Guys in early 20s who start trading firms - Stupid/Reckless or Confident/Smart? (just met some people)

I just got back from looking at office space in Manhattan for an internet startup a couple classmates are doing (I'm not really taking part - I'm more the PR guy. I still want to do finance).

Anyhow, the sales manager was showing me around the floor and let me take a 40 minute walk. So I did. I walked past an open office (about the size of a 2-bedroom dorm room) with 3 guys in there and 12 trading screens across the wall. I popped in and asked them what was up and they said they're in their early 20s, out of college (NYU Stern, Columbia, and Princeton) and they are doing daytrading.

I was like "well, why do you need an office to daytrade? Couldn't you do it in your apartments?"

They said "no we have to look professional"

Professional? So I asked them if this was a hedge fund they started or some sort of fund and they said they couldn't tell me. They also said about half the money they trade comes from their own pockets. They also said they do not come from rich families. This was during workhours (3PM-5PM) so I'm guessing they don't have a second job working for a bank or some other shit. This is fulltime.

Now, is this a smart thing to do? Has anyone actually done this before? They wouldn't tell me anything else (during the convo one of them even implied I was a competitor looking to spy them out LOL!)

Anyways are these guys reckless or smart? Can a bunch of guys in their early 20s really make a living from daytrading their own money? Anyone else done this before?

Comments (19)

Jul 29, 2010

There's no blanket answer to your question. Generally, however, these sorts of guys are trust fund babies who will go belly up in a few months. If they are the real deal, then we'll all be reading about them in Forbes pretty soon.

Trading is so complex and diverse that there still is no formula to success. Nowadays, most top prop shops and hedge funds are interested in guys with math/programming skills at the PhD level. In other words, brilliant minds.

Still many of these guys never make it and often times the guy with an Econ Bachelor's and a 3.1 is a multi-millionaire at 25.

Whenever I hear stories like this I think of the old adage about families and money. Namely, the first generation makes it, the second generation grows it and the third generation pisses it all away.

Regardless, I give these boys props for having the stones. Best of luck to them.

Jul 29, 2010

I am guessing that if they are under 25 and day-trading out of an office, they probably have family members.

If I decided to go indy, I would probably move to a small town in Wisconsin or Michigan on one of the Great Lakes, make sure the cable company offered internet access up there, buy a 900 sq. ft. ranch house for $70K, and trade from there.

Jul 29, 2010
IlliniProgrammer:

I am guessing that if they are under 25 and day-trading out of an office, they probably have family members.

If I decided to go indy, I would probably move to a small town in Wisconsin or Michigan on one of the Great Lakes, make sure the cable company offered internet access up there, buy a 900 sq. ft. ranch house for $70K, and trade from there.

I have a Rapid City, SD pitch ready when you are!

Jul 30, 2010
IlliniProgrammer:

If I decided to go indy, I would probably move to a small town in Wisconsin or Michigan on one of the Great Lakes, make sure the cable company offered internet access up there, buy a 900 sq. ft. ranch house for $70K, and trade from there.

Does anybody else feel like this guy tries to squeeze his boring midwestern daydreams into every thread he can, no matter how unrelated the subject at hand is? Seriously, Wisconsin? How random can you get?

Jul 30, 2010
prospie:
IlliniProgrammer:

If I decided to go indy, I would probably move to a small town in Wisconsin or Michigan on one of the Great Lakes, make sure the cable company offered internet access up there, buy a 900 sq. ft. ranch house for $70K, and trade from there.

Does anybody else feel like this guy tries to squeeze his boring midwestern daydreams into every thread he can, no matter how unrelated the subject at hand is? Seriously, Wisconsin? How random can you get?

To each his own. I support your dreams Illini.

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Jul 30, 2010
prospie:
IlliniProgrammer:

If I decided to go indy, I would probably move to a small town in Wisconsin or Michigan on one of the Great Lakes, make sure the cable company offered internet access up there, buy a 900 sq. ft. ranch house for $70K, and trade from there.

Does anybody else feel like this guy tries to squeeze his boring midwestern daydreams into every thread he can, no matter how unrelated the subject at hand is? Seriously, Wisconsin? How random can you get?

