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akimon


Total Posts: 566
Joined: Dec 2004
 
Posted: 2009-01-24 10:27
Managing your PA is arguably much more important than our day jobs these days (assuming we still have one). Gone are the days where you can count on getting paid from work performance. Those lucky enough to get bonuses will be paid in the form of worthless equity or in some cases subprime debt.

Where do you put your hard earned moolah to get it working for you?

NeroTulip


Total Posts: 995
Joined: May 2004
 
Posted: 2009-01-24 14:38

Interesting, I have been thinking about this a lot in the last two years, and here are a few basic ideas. They probably appear simplistic, but in my experience most people get it totally wrong. My guesstimate is that half of the guys on the trading floor have lost more than half of their own money last year.

You should probably think about having sufficient liquid funds to live for at least 3 years with no salary, in case you lose your job, can't find another one, or want to do something else (open your own shop, go to med school, move to LA and become an actor, whatever...). These funds should probably be in cash or short term inflation-linked bonds in your domestic currency. Don't try to be smart with this part of your assets, just safe.

With the rest of your money, and hopefully that is most of it, you can afford to take risk and have a long term view, because your short term needs are covered by the safe part of your assets. You probably need to think hard about which currency you want to use to measure your performance. A good question is "where will I be living in 10 years?". This is the currency of your liabilities, so it makes sense to use it to benchmark your assets.

Now you need to take a wider view about investment risk than your usual banker. Long term risk is probably more about inflation, high taxes, defaults, currency devaluations, fraud and wars than underperforming the S&P. Diversification, liquidity and low leverage will help a great deal.

If you don't know what to do, why not try to find a few outside managers who are actually good with money? If they are competent, hardworking and honest, and have a significant amount of their own money invested alongside yours, good things tend to happen. You can keep some money to trade futures or spread bet if you have some strong views, but in my experience people worry too much about this and not enough about all the rest.

HTH

 


Inflatable trader

silverside


Total Posts: 1408
Joined: Jun 2004
 
Posted: 2009-01-24 15:55
imho - if you're a quant / trader you're being paid to manage a multi mm book , directly or indirectly - so micromanagina a PA is a bad idea - get the blend of ccy's and investment (index fund or cash) right and leave it alone...

fwiw i have most in index funds... in hindsight made some bad timing on fx / investment timings... but hindsight is a wonderful thing.

TonyC
Nuclear Energy Trader

Total Posts: 1242
Joined: May 2004
 
Posted: 2009-01-24 17:05
> if you're a quant / trader you're being paid to manage a multi mm book , directly or indirectly -
> so micromanagina a PA is a bad idea - get the blend of ccy's and investment (index fund or cash)
> right and leave it alone...


unless, of course, a substantial part of your employment compensation is in restricted stock and you take an 8 figure hit before you are allowed to sell it.

if you are working for an institution as a trader, you are essentially long the market index [or maybe even long a levered market index] as a consequence of your job . . . your personal assets ought to be very conservatively invested

or you could always try to diversify away from the market exposure inherent in your employment by investing your personal assets in something that is orthogonal to the market . . . by say, playing the ponies

flaneur/boulevardier/remittance man/energy trader

kr
Founding Member
NP Raider
Total Posts: 3561
Joined: Apr 2004
 
Posted: 2009-01-24 21:54
btw tony, hope you didn't get too long that tier 1 paper... those were the days
sort of looks like supersenior for the p.a.

in terms of base ccy, I am really struggling with that since my comp ccy has fallen over in recent days - of course correlated with the stock price! Actually I'd think portfolio optimisation on a ccy basket isn't hard but most of us don't bother to do it.

i don't have much time to think about the pa but just making some conservative growth estimates on various ETFs and then choosing a low-vol basket has worked ok... basically I am down 15% instead of 45%, mostly b/c it is delevered via treasury ETFs. Of course now the long paper is correlated with the market so I'm happy I dumped it a couple of weeks ago.

the inflation part is pretty hard. intuitively i think inflation issuance is dangerous and if governments went all-out, they would blow themselves up. instead i suspect the indexation is gamed right when it matters, so that they can override the real delta. but in terms of avoiding wars or bank crises or currency crises... guess I'd prefer to trade / rebal the pa when those things loom than invest in anticipation - seems like you'd never do anything yieldy enough.

my bank got pwnd

akimon


Total Posts: 566
Joined: Dec 2004
 
Posted: 2009-01-25 14:20
I agree that just working in finance make you already very long the market index, no matter what you do and what markets you trade. I mean, even if you sucked, and the market is having a really good year, it would be relatively easier to find new employment, etc. So as financial sector employees it makes sense to invest a chunk for wealth preservation first as priority, into uncorrelated or slightly negatively correlated assets from the market, and then only invest any extras for punting and possible wealth accumulation.

