Yes, I said most.. not all. There are a few whom I know from personal association are the real deal. Two of them have left recently and don't come around anymore, as there is nothing here for them. Neither of them would even consider starting a fund. They just say it isn't worth it. Anyway, I shouldn't really be so cavalier about personal experiences. I'll readily admit that I'm not really certain whether my strat will last for another year or another 10 years. The only thing I know for certain is what it has done so far, and that current market conditions will not allow me to scale past about $30MM without having idle cash.
100% agree with what you are saying. But that doesn't negate my points either. I recently calculated my Sharpe (weekly returns) for 2010. Right around 3.4 if memory serves. And I have had offers recently to manage additional capital, even though I don't solicit funds. It just isn't worth it at this point. Anyway, you asked the question as to why anyone profitable wouldn't want to manage OPM. I answered it as best I could. Just trying to be helpful, but not really here to argue.
I understand the reasons. I just find it very interesting, as mentioned previously, that *none* of the people who decide to actually manage OPM can manage a 3.4 Sharpe. I emphasize: none. I think anyone on this forum should keep that in mind as they read about the successes of anonymous traders.
I completely agree. {edit} Should point out too that I wasn't claiming that my second strat has a 3.4 Sharpe. Only the first one. That is why the returns are so high. Interestingly, when the market went nuts last summer I had a +84% June which resulted in a lower Sharpe. {2nd edit} oops, just checked it was +76.98% in June
Good points. I think I know the answer to the dilution problem and your why isnt any one manager achieving super trader statistics. Anybody with a strong daily or weekly consistancy, is not going to be trading soley the most efficient and liquid securties, more likely he would be diversified and many many securities, identifying inefficiencies, which have liquidity concerns. Say this hypothetical super trader trades vix futures curves because he has identified a strong edge, these are at times a very illquid contract, or perhap this trader has an equities strat. Dilution of profits starts when the later shares or contracts are filled at worse prices, you may be able to fill on your first 5 contracts at the first and very best signals, and now your 6th - 10th contract of OPM is filling at worse prices, but its still profitable just not as profitable as the first 5 cars, so there is a diminishing returns curve. The "first in trades" are the very best cream of the crop that will go on to generate 80% of your profits, and the end leg of your extra OPM will go on to only generate 20%, but now you have to split your profits 50/50...see the problem with having a strong edge and sharing it with OPM... e.g. Trader has a super strong strategy where he identifies over sold stock 1 hour before EOD for a quick ultra high expectancy trade with a profit factor that is sky high. On average he may purchase up to 5,000 shares at varying prices, to net about 10 cents per share on average ($500). Now if he were to raise OPM and buy an extra 5,000 shares on top of what was his original 5,000 shares, he may be able to squeeze out a tiny bit more profit with the extra capital, perhaps an extra 1 cent per share for the next 5000 shares ($50). Because you are a legitimate fund which does not front run its clients, you will net only a little more than half of the total profits, instead of keeping $500 for yourself you now only have about $300, you have to share half with clients, but the clients extra money barely made that much more, all because of diminishing returns. I although far from where I want to be, I can confirm this happens with my own trading. The top 20% of my strongest signals to buy or sell at a limit price generates about 50% of this strategies pnl. The other 80% of my signals go on to make the rest of it up. Imagine, if I only had enough BP to utilize my top 20% of trades, and then I use OPM for the next 80% I would get ripped off.
40 000 Dollars will make it, but also depends on which other sources of income you have... If you dont have any other, I guess min. 40000 $
Theres not much I can say about this hypothetical. I can genuinely say few, and probably none of my trades are the last shares filled at that e level. I'm never selling the top and buying the bottom of my bars. In any case, it's still remarkable that none of these cream of the crop traders have a way to validate their performance over the years, despite the tremendous financial awards available to those able to scale.... Even a little. Keep in mind if you are able to raise $20mm in OPM (which is very viable with no more than 2-3 years of quality results), and you're able to get 40% returns with 2/20... that's $2 million a year in other peoples profits. Isn't that pretty meaningful motivation for most traders here, even at risk of dilution? And what does the complete, total, absolute lack of such fund managers in published databases imply?
I completely agree with what you are saying. We are sort of talking in circles here. You are talking about 40% annual. In that case I would absolutely be interested in starting a fund. I'm talking more along the lines of 400% annual. It is a completely different situation. Anyone good enough with money to get 400% gains is in a situation where they can at least leverage their personal credit to a couple hundred thousand, and consequently keep all the profits. So another hypothetical. Let's say that I start with $200K and get 400% annual. It will still take a couple years to get the structure in place and provide an audited track record. So after the first year I would have $1MM and after the second I would have $5MM. After the 3rd year I would have $25MM and it is presumed that I can't really utilize any more than $30MM, so what is the point of OPM. By the time I could do anything for them, I would have to kick them out. Then to take your question one step further. What's in it for me to publicly verify that I can achieve those results? Absolutely nothing from my perspective. I would love for you to tell me what these tremendous financial rewards are. Keep in mind that if the above hypothetical is true, I'm already making >$20MM annual.
All the information I have read about hedge funds, and those starting out talk about the difficulty of raising money. Seems to me it may be like trading. It sounds easy enough but in practice it takes a lot of hard work. And if it's results that attracts money, why did people give their money to Victor Niederhoffer after he blew up (the first time). Who invests money with someone with a 100% drawdown?