Feb

22

 Aside from the obvious answer which is to make money, what do dailyspecs think is the key to managing money? Is missing a big up move better/worse than missing a big down move? Meaning, if a long equity focused fund manager was flat in 2008 but underperformed in the recent move is that good or bad? It seems that if you play strong defense you often times don't catch the big moves. Similarly, if you are all offense your drawdowns are far greater. There are, of course, specifics to each style, but I am thinking more generally regardless of method or style.

Ralph Vince writes: 

George,

If I may….

"the obvious answer which is to make money"

Is a crazy, amateur answer. Anyone who claims THAT, is here just for entertainment (which does not mean they are playing just nickel dime either, but likely playing TOO heavy).

The number one rules is to answer what you ARE here to do. If you were running the LMNOP corp's pension…how would you define that?

If you were in a trading contest, you would have a different criteria. What would it be?

If you were managing money for granny, wouldn't that be different than a 22 year old kid with a little grubstake's criteria?

How can you have a plan, a map to get somewhere, when you don't know precisely what you are trying to accomplish, where you are trying to go. I know it may sound trivial, but that's step one. Otherwise, you just flounder.

By the way, when people say ".. to make money,: I have found that usually means they need to "make money," to cover their obligations, which is a LOT different than making money to increase their capital (i.e. their obligations are already covered). Those are tow different ballgames, and to me, to have to trade to cover your nut, is not the way to trade. Not for me anyhow, it;s a tough enough game without that on top of it!

A commenter writes: 

My first thought, FWIW, is discipline and hard work. It's like much else in life. There are naturals, to be sure, but for the rest of us, in any endeavor in which one seeks success, there's nothing like discipline and hard work.

Timothy Collins writes: 

If I HAD to choose, then capital preservation wins out. Fear and greed drive just about everyone, but I've found fear outweighs the greed. There isn't one right answer. It depends, but here is what I can tell you. If you start managing money during a time where we've had sideways action or a very slow climb or even very bullish action, folks are going to want you to outperform. If there hasn't been a recent correction or scare, then greed takes over. If you underperform, they will leave you. You can survive the first major downside move, usually, and keep most of the assets you manage. However, there will be a heighten expectation of communication, hand holding and reassurances that they next drop they won't lose as much, if anything.

If you start managing money during or shortly after a sharp decline, then most of those individuals are probably looking to make a change because they were hurt badly. They will want capital preservation, so underperformance in an up market is somewhat tolerated. Clearly doing 1% when the total market does 15% won't be acceptable, but if you deliver a decent up year during those times (say 6-8%) but avoid losses during 5-10% downswings and greatly minimize during big drops (15%+), they will be very loyal even if you underperform on the upside for several years in a row (3-4 even). People tend to remember and be loyal to protectors.

Just my view of course.

a commenter writes:

This is a superb question and one could fill an entire career answering it. It is the money management equivalent of "Does God Exist?" for a theologian. Belief in one sort of God on one sort of Continent will get you high praise, many parishioners, and a spanking nice Cassock. On another you'd be branded an Infidel and your kippah kicked in the sand. Although the asset management industry has a tendency more towards the Heaven’s Gate end of the spectrum than the Abrahamic.

another commenter writes: 

Capital preservation is very similar to when one is playing a strong defensive game and in top shape. Even a player with a weak offense, if he has a strong defense, that and fortitude can grind the opponent down.

Alex Castaldo writes: 

The business of money management requires two separate things: first the ability to attract (and retain) Other People's Money (OPM), and second the ability to successfully invest/trade. In my experience it is rare for one person to be good at both, so to have a successful firm you probably need some people who are good at one and some who are good at the other.

Raising money involves marketing skills and also good communication with the clients so you understand what the client wants and so you keep the client informed/reassured about what is going on (even when they should be worried instead!). Basically these are people skills.

For investing/trading on the other hand you need the ability to see things differently from others (so called "variant perception", seeing things that are true but that other people don't see). This skill is partly an intellectual skill and partly guts/courage to do things your own way rather than follow the consensus.
 

Oct

10

The stock market today [Thursday 2011/10/06] is gunning it into the close ahead of a good jobs number tomorrow?

James Lackey responds:

I dunno Mr Ken, and I don't care about such things. The number will be produced by the random news generator at best or rigged by The Man at worst… but it's not a meal for a lifetime… Please do not send such comments! Thank you.

