[ionwake]

Hope you dont mind me asking a slightly unrelated and possibly dumb question.

Im a programmer, but on the side have made on average 150% profit in share dealing over the passed 5 years, but more importantly, a much higher return in other assets to 2 orders of magnitude higher.

My question is - would experience / gains like this - if i had proof etc - get me an interview in a fund as some type of well paid (6 figure atleast) analyst?

[lordnacho]

Yes, go on LinkedIn, there's a bunch of recruiters hawking jobs at funds. Generally they want a Sharpe ratio above 2.5, $10M profits a year.

And you need to know what machinery you'll need too. Capital requirements, counterparty agreements, access to stock lending, cost requirements, IT requirements, everything.

Some of the newer shops say you can keep your own IP. Haven't checked whether it's true, but most people I know are sceptical.

[yyyyip]

ok while we're playing "ask a hedge fund guy"

Say I set up a fund holding a low cost s&p500 index ETF, but at the end of each year sold naked puts with a ~1/25 risk of ruin to earn ~4% return. Therefore my fund consistently makes 4% over the market index, except for 1/25 years when it explodes and loses everything. Because the volatility is low, my sharpe ratio is good (until it explodes), correct?

Assuming it can stay in business >10-15 years won't I be a billionaire hedge fund manager by then and then change to a low risk strategy that only makes 1-2% more than market index with very low risk of ruin and just let my investors lose interest and quit the fund over the next decade while I continue to earn fees from them?

[lordnacho]

Investors will ask you what you're up to, and if you're just doing that they won't invest. They also keep an eye on whether you're doing what you say.

Anything that's both simple and mechanical is gonna have problems attracting investment. The guys you're talking to are gonna have problems justifying giving you 2/20 for buying a fund and selling options.

Or should. I've met a lot of investors who didn't ask the right questions.

Regarding the Sharpe, if they know what they're doing they're not just using the textbook version either. There's a paper by Andrew Lo about it, well worth a read, not terribly complex math.

[DennisP]

Would that be this paper?

https://www.researchgate.net/publication/228139699_The_Stati...

[lordnacho]

Yes

[yyyyip]

But it would be pretty easy to obfuscate the whole thing behind a few layers of "We've got 50 PhDs working here, we run black box algorithms" etc etc, the strategy could be artificially made a couple of orders of magnitude more complex while still producing the exact same outcome.

Do hedge fund investors keep an eye on whether you do what you say? How did Bernie Madoff go for so long if that's the case?

Of course the mechanism is simple and mechanical, but that isn't how you'd market it to investors.

I'll go read the Lo paper...

[lordnacho]

The 50 phds thing is exactly what certain large firms are doing. The emperor's new hedge fund. I know people who've worked at major firms, and they've told me what they do. But you are going to have a hard time doing a startup with 50 phds.

Madoff was the cause of all the due diligence, though I'd say Europe was a bit different from the US at the time.

[radiusvector]

Strategy discussion aside, a 4% risk of ruin is not “low” by any means. A sophisticated investor would never accept.

[closeparen]

If you are making $10m profits a year, what do you need a job for?

[gringoDan]

If [0] those returns are accurate, can be proven, and your strategy can be scaled up to multi-million dollar positions, you should take it to a hedge fund/prop shop/etc. and be able to make 7 or 8 figures. Your bonus should be dependent on performance; you may be able to negotiate a % of the profit. Those companies don't care about your background if at the end of the day you make them money.

[0] Granted, that's a huge "if".

[ionwake]

I forgot to add the "worst" bit.

It was mostly a gut feeling, after lots and lots of research.

My question basically is, if I show I have been really good in the past - without a specific model - is there anyway I would be taken seriously.

Thanks

[gcb0]

and how do you prove some method scale up without either already being on the million dollar scale or disclosing your secret sauce?

[ohaideredevs]

The reason financial transactions don't scale is volume - your $100 trade can move a penny stock to $.02 from $.0002 a share if there is no volume.

Some markets can absorb an enormous amount of volume, such as the FOREX market.

Now, when you start making good trades in a "big" market, intelligent players can mimic / play off of them, so it is hard to prove in that regard.

At a minimum though, you could prove that it works on assets that are not volume-dependent.

[bduerst]

Short of spending a million dollars right then and there, you can use historical market data. Or datasets provided by the person you're trying to prove it to. Keep in mind that after a certain volume, your model would start influencing the market itself.

[user5994461]

You mean +50 or +150% ?

Either way, it's insignificant and you're actually losing money. The stock of all the big companies went up tremendously in the past 5 years. Anybody who invested in large US equities made just as much if not more.

[ionwake]

You missed the key sentence after it, I have made what one consider a very good increase in other assets which I would discuss with the fund