This is the best tribute to survivorship bias I've ever seen. In any case, in reality the line between a trader and a PM is often blurred, as man PMs do their own execution these days.
Hi ezbentley, I am from an institutional background and have worked as a professional trader/PM/prop in interbank & Merc floor & hedge fund etc starting in the early 1980s and in my opinion sjfan might have ruffled some feathers but he did answer your questions correctly. This is a reasonable plan and similar to my own career path. The catch is when it comes to advising you in your current situation I really donât know how to make this happen in todayâs world. When I look back at my own career path I had a lot of stuff going for me so I know why I beat the average candidates but I really canât put my finger on why I was successful verses that top 10% of very good guys. How are you defining the Buy and Sell side? For myself I am buy side ie I work as a proprietary trader offshore in an âinternal hedge fundâ for one of the biggest asset allocators in the world. For me the sell side is the Wall Street investment bankers and brokers etc that come to pitch ideas etc working for commissions and fees vs trading performance. Why would a buy side guy already successfully trading for a living using other peopleâs money give up the free call option on his performance to trade only his own capital? IMO thatâs a bad trade. Yes very true but your statement is also true for being a professional basket ball player and IMO your chances of success are around the same for making it as a pro ball player as a pro prop trader. The odds drop considerably for a successful future when you try to make it into the NBA (a successful hedge fund) without years of the coaching, training and experience in high school/collage ball (trading related job at some financial institution/group). Not if you put the numbers on the board Not if you put the numbers on the board Stay within your risk limits and put the numbers on the board and they will give you 007 desigantion in a heart beat. This I disagree with; you might be speaking of the Wall Street investment banks after the 2008 washout but the holy grail find for a hedge fund is some guy that makes money doing something different than everyone else currently trading at the hedge fund. If you are non-correlated and offer return/risk diversification from the current hedge fund traders/PM then you can write your own ticket. What firms are you taking about? Wall Street investment banks or hedge funds? Be the trader I described above with a non correlated audited track record and once again you can write your own ticket at a hedge fund. Continued in next post....
I disagree; your biggest risk is not making hay while the sun shines i.e. opportunity cost. If you have a real non-correlated edge then your risk is gigantic if you donât exploit it to the maximum for as long as it exists and to do this you must have as much capital as possible to bring into play ASAP. Very few individuals have the kind of personal capital available to exploit an edge to the maximum before the rest of the pro market figures it out and pours in killing the golden goose. The opportunity cost loss from not exploiting and protecting your personal talent/edge is a huge risk that some of the all time greats donât even pick up on. IMO Buffet today would be still smoking the index like he did in the 50s/60s/70s if he just could have kept his ego under control and thus his mouth shut instead of through the miracle of the modern media inadvertently cloning himself dozens and dozens of times over in the last three decades of the money management industry. For a successful trader with a real edge the opportunity cost is far greater at a small capital base level vs the free call option on your own talent and edge that comes with working at a successful hedge fund. Yes and no. Maybe the average person doesnât bump into them in casual life but when you work for a huge asset allocator eventually they make their way to your door. A successful individual trader that has built his size to institutional level does not stay under the radar very long because traders that are that smart figure out that a free call option exists on their talent and they understand that long before they run their own account to institutional size. Either they come knocking on the door or their brokers point the global asset allocators in their direction. And so far I have never personally met one that turned down the free call option. Now for a Mythical Market Story: I did hear of one in the mid 1980s in the first couple of years of my career. I was in New York for a few weeks doing a stint on the COMEX floor. Anyway, while upstairs in our brokerâs office after the floor closed one of the clerks pointed over to a guy on the phone a couple desks over and the clerk said he was a retail broker with only one client. The story is that the broker in the late 60s got a client that ran a couple thousand dollars into tens of millions in a twenty year run. The âlegendâ is that the client was the owner of a hardware store in the South West United States and just wanted to live his life as a small town family man etc. The broker kept the guys identity a secret and lived large on the enormous commissions from his one client. The joke was some day the client would have a heart attack and his family would find out that the Daddy that spent his days selling garden hoses and coaching little league was actually a whale worth tens of millions of dollars. So the only one I have ever heard that passed on the free call option is a Wall Street tall tale while the rest of the successful individual traders figured out the free call and went for it ASAP. I mean; how long do you really think Michael Jordan could stay under the radar even if he just played pick up ball at the local neighborhood basket ball court. Heck, they found Maradona at eleven freaking years old in the slums of Buenos Aires and he didn't have brokers handling successful orders for him every day. Talent is not invisible; not a chance. And on top of that I think the local basket ball street gossip is less efficient than the footprint of a successful whale in the financial markets. Then we have every different views on what constitutes institutional size because even if a trading recluse never approached an asset allocator to cash in on his free call option the cut throat competitive brokerage market would flush out where the talent is while they are trying to steal each others commission business. There is no invisible white whale in finance. They all eventually come up for air and a free call. I agree with your conclusion. At this point I have to jump but will try to address the rest of the thread later. All the best to everyone! Warmest Regards, Smoker
A trader trades for a living. A portfolio manager lives on fees, he doesn't have a clue of trading, he clings to the market no matter where it goes. He may have a bunch of people executing his allocations, but they are not traders in the true sense, they may be called fund allocators. If you put money in the hands of a "manager," pray that he doesn't steal your money. Think Corzine and Wardoff and Madoff.
You have no clue what you are talking about. No one, except in the fringe world of ET's retail traders, use your definitions. For the record (and I think this was already said in the second post to this years old thread), a portfolio manager may be a trader, or may manage a team of traders. A hedge fund stand-alone trader (the closest thing to a retail guy's wet dream of a 'trader') is usually given the title "portfolio manager" because he manages his own "portfolio" of trades. Get it yet?
