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

[Hotch]

Are you suggesting that banks lose money when indicies head south because they own a bunch of stock?

 

[james1989]

I don't know Hotch, you must tell me.

 

[BeginnerJoe]

It's just all a game of luck, if you believe in capitalism, buy a stock.

I don't believe in capitalism. But I still by stocks. The game is set up this way, if you don't play, they rob you blind in broad day light. We are all in the game like it or not.

Did you not read the recent news about the chinese having nowhere to put their money ? Even the commies are forced to play the game.

 

[Hotch]

lol

 

[cr6196]

I don't believe in capitalism. But I still by stocks. The game is set up this way, if you don't play, they rob you blind in broad day light. We are all in the game like it or not.

Did you not read the recent news about the chinese having nowhere to put their money ? Even the commies are forced to play the game.

you should read closer, they have less than $100bn (so well under £75bn) in global equities. in terms of global investing, this is small change (a mid-sized AM in the US will probablly have around $100bn and even in peripheral markets a decent manager will have well over $100bn). most of the money (i.e well over 75%) is in treasuries and agencies.

 

[BeginnerJoe]

you should read closer, they have less than $100bn (so well under £75bn) in global equities. in terms of global investing, this is small change (a mid-sized AM in the US will probablly have around $100bn and even in peripheral markets a decent manager will have well over $100bn). most of the money (i.e well over 75%) is in treasuries and agencies.

Treasuries are no less capitalistic a game than stocks. They are not in stocks because stocks are for joe's who don't have much money.

 

[james1989]

This is extremely difficult to follow.

 

[rathcoole_exile]

the main difference between Pros and Amateurs is that the Pros will go Long Time, but the Amateurs will only go Short Time because they've got a class in the morning



what ? oh, not those kind of Pros ...?

 

[jthetrader]

I would say there is another option. A high risk early on to build up the account balance then reduce the risk as:
a. The need for the high risk reduces.
b. The emotional issues of having the now larger numbers at risk increases.
c. The technicalities of working that much cash into the markets increase.

People always trot out the same tired bull about how making x% all the time means you would eventually own the world. What everyone seems to forget is that the limitations that apply to small retail traders and those that apply to hedge funds are not the same. A very basic example is the % risked per trade. In a hedge fund i couldnt possible risk 5% of the fund per trade. besides the point that the investors would string me up by my balls the first time i tried it there is no way on this planet i would manage to work that much into the market well enough to come out with a low risk profit. If i only have a 1k retail account though i can get my 5% risk on with 0 slippage and as long as i get the direction right i can pull whatever profit it gives me (1:0.5, 1:1, 1:2) over and over again.
Not saying i do that but i just get fed up of all the bull**** reasons given for why it cant be done.

How about unprotected (i.e. without options to cover you) short selling? In essence you are, potentially, putting the whole fund up for grabs if the s*** hits the fan? If you had shorted $1 million of MSFT at its IPO on a $40 million fund I'm pretty sure within a fairly short period of time you would have owed more than the value of the fund, yet you only 'risked' 2.5%?

And how about currency trading by hedge funds? A $100 million fund would surely need to operate with at least 3 or 4 times capital in order to generate sizeable returns in the currency markets? Or do they just take big, event driven currency positions?

 

[jthetrader]

I don't believe in capitalism. But I still by stocks. The game is set up this way, if you don't play, they rob you blind in broad day light. We are all in the game like it or not.

Did you not read the recent news about the chinese having nowhere to put their money ? Even the commies are forced to play the game.

A communist buying stocks is the most communist thing he can do, workers ownership of the means of production (and the profit motive wouldn't matter if the excess income was redistributed to the workers would it?) etc Maybe you can carry out your plans the underhand way? Socialists pool their money, buy up 75% of a publicly quoted company (isn't the the percentage of common stock normally required to change the entity's status?) and start turning them all into charities or co-operatives or whatever.

For the record, I suspect it wouldn't work; at least I hope it wouldn't.

As for the Chinese, they may beat the West financially but we've trounced them ideologically, they've had to come over to the dark side and play our capitalist games

 

[edmccall1]

Good post ...I like to think of it as 3 things ......3 M's.....methodology......management ....mindset.

 

[brettus]

you should read closer, they have less than $100bn (so well under £75bn) in global equities. in terms of global investing, this is small change (a mid-sized AM in the US will probablly have around $100bn and even in peripheral markets a decent manager will have well over $100bn). most of the money (i.e well over 75%) is in treasuries and agencies.

$100bn? Are you sure about this? I think everyone has the notion that banks make money and full of clever geniuses who know how. They are run by people just like you and me. I know nothing about stocks and neither do they. They don't know how to manage positions. The just take commissions off their clients. Banks are just a bigger broker than a brokerage.

