140% return in 4 Months!

I've been working on an equity/commodity derivatives strategy that has been working very very well. I started with 5K in my paper account about 4 months ago, and it's up to 12K, and I haven't had a loss on a position yet. The strategy is scalable up to about a 1MM portfolio before liquidity becomes an issue.

Here's my question. Are there companies/people who back people's trading strategies in exchange for profit sharing? If so, how do I find them?

If I can find someone to back my strategy with $1MM of capital, I will happily quit my job tomorrow, and I'll be able to earn mid 6 figures working 30 or so hours a week doing something I absolutely love.

I would only need the backer for 3-4 years or so before I acquire enough capital to do it on my own.

Any advice/opinions are appreciated.

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Comments (62)

Feb 3, 2011 - 5:35pm

And what's your volatility been? Why is your strategy special? That's a really, really, really small market you must be trading if liquidity is an issue at a million dollars AUM.

Also, don't underestimate how different it is to trade real money versus paper. See what it's like to lose $10K+ of your own money in one day and see how you react. That's the hardest thing about investing/trading imo.

You might have family/friends that give you a few hundred K, but it's actually really hard to raise capital for a new fund (take it from me, I would know, lol).

Feb 3, 2011 - 5:45pm

I've been planning on doing something similar and I think your best bet is to scrounge up 5k and do this for real. If you can actually start compounding at that rate you'll have enough to quit your job pretty soon. I wonder what kind of markets you are trading to be hitting liquidity constraints that fast, unless you're taking advantage of tiny moves.

Feb 3, 2011 - 5:40pm

You're trading paper dude. It'll be tough to convince a backer that you can replicate that when real cash is at stake

If I had asked people what they wanted, they would have said faster horses - Henry Ford
Feb 3, 2011 - 5:57pm

I have about 15K saved up. The problem is I'm not allowed to have a brokerage account because of my work. And I can't live off of the returns I generate from the 20K. I will need to save up about 500K before I feel comfortable quitting work to do this, which will probably take me like 10 years.

I also do know what it's like to trade real money. I turned 10K to 22K in a year with a less refined version of this strategy when I was a student.

And yes, it's a small market that I'm trading in. The strategy is not that special because I don't know how to scale it up so that I can make serious money.

-MBP
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Feb 3, 2011 - 6:01pm
IlliniProgrammer:
Yes. Congrats on pulling this off in your PA, but I don't think anybody is going to stake you right away.

In any case, if you can get a 140% return in 4 months and keep repeating that over and over again, you should be able to go from $6K to about $1 Mil in five years? Why not just be a little patient?

Because I can't trade for real while I'm working here, and because I can't sustain the same rate of return when I have more money. I am confident though that I can return 50-60% with 1MM dollars. And that is something I can definitely live off.

-MBP
Feb 3, 2011 - 5:58pm

Ok fine, what do you guys suggest I do in this situation? How would you proceed?

-MBP
Feb 3, 2011 - 6:04pm
HFFBALLfan123:
Quit your job, i'll match what you put in and we can both be millionaires....and i won't quit

In that case, I'll call you up when I've saved a couple hundred grand. Matching my 15K right now won't do me any good. lol

-MBP
Feb 3, 2011 - 6:09pm
HFFBALLfan123:
Well if you could really get 420% a year then 30K would be 126 after a year, then 529k after 2... suck it up and live poor till i'm rich off of your coat tails...

Done, but while I'm working hard at making you millions, can you cover my rent, groceries, and student loan payments?

-MBP
Feb 3, 2011 - 6:38pm

Yeah Dibbs, I must be a troll because I claim that I'm a good trader. News flash: making money on small capital isnt hard. Producing 20%+ returns on a several billion dollar portfolio, however, is.

Lol,thanks Alex. I understand how compound growth works. I just can't put that 15k to use while I'm employed. If I wasn't married, I would quit right now and just do it on my own.

-MBP
Feb 3, 2011 - 7:33pm

I recommend looking into incubator hedge funds to establish some sort of track record. Even if you don't have a lot of money tied up in it, it will still be a much easier sell than what you have done with a paper account.

EDIT: You will need at least $25,000 of your own cash to invest in order to start an incubator fund. However, $100,000-$500,000 would be a more realistic number, if you are trying to attract serious investors.

