16 ms·

This guy isn't the first person to make money in one arena and extrapolate that he could do it in others only to get his ass handed to him. I'm Canadian so the

This guy isn't the first person to make money in one arena and extrapolate that he could do it in others only to get his ass handed to him. I'm Canadian so the wealthy people AI know are either in finance or hockey players, and those that have lost money in areas outside their wheel house have all followed the same path. 1) Give money to a person they don't know very well to invest in a business idea they aren't an expert in. There is no step two. As a side note, i found this interesting.... > It wasn’t until Sarao left Futex in 2008 and struck out on his own that he started to make serious money. Public filings show his assets popped to 14.9 million pounds from 461,000 pounds in the 12 months ending in June 2009, long before he enlisted a programmer to build a system that authorities say was designed to cheat the market. Not sure what helped more in his rise: The 6 years he spent learning at another trading firm or the fact that on his own he probably had alot less risk oversight that allowed him to lever up more than he would have in side of an investment house. > That near-obsessive drive to hold on to as much of his wealth as possible can also be seen in the way he conducted his business affairs. Looking to minimize his tax bill, he was introduced by his accountant to John Dupont, a director at the London arm of an Isle of Man-based financial advisory firm called Montpelier Tax Consultants The best investment adivce I ever got was from my father. and I quote.... "Don't fuck around with your taxes any more than an H&R block adviser would let you. Getting a million dollar tax bills 7 years after you earned the money isn't worth it."

