Quote from Cutten: The financial risk of going solo, if you have an edge, is minimal. Your worst case is your edges disappear, you can't find a new one, and have to re-enter the jobs market.
I disagree; your biggest risk is not making hay while the sun shines i.e. opportunity cost.
If you have a real non-correlated edge then your risk is gigantic if you don’t exploit it to the maximum for as long as it exists and to do this you must have as much capital as possible to bring into play ASAP.
Very few individuals have the kind of personal capital available to exploit an edge to the maximum before the rest of the pro market figures it out and pours in killing the golden goose.
The opportunity cost loss from not exploiting and protecting your personal talent/edge is a huge risk that some of the all time greats don’t even pick up on.
IMO Buffet today would be still smoking the index like he did in the 50s/60s/70s if he just could have kept his ego under control and thus his mouth shut instead of through the miracle of the modern media inadvertently cloning himself dozens and dozens of times over in the last three decades of the money management industry.
Quote from TheStudent:
Good thread, probably a must read for all those "What should I do with my life" threads that appear on ET regularly.
Nothing sj says is untrue. But what the vast majority of institutional people don't understand (because they don't come into contact with it) is the opportunity set that exists at the small capital base level.
For a successful trader with a real edge the opportunity cost is far greater at a small capital base level vs the free call option on your own talent and edge that comes with working at a successful hedge fund.
Quote from TheStudent:
..…..Some of these people have accounts so gigantic that they might be classed as institutional, but the manner they operate in is still the same: one guy behind a desk, and that's it………
This is the very strange wonderland inhabited by long term full time profitable individual traders. There aren't many of course, but they are not fictional, and they are usually very interesting people. No press report on them, they don't appear on tv and few people bump into them in casual life. But they do exist. [/B]
Yes and no.
Maybe the average person doesn’t bump into them in casual life but when you work for a huge asset allocator eventually they make their way to your door.
A successful individual trader that has built his size to institutional level does not stay under the radar very long because traders that are that smart figure out that a free call option exists on their talent and they understand that long before they run their own account to institutional size.
Either they come knocking on the door or their brokers point the global asset allocators in their direction. And so far I have never personally met one that turned down the free call option.
Now for a Mythical Market Story: I did hear of one in the mid 1980s in the first couple of years of my career. I was in New York for a few weeks doing a stint on the COMEX floor. Anyway, while upstairs in our broker’s office after the floor closed one of the clerks pointed over to a guy on the phone a couple desks over and the clerk said he was a retail broker with only one client.
The story is that the broker in the late 60s got a client that ran a couple thousand dollars into tens of millions in a twenty year run. The “legend” is that the client was the owner of a hardware store in the South West United States and just wanted to live his life as a small town family man etc.
The broker kept the guys identity a secret and lived large on the enormous commissions from his one client. The joke was some day the client would have a heart attack and his family would find out that the Daddy that spent his days selling garden hoses and coaching little league was actually a whale worth tens of millions of dollars.
So the only one I have ever heard that passed on the free call option is a Wall Street tall tale while the rest of the successful individual traders figured out the free call and went for it ASAP.
I mean; how long do you really think Michael Jordan could stay under the radar even if he just played pick up ball at the local neighborhood basket ball court. Heck, they found Maradona at eleven freaking years old in the slums of Buenos Aires and he didn't have brokers handling successful orders for him every day.
Talent is not invisible; not a chance. And on top of that I think the local basket ball street gossip is less efficient than the footprint of a successful whale in the financial markets.
Quote from TheStudent: And then you asking me to prove it by naming these people ... all of whom you wouldn't recognize anyway because they are not public figures and have no interest in being so.
Then we have every different views on what constitutes institutional size because even if a trading recluse never approached an asset allocator to cash in on his free call option the cut throat competitive brokerage market would flush out where the talent is while they are trying to steal each others commission business.
There is no invisible white whale in finance. They all eventually come up for air and a free call.
Quote from ezbentley:
The bottom line comes to this: Say if the goal is to make $100K per year somewhat consistently. The two options are 1) Go to business school and try to find a analyst/trader/PM job at a money management firm and focus on just part of the management activities, or 2) trade your retail/prop account independently.
It seems to me that option 2 is much harder and with much more uncertainty.
I agree with your conclusion.
At this point I have to jump but will try to address the rest of the thread later.
The large institutions have separate job postings for traders and PMs. How exactly are their roles different? Don't PMs have to make trading decisions? And traders must manage the trades(portfolio) as well? What is the typical career path that leads to PM in money management or hedge funds?
I am looking at this from an individual trader point of view, since any individual trading his/her own account must also manage the portfolio. So how is this different from an institutional setting?
Thanks for any clarification.
A trader trades for a living.
A portfolio manager lives on fees, he doesn't have a clue of trading, he clings to the market no matter where it goes. He may have a bunch of people executing his allocations, but they are not traders in the true sense, they may be called fund allocators.
If you put money in the hands of a "manager," pray that he doesn't steal your money. Think Corzine and Wardoff and Madoff.
