Who makes money playing the markets directionally?
> Retail & Day Gamblers: Absolutely no one day gambling profitably has been found to this day, and we keep looking for them.
There might be a handful of DAX & Dow Jones traders that make some money, I don't think they outperform the indices.
Compare day gambling to regular predation: Ever heard of an apex predator going for tiny prey over and over?
Tiger goes for prey at the bare minimum 10% of its size, up to 10 times its size. Also a tiger has a winrate of 5-10%.
Same for polar bears. High risk reward is universal. The exception would be grizzlys that found a niche with salmon jumping in their mouths.
The hyper massive apex predator going for small prey would be blue whales: They go for lots and lots at once, like a quant fund, not like a day gambler.
Traders at banks that have some liberties and hold some positions have an exposure limit at the end of the day. They can't hold Citibank with 10 billion usd just because they want to for example. Intraday they execute orders for clients and you can't stalk them non stop so they have some liberties during the day. So to go around their limits, because they all think they are the wonderboy who will be the next Jesse Livermoore if only the bank would give them their chance, they day gamble. As long as at the end of the day their exposure is below the limit all good. Wonderboys... One of these legends is Jerôme Kerviel. He didn't even day gamble he wanted to make big money so he cheated the system to hide his exposure. And lost 5 billion. Well that's what the bank said, and the government that sent them a big check of taxpayer money never bothered to audit them.
Needless to say to this day humanity has not found a single institutional day gambling wonderboy that makes money. It's like looking for life on Mars.
In Forex at least 90% of retail "traders" are day gamblers. In stocks a part of retail is made of passive holders, of course hedge fund clients, ETF too, and then there are lots of bagholders chasing the worst possible investment and holding to zero, and lots of day gamblers too. Retail investors in FX have a success rate of close to 0%, and in stocks passive holders underperform the indices at about 99%, retail stock day gamblers either lose money (~95-99%) or underperform the indices.
At any given time ~75% of FX retail loses money but this is taking all the ones lucky in the short term plus doesn't account for turnover (winners stay longer).
Overall in FX at least 95% of retail will lose, but when you know they almost all day gamble, sometimes with "EA and robots", you are not surprised.
The ones that do not day gamble hold losers for ages and get out of winners asap, just check brokers retail positions. At least 80% do this.
No day gambling and not holding losers is not even step 1. I would call it step 0. In nature not a single predator holds losers. Videos of predations show almost only the success, but pay attention they'll say "this tiger hasn't made a kill in 4 days" and also sometimes show them "losing", these top predators give up so quickly I am amazed, they ambush, jump, and if the prey starts running away immediatly the hunter just doesn't even try. It's like a law of the universe: losers insist on holding losers. That simple.
If speculating had an elo then 95% of retail would have 200 elo, being naturally bad and then add all the bs thrown around the internet and the scams... ==> 200 elo.
They're just that bad. Don't even have the nuts and common sense to cut losses which is not even a goal to have it's not even a step. Herbivore prey instinct.
Remove all the extremely bad trolls and then it's just a regular business the ropes of which you have to learn. You just can't fix stupid I guess?
> Hedge funds: They are (very) public, we hear about them most.
Stocks versus Forex: They all go into stocks, in the US there has to be maybe 10 funds dedicated to FX, and their phone never rings. Investors think stocks are magical money machines, they have all sorts of stereotypes about FX the "negative sum game", and also think stocks are better because they can be more diversified with a portfolio of 100 stocks that are all correlated.
You can add quants, arbitrage, and all sorts of strategy denominated funds we hear about in here I guess.
Most hedge funds mainly hold stocks to make their clients happy, and will do a bit of everything.
Even Warren Buffett had a position on USDMXN a few years ago.
1 "different" hedge fund we heard about in 2018 was legend manager James Cordier.
He had a good 100 leverage on volatile commodities.
You can't say "we never hear of these guys", he had a public fund like all hedge funds, and he even posted ideas on an investing website (I think he did so for 15 years).
1 client with a $1MM account with the guy linked his positions:
NatGas, Crude Oil, Gold, Silver, Soybeans, ICE Coffee.
JC had positions on dozens of contracts for each of these, on only a 1MM portfolio.
> Private equity, family office, venture capital, and individuals you never hear about:
Michael Burry started being heard about when 25 or 30 years ago he was posting stock picks on a forum. But he really got famous when he did "the big short". His clients were so mad with him after he made money, I think it is why he decided to leave and start his own thing. I am not sure exactly as I heard his positions were public.
There is a private equity guy that posts about economics & geopolitics on a social network, I forgot the name, he manages the money of a single billionaire.
Recently we heard about Bill Hwang, another legend. We heard about him because he got liquidated and crashed certain stocks he had massive positions in. Prior to that he started working for an institution, left with a few millions, started his own private business, and turned those millions into billions making 60% a year. Too concentrated and leveraged, he got too big, if he was smaller he would have gotten out without problem. Should have thought about it.
You also have some politicians that make record profits... I have an idea on how they make these profits.
Clearly they are the ones generating the highest returns. Note that none of these individuals are doing any day gambling.
> Pension/mutual funds, sovereign funds, etc:
They are running safer, more passive strategies so no one really cares. We care when Norway says they are going to sell 500 million krona, or when China says they're going to dump 1 billion usd on the market.
Other
Corporate for example. They simply buyback shares with their profits.
I think that's it. If you have something to add let me know. We could add funds of funds if we wanted to. What else? That's it pretty much.
