Fear Yourself Young Apprentice and the Chaos Within

[MightyMouse 12]

Hello,

 

I appear to have started a discussion about the ways in which CTAs market their funds.

 

This wasn't my intention, and it's also a complete deviation from the topic of the thread, not to mention rather dull, so I don't want to make a long deal out of this but . . . MightyMouse, are you saying that a fund such as, say, Citadel, doesn't make its money out of stochastic pricing models?

 

BlueHorseshoe

 

I do not know what they make. I will assume they are making money. I will guess, though, that if you take all their funds across classes, their performance isn't as spectacular as an onlooker would be led to believe. Can you wonder why hedge funds are so secretive about their returns?

 

When they enter a market, they are subject to precisely the same forces we are faced with, adjusting, of course, for scale.

 

We can achieve greater than market returns for a while by leveraging, or being lucky or both. Optionally, we can take the path of insider trading, front running, huddling, etc and do very well too until we get caught.Otherwise, or sooner or later we will have to succumb to the market like everyone else who casts a line into the sea of opportunity.

[MightyMouse 12]

It is interesting as taking out the wizards that were market makers, arbitragers, etc; you seemingly get left with a few that were either trend followers, and even less who where short term speculators relying on their own edge. (The HFT guys, well who knows what they are up to, speed, inside edges, front running ??)

 

so of these last two groups in question....

The trend followers (generally) have certainly not done so well over the last decade and yet still (if they were doing it properly) managed to make good money in 2008, and some still produce consistent returns and build assets under management.

But regardless - there are business models and there are trading models and they are often different. One might be a fee gatherer the other needs to make money, and as some large hedge funds show that it is either because they had some spectacular one off wins, (Paulson?) which get them the AUM and fees or that they have great business skills and outsource to smaller internal managers and basically diversify, diversify, diversify.

(you know many managers go under due to poor business decisions, and not necessarily poor returns, though these might factor in to the business decisions - eg; too many mouths to feed, declining AUM, pain in the ass clients who want madoff like returns rather than returns and then they complain about fees. )

 

Its the same thing though - its tough to make a living purely off this game and I still think in much the same vein as everyone is saying its that patience (waiting for the outliers, good entry points as we are nimble, running profits etc) is our best edge.

 

(my stinking internet keeps dropping out today - auto traders for exits dont work when that happens :doh:)

 

Some of those guys made lots of money on moves of +- 200 points in the S&P. The S&p has moved about 250 points since October. The timing was right and the vision was right.

Others made money in moves in currencies over like a 17 cent move. Again, the timing was right and the vision was right. These kind of moves happen all the time in less than a year. All we need to do is catch a few of these good trends, ride it properly, and exit handsomely and someone will write about us one day if we are foolish enough to tell.

 

If you know Paulson's story, you, then, know how the timing of what he did was so critical to his success. If he was a bit off, then his name never would have been known. The difference between he and us is that he is trading with OPM and we are not. If he failed, he would resurface as something else since he is able to raise large sums of money. Not the case for us or not me at least.

[BlueHorseshoe 10]

When they enter a market, they are subject to precisely the same forces we are faced with, adjusting, of course, for scale.

 

Yes. And when I try to build a rocket then I am subject to precisely the same laws of physics as the guys at NASA. Now who do you think is going to build the better spaceship, me or NASA?

 

Difficult though it can be to have to acknowledge it, there are people (and organisations) out there who are better at what we do than we are. Vastly better. Almost infinitely better. They pretty much walk on water. And the funds they manage make billions of dollars. I have no doubt that they also employ crafty practices to smooth or bolster their published returns. But to suppose that their entire success is some Maddoff-like edifice of deceit seems, to me, to be a bitter and unworthy stance.

 

BlueHorseshoe

[MightyMouse 12]

Yes. And when I try to build a rocket then I am subject to precisely the same laws of physics as the guys at NASA. Now who do you think is going to build the better spaceship, me or NASA?

 

Difficult though it can be to have to acknowledge it, there are people (and organisations) out there who are better at what we do than we are. Vastly better. Almost infinitely better. They pretty much walk on water. And the funds they manage make billions of dollars. I have no doubt that they also employ crafty practices to smooth or bolster their published returns. But to suppose that their entire success is some Maddoff-like edifice of deceit seems, to me, to be a bitter and unworthy stance.