 Anatoly Veltman writes:

Lack, this is not about the number. It's about expectation, based on market moves ahead of the number. The lesson to me is calendar-based trading - where money is made because the number is scheduled. Not because you know the number. Is there lesson in that?

Rocky Humbert issues a challenge:

You guys want a meal for a lifetime? How about this meal for the day:

Here are the most likely NFP numbers:

A) between -100k and -50k
B) between -50k and 0
C) between 0 and +50k
D) between 50k and 100k

The person who best assigns a 4pm SPX closing price to each of these 4 choices — and gets the answer right within 10 spx points — will receive a dinner voucher for 2 at my favorite restaurant. (That is, an acceptable submission would look like A=1102, B=1120, C=1160, D=1190.)

The purpose of this challenge is to demonstrate that EVEN IF you knew the NFP, you still won't be able to accurately predict the market's reaction (unless it's a complete outlier).

The judge's decision is final.

 Sushil Kedia responds:

Without any intent to contest the judges decision, my two humble cents:

A reflexivist, who often is a winner in the markets, may need to put up an answer most of the time, as E = 1155, irrespective of where the NFP numbers come.

If the judge so wishes that it may be proper for a complete illustration on the futility of information being beyond markets, may consider providing such a fifth choice. Up to the judge.

The unemployment number is released at 8:30am Eastern Time on Friday. Rocky Humbert responds:

Mr. Collins: One notes that the NFP headline number was 103k — which was above the choice D range (+50k to +100k). The judges are conferring as to whether this constitutes a scratch. They will announce their decision forthwith.

Nonetheless, and for good order, here were the entries in the contest:

Anatoly: SP will drop 90 points

Jonathan Bower: 1125 1125 1125 1125

Mr. Rogan: 1130 1140 1150 1170

Tim Collins: 1099.22 1119.66 1131.24 1149.86

Sushil Kedia: An "unlawful entry" of 1155 in all cases. (Because of his "unlawful entry," from this day forward, Sushil shall be known as Mister Meanor.).

Alex Forshaw: 1155 - 25= 1130; 1155 - 35= 1120 ; 1155 - 45 = 1110; 1155- 55 = 1100

Rocky Humbert writes further: 

I am penning this at 3:43pm — and due to the impending holiday, I need to leave early and hence will not know the final challenge result for about 30 hours. The point of this challenge was to convincingly demonstrate that EVEN IF one knows a macro data point in advance, it's frequently impossible to know Mr. Market's reaction. The signal-to-noise ratio is simply too low. Whether or not my primary point is accepted, (as of this moment) it looks like I've also convincingly demonstrated an equally important truth: "Even a blind squirrel finds a nut." (Or more accurately, it looks like Mr. Rogan has won the challenge.) But I cannot depart for my day of atonement on that note. Tomorrow (Yom Kippur) ends the Ten Days of Repentance (Aseret Y'mai Teshuvah).

 It is a requirement that during this period, one must make amends to those whom we may have hurt in the past; and to ask for and to grant forgiveness to those who ask for it. It is not sufficient to ask God for his forgiveness. One must ask for the forgiveness from one's fellow man. Mindful of the fact that I've dished out some harsh words over the past year to some of you — and I apologize for that — and I hope that you forgive me. It's especially poignant that Mr. Rogan appears to be the winner of the challenge, as he has been the target of some of my more vituperative slings — I apologize to you Mr. Rogan — and I'll try to do better in the year, 5772.

 Gary Rogan responds:

 Hey Rocky, it appears that I may not have won after all, but I appreciate your apology although no offense had been taken. You made me realize how important it is to take the Prozac regularly instead of at random intervals and varying amounts so it's all good. Happy atonement!

 Rocky Humbert responds:

I have re-emerged from atonement and post-atonement eating to find an envelope with the judge's FINAL decision. The winner is: Mr. Tim Collins who was within 6 points. The biggest loser is Sushil (aka Mister Meanor), who almost perfectly nailed the closing price, but because he was more interested in sounding smart than being right, he is guilty of a misdemeanor charge of "unlawful entry" s and walks away empty-handed. There is a meal for a lifetime here too. If Mr. Tim will mail me his US Mail address (off-site), his dinner voucher for 2 at my favorite restaurant will be posted forthwith. Thank you to all for participating and demonstrating many useful points. 

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