A spoken advice piece for traders considering managing institutional money. The speaker warns that institutional investors and large funds trade differently (ticket-size constraints make many retail strategies—e.g., small-cap trend-following—untenable at scale), explains that some strategies (relative momentum/rotational) have recently outperformed certain indexes but suffer environment-dependent drawdowns, and emphasizes the need for third-party recorded track records. The speaker also cautions to vet institutional partners (many lack systematic-trading expertise) because they may pressure changes to risk/processes, and notes the emotional and operational costs of scaling up to manage external capital.
Chapters
First be aware of that.
Like the institutional money, like big money, they, they, they trade different than we do. Most of the strategies we trade, they cannot trade because the ticket size is too big. Like our trend following system, which works very well because we can trade a lot of small cap stocks. Doesn't work for the big money. If you have 10 millions or 20 millions or 50 millions under management, which you kind of need, so your hedge fund is able to cover their expenses, it won't work. And then when you apply the trend following system, like the Freight Friend for example, on only large and mid caps, looks good but not exciting anymore. Not that exciting anymore. So be aware of, okay, what is actually tradable for the big guys and what can I trade and do I actually have to go for the big guys or does it really make sense, like trading my own strategies, maybe for a signal provider where people can copy my strategies or can. Well, I am basically the hedge fund people invest in me. And there are a lot of providers, especially for the US market which do that. And that can actually be more beneficial. Also.
It helps you to build a track record which is recorded by a third party and that makes you way more interesting. You need to have track record recorded by third party and see, okay, how does the strategy work in different environment, let's say relative momentum rotational strategies work very well for the Russell 200 and NASDAQ 100 the last years. Like, like extraordinary. Well, this year not so good. So I started this year and you immediately in a drawdown, like, and what do you do you keep doing? Because you know this drawdown is normal. The market environment doesn't really support the system type. So you need to have your nerves and you need to be aware of what am I doing? What are the weaknesses of this strategy set? How can I make money with this strategy? What kind of a market environment? And the big guys or professional guys, they know this, they are aware of this. If you have like a strong momentum strategy.
And it went through the roof this year for the gas market, that gets suspicious probably because the main market is not that good. It's like a couple of stocks which bring all the big NDCs upwards. So you need to be aware of this and they are aware of this. And second point, some institutional investors, they think they know what they're doing, but they have no clue, like about systematic trading. So be aware, who do you go into bed with? Like, do they actually know what you're doing? Because otherwise you get a problem. Because once your performance does not meet their expectations, they're going to intervene with your process. They want to change your process. They want to cut down the risk. And then you have to get in this argumentation explanation. And this takes a lot of energy and emotional energy and confidence. And then you may be even convinced to change your risk management. Suddenly, the strategy goes up again, but you don't take the full upside potential because you manage on your risk. So you need to have a certain confidence. And.
Even like the the guy with whom I traded when they had big investors, he said, ahim, sometimes I wish I hadn't even started this because it takes so much nerves. I just trade my own portfolio. I know what I'm doing. I know what my risk are, and I'm confident it, yes, it's nice to upscale it, but you open up a whole lot of other doors and be aware of this.