 

BlueHorseshoe

 

Trading and rocket building are apples and oranges. A NASA scientist will always build a rocket better than I can. Always means 100% of the time. A trader at any given hedge fund will not do better than I will do 100% of the time. It could be the case that I do better than him 100% of the time.

 

It is pointless to look at the average winning hedgefund and draw a conclusion about the success of hedgefunds without taking into account the gains and losses of all hedgefunds. You can draw an equally invalid conclusion by comparing the returns of only the losing hedgefunds.

 

There are lots of smart guys who make money doing very interesting things with money. Most have to do with taking advantage of loopholes or arbitrage situations created by contracts or securities laws. Not everyone has to cheat and steal to ensure that they can generate fees, but a lot cave in. Many of them are big name firms that you have come to respect.

 

You can believe that people can walk on water or that snakes talk or any other fantasy that helps settle your mind along your path to B from A.

[SIUYA 11]

best start a new thread for who is better than who lest the fear and chaos within engulf us all.

[zdo 20]

True Trend followers have less natural inclination to ‘project’ , to ‘predict’ with all of it’s pitfalls… All the fear dimensions are still applicable. In this topic, we could have just as easily discussed Niederhoffer and Taleb (neither one a true trend follower). I don’t know much about either of them, but about ten years ago there was a good NY’r mag article comparing them and the sharp contrast discussed therein was that Niederhoffer didn’t operationally ‘believe’ in outliers to his downfall, but for Taleb, a dam outlier was just around every next corner. And ultimately he has burned slowly down / out (by 'peripheral 'fear' and) by paying too much for the (outlier) opportunities (that never showed – imo, because these days almost every trade is placed with (or against) the (apparent) stability of the ‘state’ :just how much more offtopic can I get in just two sentences: smiley)

 

For most of the managers who blow up (or have to pretty up the record or falsify the books or whatever) it wasn’t fear (and btw it wasn’t ‘stochastics’ either) that got them. They were subjects out near the tails of the curve who never needed work with emotions and fear. In a way, they‘forgot’ fear, went blind to it, had it occluded by whatever … In the end, they didn’t fear enough to (in a word, TN’s word…) “prepare”

 

A few posts back I linked to The Neurobiology of Fear

There’s a small (and so typical) ‘fight’ over at http://www.traderslaboratory.com/forums/psychology/12958-illusion-control-first-step-emotional-sobriety.html about who needs to work with fear - some even questioning the need for anyone to ever have to 'work' with emotions.

 

The points to be derived from those links (and from the ‘manager’ and other discussions herein) is the great variability within samples of traders on the dimensions of 1) when uncertainty starts to degrade performance, 2) the great variability within samples of traders on the dimensions of scope and reach / what uncertainties are ‘generalized’ by the system and to start degrading performance, and finally, 3) great variability within samples of traders on the dimension of recovery from upsets / turning the fear back off when it has been triggered…

 

Out of place fear does lead to diminished performance. The underlying consensus in most discussion and even research is that diminished performance is caused by disorganized, unfocused thought processes, lack of self-discipline, lack of commitment and a passive task orientation, etc… see OP, etc.

 

Throughout this thread, I have questioned those “causes” – particularly the assumptions that if you do something about those “causes” you will avert / avoid the fear and its consequences …I continue to challenge you to view these ‘causes’ as symptoms and to see that trying to abate the effects of fear by manipulating symptoms does very little to get at the core of it… ie in today’s paradigms, the power of the frontal lobes is way way way over estimated

 

If you need it, here is a stronger prescription:

-clear the body of bound flow. … as if memories have a “back up” in the body and the system is set to automatic restore. You can do all the thinking work you want with old patterns and ‘fear’ – and even add in the very best techniques, finely tuned to your own conditions and stage – you can do all the finest mental manip in the world – but if you don’t clear those bindings out in the first body, you will revert to suboptimal capacity… you will remain fcked by fear…

- really work to see ‘it’ and self as accurately as possible – done in the absence of judging… and then learn to act more to influence ‘energy’ and less to influence ‘facts’

-feel for real – feel in space… different from and far beyond the false associations to fit via ”drawing on the right side of the brain”, etc….and different from the way the neurolog’s and psycholog’s are currently using the term feeling as "products of the conscious mind, labels (given) to unconscious emotions", etc. (Rande, are you listening?)

