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This is a discussion on everyonerich's blog within the Trading Journals forums, part of the Reception category; Some article for sharing.. Running Money Kathy and I often receive offers to manage money and so far we've refused ...

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Old Feb 27, 2009, 7:53pm   #1
Joined Nov 2008
Article (Boris & Kathy)

Some article for sharing..

Running Money

Kathy and I often receive offers to manage money and so far we've refused everyone of them because we are simply too busy with research and our advisory services to devote the proper energy to the task. However the idea of running money has made me think about the criteria I would use to evaluate a money manager. Following are simply my thoughts and are by no means the final word on the subject, but I thought they may be useful points of reference for everyone to consider.

1. Be Sceptical

I never believe triple digit returns. Even if the trader can show me an audited trail of his results (and most never can), I know that 100%+ gains can only be achieved in two ways - through massive leverage or unbelievable luck. In either case, disaster is just around the corner. Leverage will turn on you like a rabid dog and luck will always run out. Have I seen traders take $100 to $10,000? $10,000 to $1,000,000? Yes and yes. But inevitably I've seen those same accounts give the money back as $10,000 suddenly shriveled to $2,000 and $1,000,000 dropped to $100,000.

The problem with investing with a hot hand is that you never jump on board during the initial $10,000 to $1,000,000 run because the trader has no "record". Once the trader has a "record" and you climb fro the ride the losses inevitably start. In fact the longer I am in finance the more I believe that allocating your capital based upon the best return "record" is a near guarantee of losing money.

2. Acceptable Drawdown

Paul Tudor Jones, one the greatest traders of all time, has a very simple and I believe very effective formula for properly analyzing trading success. No sharp ratio, no risk-adjusted returns, no complicated math at all. Instead the Tudor Jones rule is quite straight forward. Your drawdown should not be greater than 1/3rd of your gains. That means that for every $1 run up in profits you should not give back more than 33 cents to the market. That is a very difficult task to achieve. Even, if the trader only gives back 50 cents of every dollar won consider him a good prospect for your money.

3. Evaluate By Months, Not Trades

Consistency is the last refuge of the unimaginative according to Oscar Wilde, but when it comes to financial returns it is the true measure of success, because money compounds and grows much faster in the long run with small but predictable returns rather than with huge hits or misses. At the same time worrying about every trade is a sure path to an early grave. Most professionals evaluate trading records on a monthly basis which seems to be a period long enough to smooth out the day to day bumps but short enough to warn the investor of any possible problems. Steve Cohen and Paul Tudor Jones have only had two or three losing months out of more than 200 and in the losing months they never gave back more than 2% of the equity. That's the gold standard to beat.

4. The 1% Solution

What's a reasonable rate of return? 1% per month. Achieve that and you are making 12% a year - almost double the long term average of the equity markets. Make 2% per month and you are on the way to hedge fund immortality as less than 1% of all investors worldwide produce such returns on a consistent basis. These expectations may seem remarkably modest but they are realistic. You make millions one slow dollar at a time."

Reference : Boris Schlossberg & Kathy Lien
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Old Feb 27, 2009, 7:58pm   #2
Joined Jun 2009
good couple of articles
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Old Mar 15, 2009, 6:48pm   #3
Joined Nov 2008
Quick Glance of Market

everyonerich started this thread Title : What really is the market?

Money is only shadow of something else. Concentrating on this shadow (the physical dollar bills) is very unwise and not healthy for your bank or trading/investment accounts. A much more profitable strategy is to look at the value inside yourself and others. Watch the flow or exchange of this value between people. It is only our internal values that create money. If we can somehow learn to observe the changes in internal values in others and ourselves, we can hone in on opportunities that others miss.

The markets are not mysterious and unfathomable. The primary purpose of any market is to ration, at a reasonable price, existing and future supply to those who want it the most. We buy bonds when we would rather own the bonds than the money we are paying for the bonds. Our fantasy (yes, trading is a fantasy game) is that the value of the bonds will go up relative to the dollar. We bought them from some unknown trader who was just as confident that their value was going to go down. We have a real disagreement on current and future value, but we agree on price.

Every market in the world is designed to ration or distribute a limited amount of something (whether it be stocks, agricultural products, currencies, or whatever) to those who want it most. The market does this by finding and defining the exact price where, at that moment, there is an absolute balance between the power of those who want to buy and those who want to sell The stock, commodity, bond, currency, and option markets all find that place of balance very quickly whether they are using open outcry or computer balancing. The markets find this place before you and I can detect any imbalance and before even traders on the floor become aware of any imbalance.
to be continued..

Last edited by everyonerich; Mar 15, 2009 at 7:18pm.
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