Hey folks, more as a curiosity than anything, when people pay for your system what is normal behavior? Do the bulk of the assets fluctuate or just sit and follow the strategy? Do you find people “playing games” with their investments.
The source of this is well lots of things, but mainly i started following my own investment and poorly timed entry certainly speaks to me. but knowing better i sat on it and sure enough its recovered (the program knows what it’s doing) still a perfectly timed entry would have been stellar but a wins a win. So then with all that the question arises. i can’t imagine most folk who subscribe to a strategy just immediately invest and forget about it. but there is something to be said for not jumping in and out if you catch a bad bit of timing. so my question still stands, what do people normally do? does it ebb and flow daily, or is it streaky based on say the last 10 days of return… or… or what?
Really this question is targeted trade leaders here but hey, feel free to share if you don’t mind sharing how you manage your money between your subscribed fund(s). Not everyone has the benefit of seeing historical simulations and knowing what “it should do” so they have to trust the charts. the charts though generally dont go back more far enough to give a really really sound feel for how things will go. also leaders change things up as they wont to do.
Anyway share if feel like sharing i’m curious to hear!
My experience on C2 tells me that it is very hard to find long - term customers. And as a result, many customers do not get the full benefit of the systems as the pattern is they join when there is a recent outperformance and with the slightest of drawdown or even a flat equity curve they are out. You can not fault them as well since insecurity can creep up very fast with the slightest drawdown as one see numerous systems around you going bust and also new rising stars (many of which will also go bust) giving new hope. There are very few customers who really are patient and sit through the drawdowns tight. For example, one of my system NQ positional ( NQ Positional (collective2.com)) which has performed good in my opinion had dropped AUM (and customers) by 80% during its drawdown.
In the end there are some loyal customers who have followed few of systems for a longer period and of course they have benefitted.
I am already aware of this customer behavior, so in spite of hating to see customers leave, I pretty much can not do much about it.
I am also curious about a customer’s perspective in this regard, because there are some long term customers here (from what is see as their C2 join date) who might give trade leaders an insight into how they subscribe/unsubscribe systems.
that’s kind of what i figured would happen. I mentioned simulations… running on historical data with my test data (not training data) i may see some really good returns year over year, but the draw downs do happen over a 7.5 year period I’ve been testing on. i’ve never seen my long positions do much better than about a 16% max draw down. and generally its far far worse. i mean you might see a year over year return of 100% but it’ll have a 10-20% drawdown at one point or two in any given year and 30% drawdown at one point when the world collapses from some issue… but then it recovers and gets back to business as usual. i just don’t see people waiting through the drawdown. Or worse yet, getting out at the bottom, and not realizing the fund will autosell if it needs to and get in the best positions it can as funds settle. sure sometimes thats the exact same stock… but the point is building that trust. seems daunting if impossible.
i suppose to prevent those you hedge with options or something, but i mean that goes entirely against what i’m going for. one thought is making an ultra conservative fund that does manage those small drawdowns even the worst scenarios but i mean it just destroys the returns. i mentioned 100% try 30% instead cause you start taking 60 positions instead 15 and lowering the bar as to what is an acceptable return. sure it might only experience a i dunno 12% max drawdown over those 7.5 years but ugh. baby with the bathwater you know?
This pattern has been observed in hundreds of mutual and hedge funds as well, for decades: Customers join when a money manager is “hot” but leave quickly when things go south for a while.
When that happens they simply follow the next “hot” fund or system, over and over again.
Studies show that this financial behavior largely underperforms the market, in the long run.
Traders and investors who stick to a system during a full bear-bull market cycle are extremely rare.
That’s why most of them lose. They need to accept that strategy’s DD rate until it survives or gives good profit.
Of course, but few traders can do that, the temptation to drop a “losing” system and follow the “hottest” one is simply irresistible.
Such is human nature.