Men are so simple and so much inclined to obey immediate needs that a deceiver will never lack victims for his deceptions. -Niccolo Machiavelli
  • 1
Feb 4, 2011 - 9:20am
alexpasch:
^^^^Yeah I don't see how you can't get away with doing this if you really wanted to (I don't know what law/policy is preventing you from doing it). Think outside the box.

Independece policy covers my wife as well. And I don't have anyone else I can trust to execute my trades without screwing up.

Can you give me some out of the box ideas? If you can, you'll be solving all my problems.

-MBP
Feb 4, 2011 - 9:25am
IBankedout:
Show me your track record and Ill triple whatever you put in. If you have 15, Ill throw down 45k. Sounds reasonable. PM me

PM sent.

-MBP
Feb 4, 2011 - 9:17am
Bondarb:
if you really are confident in those returns just max out a couple of credit cards to pay rent while ur trading. Even the massive interest on credit card debt doesnt match your return so you should be in good shape. Please do this and post regularly to let us know how its going.

The more I think about it, the more seriously I'm considering doing this. I'm thinking of asking my dad to spot me for the living expenses for a few months as a loan. Unfortunately, this is a very difficult, potentially life altering decision, and I need my wife to be on board as well. I don't know how comfortable she will be with me throwing away a 6 figure job and a pretty promising career, just because I believe I can succeed at something so many others fail miserably at.

-MBP
Feb 4, 2011 - 9:13am
JSinNOLA:
Max drawdown on open positions? Sharpe ratio? Otherwise 140% means next to nothing.

Link to track record?

Oh please. You and I both know that's bullshit. 140% over 4 months by itself means a lot. It's not like I just put all my money in one lucky penny stock that shot up. I've put on over 20 trades with the same strategy over 4 months, and once again, have not closed a single trade at a loss.

My unrealized PnL on each trade has never been less than -10%, and my 4 month vol is about 30%. That's a Sharpe ratio of almost 5, which is excellent by any standard.

-MBP
Feb 4, 2011 - 1:32pm
manbearpig:
JSinNOLA:
Max drawdown on open positions? Sharpe ratio? Otherwise 140% means next to nothing.

Link to track record?

Oh please. You and I both know that's bullshit. 140% over 4 months by itself means a lot. It's not like I just put all my money in one lucky penny stock that shot up. I've put on over 20 trades with the same strategy over 4 months, and once again, have not closed a single trade at a loss.

My unrealized PnL on each trade has never been less than -10%, and my 4 month vol is about 30%. That's a Sharpe ratio of almost 5, which is excellent by any standard.


Your response to my post is telling enough. Again, 1% or 1000%, it doesn't matter without CONTEXT.

I want to know how big a loss you will tolerate on an open position. What happens when an open position is down 1%, 10%, etc... And how OFTEN does that happen?

You've lost your mind or never had one to begin with if you think that HOW one gets to ANY return doesn't matter.

Feb 4, 2011 - 8:20am

Impressively enough, if he were to show a good track record, I get the feeling he could get some decent sponsoring from here...

Feb 4, 2011 - 9:02am

I'd have to see a track record as well ManBearPig. Never even had a loser? That sounds funny to me, so I'd have to see it to believe it.

Feb 4, 2011 - 9:27am
Ben Shalom Bernanke:
I'd have to see a track record as well ManBearPig. Never even had a loser? That sounds funny to me, so I'd have to see it to believe it.

It depends on how you define loser. Each one of my trades consists of multiple transactions in different securities. Some transactions have resulted in losses, but they are more than offset by the rest of the transactions.

I'm going to think long and hard about this over the next few weeks, and I might seriously take some of you guys up on these offers.

-MBP
Feb 4, 2011 - 9:54am
derivstrading:
Paper trading doesn't take into account slippage or transaction costs.

Also 4 months is too short of a time frame, how would your strategy fare if market conditions changed?

You're right about that. I've been adjusting for transaction costs myself. I didn't account for slippage though. Is there a simple adjustment methodology I can apply? Like, say on average, 5% of my profits on each trade will be eroded by slippage? I can make the adjustment if it's something simple like that.

The strategy is market neutral btw. But you're right, 4 months is very short.

