the biggest question in finance

Discussion in 'Trading' started by OTCkrak, Jul 1, 2011.

  1. how much money can one person manage?

    maybe someone here can reword this question. im not just talking about 1 trader with "endless" buying power, but the question is sobering for anyone thinking of ever getting a job as an equity analyst.

    i was thinking about the industry and recent trends in downsizing and its obvious that an efficient bank/ hedge fund doesn't need hundreds of trader/ analysts.

    is there any type of metric that says.. for ever $100m under management you need 1 trader/ assistant? it seems to me that a $10B hedge fund like John Paulson's Advantage Plus only really needs a team of 4-5 trader/analysts to allocated positions. Sure the back office, compliance, sales.. will be add a few jobs in there but the real bonus pool is getting concentrated into fewer and fewer hands.
  2. I highly doubt that you could run $10bn with 4 - 5 PMs.
  3. i think everyone will agree that extra analysts offer diminishing returns..

    it is realistic for a 3 person team to invest $500m then an extra person for each additional Billion? so maybe 15 trader/analysts is about right for a 10B fund. for every 10million under management a 2% administration fee will ship you 200k, enough for a decent salary but it doesn't work like that.

    i personally worked at a shop that had $300m AUM and it was the manager and two analysts, i wouldn't say they were working at "capacity". if an investor had doubled the firms equity on any given day.. it would be just a matter of doubling all existing positions.
  4. It all depends on a whole variety of constraints...

    If you want to run a single strategy, I imagine you need 4 - 5 PMs for $1bn and then maybe a couple of analysts for each additional $1bn. Problem is that you'll soon run into capacity constraints for this one particular strategy and you likely won't be able to scale it tenfold. Then if you wanna diversify and run several different strats (across asset classes), you're gonna need the initial 4 - 5 PMs for every strategy.

    Anyways, I dunno... In my experience, to scale properly you need quite a few people.
  5. So my brother is a broker. He related this story to me once when he had first passed his Series 7. A co-worker called him over to his computer and say, "Hey, watch this" *click* He pushed the button and the price of the stock rose like 60 cents in about 4 seconds. Then he said, "That was us! We did that."
    So, there's definitely a limit to the size of a single trade that can be placed without shaking up the market too much. But the size of an account a single person can manage is relative to his skill level and strategy.
    I know I could trade a large account if I had the right software to automate portions of it for me. For example, if I placed a trade on the SPY and had an automatic order also placed on the SSO and shorted the SDS, that is 3 trades in 3 separate ETF's at the same time. There are so many ETF's with 2x and 3x bull and bear funds and they tick in unison with the main ETF to the point that they nearly don't have to be watched. Then, I could repeat the same process with the DIA and all its relatives and the QQQ and all its relatives including TNA, TZA, and others. I'm sure with the right help from software, I could buy or short at least 15 ETF's safely with the effort of 3. So, I could possibly see one guy trading 9 digits safely if he was good.