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: 


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.


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