Would you fund a trader with a proven record?

[craft]

My question to all you guys is.......... Why are you so silly risking your own money! I mean really??

Inverting this provides the Prop shop business proposition and the right way to think about CanOz’ question.

All propositions start from an equal footing – but there is nothing here to evaluate – so my vote has to be - depends on the business plan.

Looking at the prop shop proposition - The traders are basically commission only employees – probably very easily dispatched if they don’t perform - So variable costs . The risk management is not delegated to the trader so that stays in the control of the capital provider. Trading limits would obviously only be increased for traders earning in excess of required return. Margin offsetting probably keeps capital requirements low for given exposure. All-up - Potential, but the Fiduciary risks and the mismatch of downside risk between capital and labour (when labour can create losses quickly) means the capital provider really needs to be active in the business. Probably not something I would passively invest in – (Are there any publically listed prop shops anywhere in the world? – it would be interesting to look inside the books)

 

[CanOz]

Inverting this provides the Prop shop business proposition and the right way to think about CanOz’ question.

All propositions start from an equal footing – but there is nothing here to evaluate – so my vote has to be - depends on the business plan.

Looking at the prop shop proposition - The traders are basically commission only employees – probably very easily dispatched if they don’t perform - So variable costs . The risk management is not delegated to the trader so that stays in the control of the capital provider. Trading limits would obviously only be increased for traders earning in excess of required return. Margin offsetting probably keeps capital requirements low for given exposure. All-up - Potential, but the Fiduciary risks and the mismatch of downside risk between capital and labour (when labour can create losses quickly) means the capital provider really needs to be active in the business. Probably not something I would passively invest in – (Are there any publically listed prop shops anywhere in the world? – it would be interesting to look inside the books)

Thanks Craft, nice to see the business from the Fundamental side...

On a lighter note, i stole this from John Grady's site....lol..

Size matters...

CanOz

 

[Trembling Hand]

Inverting this provides the Prop shop business proposition and the right way to think about CanOz’ question.

I wasn't replying to CanOz q's rather the prompt from Matty about why a trader who could trade trade with a prop shop.

Looking at the prop shop proposition - The traders are basically commission only employees – probably very easily dispatched if they don’t perform - So variable costs . The risk management is not delegated to the trader so that stays in the control of the capital provider. Trading limits would obviously only be increased for traders earning in excess of required return. Margin offsetting probably keeps capital requirements low for given exposure. All-up - Potential, but the Fiduciary risks and the mismatch of downside risk between capital and labour (when labour can create losses quickly) means the capital provider really needs to be active in the business. Probably not something I would passively invest in

yep agreed,

(Are there any publically listed prop shops anywhere in the world? – it would be interesting to look inside the books)

No they only float the crap business to the punters

 

[craft]

I wasn't replying to CanOz q's rather the prompt from Matty about why a trader who could trade trade with a prop shop.

Yep Sorry I understand that, quoted you but wasn’t really addressing your point.

On your point – I can’t understand either why traders wouldn’t look into it. Although I don’t understand why if you can make a return for somebody else’s capital why you wouldn’t also run your own capital alongside. Diversification maybe?

 

[Trembling Hand]

I don’t understand why if you can make a return for somebody else’s capital why you wouldn’t also run your own capital alongside. Diversification maybe?

You cannot trade the same market as the ones you're trading for the prop shop for obvious reasons. I thought I would be able to develop a longer term system to run as well but frankly I cannot be bothered. I like doing my 5 hours of work a day and logging off and not giving a toss about what happens till open tomorrow.

 

[craft]

You cannot trade the same market as the ones you're trading for the prop shop for obvious reasons. I thought I would be able to develop a longer term system to run as well but frankly I cannot be bothered. I like doing my 5 hours of work a day and logging off and not giving a toss about what happens till open tomorrow.

Ahhh laziness - be careful that can leed to passive investing

 

[odds-on]

Hi CanOz,

It would be good to see a business plan. I would be willing to allocate a small amount of capital to this type of venture subject to the paperwork being straight. Some rough ideas below-

Performance management: Trader gets 70% of profits above a 5% return on capital (after expenses and measured quarterly)
Capital: There must be option to receive the profits each quarter as a dividend or to reinvest.
Loss of principal: There must be a clause that as soon 40% of my contributed capital has been lost then the remaining contributed capital gets returned.
Reporting: Quarterly reporting would be sufficient - no more than 1 side of A4!

Cheers

Oddson

 

[DJG]

Just found the thread now but the poll is closed.

