This is a very interesting thread. Just look back to 2003 and you will find a host of experienced traders telling you it is God's own task to make money in markets. What has changed. Three years of uptrend. I'd love to see somebody on this thread who joined on, say 2000, telling us making money in markets is easy.
People here point out that fund managers do badly because they are required to remain invested even during a downtrend (whatever that is - definitions on a postcard please). Unfortunately, fund managers UNDERPERFORM, and this can not be explained by such factors. The fact of the matter remains that a great deal of money is made because of such constraints, rather than inspite.
A wise man once said that all you needed to make money was ignorance and a bull market, but, given our increasingly freedom to play the market either way or even both ways, I'd like to update that. Essentially, if market conditions stay the same for long enough, any fool can think he's a genius. If markets are rangebound, and rangebound is most of what you know, you'll make a mint fading. If markest are caught in a trend and trending in that direction is all you know, as a momentum player you'll make a mint. But conditions do change and always in unexpected ways.
When I started out 8 years ago I couldn't believe how easy it was to make money. I recall in particular telling as estate agent how easy it was. They jealously told me how they wished they had sufficient funds, to which I replied, "borrow the money!" Since then stocktraders have been culled by the tens of thousands and estate agents think they are god.
Although speculators are rather good at asking why things went wrong, they seldom ask why they went right. My advice here is to examine your trades and ask why it is you are profitable. Maybe you use fundamentals, maybe you use technicals maybe you use sentiment mtrics, maybe you use all. Maybe you rely to a large extent on money management. Here's the rub. They are all 50:50 for one reason or another. Investment ratios of whatever hue, in whatever combination show no significant correlation with outperformance. Technicals may give extended periods of wins, only to suffer from large one off draw downs, in fact, the longer the winning run, the greater the chances of a really large draw down. sentiment metrics can be seemingly superb at spotting inflection points, but fail because markets often accelerate against the fade at times of sentiment extreme. Money management only limits each individual loss. 20 small losses are actually worse than one large loss 20 times the size, not only because of the costs but because of the impact it has on ones psychology. Pick up a big by a money management expert and they'll tell you everything else is 50:50. Pick up a book by a technician and they'll tell you everything else is 50:50.
As for not worrying what you earn from managing the £1m, ask yourself why nobody else in the city feels that way. Ask yourself why they are happy to take the spread or management fee and leave the speculation to everyone else.
Recently I finished an 8 year long subscription to a provider of fundamental data. A bunch of stats I ran told me the data had no significant bearing on success or failure. I put this to the data suppliers chief analyst. He told me I couldn't hope to use the data to pick stocks, merely screen them. But when I pressed him as to how he used the data, he told me this: "Oh, I invest in property and have done for 18 years." Makes you wonder, doesn't it?
Or take Bulkowski's wonderful encyclopedia of chart patterns. Beautiful stats to help you get the odds in your favour, no? The trouble is there are no stats there to tell you exactly how to identify the patterns and how big a draw down misdiagosis will produce.
See, in the end, it doesn't matter what you trade, or how frequently you trade, or what method you use of how you manage risk. In the end, you have to be right. That's the tricky bit.
