As always, I will write this article out of my personal experience. Long time ago I’ve read an interview with Bill Lipschutz, explaining how the trading with somebody else’s money looks like and how can affect your trading and performance. Well, I couldn’t figure it out until I tried it by myself.
What I can say after couple of tries, mostly from 2016 is that I felt literally everything that the Bill explains in the article and must say that, it was a very difficult time for me. I simply failed and couldn’t accept it. It took months for my mental recovery after that. Because of that fail, I have stoped my hedge fund launching, which was planned for 2016 and decided to trade only for myself and my company for a while. I worked a lot on my psihology lately and after all I can say that I wasn’t ready for that kind of job a year ago. I realized that it needed much more than a good personal performance, which I wasn’t aware of it before.
I tought, if I can make x10 for my personal account, I can make it for the investors as well. But, it wasn’t like that. What I didn’t realize was, how the investors will react on loss and how their reaction will affect on my trading and the results. I mean, everything was great when I was making money, but when I started to lose, investors felt they could give suggestions and advices, constantly ask questions. Sure, not all of them, but you need only one which can completely disrupt your trading. Sure, it’s their money and they felt they can do that. Well, they can, but on my oppinion only if you broke determinated rules, which must be set up before the beggining of trading. That’s why, the rules must be strict and strictly adhered to. Here is my reccomendation for the asset managers and how to avoid all the problems which can totaly ruin your hard work.
On risk and loss
On example, this is what I mean the most. If an investor accepts a risk of 15% on the investment and you have a decrease in his capital for those 15%, you have to stop trading immediately and disconnect his account at any cost. There is no excuses and explanations how and why, what next, etc. You’re done with his account, you’ve simply failed. But, on this solution and reaction, you can normaly continue with your trading. With other investors or with your own account, it’s irrelevant. But, if you try to return the loss and his capital in the beggining, because the investor ask you to or you want to, you are condemned to failure and complete collapse, even that you are not aware of that at all. Sure, maybe you will succeed in a first place, but you will come to the point of no return eventually, believe me. Because, you have broke your own rules and you will do it again for sure. You already has, because you’ve reached a 15% loss and for return attempt you need to risk more, right!? If you broke your rule of 15% risk, latter on the same can be a 30 or 50% and what then?
Stick to your rules of risk, not on the investor’s desire! Because, he didn’t accept the 30% of loss, just 15%. If you lose more then 15%, the investor has the right to seek compensation for the loss. Maybe not legally, but he can try it in all ways privately and it will completely disrupt you in further trading. At least, if you are a honest person, a man of the word, you will try to return the lost money, right. Then the problems start with no end. Lucky me, I din’t have much of loss like this, but I did have and that’s why I know what comes to you if you decide to trade for others.
On gain and predicted income
When the question of gain is a matter and it always is when you search for the investors, this is how I see it now. It doesn’t matter how much you can do with your personal account, 100% or 1000%, it’s irrelevant. What matters is, how much can you do for others, with strictly determinated risk!? Because, I have dozens of proofs how I made x10 or x100 on investment and more, but with huge risk taken, sometimes with all in. But, how much I can make with let’s say 15% strictly taken risk in total is what matters. When you think this true seriously, I believe how you can’t predict anything, right!? Because, you can always lose those 15% and trading session with the investor is over. Long term predictions of income? Well, based on my experience, there is no such a thing in the Forex market if the the rules of loss are strict.
Let’s say that you have made a 15% gain in first month, but you lose the same in second month, what then? There is simply no quarantie of gain because each day in the market is different. You can’t predict the future, right!? Only those who manage billions and who move the market long term can quarantie a specific return, mostly based on previous results. They will make it somehow. But you, as a small player in the market can’t quarantie anything, especially not huge returns with low risk long term. That’s a science fiction. You can only ‘promise’ something, but that doesn’t mean anything to serious investors. You can only quarantie that you will give your best and that you will strictly stick to the determinated risk.