-MBP
Feb 4, 2011 - 10:19am

i think that if you really believe in this you should go for it, because if you don't then all your going to be thinking about is what if.. what if what if.. which I doubt is something that you want to be thinking about.

Although it's going to be difficult at first for your wife to support you she will come around if she really does trust you.

But good luck either way in whatever choice you make.

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Feb 4, 2011 - 10:33am
HFFBALLfan123:
Ok so you got 15, ibanked out says 45, and i got 15....sounds like 75k...pm me

PM sent

-MBP
Feb 4, 2011 - 3:29pm

Curious, if it's solid I'll put down 15. PM me.

http://ayainsight.co/ Curating the best advice and making it actionable.

Feb 4, 2011 - 3:38pm

This response from WSO is really fascinating. I am very seriously considering taking all of you on your offer. Give me a week to think this through. I'll post a follow up next Friday.

-MBP
Feb 4, 2011 - 3:45pm

Can someone please comment on the legal structure I would need to put in place to manage this money on behalf of you guys? I know it definitely can't just be based on a handshake, but it's not worth it to spent 30K on forming a hedge fund either.

-MBP
Feb 4, 2011 - 3:59pm
HFFBALLfan123:
Ya but what's to stop him from Bernie Madoffing my ass??

Cuz I'm an honest guy! lol

-MBP
Feb 5, 2011 - 2:16am

Why do you want to quit working? Do you think you could do this kind of stuff for a hedge fund and get paid well for a few years and then strike it out on your own with a bigger cushion or possibly even get seeded by them?

Also, why not do it in your parent's account? If all goes well, you can start a hedge fund and they can transfer the assets back to you through the carry fees without getting taxed double. In the mean time they can just give you the cold hard cash so you don't have to pay gift taxes.

Feb 6, 2011 - 12:13pm
Also, why not do it in your parent's account? If all goes well, you can start a hedge fund and they can transfer the assets back to you through the carry fees without getting taxed double. In the mean time they can just give you the cold hard cash so you don't have to pay gift taxes.

True, but that's a good way to lose a job and/or a securities license.

I think the OP needs to train Mom or Dad on the strategy and see if they can replicate it themselves. That's a much safer approach. Have them control the executions, have OP advise them but not actually execute, and handle it that way.

Still a little bit risky, but if you get called into the office with your MD about this, the facts are a lot less embarassing. You weren't actually trading, you were advising, but everyone gives their family advice on investment decisions and it had absolutely nothing to do with your firm's clients.

Feb 6, 2011 - 12:19pm
IlliniProgrammer:
Also, why not do it in your parent's account? If all goes well, you can start a hedge fund and they can transfer the assets back to you through the carry fees without getting taxed double. In the mean time they can just give you the cold hard cash so you don't have to pay gift taxes.

True, but that's a good way to lose a job and/or a securities license.

I think the OP needs to train Mom or Dad on the strategy and see if they can replicate it themselves. That's a much safer approach. Have them control the executions, have OP advise them but not actually execute, and handle it that way.

Still a little bit risky, but if you get called into the office with your MD about this, the facts are a lot less embarassing. You weren't actually trading, you were advising, but everyone gives their family advice on investment decisions and it had absolutely nothing to do with your firm's clients.

This is a good suggestion. I've been thinking about training my dad on running my strategy. He's deathly afraid of derivatives, but let's hope I can change that.

-MBP
Feb 6, 2011 - 7:02pm

[quote=New Yorker]You are willing to stake a guy who's had a 140% profit in such a short time frame ....

I'm accepting investors:

2 year track record, 100% annualized returns, 193% total return. PM

http://www.updown.com/member/Zostru[/quote]

http://ayainsight.co/ Curating the best advice and making it actionable.

Feb 6, 2011 - 10:41pm
LTV][quote=New Yorker]You are willing to stake a guy who's had a 140% profit in such a short time frame ....</p> <p>I'm accepting investors:</p> <p>2 year track record, 100% annualized returns, 193% total return. PM</p> <p><a href=http://www.updown.com/member/Zostru[/quote rel=nofollow>http://www.updown.com/member/Zostru[/quote</a>:

if the s&p tumbles, so do you. your correlation to the s&p is almost 1...where's the alpha here?

I'm up 193, S&P is 88. Alpha is the difference. I own 11 stocks. Most fund managers can't even beat the s&p actively managing stocks...

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