I'm thinking it might be a good time to allocate a much bigger slice into precious metal sector, like gold. It should work well as a low correlation investment, and also as a hedge against both government collapse events and hyper inflation scenarios.

cabron


Total Posts: 60
Joined: May 2006
 
Posted: 2009-01-25 18:30
Akimon: "Gone are the days where you can count on getting paid from work performance". By work performance you mean punting depositor's money and screwing pension funds and local govt etc.? Sorry couldn't resist.

Anyway, agree with you about increased importance of PA trading. Unfortunately I don't have any developed ideas.

I don't like precious metals. As an investment they seem medieval to me.

Above all : remember the secret password - bilosellhi.

kr
Founding Member
NP Raider
Total Posts: 3561
Joined: Apr 2004
 
Posted: 2009-01-25 22:37
actually, the password is, and always has been, FIDELIO

And no, work performance didn't have to be a direct abuse of the system, no need to add any fuel to that popular delusion. If you want an easy example, financing for renewable energy projects is also getting pulled these days.

I have been looking to ratchet my commodities exposure, but even with gold, hedge fund activity has added such a huge technical overlay that I can't quite pull the trigger. That is probably also true of infra-related plays like CAT (or even BLK for that matter). I guess it's true that public-sector employment goes up when bank-sector employment goes down, maybe there is a clean way to play this but I haven't figured it out.

my bank got pwnd

jaiman


Total Posts: 243
Joined: Oct 2004
 
Posted: 2009-01-30 00:22

I read an article a couple of weeks ago about a money management firm that handles athletes. Because athletes have a very limited number of high earning years (potentially very high) this firm would start them out in money market and short term bonds. As their career progressed and they built more wealth a bit of the portfolio could be moved into equities (I think they mentioned a max of 50:50). That idea that athletes are really trying to build a nest egg for the rest of their lives got me thinking about personal accounts for people in banking or money management. As has been mentioned, for most people your comp is already correlated to markets already & a good portion of you pay is in shares so you have a ton of financial market exposure already. I’m thinking more and more that the athlete model is the way to go. Most people won’t be able to retire when their banking/investing career is over, but they may be able to build up a decent nest egg that can supplement the income drop they’ll have when they move on to their second career.


kronon


Total Posts: 176
Joined: Nov 2007
 
Posted: 2009-01-30 12:23

And presumably house prices of where most of us live are correlated to markets as well. So our human, housing and investment capital is all tied to the market.

But when you're relatively young, is this really that bad? The problem most people have is that they're invested too heavily later in life and not enough earlier on. So to be leveraged up while young, and dial down the risk later on maybe makes better sense.

Few old people I know regret having invested earlier on in their lives.

Anyway, one thing that I notice seems to be pretty common is that alot investment people, quants especially, spend alot of time preparing complex and highly thought-out investment proposals and analysis for clients, yet when it comes to PA its rarely more then some ETFs and index funds. Its like the carpenter who has crooked cupboards. Or the car mechanic who drives an old reliable straight 6 instead of some over-engineered gadget overloaded tank.


The Last Temptation of Plastic

SimJimons


Total Posts: 198
Joined: Aug 2007
 
Posted: 2009-01-30 14:11

In short: 50% Equities (preferably value stocks) and 50% Managed Futures (my fund, so no diversification there:-). Thus, long (mis)behaviour, long volatility.

/Sim


Sounds great...keep me out!

quantie


Total Posts: 883
Joined: Jun 2004
 
Posted: 2009-02-01 05:01
here is a trade that makes sense for anyone working at a bank get long the SKF around the 110-120 level and sell it if it gets near the 190-200's . All day long.

mingon


Total Posts: 82
Joined: Apr 2008
 
Posted: 2009-04-14 15:46
So I work in a bank, not in trading though, then comes the day when I actually want to have some exposure with the market, as opposed to sky-high stochastic vol fwd-smile-consistent models for a change. Starting humbly, buying and holding a couple of Citigroup shares or wild-guessing spot FX moves would suit me fine. And I found out my bank has a strict rule on PA trading. Most are prohibited, the rest require pre-clearance, which is a pain. My questions are:
1) is it the norm (the strict rule) ?
2) is there anyone working in a bank and at the same time managing a PA ? Plse could you share some experience ?
Thks

FDAXHunter
Founding Member

Total Posts: 8335
Joined: Mar 2004
 
Posted: 2009-04-14 18:04
1) Yes.
2) You can't really trade. You can invest, i.e. put something on for a 6 month minimum horizon, but you're not really going to be able to do "active" trading. Even if compliance has no problem with it, your boss might at some stage think whether you don't have enough to do, given how much time you seem to be spending with your personal account...

