Large capital base vs. small capital base returns

[pavilion103]

I'm curious to know the results (ROI) people have made with large v small accounts and what can be expected of those who trade them.

For example I'd imagine it would be more difficult to produce returns of over 25-30% on a $500,000 account than on a $10,000-20,000 account?

Is achieviable to say double a $10,000 account in a year without gambling? Or would, say a 30% return, on a $10,000 account be all that can be expected from a good trader?


I ask because I hear people, including professionals make huge returns on small accounts, so I am wondering if this is generally achievable by a good trader?

 

[Julia]

Re: Large capital base v small capital base returns

For example I'd imagine it would be more difficult to produce returns of over 25-30% on a $500,000 account than on a $10,000-20,000 account?

Can you say why you think this?

 

[tech/a]

Re: Large capital base v small capital base returns

200% on a $10K account when your nett worth is say $500K.
Is not a huge return--it is on capital.
Start trading the same way with your full nett worth and see how your psych handles it.
Particularly the odd 60% Peak to Valley draw down.

Just saw Julia's post.
I dont think 25-30% is impossible to return.
Difficult in this market ---well perhaps impossible if trading long only with $500k.---in this market.
i dont know of anyone doing that well with that sort of capital.

 

[craft]

Re: Large capital base v small capital base returns

Without getting in returns –because that just turns into a **** fest on an anonymous forum . There are two things that I found.

1. Risk control dictates that you need adequate capital to make a decent income – Push the required return and you inevitably push the risk.

2. At least for me Trading was not scalable beyond a certain point. I had to limit the account size to maintain returns. (that meant I couldn't compound trading profits) Investing has the advantage for me of being scalable.

 

[McLovin]

Re: Large capital base v small capital base returns

I think it's significantly harder with a larger capital base in Australia. The market just isn't that big and we don't have companies that can grow for long periods of time at high rates. Also, taking a position in small caps with a large capital base is difficult to do because often insiders own significant amounts of stock and liquidity is thin. Someone like JBH makes the point about reaching the limit of growth well. In the US/Europe a company the size of JBH would still have significant growth still in front of it, whereas in Australia it is starting to reach maturity.

Most of what is discussed in Australia as being "small cap" would be considered micro cap in the US.

 

[Julia]

Re: Large capital base v small capital base returns

Just saw Julia's post.
I dont think 25-30% is impossible to return.
Difficult in this market ---well perhaps impossible if trading long only with $500k.---in this market.
i dont know of anyone doing that well with that sort of capital.

Tech, I was just interested to know how Pavilion had formed the view he had.

 

[tech/a]

Re: Large capital base v small capital base returns

Tech, I was just interested to know how Pavilion had formed the view he had.

Yeh I know wasn't trying to reply although it looks that way.

 

[waimate01]

Re: Large capital base v small capital base returns

I'm curious to know the results (ROI) people have made with large v small accounts and what can be expected of those who trade them.

Yep, sp much easier to make a good return on $20k or $200k or $2000k or $20000k than it is on $200m or $2000m.

That's a good thing to aim to worry about

 

[pavilion103]

Re: Large capital base v small capital base returns

Can you say why you think this?

I was thinking both from a psychological point of view and liquidity.

 

[pavilion103]

Re: Large capital base v small capital base returns

200% on a $10K account when your nett worth is say $500K.
Is not a huge return--it is on capital.
Start trading the same way with your full nett worth and see how your psych handles it.
Particularly the odd 60% Peak to Valley draw down.

Just saw Julia's post.
I dont think 25-30% is impossible to return.
Difficult in this market ---well perhaps impossible if trading long only with $500k.---in this market.
i dont know of anyone doing that well with that sort of capital.

But is that achievable?

 

[skyQuake]

Re: Large capital base v small capital base returns

But is that achievable?

0~3 years market experience - No.
3~6 years: slight chance
6+: possibly

This is all assuming you're trading responsibly and not say putting all ur money into a superleveraged cfd position

 

[tech/a]

Re: Large capital base v small capital base returns

0~3 years market experience - No.
3~6 years: slight chance
6+: possibly

This is all assuming you're trading responsibly and not say putting all ur money into a superleveraged cfd position

Yes I agree
More luck than skill I'd suspect.
Getting on a few 50 to 100+ rise

 

[odds-on]

Re: Large capital base v small capital base returns

I think it's significantly harder with a larger capital base in Australia. The market just isn't that big and we don't have companies that can grow for long periods of time at high rates. Also, taking a position in small caps with a large capital base is difficult to do because often insiders own significant amounts of stock and liquidity is thin. Someone like JBH makes the point about reaching the limit of growth well. In the US/Europe a company the size of JBH would still have significant growth still in front of it, whereas in Australia it is starting to reach maturity.