-be purpose – quite different from knowing or even understanding ‘one’s’ purpose… purpose is come through you… (faulty language, not faulty grammer )

 

 

there’s really no starting point or correct order to these... it’s ‘spherical’ (in a word) so …could have ordered it

 

-align to purpose

-get out of the way of real feeling… (all of these in many ways are ultimately getting out of the way instead of doing something, btw…)

-continuously fine tune self image to more closely match reality… btw on this list this is the only place of mentation, of intentional doing, of ‘action’…

-clear bound flow…

 

or could order it like… etc…

ie basically start at your strength and commit to getting to / through them all…

 

 

...

 

 

 

Usually take June off, historically for quality vacations with the whole family. This year pushing it out to 7 or 8 weeks – with only three days where the whole nuke family is together… they’re essentially grown and gone now… time passes on :missy:

Often lift all positions but this year will be leaving some longer time frame positions on and orders resting (for outlier potential :hello that doesn't blow up: smiley and a :hope: and a :snicker: smiley) so will be checking in off and on but not much posting… planning some more time completely off the grid out in nature … and more golf.

Speaking of golf, I usually try to get in some pretty serious work on my golf game during this time so I’ll play all the ‘social’ games scheduled but I swear this year if I tee it up high and it don’t fly ie if the development and practice ain’t real fun, I will cancel the tee times and coaching and lessons and donate that money to charity :crap:…and go climb a mtn or something…

 

Have a great couple of months and a great BIG MOON weekend

Wishing all of you the very best,

 

zdo

Edited May 4, 2012 by zdo

[BlueHorseshoe 10]

It is pointless to look at the average winning hedgefund and draw a conclusion about the success of hedgefunds.

 

I wasn't drawing a conclusion about the success of all hedgefunds. I was drawing a conclusion about the success of the successful ones. My original post suggested that this success ran to billions, and your response denied that this was the case, and suggested that this success was largely the result of accounting manipulation. Unless I have misunderstood what you have written completely . . .

 

BlueHorseshoe

[MightyMouse 12]

I wasn't drawing a conclusion about the success of all hedgefunds. I was drawing a conclusion about the success of the successful ones. My original post suggested that this success ran to billions, and your response denied that this was the case, and suggested that this success was largely the result of accounting manipulation. Unless I have misunderstood what you have written completely . . .

 

BlueHorseshoe

 

What I stated may have come out wrong. I know that there are some that make a lot of money from trading the markets. I do not allow that to be denied. I also know there are some that lose a lot of money from trading activity. The losing funds do not survive. The funds we do hear about are the winners, but they do not win just because they employ complex strategies that neither you nor I have the requirements to do. We can expect there to be outliers who win, but there are also outliers who lose. A lot of those who are not lucky enough to be in the high flying group, understanding that they need return to survive, will employ unethical or illegal tactics to survive. Hence, my mention of insider trading, front running, and huddling.

 

I also stated that some of these guys do smart things to make money. As examples:

(I may get some of this wrong) a hedgefund bought shares in a company that was in takeover talks. They bought enough shares to be able to impact the takeover vote. They also bought puts on the company's stock. When they voted for the takeover, they voted "No". The stock sank. They, of course, had more puts than they had stock long and I forgot the sum that they netted but it was large. Ethical? They probably crossed the line. Brilliant? yes. Did they take on market risk? not really.

 

A fund manager, who I am personally acquainted with, buys old life insurance policies at a discount to face and packages them to earn 30% gain at mortality for the investors who provide the funds. He, naturally, marks them up before he packages them. Brilliant? yes. Did he take on market risk? not really. I suppose if rates went up high enough, the risk of his fund for the return they get may not look as attractive.

 

Another hedge fund manager I am acquainted with in the 1990's purchased annuities of mutual insurance companies that he thought would convert to stock companies. When a mutual company converts to a stock company, the policy holders (those who own life or annuity contracts) are given stock and rights to purchase stock. So, if they don't go public, the hedgefund earns interest on the money invested (slightly higher than market rates) if they go public, they still earn interest, but they also receive the windfall shares of stock. Brilliant? yes. Market risk? no. Company risk? yes. He was able to sell the concept to investors as a return between 8% and 25% net of his fees.

