Hello. I am intrigued. Your experiences are unique.
1. Would I be accurate in assuming you excelled at taking money out of the financial markets like very few people know how to?
2. In the beginning did you borrow to take large positions or was an accumulated hefty salary the stepping stone to large position trading?
3. Were fundamentals the analysis of success?
Hi
Everyone walks their own journey. Mine is just one. Yours is unique too.
1. We did some pretty funky stuff that the insto market liked. It was very leading edge in areas and was copied by others eventually. Our original clients still seek my advice now. In a number of cases, they still use products which my former team play a role in managing or which are connected to the organisation that we were/are part of. It's gratifying when you can know you did it right.
We used other methods that were also cutting edge at the time. The idea was mostly to acknowledge that our edge in a single stock was tiny. We did things cross-sectionally. That is, one stock vs another. Pair/cluster trading en masse. This is a type of approach that might be called statistical arbitrage. It worked. I also held broader responsibilities.
2. I accumulated by personal exertion in the first instance. This sounds bad...but it wasn't worth my time to manage our own assets when I was working. Plumber's house has leaking taps etc.. My family portfolio consisted of a pile of TDs which my wife rolled, a stack of stock which formed part of my compensation and whatever was placed into super. I never looked at it when the statements came in. Given the company I worked for was a rather large financial entity, the stock was essentially a mutual fund into the world market. With leverage. My salary was a levered play on my ability to generate returns. In that way, I suppose, I was a levered investor. It really felt that way too as I don't think I felt I would definitely have a job at the end of a year in all except 2 years. We were always on the line.
Institutional funds management has a bad name in terms of just being asset gathers etc. The reality, which I experienced anyway, was that benchmark hugging guaranteed loss of the client. They can run your portfolio through risk systems (or their advisers can) and see what is going on. If you don't do well, your business shutters in just a few years. The typical period of assessment is just 3 years. If something goes wrong, that period can be shortened to tomorrow.
I am not a punter. I would hazard to guess that I would be around the bottom 10% in terms of risk appetite in this forum. I do not take monster positions. That gold position, which I think you must be referring to, will be a fractional exposure when completed. 90% of forum participants would not get out of bed in the morning to make that kind of adjustment, proportionately. Those that do might just have nothing particular to do that day/minute. They might be large dollar positions, but my objective is really to add a margin to inflation which is like saying our wealth should grow in-line with GDP. We don't spend our income. We have means, but we're just not that kind of people. If you looked at me, you'd see nothing at all. So this will lead to an increasing multiple of expenditure. It will eventually be passed along - I hope. I am also Slowly Walking the Road to (more) Riches, like Ryan C. I'm just taking a slightly different path because I have some more latitude available.
Leverage does form part of this, but this is because the risk management processes I use are targets towards dollar wins and losses. Then the positions are taken to respect those limits and this allows for some leverage (It's around 0-10% net, but can be much larger 'gross notional') in effective exposure terms. I don't actually borrow money from a bank. It occurs because my proportional holdings in the relatively high volatility class of equities is surprisingly low compared to what might be regarded as normal by the general populace. So I lever a bit to utilise the risk budget.
3. For me, everything boils down to fundamentals and risk management/deployment. Even if some the techniques I use do not explicitly include fundamentals in their formulation, it is there before the code was written or the general shape of a decision was made. There must be an economically coherent reason why something should work and this must be backed by solid reasoning/evidence that it has worked, with the conditions still prevailing in which it can. The FX thing previously posted is just one such idea. The reasons it works are visible. You can check that the conditions are actually present. You can risk manage it. I do not play at the casino until I have confirmed I am the house. In this house, I can count cards too. There are many games on offer. I don't need to play them all. There are more than I am not good at than which I can make a fist of.
My wife is still my Head of Investment. She is still too big to fail...
How about you? What's your approach/development been?