Wow, I did not expect so many responses. Thanks to all. Let me try to reply to some of them here: A few hours a day on average, but highly variable. It is automated, but parameters need frequent manual adjustment. I’m already in a portfolio margin account. I cannot leverage more. I like the first part of this post and don’t dispute the second, though I was hoping it is not true. I am in a good location I suppose, though how to find the right backer or FO is not something I would know how to start. Thanks. I am not a young man, so the miracle of compounding is not going to work so well for me. I am trying to accelerate the process, even if it means giving up some value.
Mortaging the house is not a bad idea. I have heard about the risks of prop firms, and Southern California does not seem to be a hotbed for them anyway. Selling the strategy is appealing. Realistically, I don’t know why anyone would pay a dollar for a strategy that they haven’t seen. OPM is a possibility, but I am hearing widely variable estimates about what kind of fee I could charge. Is 50% realistic? As d08 said, I think this would reveal the strategy. I have a PhD already. What I meant about the 401k is that my money is almost all in retirement accounts that cannot be traded the way that I trade. Reverse engineering is my biggest fear. I think I have slightly more hope in humanity than you, but not much. As I mentioned in my response to 1957may10, I am not a young guy. Compounding is great and all, but I will not extract the full value of the strategy using my own money. 20% per year is great, but it’s just been 4 years. Money only grows so fast, and I only have so much time on this earth.
Why are your risk parameters so strict? The only "easy" way to compound is to allow more risk, larger drawdowns. 2% is just noise for most retail traders. At 10% DD, which is still very modest, you'll have 100% return PA. What's wrong with that? For comparison, my max DD for the whole account is about 20%, granted it should happen only a few times per decade.
Other than all the great advice you get, I have one more suggestion to expand your capital base if you really believe in your method: 401K accounts are very restrictive and in general you cannot trade within your company 401K. However, nothing says you cannot rollover your 401K into a self directed IRA. I trade options, spreads... using my IRA in addition to taxable accounts. I also agree with @1957may10, among others: Keep saving, keep compounding your 20% while working your day job. One day in the not too distant future, you will realize you no longer need a day job and can trade full time for a living. How do I know? Been there done that. If I were you, I won't ask friends and family to co-invest. Why? If you make money, it is their gain but if you lose money it is your loss. No win doing that.
I guess I was figuring that my portfolio performance would serve as proof of concept for managing OPM, and that it would be easier to convince backers with strict risk controls in place. But now that I have the proof of concept, I can't figure out the second part. The average return will not quite scale with risk, so my Sharpe will decline if I increase risk. That is fine if I am managing my own money, but again that was not the original goal. Maybe it should have been.
OK this is my last statement in this discussion: sell it, or prove it works and make $$$$ to start your own account. I did it so long ago. In my opinion, it’s much easier today to compete with stupid algos written by outsourcing labor force for $7 per hour. Period.
Thanks, for the encouragement, ironchef. But an IRA wouldn't work because I go short a lot. I will just have to keep growing the money I have unless something else comes along.
That can be difficult. I would rather aim for family finances because convincing a stranger without connections is a daunting task. Might be obvious to you but be careful that you don't enter into a contract which will reveal your work. There's a lot of predators out there.