clients don't understand that a good strategy doesn't make money every month when the reality is that 3 or even 5 years underperformance doesn't invalidate a certain strategy) and the outcome is determined very much by the process that goes in which is determined largely by clients. one thing that highlights this is the big difference between how trusts and OEICs perform. and again, most of the funds are huge and operate in efficient markets so the outcomes really aren't suprising.

CFA makes you qualified for the job i agree.