How do you mentally deal with tough stretches of performance at HF?

Pizz's picture
Rank: King Kong | 1,772

We're wading through some rough waters at work at my L/S equity fund, where one of our large positions has significantly dragged down our YTD performance (it was a joint effort, so no one to blame). How do you deal with this every time you come in to the office, where your PM is perpetually in a cranky/pissy mood, and you know there is no more room for error. How does one mentally deal with this?

Comments (18)

Funniest
Jul 23, 2018

No advice but gotta say looking at the titles of your last 5 posts cracks me up

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Jul 23, 2018

I gotta be honest. People think a HF job is the greatest job in the world, but the instability and unpredictability at the entry level is just awful if u get it. But I get a rush/thrill from it oddly :/

Jul 24, 2018

Agreed, it's hilarious. I feel bad man but :

How Do You Mentally Deal With Tough Stretches Of Performance At HF?
Annoying Boss During Vacation
What Do You Do When You Make A Bad Investment In Your HF Job?
Would You Quit Your Hedge Fund Gig If Your Boss Has Emotional Mood Swings?

Sounds like a great place to work...

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Jul 24, 2018
Pizz:

How does one mentally deal with this?

Wine, women and song. Not necessarily in that order. Singing is optional.

PS. seriously, it's the core aspect of the business - unless you are an HFT trader, you don't know if you're doing ok for long stretches.

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Jul 24, 2018

Has the thesis changed?

Jul 24, 2018

L/S funds don't have a corner on the market for seeking out alpha. Regardless of whether you're talking about a HF or simply portfolio management, when you're getting calls from clients all day long screaming about the fact that the market is up X-amt YTD while their portfolio/HF is lagging the broader indices by Y-amt, it makes for very long days/weeks/months.

Trying to convince a client to stay the course when they see extended periods of poor performance can be impossible. Precisely the reason why L/S funds should typically be reserved for the more sophisticated investor. Most of the clients I dealt with who were invested in L/S funds at my former employer were "qualified investors", meaning they had a min of 2.1M in investable assets..

Jul 24, 2018

before taking positions set rules for what PnL will trigger a take profit/stop loss trade. then just obey rules and feel nothing. if your boss gets antsy, point at the rules and return to your minesweeper game.

Array

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Jul 27, 2018
guy_incognito:

before taking positions set rules for what PnL will trigger a take profit/stop loss trade. then just obey rules and feel nothing. if your boss gets antsy, point at the rules and return to your minesweeper game.

Does anyone in LS actually take a stop loss? That sounds like the opposite of disciplined/fundamental investing

Aug 3, 2018

Not only that, but you can't do that anymore post Dodd-frank and in the age of algos.

Market can blow thru a stop loss and be a huge winner now in 72 hours.

Now you do have to stop out when proven wrong (paging me Einhorn), but a l/s hedge isn't going to be able to use stops and make money.

Array
Jul 27, 2018

for some (many) investing strategies, its not so easy to get in and get out of your size without paying high transaction costs (so the tight rules based stop loss easily goes out the window)...and there is no easy answer when the market moves against you...either things mean revert and you win...or you get blown out and end up broke...and then you start over. That may be an exageration...yet...tis happens often enough that its really not. Eventually, you get a little immune to the adrenaline and it (drawdowns) just becomes part of life, and you try the best you can to answer the question "if i didn't have a position, would i enter here?"

just google it...you're welcome

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Aug 4, 2018

"if i didn't have a position, would i enter here?"

Yep. If there is any hesitation it shouldn't be in the portfolio.

Jul 29, 2018

Working in the same industry:
- If you had discretion, stick to your strategy and focus on the work rather than the outcome in the ST.
- As you seem to be a junior ANL: industry is full with characters. Either you cannot take the emotions of bosses or your boss is an extreme character. Either way, sounds to me time to change the environment.

Aug 3, 2018

Sad truth is that long short investing is dead.

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Aug 4, 2018

.

Aug 4, 2018

I recommend looking into stoicism. I don't work at a hedge fund but it has definitely helped me in the past.

Aug 5, 2018

Yoga

Aug 6, 2018

imagine if it was your own personal money....however much you have...your life savings...imagine it all invested in the fund....and if the fund is down 20%...then YOU are down 20%

just google it...you're welcome

Aug 6, 2018
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