MoreLeverage - I am on the same page as your thoughts. Some increased leverage is probably part of the plan...probably limiting to 2x. Have only used leverage once in the last nine months period at a 1.25 x amount (for about one week). I think there is an audience for low leverage, market equal to market beating results with good risk ratio's......I am trying to find those investors.
Unleveraged that’s 12% +- 4%, before your fees. Some might take that, which at 1 & 20 is only 9% instead of 12. There’s a lot bigger audience for a 2x version, say with 2% financing you get 22% +- 8% before fees. Depending on what you charge, that’s still 15%+ and Sharpe 2. Plenty of takers for that if they believe your stats and your scalability.
If your goal is to make more money for yourself and you are comfortable increasing your leverge, go for it. If your goal is to manage SMAs or start a fund with your track record, I recommend you do not increase leverage and continue to do the same thing. You can use what you are doing as base leverage and allow investors to set their comfort level based on your level as the base. In SMA they can request 1X, 2X or 3X. In a hedge fund you can have investors request the base fund or the high leverage fund. The high leverage fund would be 3X or what ever you findinterst in. You need to find a way to market yourself while continuing to run your strategy, I would use the tear sheet format that Hedge funds and CTAs offer. It should include a bio, basic description of your strategy and asset classes you trade, monthly P/L for each year and the typical risk metrics you see on those reports. With that, you can begin to get investors interested in you while you continue to trade. This is not an easy process. You should also consult your state securities division to determine when you have to register as an RIA. It would be worth getting a consultation with an attorney that forms RIAs and hedge funds to determine what is necessary to move forward. I can suggest one to start with if you email me. We work with emerging managers like this. We require they are our customers to provide this advisory and make introductions. Only 1 of of 20 that email me put the work in to market themselves. Even those often can't find investors outside friends and family as they care more about trading than running a business. Bob
Years ago, I wanted high leverage, but I've since gone a different route and now I actually don't want more leverage. I actually just want more capital. My current strategy has a target portfolio level max loss of about 20% (ie market takes a massive dive overnight, I won't lose more than about 20%), with a margin utilization of about 25% of my capital. If I increased my available margin without increasing my cash through some method (loan, a prop firm where my capital is at first loss, better margin utilization via my broker's pma through position offsetting), then I lose the whole point of trading only 25%, which is that's where it seems my drawdowns will be low enough that I can reasonably come back from it. Simplest illustration of why I don't want more leverage is considering a prop firm scenario where my capital is at first loss risk. If I put in $100k and they put in $400k and I lose 20% ($100k), then that consumes my entire capital and I'm done. The same general concept applies when considering the margin offsets available through PMA or other techniques of margin. Anyway my point is, if OP is looking for capital for these kinds of reasons, then higher leverage or margin offsets isn't the answer, only more capital.
That's exactly my point. If he's only trading SPY then institutions can just get that exposure by buying low cost index funds. Unless he's saying he has excellent market-timing skills, which most institutions don't believe is possible to do consistently. Stock picking skills are different than market timing skills. Institutions believe there are good stock pickers(Warren Buffett, Peter Lynch, etc.). Market timers, on the other hand, are not seen as possible, rightfully or not, in institutional eyes. I'm not saying he can't make money. He probably can and will make money. I'm trying to frame in the "alpha" sense. Where is the source of alpha coming from? Superior fundamental understandings and stock picking? Macro views and trading? High frequency trading and technology edge? So, it's from market timing which is what 99% of the people on ET does(including me). He has to show he can keep that edge going . Which would be better if we had a bear market since most funds are long only. That's where the outperformance would be coming from. If it's just market exposure then they can just lever up S&P500 to get the extra juice. Not saying this is right or wrong. Just saying how investors would view any new manager.
As a investor I'm mainly interested in how safe is my capital. Can I get my capital out at any time? Are your returns better than a strategy of Buy and Hold SPY. How do you manage risk? How much will it cost me to have you manage my portfolio? I your case with no track record to speak of will you let me review your trading results to date and show me your trading plan. I recommend to new traders that they develop a trading plan that they could take to a bank or an investor to convince them to give the trader money to manage. Do you have such a document. Would you lend money or invest based on that plan?
To bln, my max drawdown was 0.91% To deaddog, you can get your capital at anytime, that is how Interactive Brokers works. It will cost you 1% for me to manage your portfolio. To address your other questions I can send you a copy of my broker statement for your review.
Trading style? Day, swing or long term? You are looking for trading authority on my IB account and receive 1% per year. Would you consider a share of the profits over a buy and hold bench mark? You get a certain % for beating the return on SPY. You have to outperform the index to get paid and stay employed.