My point is that a 22-year-old; even a 25-year-old like me- would have to be crazy to try and start a hedge fund in NYC, let alone rent out an office to do so. Unless of course it's Mommy's or Daddy's money and they need to look "employed." I, personally, would set up shop in Holland, MI. But someone from the West Coast might want to run their hedge fund out of somewhere in Oregon or Washington. Someone from NYC would probably want to set up shop upstate. You want to keep your start-up costs low, and the best way to do that is AVOID BIG CITIES, and secondarily, move somewhere that you would really enjoy living. I'd run the fund out of my garage as long as I could and finally, when I was well into eight figures AUM, I might finally rent out a small storefront (again, in a small town where it would cost $1K/month, not $4K on the 30th floor) and start thinking about getting an assistant.

If you've got $10M AUM, $4K/month in NYC for an office rental is going to add 0.5% to your expense ratio right off the bat (and I'm being optimistic about the rental rate and fundraising here). That's a ratio you want to keep as low as you can- nobody is going to pay all that much to have a 22-year-old kid with no track record to make bets with their money.

I have a Rapid City, SD pitch ready when you are!

Hehe, sorry; it has to be near a large body of water and offer hang gliding/ motorcycle roadracing opportunities. Rapid City might work for hang gliding, but not the other two.

Jul 30, 2010
brutalglide:

http://www.northbynorthwestern.com/2009/01/15466/h...

That kid's dad is a big hedge fund manager.

Jul 29, 2010

strange

Jul 29, 2010

More than a few hedge funds have started as "garage" type hedge funds, the most notable at the moment being Cornwall Capital mentioned in The Big Short. Bunch of smart late 20's guys who took a small amount of money and multiplied it year after year using a variety of strategies (primarily options based LEAPS).

I assume they got the office so that as they build a track record then can begin fundraising and have a Manhattan office address (obviously adds credibility as comparied to 100 Vine Street, Staten Island Mom's basement).

The whole concept is probably more common than most of us realize but many of these "funds" will go belly up in such volatile markets without a solid hedging strategy.

Jul 29, 2010

"Do not come from rich companies." Yeah right. Their definition of rich is probably the real estate tycoons who have billionaire dollar net worths.

If you don't mind me asking, what type of internet startup you guys doing?

Jul 29, 2010

It's certainly risky, they probably don't have much capital so which means they could potentially be wiped out if some trades went against them. It must also have a psychological impact when you know you must be right or else you can't pay the building's rent (or your own for that matter). I built my own account up to 24k this past year, but I did so with the mentality of learning, which is a lot less pressure.

Also, I'm assuming they haven't really worked in the industry, so it might be tough. Being smart is not always enough, having experience and working with people who are willing to mentor you is important.

Jul 30, 2010

I think startup hub is a great concept for PE or VC, but on the trading side, connections are comparatively less important. You can run a prop trading firm from Base Camp at Mt. Everest assuming you've got capital and a solid satellite connection with reasonable ping times to the NYSE, and you can run a hedge fund from wherever there's money within driving distance. (Basically, anywhere in the US near a coast or lakeshore.) Actually, if you have a solid reputation and track record as a money manager or trader, you can even avoid that problem if you're running the fund out of a country that's got a dependable legal/anti-fraud infrastructure.

In essence, I kind of agree with you that New York and Chicago ARE start-up hubs for trading. They're places to develop reputations, track-records, and build capital. But when you go into business for yourself, the start-up costs in New York are extreme, and by this point, your trading skills, track record, money, and sometimes even reputation are relatively portable. That is less true with VC, PE, and I-Banking. Given that the start-up costs for a business in NYC are pretty extreme, it makes sense to set up shop somewhere else if you have the ability to do so.

Finally, we're in a secular bear market. I don't disagree with Graham, but start-up hubs make a lot more sense in a bull market where cash is cheap and good ideas are expensive rather than when good ideas are easy but cash needs to be conserved.

I see your point, but I raise you the fact that trading can be done anywhere you can get a reasonable ping time to a liquid exchange. :D

Jul 30, 2010

People are now getting into investing when they are 13 years old? Oh dear. When I have kids, I'm concerned my seven year old will be setting up his own boutique I-Bank.

I actually grew up one suburb over from this kid. When I was 13, I was sailing boats on Lake Michigan, playing baseball, and going waterskiing on the weekends. Stuff a healthy 13-year-old should do. Apparently, this kid was sitting inside in front of his computer calculating PV based on CAPM.

Jul 30, 2010

im sorry but if these kids are as smart as they think they are...they would not rent out to look professional. If they didn't...organic growth. I understand they might be able to develop beneficial contacts given their geographical position but they shouldn't worry about that until they build their portfolio and gain credibility. I just think their dumb as fuck. Why buy a 745li when you can have a CC?

Jul 30, 2010

Reading about Cornwall was probably my favorite part of The Big Short.

Jul 30, 2010
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