Point taken. It does make sense to start your own hedge fund if yoy're good. In that case, you still are trading for yourself. But that is a small minority of any fund. Then there is the fact that most funds simply fail. So that would associate their traders with the failure. To be honest, for their clearly superior technology and capital advantages, I'm just not at all impressed with the fast majority of these fund traders. I know a few, as well as big bank institutional traders. I know some are truly excellent, but it's a minority. To state something like prop traders are dumber than fund traders is just wrong. Takes a lot less brains as well as character to trade when you get paid salary.
trade-ya1: Different times and different approaches. You might say these times are normal or easy. But these prop traders trading in THEIR NICHEs and their TIME FRAMEs are having a hard time. You can't compare 1998 global macro to what most ET traders are facing now. It's apples to oranges. Besides, some prop traders are doing very well THANKS to very low cost structures provided by prop firms and the ever better technology. You are the one in FANTASY LAND harking back to monopolistic times when brokers charge several hundred dollars to handle an order. Those times ain't coming back EVER! Tech will make things better and cheaper. Suck it up! hehe And besides, most traders here would probably LOVED the volatility in global macro in '98. Those who short Russian debt(GKOs) or $/Yen would have made a bundle. I guess you were on the WRONG side of that great VOLATILITY! While you got crushed someone made money right? That's what a zero sum game we called trading is all about. Should we LAUGH at you then? HAHA. Get real. Of course, we are not going to be that low and laugh at you. Those were hard times. We understand. Just as recently are hard times for daytrading. You seem to look down on prop traders yet you come on this board trying to recruit them all the freakin' time. what's up with that? doesn't add up man.. P.S. You wrote,"To me, the statement you made opitimizes " It's epitomizes. Use a spellchecker. Harvard didn't tell you have to use a spell checker Mister Hedgie.
surfer, I respect your comments here on ET. And they are entertaining and sometimes good to read. But you don't have to get on your knees and suck his balls just b/c he runs a global macro hedge fund or whatever. The market doesn't care who you are. As to hedge funds, yes most of them have more capital thus able to buy the best technology and supposedly can buy the the "best talent" whatever that means. But long term historical study by academics showed that on average hedge funds aren't that much better. Most of them trail the S&P500 like the traditional money manager. And most of them even trail their respective benchmarks for their strategies(risk arb, convertible arb, fixed income arb). And some studies say that yes hedge funds can be a good diversification in a large asset allocation schemes, but not necessarily the best deliverer of alphas. So, in the end, finding and trading legitimate edges is a NONTRIVIAL matter no matter what time frame or place you trade it. From scalping to holding long term positions. From daytraders to large institutional funds. So, I don't think trade-ya1 should come on here bashing daytraders with no edges. When most funds don't even have a legitimate edge or don't for a very long term. Even the famed Stevie Cohen used something called "information arbitrage" which amounts to nothing more than getting the "first calls" from the Street and willing to pay through the nose for that kind of order flow and analyst upgrade/downgrades information. As documented in a recent Bizweek article. Real edges are hard to come by for EVERYONE. And a legitimate edge can become nothing over time. Also, no one ever mentions the "survivorship biases" of hedge fund indices. The funds that blow up or died get deleted from the index. How nice is that. Very convenient.
Wow! A lot has transpired in this thread since I went to have dinner. Big thanks to marketsurfer for being a friend and sticking up for me. You're the man Dave. I can't remember all the comments will go back and review and try to respond. I remember the one about Steve Cohen (Stevie). I may have written Stevie once as he is called on the street by everyone who ever refers to him. And yes, I do know him personally. Looks like George Costanza's father. Anyway, let me review these comments and address...
By the way, I do idolize him although we are in two very different businesses. I think that anyone who works on Wall St. idolizes the titans of our industry that you can truly respect such as Soros, Druckenmiller (way under-rated), Steve Cohen, Tudor, Jack Nash, Izzy Englander, etc. Notice that when I say truly respect I mean guys that are great at what they do but are decent human beings to boot.
Your approach is very fair and credible. I tip my hat to you. I am suggesting more traders have your exact approach which I find so rare today. The only suggestion that I would make (and I think that your approach is outstanding, did i mention that?) is to make sure that the business you are entering, is really a business altogether. In other words, make sure you find the edge. You will eat dinner off the others that have no edge (majority).
You couldn't be more wrong in your last post. I have likely been a trader since you've been in grade school. In fact, I am now a self-described, 'trader of traders'. In other words, I buy traders (with legitimate edges, buy them in a sense by providing them with capital) and I trade them in a trend-following manner. In other words, if they succeed I give them more capital (as I would pyramid into any winning trade), if they fail, I reduce their capital or terminate their employment (as I would with any losing trade). The caveat being that these traders that I hire do not 'guess' at the market. They have a legimate edge. What is this legitimate edge that I refer to? It could be anything from a liquidity providing edge as in Statistical Arbitrage, an edge whereby many of the other players in the game are non-profit motivated (as in some commodities markets), a high barrier to entry edge (such as in International Statistical Arbitrage), Stat. Arb. in South Korea for example, or any other form of edge whereby they are exploiting inefficiencies or anomolies in the market. My preference is to exploit the edge quantitatively. Yes, as was discussed here many times, I fall into the catagory of hiring a very, very high % of Quants. Finding the next great discretionary trader (like a Soros, etc.) is like finding a needle in a haystack. Not a viable endeavor. Anyway, these times in the equity market are well within the range of normality. I don't give a sh*t that traders were receiving mana from heaven and making $1 Million+ in the late 90s. That was fantasy land. Traders today as you correctly stated will not make money (the type of traders most refer to here on the boards). The reason for that is unlike the late 90s, now you need a real 'edge'. Being a great technical analyst, fundamental analyst, market feel, etc. is not an edge. I would bet big that if i let someone trade (i will not be doing this so don't even ask) absolutely for free, no commissions, no costs, nothing, they would not make money and would in fact lose a substantial amount. Of course, I am referring to traders that do not possess a legitimate edge.
I am a global macro trader by trade, however, I do not run a prop. type global macro firm as a primary business (i do have a small day trading operation and of course everyone is going to jump on me and ask that if i don't believe in that then why do i have it. The answer is for the simple reason that i am a business man and i view these traders as gamblers, i am the house. I tell traders that come in straight away, I think you are gambling, however, if you are going to gamble, please gamble in my casino). Anyway, I run a hedge fund and I hire traders with legitimate edges and extensive track records of exploiting that edge. I give them a six-figure draw vs. 20% of their trading profits and provide them each with multiple millions of dollars to trade. I take 100% of the losses because these are guys that have an edge. We make about 15-20% per year after fees and expenses for our investors. We will likely be running over $500 Million sometime during 2004. If you can make 15-20% per year on a net basis for investors consistently with very little drawdowns (sub 5% peak to trough), you can run Billions also. No need to make the crazy numbers that people on these boards refer to.
Yes, I do remember. I did get it off the ground and have hired a few people thus far. One is so amazing that I already offered him capital from my Fund which he flat-out turned down. Basically, his strategy is not scalable enough. However, it's working out really well and it's been interesting. I love this business.