 

[cr6196]

$100bn? Are you sure about this? I think everyone has the notion that banks make money and full of clever geniuses who know how. They are run by people just like you and me. I know nothing about stocks and neither do they. They don't know how to manage positions. The just take commissions off their clients. Banks are just a bigger broker than a brokerage.

yes, i didn't say bank, i said AM as in Asset Manager. Its just a generalization from what I have seen and know. There is a lot that I could say but its just a general guesstimate. Considering there are HFs like Bridgewater Associates that manage nearly $100bn and there are few firms near/above £1tr (PIMCO, BGI/Blackrock, State Street) it isn't a stretch to assume that mid-sized firms manage more than $100bn.

I didn't say anything about people from banks being smart or otherwise, its pretty easy to be disparging about people who you don't know anything about tho.

I am not really sure what your getting at, yes they are human, the vast majority are highly competent (making money doesn't equal knowing something about stocks, knowing stuff that everyone knows isn't worth anything) but you seem totally confused about what their role is.

most AMs (i'm talking ones with mainly retail/pension fund clients) are in a pretty bad position because their clients fundamentally misunderstand risk and, as a result, are massively constrained in what they can do (the OP highlights this and the responses on this thread reinforced this). the markets they operate in are extremely competitive and, unsuprisingly, fairly efficient (your running a $20bn UK equity fund, what can you buy? not a lot is the answer). the more money you have, the less money you can make. in short, when the asset allocation decision has been made by the client, there is fairly little you can do most of the time. most people who make money, make money by playing a different game, clients don't ask or want this on the most part and even if they did, regulations mean funds can't provide it (AMs have been sued for diverging from mandates).

also, is it suprising that these guys can't make everyone millionaires? not really, as with everything else there are few superstars and even amongst them the difference between luck and skill is vague at best. for example, a lot of the funds with the best risk-adjusted returns are discretionary macro, how does Brevan Howard make money? Does is rely on some objective knowledge? Probablly not. So does it have relevance as a general guide to make money? No.

in short, ignorance is bliss.

 

[jthetrader]

yes, i didn't say bank, i said AM as in Asset Manager. Its just a generalization from what I have seen and know. There is a lot that I could say but its just a general guesstimate. Considering there are HFs like Bridgewater Associates that manage nearly $100bn and there are few firms near/above £1tr (PIMCO, BGI/Blackrock, State Street) it isn't a stretch to assume that mid-sized firms manage more than $100bn.

I didn't say anything about people from banks being smart or otherwise, its pretty easy to be disparging about people who you don't know anything about tho.

I am not really sure what your getting at, yes they are human, the vast majority are highly competent (making money doesn't equal knowing something about stocks, knowing stuff that everyone knows isn't worth anything) but you seem totally confused about what their role is.

most AMs (i'm talking ones with mainly retail/pension fund clients) are in a pretty bad position because their clients fundamentally misunderstand risk and, as a result, are massively constrained in what they can do (the OP highlights this and the responses on this thread reinforced this). the markets they operate in are extremely competitive and, unsuprisingly, fairly efficient (your running a $20bn UK equity fund, what can you buy? not a lot is the answer). the more money you have, the less money you can make. in short, when the asset allocation decision has been made by the client, there is fairly little you can do most of the time. most people who make money, make money by playing a different game, clients don't ask or want this on the most part and even if they did, regulations mean funds can't provide it (AMs have been sued for diverging from mandates).

also, is it suprising that these guys can't make everyone millionaires? not really, as with everything else there are few superstars and even amongst them the difference between luck and skill is vague at best. for example, a lot of the funds with the best risk-adjusted returns are discretionary macro, how does Brevan Howard make money? Does is rely on some objective knowledge? Probablly not. So does it have relevance as a general guide to make money? No.

in short, ignorance is bliss.

I don't see why governments feel the need to protect investors with all kinds of regulations. Let them stake their funds (and whatever anyone is willing to lend them, after conducting due dilligence; or not) and engage in the giant game of poker called the market. If they lose f*** em, if they win fair enough. Investing in stocks is not like putting your money into a bank account

I'd have thought being in the position of running a $20bn private equity fund is pretty sweet compared to running a $20bn hedge fund (not that there will be many which are that size) at least. With the latter you are judged second-by-second on the success of the positions you have assumed, you have to allocate the money to hundreds or thousands of different securities (necessitating hiring loads of highly paid analysts) and due to your size you can't move in and out of markets without making a splash. Whereas, with a private equity fund you could buy into something and, provided it doesn't go out of business entirely, how much you value it at is up to you (mark to model). And you don't need too many analysts since, as you say, there just aren't that many opportunities; how many multi-billion £ companies are for sale at a given time?