How'd you end up going with this Can Oz? Anything develop of it or at least get you thinking?
I'd be interested after some reading.

Look forward to further comments on the thread.

 

[CanOz]

Just found the thread now but the poll is closed.

How'd you end up going with this Can Oz? Anything develop of it or at least get you thinking?
I'd be interested after some reading.

Look forward to further comments on the thread.

I think the result was better than I thought from this crowd.

It's good to see...many wouldn't realize that there are traders trading thier supers and they haven't seen thier track record!

Cheers,


CanOz

 

[DJG]

I think the result was better than I thought from this crowd.

It's good to see...many wouldn't realize that there are traders trading thier supers and they haven't seen thier track record!

Cheers,


CanOz

Very good point!

 

[Gringotts Bank]

I can afford to post this now, since Mr Fund manager will be at Portsea or Palm Beach till the end of January. What he doesn't read won't offend him.
au.finance.yahoo.com/
---------------------------------------------------------------------------------------------------
Professional wealth managers have long been criticized for charging more than their services are actually worth. [what? you mean charging a high fee for no result? ]

But getting routed by an animal that spends 20 hours a day either asleep or scratching itself is a new low.

In a recent stock-picking challenge, the UK Observer pitted a trio of investment managers against two groups of amateurs: a handful of high school students, and a house cat named Orlando.

The cat won.

Each team started the year with £5,000 in capital to invest in five companies from the FTSE All-Share index. After each quarter, they could swap out whatever stocks they chose, if any.

While the two-legged participants picked stocks the old-fashioned way, Orlando chose by tossing a toy mouse onto a grid of numbers that designated different companies.

Things were looking up for the pros by September, when they showed a profit of £497 compared to the cat's £292.

But Orlando really turned up the heat in the last quarter of 2012, increasing his profit to an impressive £5,542.60 and beating the professionals by £366. The students fell in third place.

Here was the cat's winning strategy, per the Observer:

"All but one of Orlando's stocks (Morrisons) rose during the last three months of the year, including specialist plastics and foam company Filtrona, which Orlando had hastily swapped for under-performing Scottish American Investment Trust in September.

By contrast, the professionals refused to swap any stocks at the end of the third quarter and paid the price. British Gas fell by 19% and Imagination Technologies dropped by 16.8%, dragging their portfolio down by an average 7.1%."

This isn't the first time professionals have been beaten by "lesser than" competitors. In a study by UC Berkeley's Terry Odean, he found stocks that professional fund managers sold off actually performed 3.2 percent better annually than the ones they purchased for their clients. Taking into consideration the average 3 percent fund managers charge clients in fees, it's a pretty significant finding.

The cat's victory ought to make Economist Burton Malkiel smile, too. It was in his controversial book "A Random Walk Down Wall Street," that he claimed a "blindfolded monkey" could put together an investment portfolio better than a paid professional.

How They Ended Up - Final Total
Orlando £5,542
Professionals £5,176
Kids £4,840

 

[CanOz]

Well done Orlando!!


CanOz

 

[Trembling Hand]

GB what point are you trying to make in relation to this thread. We should fund a cat rather than a trader?

 

[McLovin]

Well done Orlando!!


CanOz

He'll be a fat cat before you know it.

 

[boofis]

It was in his controversial book "A Random Walk Down Wall Street," that he claimed a "blindfolded monkey" could put together an investment portfolio better than a paid professional.

Controversial for containing preposterous 'experiments' such as the aforementioned

 

[Gringotts Bank]

GB what point are you trying to make in relation to this thread. We should fund a cat rather than a trader?

View attachment 50437

If he can continue his form long enough, sure. I don't much mind if "best" is an astrologer or a garbage collector or cat, but there needs to be a strong history of performance first.

Fat paw errors might be an issue, but we can get around that.

 

[todasec]

I am looking for capital to trade and just came across this forum. I am advertising but is on topic so I thought I'll give it a go, if this is against the rules please remove the post.

You will be opening your own brokerage account under own name, just allowing me limited power of attorney to trade on your behalf. Please read Interactive Broker's "Friends and Family accounts" for further details. You can liquidate trades anytime if you are uncomfortable, although doing so I won't work with you anymore. Withdrawing funds can only go to your name. You also need to agree to pay fees on profits, which is facilitated through the broker. You will be charged brokerage by IB, and I receive no compensation on the commissions generated.