Most of what is discussed in Australia as being "small cap" would be considered micro cap in the US.

Invest overseas!

IMO, the asx has probably 1 bet a year where you could have enough confidence to put a serious % of your funds on to obtain a 30-50% return on total funds worth a million or so. The patience and research required to make these types of bets is not to be underestimated, it would more or less be a full time job and take some serious conviction. If you want more bets per year and be able to invest larger sums, the best bet is to invest overseas.

Cheers

Oddson.

 

[pavilion103]

Re: Large capital base v small capital base returns

0~3 years market experience - No.
3~6 years: slight chance
6+: possibly

This is all assuming you're trading responsibly and not say putting all ur money into a superleveraged cfd position

Obviously you are a far more experienced trader than I.

Are you using the rough estimate of the above years for the "average" trader?

Obviously different people have different levels of discipline, hours spent working on trading, teachability, quickness to grasp concepts.
I'm sure there are some who in 2 years and achieve far more than others in 6.

I'm not claiming myself to be one of those, but surely there are those who are more committed and spend more time looking at charts and developing their system who can get there quicker.

 

[sinner]

Is achieviable to say double a $10,000 account in a year without gambling? Or would, say a 30% return, on a $10,000 account be all that can be expected from a good trader?

Returns are nothing more than a function of risk and trade execution. Looking at "returns" as anything else is a bit of an illusion imho.

Which means you have the question backwards, and you shouldn't be asking us!

"Is achievable to say return 100% per annum on my account without experiencing a 100% drawdown? Or would, say a 30% return per annum be all that can be expected if I used proper risk management techniques and trade execution to limit drawdown to 1/3 or less of my expected returns?"

 

[skc]

Re: Large capital base v small capital base returns

I was thinking both from a psychological point of view and liquidity.

On liquidity it obviously depends on the instrument you trade and your trading style. With $500k account you probably won't have any troubles in futures/big caps unless you are trying to steal 1 tick with the full account balance as margin and leverage it up 20x. On the other hand, you will run into liquidity issues if you play only in small caps.

On the psychological level, the absolute account size is irrelevant. What is important is the account size relative to total net worth of the trader imo.

Trader A with a $500k account risking 2% per trade ($10k) might actually only has 50% of his net worth deployed to trading. He risks only 1% of his net worth per trade.

Trader B with a $50k account risking 2% per trade ($1k) however took out a margin loan and that $50k account represented 150% of his net worth. He is risking 3% of his net worth per trade. It will be much harder for him psychologically, and he might decide to risk only 1% of his net worth per trade (like Trader A), which means he had to reduce his position sizes etc by 1/3 (and his return accordingly).

In this example, it is the smaller account that is harder to generate a higher return...

 

[odds-on]

Imagine little Johnny is a 20 year old student with $10k of initial capital and has after many hours research created a simple trading system that produces a consistent return of 25%, but the simple trading system only works up to a capital amount of $500k. Assuming little Johnny retains all returns and does not add further capital, he will have $500k in approximately 17.5 years due to compounding. 37.5 years old and a capital base of $500k. Now little Johnny’s simple trading system is no longer able compound returns. Each year he earn $100k on his trading capital of $500k which he saves so by the time he is 60, he will have 22.5 * 125k + 500k trading capital. Little Johnny is now worth $3.3million. All good. 40 years later he has turned $10k into $3.3 million, which is a CAGR of 15.6% over 40 years, good effort. Playing round with the numbers, it starts to get scary, keep the consistent return at 25% but drop the capital amount to $250k, and little Johnny has a CAGR of approx 13% over 40 years, now this is more or less index tracker fund returns. Interesting results, especially when you have to take into account trading consistently for 40 years one could say that Little Johnny at 20 should put down the trading book, read John Bogle, get an index tracker fund with his $10k then spend his time surfing. He will probably be better off in the long run.

From the posts in this thread it begs the question why trade to get rich if such a small % of traders can actually do it consistently well? The odds are against you.

