sfjan, have enjoyed reading your posts. i for one, however, don't agree with your risk/reward formula for deciding to pursue 'trading'. you integrate time into your risk metric in the form of 'opportunity cost' and assume a high value. this is not very objective and not very becoming of a good PM (i kid)! with time properly factored out and applying frequency to the equation instead, one can easily come to a very different conclusion: assuming reasonable numbers for frequency (6mos - 1yr) , probability (whatever low %), risk (2500-10k), and reward (crazy high number)... it's not all that 'dumb' of a bet. in my own case, i started with a 2.5 bone wad and now that amount is what my tick fluctuations can look like. i didn't do it in the first 6 mos - yr, but by that time i had a pretty good idea of what i was capable of. also, hate to say it, but you come off like your pinky is quite high in the air. you're sincere and intelligent though, so it does make it palatable enough, even pleasant. however, if you decide to come down from your 'first tier/buy-side/insti' horse and try slumming it for a bit, you might have better luck analyzing the signal to noise ratio on this board and maybe some of your limiting beliefs about the markets in general. agreed, insightful posts are rare, but to make the claim no one here makes any real money is being a bit thick. there are, without question, some talented guys who frequent this site who make a lot of money doing some pretty non-trivial stuff. stuff like, i don't know, exploiting inefficiencies in the most liquid assets?... because why trade, if you can't move some money around.
So basically, when you make a ton of assumptions on your return distribution, all of a sudden your investment idea makes sense.... Alright. There's a chance that there's a group of highly successful independent traders somewhere exploiting microstructures in liquid markets. (I don't think we are talking about investors right? we are talking about short term traders). Perhaps. I don't know who they are. Not many people do. And, as you say, they aren't public. That's all fine and good. My point is, however, that if I were to choose a career - one in which the examples of success are invisible and inaccessible, and only exist in conjectures and folklores.... well, I don't know. But, at the end of the day, like I said before, we are all in it for the money. And actions speak louder than words. I'm convicted enough of my position that I went the institutional route. You are convicted enough that you went the retail route. The only in the end that matters is whether you are making the money you wanted to. This whole thread, and this is partly my fault, has turned into an "us vs them" dick measuring contest. This isn't necessary. Our profession is one that's easily measurable in terms of success - money. So if you are making bank, good for you (I'm not at all being confrontational or sarcastic, in case it comes across that way).
I have no experience whatsover on matters of trading within an institution -- in fact I have never stepped inside a corporate office as an employee in my entire life. That rather large caveat given, I do have the experience of spending nearly all my years (12) after graduating with a liberal arts degree (in studio art for that matter) learning to trade on my own. So of course my opinions are skewed but fwiw, some thoughts: -- A self-taught succesful trader wouldn't last a day at an institutional desk, that's pretty much a given. But you could probably say the same going the other way around, given how broadly the term "trader" is used. When getting a paycheck becomes simply do or die, with the clock ticking, trading becomes an entirely different ball game. There is no benchmark to beat, rather, you only make as much as you think you deserve, and that's only after you've figured out what works over the long haul (and I mean LONG). -- "Inefficiencies" and their exploitation are completely overrated and virtually non-applicable for the individual trader. I see many (and I mean much more than I can handle as one head and two hands) opportunities each day that involve exploitation but have nothing to do with any notion of price efficiency or fair value, so to speak. An edge is called an edge for a reason: it's there to be dulled over time. Yet some things stay the same no matter how the game changes. -- What does an mba have to do with trading your own account? Zilch. The less you think you know, the easier it is to start becoming profitable. Earning an mba as an "out" while trying to make a living from trading is like taking ballet lessons on the side while training to become an olympic weightlifter. Let's face it people, this isn't rocket science, everything you need is already in front of you. Know your role and you will be fine. -- I think it was Ad Reinhardt who said "Art is art and life is life". I would imaging one could say nearly the same for trading for an institution vs trading for oneself, although I am not qualified to make that statement. But perhaps those who have been on both sides of the fence can give a more complete view of it.
first time poster here, just wanted to revive this ageing thread on a related point.. It's true that the b-school option seems safer as you presumably get a paying job shortly after graduation and have no 'no profit - no food' stress. Thinking about it, time-wise it will take a good few years to grow from a grad (assuming no prior trading exp) to a serious decision maker at the buy-side shop. That path can be slowed down by whatever restrictions the shop imposes, esp if you land in a big place like pimco or Man, for example. And you'd, for quite a while, be facing only a part of the business as you say. So whereas it would be enough for the 100k goal, if one wants to be more holistic about the markets, it will take further skill expansion and another good few years. To become a senior PM for example. If you just go solo, you take on the task of being more than an analyst/trader and you spend on it perhaps a similar number of years before you are consistently profitable and could also take on external capital. But this without having to jump the hurdles of doing well in the school (not all of the material is useful), doing internships possibly, being hired a junior, dealing with corporate rules, senior traders telling you not to trade X, even politics.. You do need a secondary income cushion, for those lean trading years. My question is, is it a comparable path in terms of length and stress incurred, to go it alone vs join a buy-side place from b-school, if the goal is to make a multiple of 100k and to have a fuller understanding of the markets and skills to utilise such understanding?
I've known a few PM's, and it does seem like they are very afraid to try to make it on their own as a trader. But why should they? Well, for one, they talk as if everything they say is intelligent; however, when they are wrong (usually), it does not affect their bottom line. It just makes them seem "smart." They are good at networking, and keeping a job. But they also love to talk about how they should start a hedge fund and give it a go. I've heard this for 10 years. I'm pretty sure they are afraid they will fail, big time. Only you really knows how comfortable you are in your own skin. If you are, great. If you're not, but act like you are; well, have a talk with yourself. Nobody cares if you make 1k a year or 500k a year (outside you and people in your family, since you need to pay bills, etc...). From a money point-of-view: The best pure traders > best portfolio managers. Those that can work without a boss or people they have to answer to...... do.
So, going to a first tier b-school and working at an institution is like going to Julliard and playing with the NY Philharmonic, whereas being an independent trader is like dropping out of college and working in your garage like Steve Jobs and Steve Wozniak. I guess you could substitute Steve J. and Steve W. with Bill Gates, also. Incidentally, there was a third guy who started Apple. He sold his stake in Apple for $800 b/c he believed Apple would go bankrupt and didn't want to be responsible for Apple's debts since both Steve's didn't have money. That might be the worst trade of the century b/c that $800 stake is worth billions today. In a recent interview with the third guy, he said that he has no regrets.
So, PM is like a coach of a football team, whereas a trader is the quarterback? Who has the higher income? The PM or the trader?