4 ms·

Sorry, your return is too high for us

24 points by ahalan 15y ago

shalmanese 15y ago
Past performance is no guarantee of future results. If only more people had consciously avoided deals that looked too good to be true, Bernie Madoff never would have happened.
mathattack 15y ago
The post is ludicrous on so many levels.... 1) When people get returns in the 5% a month range, let alone double digits, they usually shut out external investors. 2) Consistent 1-2% monthly returns are frequently a sign of fraud. 3) If you find something on your own that looks too good to be true, 95% of the time it is. If someone else is asking for your money that is too good to be true, you lost that remaining 5%. 4) It is theoretically possible that someone found this once in a million (billion?) possibility and just can't find money for it. But it's more likely that they're either fraudulent, misreading their data, or just a looney tune.
- veyron 15y ago
  1 is definitely not true. There are many types of trades (for example, convertible arbitrage) which fundamentally require billions of dollars to get access to opportunities. It's not that the opportunities have a large fixed cost, but rather that you won't be presented such an opportunity unless you are large. This also happens with institutional clients in wealth management: some opportunities, such as special IPOs, will only be presented to customers whose accounts exceed certain thresholds (e.g. 10M)
  - mathattack 15y ago
    The uber rich aren't earning double digits monthly on these investments, and they aren't hyper leveraged either. Yes, most of us don't have access to IPOs or Warren Buffet investments. In both cases the buyers shouldn't expect double digit monthly returns.
- alnayyir 15y ago
  I know a couple fund guys, and one in particular runs a really aggressive fund. His example sort of presents an exception to what you're saying, but it mostly doesn't for reasons you'll see in a moment. I can't really discuss his strategies for producing double-digit-per-month returns, but suffice it to say, the money involved doesn't "scale". Further, it's to the fund's advantage from an institutional as well as an individual perspective to not "outgrow" their ability to maximize their returns on extant capital. Their incentives are structured on returns and not money under management. They're also a purely private fund, it's almost entirely friends/family/registered investors that are somebody's cousin, etc. They don't really need more money. They just need nobody to notice how they're making their money. Edit: Worth noting as well that they're not part of the wall street scene nor are they based out of the greater new york area. They aren't into the marketing/sales side of running a fund, they're mostly programmer/quant/trader types that are in it for the numbers game.
  - veyron 15y ago
    most HFTs can usually get very favorable leverage terms because they don't hold naked overnight positions (either they are hedged or just flatten at the end of the day), artificially boosting return numbers. There was a similar conversation regarding fred wilson's fund obtaining very strong returns because they limited the AUM.
  - mathattack 15y ago
    Good points. Small scale opportunities do exist in many markets but they rarely need external money.
- dlss 15y ago
  1. I agree with the usually in this sentence 2. 1-2% monthly => 12-26% yearly, which isn't impossible or necessarily indicative of fraud. Though perhaps you're just saying that if things are too smooth that is a bad sign? 3. Agreed :) 4. If all investors thought this way, then it would be very possible to find such a strategy and not find enough money... The article didn't seem to be about any of this though -- the author is talking about biases in the way that investors look at gearing -- because you can always invest less than your intended amount to reduce gearing, or more (by borrowing money yourself) to increase your gearing, the question of how much gearing should be used is a per investor question as well as a per fund question. A point which doesn't seem to be addressed by your points here.
  - mathattack 15y ago
    On 1-2% - it's the steadiness that is the issue. Madoff didn't outperform all other hedge funds on overall performance, it's that he never lost money. I'm terms of gearing - if that is the source of returns, why invest in it to begin with when you can lever up on your own without a middleman? Leverage has costs too. If the story is psychological bias, there are many better examples.
hezekiah 15y ago
It's bullshit like this which led us into the financial crisis.

24 points by ahalan 15y ago

Past performance is no guarantee of future results. If only more people had consciously avoided deals that looked too good to be true, Bernie Madoff never would have happened.

mathattack 15y ago

The post is ludicrous on so many levels.... 1) When people get returns in the 5% a month range, let alone double digits, they usually shut out external investors. 2) Consistent 1-2% monthly returns are frequently a sign of fraud. 3) If you find something on your own that looks too good to be true, 95% of the time it is. If someone else is asking for your money that is too good to be true, you lost that remaining 5%. 4) It is theoretically possible that someone found this once in a million (billion?) possibility and just can't find money for it. But it's more likely that they're either fraudulent, misreading their data, or just a looney tune.

veyron 15y ago
1 is definitely not true. There are many types of trades (for example, convertible arbitrage) which fundamentally require billions of dollars to get access to opportunities. It's not that the opportunities have a large fixed cost, but rather that you won't be presented such an opportunity unless you are large. This also happens with institutional clients in wealth management: some opportunities, such as special IPOs, will only be presented to customers whose accounts exceed certain thresholds (e.g. 10M)
- mathattack 15y ago
  The uber rich aren't earning double digits monthly on these investments, and they aren't hyper leveraged either. Yes, most of us don't have access to IPOs or Warren Buffet investments. In both cases the buyers shouldn't expect double digit monthly returns.
alnayyir 15y ago
I know a couple fund guys, and one in particular runs a really aggressive fund. His example sort of presents an exception to what you're saying, but it mostly doesn't for reasons you'll see in a moment. I can't really discuss his strategies for producing double-digit-per-month returns, but suffice it to say, the money involved doesn't "scale". Further, it's to the fund's advantage from an institutional as well as an individual perspective to not "outgrow" their ability to maximize their returns on extant capital. Their incentives are structured on returns and not money under management. They're also a purely private fund, it's almost entirely friends/family/registered investors that are somebody's cousin, etc. They don't really need more money. They just need nobody to notice how they're making their money. Edit: Worth noting as well that they're not part of the wall street scene nor are they based out of the greater new york area. They aren't into the marketing/sales side of running a fund, they're mostly programmer/quant/trader types that are in it for the numbers game.
- veyron 15y ago
  most HFTs can usually get very favorable leverage terms because they don't hold naked overnight positions (either they are hedged or just flatten at the end of the day), artificially boosting return numbers. There was a similar conversation regarding fred wilson's fund obtaining very strong returns because they limited the AUM.
- mathattack 15y ago
  Good points. Small scale opportunities do exist in many markets but they rarely need external money.
dlss 15y ago
1. I agree with the usually in this sentence 2. 1-2% monthly => 12-26% yearly, which isn't impossible or necessarily indicative of fraud. Though perhaps you're just saying that if things are too smooth that is a bad sign? 3. Agreed :) 4. If all investors thought this way, then it would be very possible to find such a strategy and not find enough money... The article didn't seem to be about any of this though -- the author is talking about biases in the way that investors look at gearing -- because you can always invest less than your intended amount to reduce gearing, or more (by borrowing money yourself) to increase your gearing, the question of how much gearing should be used is a per investor question as well as a per fund question. A point which doesn't seem to be addressed by your points here.
- mathattack 15y ago
  On 1-2% - it's the steadiness that is the issue. Madoff didn't outperform all other hedge funds on overall performance, it's that he never lost money. I'm terms of gearing - if that is the source of returns, why invest in it to begin with when you can lever up on your own without a middleman? Leverage has costs too. If the story is psychological bias, there are many better examples.

hezekiah 15y ago

It's bullshit like this which led us into the financial crisis.