I think there is a lot of switching. A couple of reasons for this, at least. First, I think a lot of people do not have the knowledge to properly evaluate the risks associated with a particular strategy. As a result, they are surprised when a drawdown occurs. It should be obvious when someone is trading with 5x leverage that a large drawdown could occur even if one has yet to occur. Second, it is very difficult to trust a strategy or a trader. You do not have a relationship with the person. In some cases, they are even anonymous. You have not analyzed the backtest in the case of a automated strategy. Due to this lack of trust, when something unexpected happens, people head for the exits more quickly than if they had confidence in the trader/strategy. Ways to try to fix this is through transparency and education regarding your style or strategy, but this is very difficult if not impossible because it is normal to panic. This is why there is always a large gap between returns realized by investors and the actual returns, especially with high drawdown strategies.
From a risk/reward point of view, the best time to join a trading system with a proven edge is right after a drawdown (say 15 or 20% from its peak), not when it’s making new highs, a psychologically difficult thing to do for most traders…
That said a good system will always make money in the long run, by definition, regardless of entry point.
realizing a fund is reliable and in the midst of drawdown and ripe for investment (as the returns should out pace its normal growth which is already quite good) sounds like something an AI would be ideal for (as it can re-evaluate all the funds fairly quickly and consistently) . it is shame there isn’t a way to make a fund of-funds for people to invest in that does just that. I doubt collective 2 is going to appreciate someone gathering all the fund performance daily. Also the cost would be ridiculous if you tried to diversify.subscribing to 15+ funds… i mean you’d need to be investing quite a lot to be able to justify the monthly cost in subscription fees. still it would probably be an amazing technique.
If you make decisions based on the daily timeframe, it is possible to pay full monthly subscription everyday. Therefore weekly or monthly re-balancing seems more reasonable. Anyway, the data is available and nobody is restricted to use it.
In my opinion, investing only when a winning system reaches a certain drawdown (a simple backtest could reveal that optimal percentage) should outerperform most trading systems in a big way, and reduce the maximum drawdown by at least 50%.
The trick is to find a lot of winning and uncorrelated trading systems, and bet only on those experiencing a setback that exceeds their average historical drawdown.
Then when the system makes a new high (or reaches some profit target) we exit the position and rinse and repeat.
i won’t be doing it, the capital required outstrips (in a crazy way) my ability to go in on such an endeavor. but yeah, i agree, uncorrelated funds is a big part of making this work.
I guess the big take away from this thread, for trade leaders. be pleased with the subscribers while you have them as they will come and go. if you are looking for reliable income invest in your own strategy and others you find worthwhile. for investors, find a good 1 (i recommend 3 or more if you can, as uncorrelated as possible) and invest in those and don’t move it around. sometimes it takes weeks, sometimes months, sometimes quarters to rebound, but if the fund is doing what it should you’ll get back on top and touching it just makes a mess.
if you think it’s time to get out maybe ask the tradeleader what is going on or look in to the industry, find some news and see if it really makes sense to give up on it.
Hi Mr Scheibel,
Thank you for your very pertinent comments.
Traders do not necessarily need a large capital to diversify, it’s all about allocating a small portion of their risk-capital to 5 or 10 trending (and liquid) markets.
By the way, and if you have not already done so, I suggest you read this excellent book called “Muscular Portfolios”, by Brian Livingston, it explains how simple momentum systems can outperform the biggest mutual and hedge funds in the world, with minimal risk.
i’ll check out the book, thanks for the advice. but I was specifically talking about setting a fund-of-funds here on collective 2. the monthly costs for all the subscriptions require enough capital that the percentage change monthly must out strip the flat cost and still produce a consistent gain to justify the work. which… yeah don’t have that kind of cash yet.
actually making a fund that trys to do what was discussed. totally reasonable and not beyond me in the slightest. i’m just not ready to go head long in to writing more code for investing till i see my current stuff bare fruit maybe in a year or two.
That idea is not new Mr Scheibel, far from it, but unfortunately even fund of funds fail miserably (for their clients that is), according to their trading history.
Here are some facts, for instance
Quote from the article:
“If investment professionals can’t consistently beat the market, it’s unlikely that the typical at-home investor would achieve better results.”
Don’t get me wrong, there are plenty of good trading systems on Collective2, but we don’t know which one will outerperform in the long run, in advance.