myotherother 10y ago
It's really common for people to criticize professional athletes for trusting unscrupulous business managers, but I've always wondered how many of those people fully understand their own investments. Do they trust a CFA's word? Do they have there entire 401k invested in a vanguard target date fund but do they comprehend what its composition is?
- deleted 10y ago
  [deleted]
- bradleyjg 10y ago
  You don't need to fully understand what is in a Vangaurd target date fund to have high confidence that it isn't a ponzi scheme that's going to go to zero. You can't say the same thing about the ultra-exclusive off the market opportunity that some business manager wants to put you in. For a pro athlete looking at making millions for a few years and then facing a sharp drop-off thereafter, a Vanguard target date fund is probably not close to optimal. But you could do far worse and many do!
- WalterBright 10y ago
  It's a heluva lot easier to lose a million than to make a million.
- audleman 10y ago
  When you make that kind of money suddenly you're an accredited investor. It's supposed to mean you're a sophisticated enough investor to take on riskier investments, but the way it's implemented it only measures if you can take a loss (either you have > $1mil in assets or make $200k+/year). Thus people like athletes are exposed to much riskier investment deals than they really have the ability to comprehend. I don't blame anyone for losing money, let alone athletes. To answer your question, I personally don't know all the details about my Vanguard fund, though I understand the basics. But that's very different from a slick salesman in a suit selling me an opportunity to invest in Brazil in a high-risk high-return investment scheme.
charlesdm 10y ago
> The best investment adivce I ever got was from my father. and I quote.... "Don't fuck around with your taxes any more than an H&R block adviser would let you. Getting a million dollar tax bills 7 years after you earned the money isn't worth it." This depends on the situation. If you get a bill in Y7 that is not significantly higher than the bill in Y1, it in fact would be worth it, because that capital could have compounded for 7 years. Focusing on optimising your taxes is actually often worth it. I would dare say not enough people do it. But the more you optimise, the higher the risk becomes you have to pay it back. As with anything, it's risk vs reward. At the returns this guy was making, it actually makes sense to defer paying taxes as long as possible.
- noir_lord 10y ago
  > Focusing on optimising your taxes is actually often worth it. I would dare say not enough people do it. I'd largely agree, people don't optimise their tax enough but large companies/corporations get away with it far too much. It's a pretty big issue in the UK, the last figures I saw where Tax Evasion costs us 67bn a year (HMRC figures iirc) vs 1.8bn for all benefit errors (not fraud, that figure is errors and fraud). We cracked down on benefit fraud massively... If I where a cynic.
  - charlesdm 10y ago
    Yeah, large companies don't pay enough. That said: the more money you have, the more of a game it is. The rules get blurry when dealing with multiple countries. If you were (or owned) a large company, you'd do the same. Or well, at least I would. Can't blame the game. Fix the rules.
  - loeg 10y ago
    It's important to draw a distinction between tax minimization (within the bounds of the law) and tax evasion (illegal minimization). I don't think anyone here is promoting illegal evasion.
  - rrrrsss99 10y ago
    Are there ways to optimize personal income taxes the same way corporations do? Can I create a shell person in the cayman islands and pay them the exact amount of my income and deduct my US income to $0?
FatAmericanDev 10y ago
He violated Buffett's first rule, never invest in businesses you don't understand...
- qwrusz 10y ago
  That's not his first rule. It's way better than that: "Rule No.1 is never lose money. Rule No.2 is never forget Rule No. 1." -Warren "Buff Daddy" Buffett
  - waqf 10y ago
    Can you expand on what he meant by that? I've always taken it to mean "don't ever make an investment that you know deep down is suboptimal".
    - qwrusz 10y ago
      I can try. Firstly, worth mentioning the quote is a bit facetious, witty, jocose...Jolly old Warren Buffett can often be a bit playful and sort of sarcastic when talking about investing in public but it seems few people pick up on it. Also maybe worth mentioning the quote is based on a well known "2 Rules" phrase format. For example: “There are 2 rules of life. Rule number 1 is ‘Never quit.’ And rule number 2 is ‘Don’t forget rule number 1.’” - Duke Ellington and "There are 2 rules for success. Rule 1: Never tell everything you know. Rule 2:.. ;)" OK with that said, I wouldn't overthink the quote. Obviously you can't really guarantee you will "never lose money" and so it's not really a rule and even Buffett loses money sometimes. If I had to guess what he means: I would say use the quote as fun/serious reminder to think about risk ahead of reward and remember concepts like margin of safety that help protect you from loses even if a stock doesn't go up like you expect and hope.
      - nstj 10y ago
        Actually it's not facetious at all. The point comes from his mentor Benjamin Graham, which relates to the difficulty in recouping investment capital following a loss (ie: making your money back after you break the rule). eg: You have $100k in your investment account. You have a bad year and lose 50% of your money, leaving you with $50k. You now need to have a 100% return in the next year to just make your money back, even though you only had a 50% loss. Seth Klarman, another highly successful value investor like Buffett is also a proponent of this way of thinking.
qwrusz 10y ago
> The 6 years he spent learning at another trading firm or the fact that on his own he probably had alot less risk oversight that allowed him to lever up more than he would have in side of an investment house. Maybe neither? As good as this kid might be, hard to believe he did a 30x year! Even with more risk and there was some crazy volaility back then, a 30x year going from half a million pounds to 15 million in 12 months is very high. Never know of course. He might have done it. theoretically possible with the exotics CDS in that year. But also hard to trust journalists aren't just twisting facts these days. Another explanation for the rise: He already had several million while working at the firm, but they weren't in his name, not in a public filing anyway until went out on his own and took out the funds.
- charlesdm 10y ago
  If he did 30x a year, he must have been the best investor in the world?
  - deleted 10y ago
    [deleted]
  - btilly 10y ago
    No, it just means an insane beta and good luck. Anyone can set up the lottery to create an insane beta. And luck, well, you know how that goes.
  - shoo 10y ago
    you can't judge skill from outcomes in the short run if a large component of the outcome is outside of the control of the operator see e.g. Taleb "fooled by randomness" there's also a good "winner's game" vs "loser's game" argument, see Ellis - The Loser's Game: http://www.cfapubs.org/doi/pdf/10.2469/faj.v51.n1.1865 http://www.cfapubs.org/doi/pdf/10.2469/faj.v51.n1.1865 (PDF)
- MR4D 10y ago
  A 30x return is easy - rare, but easy. Repeating it, however, is damn near impossible. Options trading, which he was good at, went haywire on that day. Anybody in a decent position with options made crazy returns. But their timing had to be good. If you bought a short-dated, just out of the money SPY put the day before, and sold it that afternoon, you made a killing as far as percentage return. The number of people who had that or similar trade probably numbers in the thousands. But the reason you don't hear about them is it was either to hedge a larger position, or a small speculative position, and making $50,000 doesn't make headlines.
deleted 10y ago
[deleted]
xsmasher 10y ago
> those that have lost money in areas outside their wheel house have all followed the same path. I'm pretty sure that's the first story in https://en.wikipedia.org/wiki/The_Richest_Man_in_Babylon_(book) https://en.wikipedia.org/wiki/The_Richest_Man_in_Babylon_(bo... Old, old advice.
ptero 10y ago
It seems to me the guy is a scapegoat. What he did is likely illegal market manipulation (placing orders and canceling them before they are executed to give a false impression of a price / volume / something else); I am not defending that; but 300+ years? I really doubt though that the amount he presumably won (much less than $50M) can be responsible for a significant financial event such as a flash crash at a world's major stock exchange. I suspect high frequency traders regularly affect markets in a much more significant ways (e.g., I think generating large volume via zero-sum trades than withdrawing from trading could cause significant pricing swings).
- hermitdev 10y ago
  I agree with you on this. I work in finance, and one of the many hats I wear at a small shop is regulatory analyst (basically, I run/create the specialized reports when FINRA, SEC, etc come knocking). +300 years seems excessive, but the financial penalties seem apt: forfeit your ill-gotten gains plus a topper. An aside: I've always found sentences such as 300 years to be absurd (unless they run concurrent). Why not just call it life and be done with it? Or, is the judge trying to make a statement like the judge in Texas that recently set bail at $4 billion for an accused murder (who turned his self in)?

