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Mechanical Trading
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Mechanical Trading

  #11 (permalink)
Elite Member
Manchester, NH
 
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mattz View Post
So someone who has lost your funds through faulty research is a good deal.
On the other hand, someone who made you money, but it came through some easy method and charged you a fraction of the cost is a scam. Please expalin further.

@mattz

You read me absolutely correct. There are many, more important measures, besides the results, to look at when you're selecting a manager. You're paying the manager for his services in active management, not for his services in getting lucky.

If someone tells me that he spent thousands of hours on software development and research, and could show me a web demo of the software, that he spent 20 years on the buy-side, there's very little variation in the conclusions that I can draw from this - it is a good measure of the services that he can provide in active management.

If someone tells me that he posted 47% year-on-year annualized return, 6% maximum drawdown, there's a lot of variation in the conclusions that I can draw from this. It doesn't suggest anything about the service.

I have another explanation for this. Perhaps it is a case of irrational decision-making. Consider these 2 examples:

(1) My CTA posts a 47% year-on-year annualized return. How much would you value his service in active management?

(2) My mom posts a 47% year-on-year annualized return. How much would you value her service in active management?

In the first case, there's a tendency to assess the credibility of his return in your valuation. In the second case, there's a tendency to assess the credibility of my mom in your valuation. The mindset in the first case is irrational, since you're not assessing his results, you're assessing his skills. The mindset in the second case is rational, since you're assessing her skills, not her results - maybe she bought long into AAPL at the start of 2012 like a vast majority of speculator sites suggested.

Unfortunately, many retail investors have a cognitive bias towards results and forget that they should be evaluating a manager based on his skill, and that results are a poor proxy of that. Fund allocators, however, are more sophisticated and make more rational decisions.

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  #12 (permalink)
Market Wizard
Boca Raton
 
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artemiso View Post
@mattz Unfortunately, many retail investors have a cognitive bias towards results and forget that they should be evaluating a manager based on his skill, and that results are a poor proxy of that. Fund allocators, however, are more sophisticated and make more rational decisions.

I see some logic in what you say, but at the end of the day results is the ONLY thing that matters.
Maybe not over one year, and maybe one should consider the amount of money under management as well, but results over a prolonged period of time 3-5 years could show the skill. In that case, I assure you that "your mom" will give back her $$ somewhere, and that is a matter of time.

Further, consider that CTAs have the the most, in my honest opinion, transparent and fair cost structure.
There is incentive fees on high watermark (typically 20%), and management fees (Typically 2%)l.

Mutual Funds have a fund manager that is salaried, and that is an expense. You will even be charged for the printing of the prospectus. Here is another one: you can deduct marketing and advertising from the fund, so essentially you are paying fees that have nothing to do with market performance and that in my opinion is a model that is flawed as a matter of principle. This is why most can’t beat the S&P index, it might not be due to lack of talent but the expenses are too high. Consider that most funds for retail are long only and do not offer any shorting strategy due to to regulation.

My comparison is only from a cost structure, as ONLY risk capital should be invested with any CTA despite of track record.

Matt

Legal: There is a substantial risk of loss in futures trading. Past performance is never indicative of future results.

PM with any questions about optimusfutures (800) 771-6748 (561) 367 8686. THERE IS A SUBSTANTIAL RISK OF LOSS IN FUTURES TRADING.
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  #13 (permalink)
Vendor self-promotion
Cyprus
 
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HUDSON View Post
I'm a newby mechanical trader (discretionary trader for over 25 years) and found a system called Tsunami Trader. Does anyone have any experience with Tsunami Trading?

Mechanical systems have a very short mean life. If you buy one it may work for a couple of months but most will lose money right away. There are also some cracked genetic engine programs one can find around (I never used them because they are a waste of time) and every kid can get a hold of them and design a fitted system to sell in a couple of hours to make some money. Just stay away is my 2 cents unless there is an audited record of at least 5 years. But then, why sell it?

Mechanical systems is a personal continuing development project.

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  #14 (permalink)
Elite Member
Manchester, NH
 
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mattz View Post
I see some logic in what you say, but at the end of the day results is the ONLY thing that matters.
Maybe not over one year, and maybe one should consider the amount of money under management as well, but results over a prolonged period of time 3-5 years could show the skill. In that case, I assure you that "your mom" will give back her $$ somewhere, and that is a matter of time.

Further, consider that CTAs have the the most, in my honest opinion, transparent and fair cost structure.
There is incentive fees on high watermark (typically 20%), and management fees (Typically 2%)l.

Mutual Funds have a fund manager that is salaried, and that is an expense. You will even be charged for the printing of the prospectus. Here is another one: you can deduct marketing and advertising from the fund, so essentially you are paying fees that have nothing to do with market performance and that in my opinion is a model that is flawed as a matter of principle. This is why most can’t beat the S&P index, it might not be due to lack of talent but the expenses are too high. Consider that most funds for retail are long only and do not offer any shorting strategy due to to regulation.