 

Some of these guys are good, brilliant, in my book, but they do not make money the way we think they might. If they are, instead, going to try to slug it out in the markets, they face the exact same market that we do. Their size will add benefits and complexities that we do not need to be concerned with, but the beast is the same.Thew water does not part for a hedgefund manager if he trades, say, the S&P.

 

MM

[Rande Howell 10]

 

Throughout this thread, I have questioned those “causes” – particularly the assumptions that if you do something about those “causes” you will avert / avoid the fear and its consequences …I continue to challenge you to view these ‘causes’ as symptoms and to see that trying to abate the effects of fear by manipulating symptoms does very little to get at the core of it… ie in today’s paradigms, the power of the frontal lobes is way way way over estimated

 

If you need it, here is a stronger prescription:

-clear the body of bound flow. … as if memories have a “back up” in the body and the system is set to automatic restore. You can do all the thinking work you want with old patterns and ‘fear’ – and even add in the very best techniques, finely tuned to your own conditions and stage – you can do all the finest mental manip in the world – but if you don’t clear those bindings out in the first body, you will revert to suboptimal capacity… you will remain fcked by fear…

- really work to see ‘it’ and self as accurately as possible – done in the absence of judging… and then learn to act more to influence ‘energy’ and less to influence ‘facts’

-feel for real – feel in space… different from and far beyond the false associations to fit via ”drawing on the right side of the brain”, etc….and different from the way the neurolog’s and psycholog’s are currently using the term feeling as "products of the conscious mind, labels (given) to unconscious emotions", etc. (Rande, are you listening?)

-be purpose – quite different from knowing or even understanding ‘one’s’ purpose… purpose is come through you… (faulty language, not faulty grammer )

 

 

there’s really no starting point or correct order to these... it’s ‘spherical’ (in a word) so …could have ordered it

 

-align to purpose

-get out of the way of real feeling… (all of these in many ways are ultimately getting out of the way instead of doing something, btw…)

-continuously fine tune self image to more closely match reality… btw on this list this is the only place of mentation, of intentional doing, of ‘action’…

-clear bound flow…

 

or could order it like… etc…

ie basically start at your strength and commit to getting to / through them all…

 

zdo

 

Interesting post zdo. Fear and its cousins are an important emotions to become competent in working with. When engaged wisely, it can be part of a trader's ground into humbleness - which I find to be trait necessary for long term success in trading. Reverence, or to revere (have deep respect for something beyond our understanding), is an important mature aspect of fear. This is actually the kind of fear spoken about in the Judeo/Christian Bible. One of the problems with spells of success is that it uproots the participant from the focused concern and discipline required to maintain a receptive state of mind needed to work with uncertainty. Often this is called arrogence. I was listening to a guy who fell from grace in politics in DC. It was interesting what he said. It was that when he first went to Washington, his intentions were noble. But as he became part of the soup of Washington, he became insular. Out of this, he became drunk with power. He began to feel large and in charge. As he drank of the power that Washington offered, he became disengaged from the intentionality that had driven him to get to Washington. He started doing some really stupid things and, in his arrogence and its blindness, didn't cover his tracks. Before you know it, some enterprizing reporters had drawn a bead on him and scandal ensued. When he woke up from the drunk, he could no longer explain how his noble intentions had become so corrupted.

 

I find this happens with traders where money and power can become intertwined. And though I do not live in the world of large hedge fund traders, I figure something similar happens to them. They become drunk on the power Wall St money avails them, they lose their senses, they blow up, and then wake up. And begin the process again. If they are like active traders tasting success, they go boom and bust several times before they conclude they must refine their fear into reverence so that they can maintain the emotional sobriety that allowed them success in the first place.

 

One of the practices I find useful for traders is for them to acknowledge the potential of the voice of their fear. To the emotionally intelligent trader, what this does is keep them riveted on the concern to stay focused and disciplined. Not surcumb to the fear, but manage it to have a healthy respect for what can happen if they don't maintain a mindset grounded in humbleness (anything can happen), discipline, and impartiality. Euphoria (which leads to arrogence and grandiosity) also has no place in the mind of the trader when trading.

 

Rande Howell