myotherother 10y ago

It's really common for people to criticize professional athletes for trusting unscrupulous business managers, but I've always wondered how many of those people fully understand their own investments. Do they trust a CFA's word? Do they have there entire 401k invested in a vanguard target date fund but do they comprehend what its composition is?

deleted 10y ago
[deleted]
bradleyjg 10y ago
You don't need to fully understand what is in a Vangaurd target date fund to have high confidence that it isn't a ponzi scheme that's going to go to zero. You can't say the same thing about the ultra-exclusive off the market opportunity that some business manager wants to put you in. For a pro athlete looking at making millions for a few years and then facing a sharp drop-off thereafter, a Vanguard target date fund is probably not close to optimal. But you could do far worse and many do!
WalterBright 10y ago
It's a heluva lot easier to lose a million than to make a million.
audleman 10y ago
When you make that kind of money suddenly you're an accredited investor. It's supposed to mean you're a sophisticated enough investor to take on riskier investments, but the way it's implemented it only measures if you can take a loss (either you have > $1mil in assets or make $200k+/year). Thus people like athletes are exposed to much riskier investment deals than they really have the ability to comprehend. I don't blame anyone for losing money, let alone athletes. To answer your question, I personally don't know all the details about my Vanguard fund, though I understand the basics. But that's very different from a slick salesman in a suit selling me an opportunity to invest in Brazil in a high-risk high-return investment scheme.

charlesdm 10y ago

> The best investment adivce I ever got was from my father. and I quote.... "Don't fuck around with your taxes any more than an H&R block adviser would let you. Getting a million dollar tax bills 7 years after you earned the money isn't worth it." This depends on the situation. If you get a bill in Y7 that is not significantly higher than the bill in Y1, it in fact would be worth it, because that capital could have compounded for 7 years. Focusing on optimising your taxes is actually often worth it. I would dare say not enough people do it. But the more you optimise, the higher the risk becomes you have to pay it back. As with anything, it's risk vs reward. At the returns this guy was making, it actually makes sense to defer paying taxes as long as possible.

noir_lord 10y ago
> Focusing on optimising your taxes is actually often worth it. I would dare say not enough people do it. I'd largely agree, people don't optimise their tax enough but large companies/corporations get away with it far too much. It's a pretty big issue in the UK, the last figures I saw where Tax Evasion costs us 67bn a year (HMRC figures iirc) vs 1.8bn for all benefit errors (not fraud, that figure is errors and fraud). We cracked down on benefit fraud massively... If I where a cynic.
- charlesdm 10y ago
  Yeah, large companies don't pay enough. That said: the more money you have, the more of a game it is. The rules get blurry when dealing with multiple countries. If you were (or owned) a large company, you'd do the same. Or well, at least I would. Can't blame the game. Fix the rules.
- loeg 10y ago
  It's important to draw a distinction between tax minimization (within the bounds of the law) and tax evasion (illegal minimization). I don't think anyone here is promoting illegal evasion.
- rrrrsss99 10y ago
  Are there ways to optimize personal income taxes the same way corporations do? Can I create a shell person in the cayman islands and pay them the exact amount of my income and deduct my US income to $0?