My comparison is only from a cost structure, as ONLY risk capital should be invested with any CTA despite of track record.

Matt

Legal: There is a substantial risk of loss in futures trading. Past performance is never indicative of future results.

I'm not a broker so I don't benefit from marketing CTAs. In fact I've gone through the process of registering a firm as a CTA/CPO so my criticism actually hurts myself, but at least it's unbiased.

1. There are hedge funds that charge marketing as an expense to the client, so this is nothing exceptional for a mutual fund. You mentioned several trivial and negligible costs - but at the end of the day, a mutual fund will charge 70-80 bps for something that a CTA charges 200 bps for.

2. You said "most (mutual funds) can't beat the S&P index". Well, that's exactly my point. Because most CTAs can't even beat the zero index (See: Commodity Trading Advisors, puzzled by Fed, head for third year of losses | Reuters and Investors turn their backs on robot hedge funds | Reuters), much less the S&P, so why pay a CTA 200 basis points if a mutual fund can do the same thing for you at 72 basis points? You still haven't offered a compelling rebuttal of this point yet.

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  #15 (permalink)
Market Wizard
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artemiso View Post
I'm not a broker so I don't benefit from marketing CTAs. In fact I've gone through the process of registering a firm as a CTA/CPO so my criticism actually hurts myself, but at least it's unbiased.

1. There are hedge funds that charge marketing as an expense to the client, so this is nothing exceptional for a mutual fund. You mentioned several trivial and negligible costs - but at the end of the day, a mutual fund will charge 70-80 bps for something that a CTA charges 200 bps for.

2. You said "most (mutual funds) can't beat the S&P index". Well, that's exactly my point. Because most CTAs can't even beat the zero index (See: Commodity Trading Advisors, puzzled by Fed, head for third year of losses | Reuters and Investors turn their backs on robot hedge funds | Reuters), much less the S&P, so why pay a CTA 200 basis points if a mutual fund can do the same thing for you at 72 basis points? You still haven't offered a compelling rebuttal of this point yet.

CTAs have to be examined individually, as they all very as far as cost structure, frequency of trading etc. To say one is 200bps and funds are 70bps, like it's a universal conclusion and a fact, is wrong.
I donít think we have a difference of opinion. We both suggest that there is a cost associated that one might not be aware of, and that is an obstacle to positive expectancy.

Lastly, I have read your posts here before and I think you are an intelligent guy. Why in the world you would resort to mainstream media to argue your point? These are news outlets that change their headlines faster than lightening to justify market activity. I find something is much more number based is more reliable, and as you can clearly see, there are winners and losers in every game: Best And Worst Performing Hedge Funds Of 2013 - Update | Zero Hedge . I hope we both drove the point that due diligence, lots of research, understanding cost of any underlying investment is always a prerequisite for every investor.

I am done on this topic. Good night and good luck.

PM with any questions about optimusfutures (800) 771-6748 (561) 367 8686. THERE IS A SUBSTANTIAL RISK OF LOSS IN FUTURES TRADING.
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  #16 (permalink)
Elite Member
Manchester, NH
 
Futures Experience: Beginner
Platform: thinkorswim
Broker/Data: TD Ameritrade
Favorite Futures: Stocks
 
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mattz View Post
CTAs have to be examined individually, as they all very as far as cost structure, frequency of trading etc. To say one is 200bps and funds are 70bps, like it's a universal conclusion and a fact, is wrong.
I donít think we have a difference of opinion. We both suggest that there is a cost associated that one might not be aware of, and that is an obstacle to positive expectancy.

Lastly, I have read your posts here before and I think you are an intelligent guy. Why in the world you would resort to mainstream media to argue your point? These are news outlets that change their headlines faster than lightening to justify market activity. I find something is much more number based is more reliable, and as you can clearly see, there are winners and losers in every game: Best And Worst Performing Hedge Funds Of 2013 - Update | Zero Hedge . I hope we both drove the point that due diligence, lots of research, understanding cost of any underlying investment is always a prerequisite for every investor.

I am done on this topic. Good night and good luck.

This is becoming an argument over writing style and not the content. You mentioned that 200 bps is a typical management fee, so I was referring to that when I mentioned 70-80 bps as a comparable. In fact, I think my statement is both more accurate and less of a generalization: I described a spread of 70-80 bps, while you only gave an average of 200 bps. Look at page 40-42 of the HSBC article in your Zero Hedge link - the result is no different from the articles that I've linked.

Reuters is no 'news outlet' or 'mainstream media'. They operate 500+ core routers, 10,000+ CPE routers, 20,000+ leased circuits, several monolithic giants and GPU clusters and probably the most active FX liquidity venue (but lousy from a trading firm's perspective). By comparison, Zero Hedge is worse than a page of a tabloid.

I'm also done. Good night.

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