The Figs Protocol.

mingon


Total Posts: 82
Joined: Apr 2008
 
Posted: 2009-04-14 22:23
Thanks a lot FDAXHunter, as helpful and informative as always.
Actually I'm willing to sacrifice a few hours of sleep each day so day job being compromised might not happen (for how long can I maintain that is a different story).
But from your reply / our PA policy, compliance sounds like a showstopper.
I will have to dig out more possibilities (compliance is ok with spot FX for instance).

granchio


Total Posts: 1530
Joined: Apr 2004
 
Posted: 2009-04-15 00:21
note of caution: do not take any of the below as advice - just technical ways of doing stuff...

what is the holding period at your bank? at some it is only 30 days, and can be less than that for futures.
also you might find that if you trade on indexes (e.g. futures and options) they might not require preclearance, as you wouldnt have "inside" info. also they might let you trade forward forex, etc.
if you trade that, than you can get around the holding period by trading different strikes and maturities. e.g. say today you want to go long, then you buy jun futures. tomorrow you want to sell, you sell sep futures (of course you also have the roll risk...). or you do it with synths at different strikes.
overall it can be very messy and time consuming, but maybe you are fed up with your job and you do not mind what the boss thinks

"Deserve got nothing to do with it" - Clint

doctorwes


Total Posts: 576
Joined: May 2005
 
Posted: 2009-04-15 01:29
Owning securities that require preclearance to trade can be problematic. You might get approval to buy, but later on find that you cannot get approval when you want to sell. So you're taking on an illiquidity risk to which the typical investor is not exposed, and which is therefore not reflected in the price of the security. This is a return wedge which may make it irrational for you to own that security.



aaron


Total Posts: 746
Joined: Mar 2006
 
Posted: 2009-04-15 04:37
I gave up personal trading about fifteen years ago, and I advocate rules preventing it at my various employers. It causes lots of problems, and few benefits. Most people are wiser to stick money in sensible public investments, or real assets, or private pools over which they do not exercise control. That will probably produce better returns, and will leave them free to concentrate on their jobs, and has much less chance of causing scandal.

tristanreid


Total Posts: 1677
Joined: Aug 2005
 
Posted: 2009-04-15 16:58
A TOP Bloomberg story this morning is: Decade of Losses Forces Investors in Their 30s to Start All Over. The gist of the article is that if a guy in his 30s had contributed to a 401K with 50% employer matching, the value of his 401K is less than what he contributed. My reading is that he would still be 'ahead' from the impact of the matching and the tax deferral, but the article is a little vague on that.

There's a quote within from US Rep. George Miller, CA (D), calling the plans "little more than a high-stakes crapshoot."

So here's the thing: There are a lot of people spouting a lot of stuff right now, and I don't disagree with all of it. If the point of comparing long-term investment to a crapshoot is that investing has risks, then yes, that's true. There is an element of luck as to when an investor enters the market. When it comes down to it: making a long-term bet that the capital markets will increase in value while you go from 21 to 65 is a crapshoot*
*not standard house-odds

Even on this phorum, when people say "the banks own the gummint, they're all in smoke-filled rooms taking our monies", I don't completely disagree, it's just that the way it's phrased is a little reactionary and doesn't really add much to the discussion in my opinion. It's like going on about wars being related to oil. Of course they're related to oil! WWII was all about oil, read The Prize by D. Yergin, it's fascinating how many of the battles in WWII were motivated by oil.

Anyway, back to my coffee. I'm awake now and ready to produce sequences of characters that transform numbers into other numbers. OMG, I'M POWERING THE MATRIX!!1!