If you are some risk averse individual who underperforms the s&p the majority of time there isn't much difference. boy that sounds like an exciting occupation doesn't it??
I will see you in the market. I will beat the crap out of you, even though you may be a portfolio manager with an AUM of 10 billion.
Hi dhpar, I think thus statement depends on how you define "making a decent living" ? This is my personal answer to your question assuming we have the same definition of âmaking itâ. If you have successful performance you will become an institution even if you donât join an institution. This will happen because your successful performance will pop up on the asset allocation industryâs radar screen and they will start banging on your door. Then you will either joint an institution or institutionalize yourself so you can pass due diligence which will allow them to place assets with you. You will then leverage your successful performance and you will end up âmaking itâ by almost any rational definition of âmaking itâ Anyway that is my answer why the vast majority of people who have âmade itâ by my understanding of the phase are âinstitutionalizedâ. I agree with a lot of what you say but would qualify your statements but saying it is less true today than it was in the past. When I was on the Merc floor in the 1980s what impressed me about the locals was there wasnât any consistent âprofileâ. The myth is all the successful floor traders were âstreet smart & little formal education & tough guys etcâ. There were a lot of guys with that exact profile but there were just as many guys with extensive formal education etc etc etc. For me the impression was there wasnât any âprofileâ. I know this for a fact because I was very motivated to be successful and I tried my best to find what was the successful profile so I would know which "profile" to profile myself on. In the end it was just all over the map and no real answer. My profile was very academic in physics and a competitive sports background from being on the Canadian National Fencing team but there were also very successful floor traders with graduate degrees in ancient history to failed Junior A hockey players who could barely read. So the successful profile was no particular profile on the floor in the 80s but when the floors started to die and the talent moved upstairs and to the hedge funds it did get a lot more focused on formal academic back grounds etc. I donât see this as a hard and fast rule but I do think it is generally true today. It has been a long time since someone came in here to pitch for money that didnât have some kind of formal academic credentials. That said I would say most of the actual traders (not marketing guys) have a hard science, math, computer and engineering background verses liberal arts, MBA, CFA etc but that is just a casual observation and maybe not statistically significant. Kind of rambling answer but hope that helps. Hi SteveNYC, My answer assumes that you are defining âbe publicâ as meaning trading other peopleâs money along with your own. A successful independent trader does this to exercise the free call option on his own talent and successful performance. It initially happens with almost no effort from the successful trader. It is practically impossible for talent to remain invisible in the financial world when a broker is handling successful trading orders day after day. The successful performance pops up on the asset allocation industryâs radar screen and from then on as long as the traderâs performance holds then the following massive financial success becomes a self fulfilling prophecy. There might be someone out there that turns down a free call on incredible wealth but so far in this industry I have never personally met him. As I mentioned above I have only ever heard of one guy but I donât even know for sure that he actually existed and besides the legend is he was already enjoying incredible wealth and really loved his hardware store. And that is my 2 dirhams worth of an answer and I appear to be repeating my self so that is a signal that it is time to get back to the grain rally. All the best. Warmest Regards, Smoker
It's not a free call option - you have to be employed and sit at a desk following orders, either from your boss or your clients. That is a gigantic opportunity cost - something which is not measured in terms of money, but in terms of life and time (money can be made back, time and life experiences can't - you are only young once). Being a sole trader, like being a writer or a rich playboy, gives you as close as the modern world offers to true freedom. I like that I can trade from anywhere in the world, and can move whenever I like, wake up when I like, go to bed when I like, take holidays whenever I like, and trade how I like. All that matters is if I make my nut, and it would take >10 zero income years for me to blow through my capital at my normal spending rate, so I can handle 1, 2, or even 3 down years, something that would career-kill any hedge fund manager or trader. Who do you think is a more fun person to hang out with or fuck - a finance geek chained to his desk 12 hours a day, or a relaxed trader banking decent but not obscene coin and coming and going as he pleases? Besides, there is really no point in making wealth above a few million, anything that costs that much is a useless material bauble, and you cut yourself off from the majority of society if you become seriously wealthy. There is a reason the best parties and the most fun people are never in the richest parts of town. There have been quite a few solo traders much bigger than the ones you mentioned. E.g. Robert Wilson, Joe Lewis, both made >1 billion and didn't work at a hedge fund or run client money. Working at or running a fund is better if you want to get rich, at the cost of being constrained and dealing with lots of BS. Being a sole trader is better if you want reasonable prosperity plus enormous freedom and minimal hassle.
Not true - liquidity constraints often make small-trader track records irrelevant for institutional size. For example, until about 2-3 years ago you could make ludicrous sharpe ratio returns up to 6 or low 7 figures just scalping futures. But after that, size became an issue. So, that type of trading was great for me and I passed on up pure directional speculation for the most part, except truly compelling trades, other than that I punted on modest size as a 2nd source of profit (and sometimes loss, lol). Eventually I got bored of daytrading, and then when the edge started deteriorating I just shifted to directional punting, which I've done quite well at, although the volatility is higher and consistency lower. No hedge fund with a brain is going to pay any attention to my past record when I was mostly scalping or spreading futures intraday. I am also sceptical they would auto-hire someone just because they have good numbers on scalable strategies, I am sure they'd want at least 3 years of returns, probably more. And if I get to say year 5 of pure speculation with good numbers intact, there will be no reason for me to work at a hedge fund. The only reason to join would would be if I *couldn't* make good enough performance to live off the proceeds and grow my capital reasonably at the same time. The only reason I'd consider working for or with someone else, would be if I though it would improve my own trading significantly, or would make work a lot more enjoyable.