Past record as below:

i46.tinypic.com/jqi9us.jpg

Note: Have traded for a couple of years, but only account where there are also client live trades will be shown. This is my personal account which I opened when I started managing others, client's accounts have achieved the same replicated result, BEFORE performance fees. If interested, 3 years historical live account statements can be shown, but they are for informational purposes only as I will only promote track record where there are also client's money being traded.

21 week return: 23.33%
Max Peak to Valley Drawdown: 3.87%
Valley to Peak recovery Period: 12 days

---
Annual Profit Target: 20-35%
Management Fee: 0%
Performance Fee: 30% New High Watermark(The highest net asset value that an account has reached and for which a performance fee was paid.) Paid Quarterly.
Eg.
Starting capital: $20,000
1st Quarter: $20,600 = (watermark 20,600-20,000=600) 30% of $600 paid to advisor manager.
2nd Quarter: $21, 600 = (watermark 21,600-20600=1000) 30% of $1000 paid to advisor manager.
3rd Quarter: $21, 000 = (no new high watermark)
4th Quarter: $21, 599=(no new high watermark)
5th Quarter:$21,601=(watermark 20,601-21600=1) 30% of $1 paid to advisor manager
No NEW profits/growth from previous high watermark value means no performance fee payable.

Max Risk Limit: 10% TRAILED equity. If the account ever exceeds a 10% draw down peak to valley, NOT initial deposit, all trades will be closed, and the client will be contacted for further instruction.
---
Yes 21 weeks of record is not much but I only promote record where clients funds are managed (3 years trading history available on request, but I am more aggressive with higher DD and growth when not managing others money so it is not the perfect indication of performance). We have experienced (as per SP500, which is what I trade) sideways, down and up market since September and my strategy works in all market conditions. I do short term gamma scalps with monthly and weekly SPY options only. Just SPY options, liquidity is very high so slippage is minimal. Due to the nature of my strategy I am only aiming for consistent slow and steady growth, so do not expect 70%+ annual returns.

I am not licensed so I am not being regulated or audited and as such our relationship will be "friends and family", you will be responsible for your own account and taxes, performance fees will not be tax deductible as far as I know. As far as auditing goes, well I have no auditors of past performance but you are welcome to arrange to meet me in Melbourne CBD and I will log in the master account above and my own personal account you can go through all past trades. Other than that transparency, I can't do much more to prove anything.

If anyone is interested and needs to know more, please PM me.

 

[skyQuake]

Interesting to see you're gamma scalping. Would have thought this to be the purvey of insto rather than retail.

To be frank I doubt you'll win anyone over with the 5 months records (although impressive). 3year broker statements will be far more important.

How long have you been trading options for? I'd assume you're trading US oppies from here in Aus?

You also need to agree to pay fees on profits, which is facilitated through the broker.

Did not know this was possible through IB

 

[todasec]

skyQuake, thanks for being frank, I also do think 5 months is too short to arouse much interest. Although my trades are very short term, in and out in mostly during the week but I also hold some positions over the weekend, very small net long positions(<4% long of total capital in long minus short options). I also want to show trades through a intermediate or prolonged bear market to show the validity of the method. I plan on managing funds for the long term anyway so if I can come back and show the results of managed accounts after a full year, maybe more people will be interested.

Been trading stocks for 6 years, options for 5 years and this strategy for 3 years. 3 year brokerage statements is available, but is very messy as I run other systems as well in the same account (I would've seperated systems into different accounts, but portfolio margin advantages is just too hard to pass up). I have tried my best to seperate the system by itself although it is not a fair indication of the way I will trade client's accounts. Profits and drawdowns are magnified on my personal risk parameters and will give unrealistic expectations on performance as compared to when I am risking less in the managed accounts.

I do not trade that way for others as when your drawdown is more than 5%, people get worried and when it is above 10%, most people bail out before recovery begins. Which is why I tailored the risk parameters to around where I expect 5%+ drawdown to be very rare and 10% will be the stopping point where I will have to explain to clients why I have lost a tenth of their money and why they should not withdraw their money. I do not expect to get there but anything is possible.

I am in Melbourne trading just US options. By the way above where I mentioned solely SPY options is not entirely true, I also have VIX and VXX spreads on in some volatility environments.

IB has a few advisor fee schemes: flat fee, % of net liq, % of P/L etc. Taken from client accounts straight to master account on timeframe which you can choose like monthly, quarterly, yearly.

 

[Trembling Hand]

I am in Melbourne

Then almost certainly you are breaking the law buy soliciting retail funds without a AFS Lic.