[edit: hopefully the coffee will keep me on-topic in future posts - the article I posted is on-topic, the rest of this post is just a rant, so apologies]

-t.

the only reason it would be easier to program in C is that you can't easily express complex problems in C, so you don't. -comp.lang.lisp

granchio


Total Posts: 1530
Joined: Apr 2004
 
Posted: 2009-04-15 17:26
T, i like your off-topic - i'll add more.

on the rant: let me give you more ammo. 401k and similar equity overallocation. it was all justified with those analysis that equity ALWAYS outperform in the long term (ah ah), and that because of an "equity risk premium", the divyld had to go lower than the bond yld - as it did the last 50y or so. in my dumbness, i could never quite get that, thinking that if something is more risky, it should yield more, not less. go figure.

on WW2 and oil: shooting off the hip, i can think of the german intervention in north africa, the invasion of crete and other aegean islands to deny airbases within bomber range of Ploesti, the 1942 summer drive towards the caucasus, and most of the japanese initial strategy. what am i missing?

"Deserve got nothing to do with it" - Clint

tristanreid


Total Posts: 1677
Joined: Aug 2005
 
Posted: 2009-04-15 18:10
Ok, everyone else but Granchio - LOOK AWAY! I'm still offtopic!

Smiley

There's some interesting stuff about Hitler trying to perfect synthetic fuels, in particular he wanted to produce oil from coal. Germany relied heavily on coal for its industrialization (90% of energy, compared to about 50% for U.S.). Some of the German work in this area generated a Nobel Prize in Chemistry (1931). The global glut of oil from Texas at the time almost bankrupted the German company pursuing this, but they got support from the Third Reich, and the from the Luftwaffe by proving they could develop high-quality aviation fuel.

Mussolini led Italy on an invasion of Ethiopia in 1935, and the League of Nations threatened an oil embargo. This apparently had quite an effect on Hitler, as did an event the next year, when the Soviets stopped pumping oil through a distribution system that the Germans had acquired. He then announced to the world that Germany had figured out synthetic oil (a bluff), and shortly thereafter he started violating treaties w/ France regarding military outposts on their border.

The blitzkrieg strategy was also based at least in part on oil supplies. The idea was to avoid long draining conflicts, and to capture fuel supplies whenever possible.

Anyway, the book I mentioned before goes on for some time about this stuff. Near the end of the war Patton was positively apoplectic about lack of enough gas to finish the job, he once said something like "I could finish this war right now, if I only had more gas"

-t.

the only reason it would be easier to program in C is that you can't easily express complex problems in C, so you don't. -comp.lang.lisp

granchio


Total Posts: 1530
Joined: Apr 2004
 
Posted: 2009-04-15 18:18
going offline on this

"Deserve got nothing to do with it" - Clint

aaron


Total Posts: 746
Joined: Mar 2006
 
Posted: 2009-04-17 02:45
The part of tristanreid's post that is vaguely on topic is the claim that investment results, even over long periods of time, depend on when you start and stop. That's clearly true, it's difficult to find any strategy with a 30-year or longer history that doesn't have a tremendous Sharpe ratio over some long period, long enough to make MD's out of new analysts and eminent experts out of new PhD's (and about ten times longer than necessary to create a bestselling book or investment fad, and several billion times as long as it takes to make a CNBC expert).

Your grizzled veteran investor looks for the strategies with non-terrible Sharpe ratios over their worst long-term period, plus good Sharpe ratios over their entire history and some economic justification. But "my worst periods are better than his worst periods" is a tough sell when the other guy is touting his tremendously great good periods.

tristanreid


Total Posts: 1677
Joined: Aug 2005
 
Posted: 2009-04-17 05:33
So are bubbles inevitable because of human nature?

Aaron, you said rational investing is a tough sell in good periods, but even in bad periods, I can't shake the feeling that today's average 'investor' would rush to invest in the next bubble, if s/he but knew what it was. Is that an overly fatalistic view? It implies that regulation is necessary to prevent a tragedy of the commons.

-t.

the only reason it would be easier to program in C is that you can't easily express complex problems in C, so you don't. -comp.lang.lisp

Johnny
Founding Member

Total Posts: 4333
Joined: May 2004
 
Posted: 2009-04-17 12:32
Interesting, rambling discussion. :)

With bubbles, I think there are really only two choices: in all the way through and out all the way through. The choice that is most frequently discussed (miraculously getting out just before the bubble bursts) is, let's say, an unreliable strategy. Of the two choices, I think that in all the way through is more lucrative than out all the way through. Hence, I believe that it is rational to rush into the next bubble. Better than sauntering towards it and arriving late and definitely better than missing out on the whole thing.

Ionization
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