FatAmericanDev 10y ago

He violated Buffett's first rule, never invest in businesses you don't understand...

qwrusz 10y ago
That's not his first rule. It's way better than that: "Rule No.1 is never lose money. Rule No.2 is never forget Rule No. 1." -Warren "Buff Daddy" Buffett
- waqf 10y ago
  Can you expand on what he meant by that? I've always taken it to mean "don't ever make an investment that you know deep down is suboptimal".
  - qwrusz 10y ago
    I can try. Firstly, worth mentioning the quote is a bit facetious, witty, jocose...Jolly old Warren Buffett can often be a bit playful and sort of sarcastic when talking about investing in public but it seems few people pick up on it. Also maybe worth mentioning the quote is based on a well known "2 Rules" phrase format. For example: “There are 2 rules of life. Rule number 1 is ‘Never quit.’ And rule number 2 is ‘Don’t forget rule number 1.’” - Duke Ellington and "There are 2 rules for success. Rule 1: Never tell everything you know. Rule 2:.. ;)" OK with that said, I wouldn't overthink the quote. Obviously you can't really guarantee you will "never lose money" and so it's not really a rule and even Buffett loses money sometimes. If I had to guess what he means: I would say use the quote as fun/serious reminder to think about risk ahead of reward and remember concepts like margin of safety that help protect you from loses even if a stock doesn't go up like you expect and hope.
    - nstj 10y ago
      Actually it's not facetious at all. The point comes from his mentor Benjamin Graham, which relates to the difficulty in recouping investment capital following a loss (ie: making your money back after you break the rule). eg: You have $100k in your investment account. You have a bad year and lose 50% of your money, leaving you with $50k. You now need to have a 100% return in the next year to just make your money back, even though you only had a 50% loss. Seth Klarman, another highly successful value investor like Buffett is also a proponent of this way of thinking.

qwrusz 10y ago

> The 6 years he spent learning at another trading firm or the fact that on his own he probably had alot less risk oversight that allowed him to lever up more than he would have in side of an investment house. Maybe neither? As good as this kid might be, hard to believe he did a 30x year! Even with more risk and there was some crazy volaility back then, a 30x year going from half a million pounds to 15 million in 12 months is very high. Never know of course. He might have done it. theoretically possible with the exotics CDS in that year. But also hard to trust journalists aren't just twisting facts these days. Another explanation for the rise: He already had several million while working at the firm, but they weren't in his name, not in a public filing anyway until went out on his own and took out the funds.

charlesdm 10y ago
If he did 30x a year, he must have been the best investor in the world?
- deleted 10y ago
  [deleted]
- btilly 10y ago
  No, it just means an insane beta and good luck. Anyone can set up the lottery to create an insane beta. And luck, well, you know how that goes.
- shoo 10y ago
  you can't judge skill from outcomes in the short run if a large component of the outcome is outside of the control of the operator see e.g. Taleb "fooled by randomness" there's also a good "winner's game" vs "loser's game" argument, see Ellis - The Loser's Game: http://www.cfapubs.org/doi/pdf/10.2469/faj.v51.n1.1865 http://www.cfapubs.org/doi/pdf/10.2469/faj.v51.n1.1865 (PDF)
MR4D 10y ago
A 30x return is easy - rare, but easy. Repeating it, however, is damn near impossible. Options trading, which he was good at, went haywire on that day. Anybody in a decent position with options made crazy returns. But their timing had to be good. If you bought a short-dated, just out of the money SPY put the day before, and sold it that afternoon, you made a killing as far as percentage return. The number of people who had that or similar trade probably numbers in the thousands. But the reason you don't hear about them is it was either to hedge a larger position, or a small speculative position, and making $50,000 doesn't make headlines.

deleted 10y ago

[deleted]

xsmasher 10y ago

> those that have lost money in areas outside their wheel house have all followed the same path. I'm pretty sure that's the first story in https://en.wikipedia.org/wiki/The_Richest_Man_in_Babylon_(book) https://en.wikipedia.org/wiki/The_Richest_Man_in_Babylon_(bo... Old, old advice.

ptero 10y ago

It seems to me the guy is a scapegoat. What he did is likely illegal market manipulation (placing orders and canceling them before they are executed to give a false impression of a price / volume / something else); I am not defending that; but 300+ years? I really doubt though that the amount he presumably won (much less than $50M) can be responsible for a significant financial event such as a flash crash at a world's major stock exchange. I suspect high frequency traders regularly affect markets in a much more significant ways (e.g., I think generating large volume via zero-sum trades than withdrawing from trading could cause significant pricing swings).

hermitdev 10y ago
I agree with you on this. I work in finance, and one of the many hats I wear at a small shop is regulatory analyst (basically, I run/create the specialized reports when FINRA, SEC, etc come knocking). +300 years seems excessive, but the financial penalties seem apt: forfeit your ill-gotten gains plus a topper. An aside: I've always found sentences such as 300 years to be absurd (unless they run concurrent). Why not just call it life and be done with it? Or, is the judge trying to make a statement like the judge in Texas that recently set bail at $4 billion for an accused murder (who turned his self in)?