 

[tech/a]

Imagine little Johnny is a 20 year old student with $10k of initial capital and has after many hours research created a simple trading system that produces a consistent return of 25%, but the simple trading system only works up to a capital amount of $500k. Assuming little Johnny retains all returns and does not add further capital, he will have $500k in approximately 17.5 years due to compounding. 37.5 years old and a capital base of $500k. Now little Johnny’s simple trading system is no longer able compound returns. Each year he earn $100k on his trading capital of $500k which he saves so by the time he is 60, he will have 22.5 * 125k + 500k trading capital. Little Johnny is now worth $3.3million. All good. 40 years later he has turned $10k into $3.3 million, which is a CAGR of 15.6% over 40 years, good effort. Playing round with the numbers, it starts to get scary, keep the consistent return at 25% but drop the capital amount to $250k, and little Johnny has a CAGR of approx 13% over 40 years, now this is more or less index tracker fund returns. Interesting results, especially when you have to take into account trading consistently for 40 years one could say that Little Johnny at 20 should put down the trading book, read John Bogle, get an index tracker fund with his $10k then spend his time surfing. He will probably be better off in the long run.

.

Pretty well no one considers tax.
Its a big slice out of profit even if you hold for 12 mths or longer.
Portfolio trading with up to 3 million shouldnt be a worry in Australia.
Particularly if you trade the ASX 200.

From the posts in this thread it begs the question why trade to get rich if such a small % of traders can actually do it consistently well? The odds are against you

I doubt any trade on this forum to get rich.
I think most trade with a capital base that wont ever see them rich---it will give them an opportunity eventually when their capital base grows.
Those that do "get Rich" from trading Fundamentally or technically will find themselves on the right side of an outlier.
So more luck than design.

The others like me look to trading as a passive form of income or are trading (Dirty word--should be investing) their SMSF.

The Odds are against you just as they are with ANY business.

 

[skc]

Imagine little Johnny is a 20 year old student with $10k of initial capital and has after many hours research created a simple trading system that produces a consistent return of 25%, but the simple trading system only works up to a capital amount of $500k. Assuming little Johnny retains all returns and does not add further capital, he will have $500k in approximately 17.5 years due to compounding. 37.5 years old and a capital base of $500k. Now little Johnny’s simple trading system is no longer able compound returns. Each year he earn $100k on his trading capital of $500k which he saves so by the time he is 60, he will have 22.5 * 125k + 500k trading capital. Little Johnny is now worth $3.3million. All good. 40 years later he has turned $10k into $3.3 million, which is a CAGR of 15.6% over 40 years, good effort. Playing round with the numbers, it starts to get scary, keep the consistent return at 25% but drop the capital amount to $250k, and little Johnny has a CAGR of approx 13% over 40 years, now this is more or less index tracker fund returns. Interesting results, especially when you have to take into account trading consistently for 40 years one could say that Little Johnny at 20 should put down the trading book, read John Bogle, get an index tracker fund with his $10k then spend his time surfing. He will probably be better off in the long run.

From the posts in this thread it begs the question why trade to get rich if such a small % of traders can actually do it consistently well? The odds are against you.

The numbers in this example are kind of hypothetical, aren't they?

1. Why does the trading system only works up to $500k? If it is so small a market, I bet you the returns won't be 25% consistently.

2. You'd think little Johny would be wise to, during that first 17.5 years of compounding, investigate different strategies on a larger, more scalable instruments. When I first started out trading I found this edge which got me 10% return per month... I knew it was too good to last and so while I traded that I spent time looking for different strategies. It turned out that the edge only lasted 3 months and a bit. A trader who doesn't evolve with the markets will not be consistently profitable in the long run.

Oh yeah... and there's the tax issue and living expense etc as mentioned by Tech/A.

 

[odds-on]

Pretty well no one considers tax.
Its a big slice out of profit even if you hold for 12 mths or longer.
Portfolio trading with up to 3 million shouldnt be a worry in Australia.
Particularly if you trade the ASX 200.



I doubt any trade on this forum to get rich.
I think most trade with a capital base that wont ever see them rich---it will give them an opportunity eventually when their capital base grows.
Those that do "get Rich" from trading Fundamentally or technically will find themselves on the right side of an outlier.
So more luck than design.

The others like me look to trading as a passive form of income or are trading (Dirty word--should be investing) their SMSF.

The Odds are against you just as they are with ANY business.

I personally would not class any form of trading/investing as passive. The returns from trading/investing have to compared to if you spent the same amount of time that you do trading/investing doing overtime and dumping the extra cash into an index tracker fund - probability wise you will probably be better off in the long term.

Trading/investing is all about probabilities so why do traders/investors not accept the odds?