60% a year for Bill Hwang is pretty great, too bad he didn't take it easy when he got very big.
There might be a handful of DAX & Dow Jones traders that make some money, I don't think they outperform the indices.
Compare day gambling to regular predation: Ever heard of an apex predator going for tiny prey over and over?
Tiger goes for prey at the bare minimum 10% of its size, up to 10 times its size. Also a tiger has a winrate of 5-10%.
Same for polar bears. High risk reward is universal. The exception would be grizzlys that found a niche with salmon jumping in their mouths.
The hyper massive apex predator going for small prey would be blue whales: They go for lots and lots at once, like a quant fund, not like a day gambler.
Traders at banks that have some liberties and hold some positions have an exposure limit at the end of the day. They can't hold Citibank with 10 billion usd just because they want to for example. Intraday they execute orders for clients and you can't stalk them non stop so they have some liberties during the day. So to go around their limits, because they all think they are the wonderboy who will be the next Jesse Livermoore if only the bank would give them their chance, they day gamble. As long as at the end of the day their exposure is below the limit all good. Wonderboys... One of these legends is Jerôme Kerviel. He didn't even day gamble he wanted to make big money so he cheated the system to hide his exposure. And lost 5 billion. Well that's what the bank said, and the government that sent them a big check of taxpayer money never bothered to audit them.
Needless to say to this day humanity has not found a single institutional day gambling wonderboy that makes money. It's like looking for life on Mars.
In Forex at least 90% of retail "traders" are day gamblers. In stocks a part of retail is made of passive holders, of course hedge fund clients, ETF too, and then there are lots of bagholders chasing the worst possible investment and holding to zero, and lots of day gamblers too. Retail investors in FX have a success rate of close to 0%, and in stocks passive holders underperform the indices at about 99%, retail stock day gamblers either lose money (~95-99%) or underperform the indices.
At any given time ~75% of FX retail loses money but this is taking all the ones lucky in the short term plus doesn't account for turnover (winners stay longer).
Overall in FX at least 95% of retail will lose, but when you know they almost all day gamble, sometimes with "EA and robots", you are not surprised.
The ones that do not day gamble hold losers for ages and get out of winners asap, just check brokers retail positions. At least 80% do this.
No day gambling and not holding losers is not even step 1. I would call it step 0. In nature not a single predator holds losers. Videos of predations show almost only the success, but pay attention they'll say "this tiger hasn't made a kill in 4 days" and also sometimes show them "losing", these top predators give up so quickly I am amazed, they ambush, jump, and if the prey starts running away immediatly the hunter just doesn't even try. It's like a law of the universe: losers insist on holding losers. That simple.
If speculating had an elo then 95% of retail would have 200 elo, being naturally bad and then add all the bs thrown around the internet and the scams... ==> 200 elo.
They're just that bad. Don't even have the nuts and common sense to cut losses which is not even a goal to have it's not even a step. Herbivore prey instinct.
Remove all the extremely bad trolls and then it's just a regular business the ropes of which you have to learn. You just can't fix stupid I guess?
> Hedge funds: They are (very) public, we hear about them most.
Stocks versus Forex: They all go into stocks, in the US there has to be maybe 10 funds dedicated to FX, and their phone never rings. Investors think stocks are magical money machines, they have all sorts of stereotypes about FX the "negative sum game", and also think stocks are better because they can be more diversified with a portfolio of 100 stocks that are all correlated.
You can add quants, arbitrage, and all sorts of strategy denominated funds we hear about in here I guess.
Most hedge funds mainly hold stocks to make their clients happy, and will do a bit of everything.
Even Warren Buffett had a position on USDMXN a few years ago.
1 "different" hedge fund we heard about in 2018 was legend manager James Cordier.
He had a good 100 leverage on volatile commodities.
You can't say "we never hear of these guys", he had a public fund like all hedge funds, and he even posted ideas on an investing website (I think he did so for 15 years).
1 client with a $1MM account with the guy linked his positions:
NatGas, Crude Oil, Gold, Silver, Soybeans, ICE Coffee.
JC had positions on dozens of contracts for each of these, on only a 1MM portfolio.
> Private equity, family office, venture capital, and individuals you never hear about:
Michael Burry started being heard about when 25 or 30 years ago he was posting stock picks on a forum. But he really got famous when he did "the big short". His clients were so mad with him after he made money, I think it is why he decided to leave and start his own thing. I am not sure exactly as I heard his positions were public.
There is a private equity guy that posts about economics & geopolitics on a social network, I forgot the name, he manages the money of a single billionaire.
Recently we heard about Bill Hwang, another legend. We heard about him because he got liquidated and crashed certain stocks he had massive positions in. Prior to that he started working for an institution, left with a few millions, started his own private business, and turned those millions into billions making 60% a year. Too concentrated and leveraged, he got too big, if he was smaller he would have gotten out without problem. Should have thought about it.
You also have some politicians that make record profits... I have an idea on how they make these profits.
Clearly they are the ones generating the highest returns. Note that none of these individuals are doing any day gambling.
> Pension/mutual funds, sovereign funds, etc:
They are running safer, more passive strategies so no one really cares. We care when Norway says they are going to sell 500 million krona, or when China says they're going to dump 1 billion usd on the market.
Other
Corporate for example. They simply buyback shares with their profits.
I think that's it. If you have something to add let me know. We could add funds of funds if we wanted to. What else? That's it pretty much.
60% a year for Bill Hwang is pretty great, too bad he didn't take it easy when he got very big.