You have no clue what you are talking about. No one, except in the fringe world of ET's retail traders, use your definitions.
For the record (and I think this was already said in the second post to this years old thread), a portfolio manager may be a trader, or may manage a team of traders. A hedge fund stand-alone trader (the closest thing to a retail guy's wet dream of a 'trader') is usually given the title "portfolio manager" because he manages his own "portfolio" of trades.
Get it yet?
Quote from 2sorh:
A trader trades for a living.
A portfolio manager lives on fees, he doesn't have a clue of trading, he clings to the market no matter where it goes. He may have a bunch of people executing his allocations, but they are not traders in the true sense, they may be called fund allocators.
If you put money in the hands of a "manager," pray that he doesn't steal your money. Think Corzine and Wardoff and Madoff.
The large institutions have separate job postings for traders and PMs. How exactly are their roles different? Don't PMs have to make trading decisions? And traders must manage the trades(portfolio) as well? What is the typical career path that leads to PM in money management or hedge funds?
I am looking at this from an individual trader point of view, since any individual trading his/her own account must also manage the portfolio. So how is this different from an institutional setting?
Thanks for any clarification.
If you are some risk averse individual who underperforms the s&p the majority of time there isn't much difference.
boy that sounds like an exciting occupation doesn't it??
You have no clue what you are talking about. No one, except in the fringe world of ET's retail traders, use your definitions.
For the record (and I think this was already said in the second post to this years old thread), a portfolio manager may be a trader, or may manage a team of traders. A hedge fund stand-alone trader (the closest thing to a retail guy's wet dream of a 'trader') is usually given the title "portfolio manager" because he manages his own "portfolio" of trades.
Get it yet?
I will see you in the market. I will beat the crap out of you, even though you may be a portfolio manager with an AUM of 10 billion.
sjfan, maybe you should ask yourself a question why it is that you do not know anybody who is making a decent living without the institutional support.
I think thus statement depends on how you define "making a decent living" ?
Quote from dhpar: or why do you think that only folks in investment banking can make it with the funding/IT/analytical support of the institution.
This is my personal answer to your question assuming we have the same definition of “making it”.
If you have successful performance you will become an institution even if you don’t join an institution.
This will happen because your successful performance will pop up on the asset allocation industry’s radar screen and they will start banging on your door. Then you will either joint an institution or institutionalize yourself so you can pass due diligence which will allow them to place assets with you.
You will then leverage your successful performance and you will end up “making it” by almost any rational definition of “making it”
Anyway that is my answer why the vast majority of people who have “made it” by my understanding of the phase are “institutionalized”.
Quote from youngtrader:
locals are individual traders and I know quite a few of them. Most come with no college degree. They are great traders. Also I know a lot of prop traders that come with no ivy league education or none at all.
I agree with a lot of what you say but would qualify your statements but saying it is less true today than it was in the past.
When I was on the Merc floor in the 1980s what impressed me about the locals was there wasn’t any consistent “profile”.
The myth is all the successful floor traders were “street smart & little formal education & tough guys etc”. There were a lot of guys with that exact profile but there were just as many guys with extensive formal education etc etc etc.
For me the impression was there wasn’t any “profile”. I know this for a fact because I was very motivated to be successful and I tried my best to find what was the successful profile so I would know which "profile" to profile myself on.
In the end it was just all over the map and no real answer.
My profile was very academic in physics and a competitive sports background from being on the Canadian National Fencing team but there were also very successful floor traders with graduate degrees in ancient history to failed Junior A hockey players who could barely read.
So the successful profile was no particular profile on the floor in the 80s but when the floors started to die and the talent moved upstairs and to the hedge funds it did get a lot more focused on formal academic back grounds etc. I don’t see this as a hard and fast rule but I do think it is generally true today.
It has been a long time since someone came in here to pitch for money that didn’t have some kind of formal academic credentials. That said I would say most of the actual traders (not marketing guys) have a hard science, math, computer and engineering background verses liberal arts, MBA, CFA etc but that is just a casual observation and maybe not statistically significant.
Kind of rambling answer but hope that helps.
Quote from SteveNYC:
Why would a successful independent trader want to be public?
Hi SteveNYC,
My answer assumes that you are defining “be public” as meaning trading other people’s money along with your own.
A successful independent trader does this to exercise the free call option on his own talent and successful performance. It initially happens with almost no effort from the successful trader.
It is practically impossible for talent to remain invisible in the financial world when a broker is handling successful trading orders day after day. The successful performance pops up on the asset allocation industry’s radar screen and from then on as long as the trader’s performance holds then the following massive financial success becomes a self fulfilling prophecy.
There might be someone out there that turns down a free call on incredible wealth but so far in this industry I have never personally met him.
As I mentioned above I have only ever heard of one guy but I don’t even know for sure that he actually existed and besides the legend is he was already enjoying incredible wealth and really loved his hardware store.
And that is my 2 dirhams worth of an answer and I appear to be repeating my self so that is a signal that it is time to get back to the grain rally.