On psychology of the asset manager
‘Promises’ of huge gain can only attract wrong investors, the greedy ones who wants huge money quickly without thinking of loss at all. They can borow that money, take a loan, or invest something they can’t afford to lose and they can cause a lot of psychical problems for you if trading went wrong. Their problems will become yours and you will not be able to perform as you use to. You can easy lose your winning streak and become a constant loser, trying to return something what you shouldn’t lose in the first place. I made that mistake once, I will never repeat it again.
As the MAM trading plaforms have limited or not such a suggested restricions at all, it’s all on you. Your mental state must be at 100%, same as your discipline. That’s why it’s not only important to set up the rules, but to stick to the same as your life depend on the same. If you trade for others, it probably is, because it’s your job then. Trading for others is so different from trading for your own account, you wouldn’t believe it. When you try eventually, you will see.
As I already wrote, it took almost a year for me to solve all the psychical problems that I had in trading after that. But, was this previous year wasted for me then? Not on my oppinion. I am glad that I have gone through these problems and obstacles on the road to the final success. Because that’s the only thing I want. After all, I am a much different asset manager then I was, with a totaly different asset management program, which will be presented soon. As a trader for my private account, I am even much better then I was.
For that reason, if you don’t have experience in asset management, read this well and turn my suggestions into your rules. Otherwise, you need to pass all of those troubles with other people’s money personaly. Trust me, it’s a difficult, tough and long road and I wouldn’t recommend it. Because, for each step forward you need time and money and there is so many steps on the way up. If you going wrong, you will go one step up, two steps back, remember that!
Bill Lipschutz on, trading with other people’s money
Acording to Jack Schwager, Bill’s trading at forex alone accounted for more than half a billion dollars profit for Salomon in the eight years he was there. That’s the equivalent of $250,000 profit each and every trading day for 8 years. Ok, that was at the end of the 1980’s, when Mr. Lipschutz was the head of Foreign Exchange at Salomon Brothers, but it’s surely put Bill in the hall of fame as one of the best FX traders in the world, what he was confirmed in the following years.
Bill worked at Solomon Brothers from 1982. to 1990. when he went and form his own company, Rowayton. They traded for a while and at the end of 1993., he and his wife started to raise ‘a little’ outside money. They raised about $150 million in about 18 months. While FX is the only thing they have traded, they developed three programs which all trade FX, but with different combinations of risk/reward objectives and different instruments, mostly day trading. For a variety of reasons, Mr. Lipschutz closed Rowayton in 1995. and formed a new company, Hathersage Capital Management. The company with similar trade programs as Rowayton, but much better in the administrative level. Trading with other people’s money!
It is often not realized that the source of trading funds can affect one’s trading style and performance. As Bill Lipschutz explains, this fact is something even the most experienced traders do not appreciate until they experience it. ‘I was unaware that different sources will definitely imply different trading strategies. The source of capital will invariably force different trading motivations on the trader. It is not simply a question of saying, “oh, I have some capital. It doesn’t matter what the source is. I will go out and do my best and at the end of the day try to make some money.” It is not like that. There are many, many different strengths that come from being a corporate entity, whereas dealing for high net worth individuals you do live and die by your monthly numbers.
‘The whole money-management game is a difficult game. It has not only to do with how well you perform, but what kinds of results investors are looking for in their portfolios. Absolute performance can be misleading.
As Bill Lipschutz explains, one way the source of funding can affect your trading style is through the motivation of the lender and the terms on which the funds were granted. We all, as traders, seek more capital with which to trade. Sooner or later, after a degree of success, we decide to seek out new sources of funds, whether as a loan, which then does not require us to be regulated, or as an investment by the lender. Whatever the source of money, you must be aware that since it can affect your trading style it may also affect your trading performance. The worse time to have a deterioration in your trading performance is when the money is not your own. Therefore, trading with other people’s money becomes far more complicated than with one’s own money. You have to consider both the likely outcome of the trade and the likely reaction of the investor to a positive and a negative trading outcome. So before you seek new funds think hard about how it is likely to affect your trading. It’s not an easy way!
This is only small part of interview with Bill, if you want to read the entire article from one of the best FX traders and asset managers >>> Click here . It’s apsolutely worth to read.