Out of curiosity, say you consistently beat the indexes for several years in your own personal account. What are the chances you could be hired by a hedge fund based on your personal brokerage records? Would they ever hire someone simply based on pure performance? Or is that like trying to skip the minors and play pro?
Don't have an answer to your question, but the news story below relates and I didn't want to start a new thread. London's Man Group has amassed $10.5 billion and wants to be the Fidelity of the hedge-fund world. Interesting part: And investors still have the added protection of the principal guarantee. Here is how it works: For every $100 Man takes in, a certain proportion is invested in a bond, either a zero-coupon U.S. Treasury or a bond issued by a highly rated bank. (ABN Amro and Bank of America have both issued bonds for Man funds.) What proportion of a new fund goes into bonds is determined by the bond's yield and maturity. If it will take ten years for a $60 worth of bonds to pay out $100, then $60 is what Man invests to cover the $100 guarantee promised to investors in ten years' time. Unless the U.S. Treasury or the issuing bank go belly up, the fund's principal is safe. Investing the other $40 is where Man's hedging expertise is put to work. It uses every known hedging method, from stock shorting to risk arbitrage to option strategies, enhanced through some leverage (usually around 20%).
Two reasons I don't see myself working for a prop firm: 1. I've got a good IT job, so I don't want to quit what I do, plus I can't really watch a Level II screen all day of course. 2. I enjoy swing trading and so I wouldn't really get much bang-for-the-buck with all the connection fees that a prop firm charges.
Hmm... That's hard to say. Performance do count a lot. But you gotta be able to manage size(in hundreds of millions or billions). So, let's say you got your small personal IRA account that got maybe $50K and you double it every year via buying internet stocks(which was very easily done in '98-'99). That might NOT count for much since the 1) size was insignificant 2) not very diversified. I mean individuals with their small acct. can easily make what looks like huge returns, but professional money managers seem to struggle to make even a solid 20% return annually, b/c when you are managing a few hundred million it's very difficult to move in and out like a small trader. ANd you can't put all your clients funds in a 3-5 stocks like your individual acct. Because what happens if those stocks crap then you just blew a few hundred millions. Having worked in the institutional side of the biz, I think the best way is to get a good education while racking up good performances numbers. And when you do apply to these places you can show them you know a lot of things too. They are not really impressed with a daytrader coming up to them showing an acct with 500% return on only $100K base if he doesn't understand about covariance matrix, utility maximization functions, risk factors modelling,etc. There are a lot more things that goes on in institutional investing than just picking stocks.. but good performances definitely does NOT hurt your chances.. good luck! trader99
Thx. That's what I thought someone was going to say, although I did not realize that the statistical side of things was so important.
Well.. it's not that the statistical side of things is so important unless you are a quant fund then it's all statistics! but more traditional fund managers don't use math at all - just stock pickings. so i think good performance will really count there plus an MBA, CFA,etc. even though none of these will actually make you a good stock picker. haha. it's all ways to erect barriers to entry..
why not work within IT at a hedge fund ? it'll give you a foot in the door and maybe if you impress them, you'll get the opportunity to move to the trading side ? i've seen this happen quite a bit at IBs. i know some people may argue, but a daytrading background doesn't count for much on the institutional side.
Yes, exactly. I used to a quant on the IB as well as money mgmt side of the biz. But a quant is more than just a programmer. He has to know 1) finance theory 2) statistics/optimization/math 3) programming. But for someone with just programming background i guess they can come in as just a programmer and learn about the rest of the other stuff later... rather than try to daytrade to impress institutions. haha
Thanks - that gives me something to think about. I've got a certain amount of stats through (believe it or not) 6 actuarial exams on top of the IT experience. For some reason, I never really thought about breaking in with programming itself...