In Which Rogue Traderette Has Illusions of Grandeur
I have to say that there is nothing that starts my day off better than finding out I’m more brilliant than I thought.
I received this graph by Jez Liberty via Chris Tate, and it really is very illuminating. It seems the most prominent fund managers in the world are having a bit of a rough trot.
I’ve read countless times in blog-world that 2011 has been the trickiest year ever to trade, and this graph would suggest that those fund managers most likely agree.
So, back to my brilliance then. I beat them all. Yes, I really did.
But before you come banging on my door with all your millions of dollars, it must be noted that sticking your money in the bank for the last year would also have beaten this lot.
So, what happened? Why did these guys do so badly the last year, when a normal un-fund-manager-trader-girl like myself managed to make more money than I ever have?
Now I might be wrong, but I reckon a large part would come down to one simple thing.
They’d have to drive a girl nuts.
Let’s be honest, having a partner to consider in our trading can involve a world of hurt, simply because they don’t understand the mechanics of what we do.
I had a situation this week where I told my husband I was currently in a tiny drawdown (from equity peak) of about 2%. I’d not mentioned it earlier, because there was nothing to mention – it’s nothing, totally normal.
Totally normal for me, that is. Not totally normal for him. He’s used to bank interest, and regular positive movement in the account. What he’s not used to is ‘losing money’, lumpy returns and periods of drawdown.
I was lucky – all it took for me to put things right was a bottle of wine and a quick explanation of random individual outcomes and positive expectancy. Easy, right?
But what if I had 100 people flipping about a 2% drawdown? I don’t think a bottle of wine would do it.
People get very protective of their money. They’ve worked hard for it, and they trust you. They trust you to make money for them, but more than that they trust you not to lose it. It’s hard – very hard - for a non-trader to fully accept the fact that what we do entails risk, and the possibility of loss.
And while they say they understand, they usually don’t. In theory they understand, but when they are actually faced with a real loss all that understanding disappears, overwhelmed by the reality of their shrinking wealth.
When you’re managing other people money, returns matter. For me, they don’t. Well, they do but not in the same way.
I have no definite timeframe that I need to turn a profit by. I don’t have investors who want a quarterly report that shows capital appreciation. I don’t have 100′s of people behind me who don’t understand the nature of investment.
As private, individual traders we are incredibly lucky. There is no pressure for us to perform, so if we don’t like the market we can sit out and wait. I don’t believe many fund managers have that luxury. People don’t give their money to fund managers only to have them sit their funds in the bank – investors can do that themselves, after all.
And it’s precisely because of this flexibility that as private, individual traders we should be beating these guys. We can do as we wish, as we see fit, without limitation. Don’t forget that sitting out of a crappy market IS an option for us, and that we should use it whenever the occasion calls fo it.