Hedge fund managers can't get away with lying due to the pressing requirement upon them that they operate in liquid, exchange traded securities. If you can get away with taking out OTC/off market positions you can inflate the value of your holdings within reason and your generous estimates won't be discovered for years to come (and even when they are there won't be much anyone will do about it).

If you had $1bn you had raised from investors in your private equity group and you went ought and spent $500mn on one company and $300mn on another and put the remaining $200mn in the bank, who says how much those companies are worth on your annual report the next year? Who is going to stop you if you claim they have doubled in value?

 

[brettus]

yes, i didn't say bank, i said AM as in Asset Manager. Its just a generalization from what I have seen and know. There is a lot that I could say but its just a general guesstimate. Considering there are HFs like Bridgewater Associates that manage nearly $100bn and there are few firms near/above £1tr (PIMCO, BGI/Blackrock, State Street) it isn't a stretch to assume that mid-sized firms manage more than $100bn.

I didn't say anything about people from banks being smart or otherwise, its pretty easy to be disparging about people who you don't know anything about tho.

I am not really sure what your getting at, yes they are human, the vast majority are highly competent (making money doesn't equal knowing something about stocks, knowing stuff that everyone knows isn't worth anything) but you seem totally confused about what their role is.

most AMs (i'm talking ones with mainly retail/pension fund clients) are in a pretty bad position because their clients fundamentally misunderstand risk and, as a result, are massively constrained in what they can do (the OP highlights this and the responses on this thread reinforced this). the markets they operate in are extremely competitive and, unsuprisingly, fairly efficient (your running a $20bn UK equity fund, what can you buy? not a lot is the answer). the more money you have, the less money you can make. in short, when the asset allocation decision has been made by the client, there is fairly little you can do most of the time. most people who make money, make money by playing a different game, clients don't ask or want this on the most part and even if they did, regulations mean funds can't provide it (AMs have been sued for diverging from mandates).

also, is it suprising that these guys can't make everyone millionaires? not really, as with everything else there are few superstars and even amongst them the difference between luck and skill is vague at best. for example, a lot of the funds with the best risk-adjusted returns are discretionary macro, how does Brevan Howard make money? Does is rely on some objective knowledge? Probablly not. So does it have relevance as a general guide to make money? No.

in short, ignorance is bliss.

I dont know if you're agreeing with me or not, but i've had quite a few asset managers as clients and as far as i'm concerned the majority time they might as well take the money to the casino. They are a few superstars that can make money, but for every superstar, there at least one hundred idiots/salesman that have no idea about making money and just take commission. Maybe i went off topic.

 

[Bint_Crusher]

...and I don't mean mathematical (for once!).

I am now rather sure that most people who fail at trading fail because they are trying to make ridiculous returns which are exceedingly hard to make. The guys making billions at hedge funds are making, on a good year, say 100% (obviously depends a lot fund to fund), while the mugs on the forums get into this trying to make a living off 10k.

Now I would think it IS easier to make higher returns on a smaller account (say 6 figs instead of 9), but not that much easier!

To illustrate the point:

1:1 R:R ratio, 70% win rate. 1 trade a day, will give you 8R a month. (completely doable mechanically, can do much better discretionary if you're good).

Boom, 150% a year on 1% risk management. Now for your hedge fund manager, you're sorted, but for our chump with 10k, that's £62.5 a day, barely beating minimum wage. That's if he spends zip on food, board etc.

So how can you make it with 10k?

1-You can be awesome.
2-You can trade part time/save up til you build a decent stake.
3-You can get a track record and try and whore yourself out.
4-You can do something else which would probably be easier.
5-You can vendor trolololol.

To conclude: you're ****ed.

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

 

[Black Swan]

Just on the hedge fund reference in the original post, hedge fund average return is currently minus 2-3% for the year..

 

[Black Swan]

right, Paulson Credit Opportunity made ~540% in 08 or 09. I agree someone might have said that but it wouldn't be relevant. It probablly says something about the onesided view people have towards trading. Either way, if your sharpe is anywhere near 2 over a 5-year its amazing and most people don't have a chance considering that the vast majority of HFs don't get near that. reality is far more mundane than people's dreams.

Paulson's funds are down massively this year..

 

[cr6196]

I dont know if you're agreeing with me or not, but i've had quite a few asset managers as clients and as far as i'm concerned the majority time they might as well take the money to the casino. They are a few superstars that can make money, but for every superstar, there at least one hundred idiots/salesman that have no idea about making money and just take commission. Maybe i went off topic.

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".

 

[busfarehome]

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

For someone that has big ideas about making a fortune and owning a big property and expensive car and being a jack the lad they are likely to find disappointment.

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.