I’m going to share with you something I probably shouldn’t.

But I find it both pretty fascinating and pretty funny, so I want to share.

As I had already shared with you previously, our hedge fund made a big decision this year. We decided not to accept private VIP clients anymore, and rather become a fund for institutional clients.

And since then, we’re on fire.

First of all, we’ve become the main portfolio manager for a pretty big institutional client from a rich European country. And this client is like a dream. Not only are his expectations MORE REALISTIC compared to the never-happy retail clients (all he expects is about 15-20% annually with volatility preferably about 10% max.). But he also keeps sending us more 6-figure investments every month. And because he has been very happy with the results so far, this monthly sum will probably start increasing soon.

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But here’s another benefit of this.

Because this particular client is very respected among certain banks, he shared his experiences with us. And now there are some serious talks going on with banks too. Which means having a lot of ‘fun’ behind the curtains, like this one:

When you are in the scope of banks, they first want to “test you”. With some “very little money”.

For them, it is something like “paper-trading”. And for them, this minimum “testing sum” is…

… 10 million dollars! 🙂

Crazy, isn’t it! I don’t know about you, but this is pretty hilarious for me. I thought 10 million USD was a huge amount of money. Well, not for everyone. I definitely have to push my limits in my thinking about what a small and big sum is! 🙂

Anyway, that was the fun part. But of course, there is a less funny part to this too, and it is this:

I admit to being under a bit of pressure because of this too.

I don’t want to f*ck it up. None of us do.

And that’s why we decided to push our DEFENSE even further. Specifically, this is what we did:

1.Planned and started working on another 2-3 CTAs we want to launch in a few months. All with a low correlation to the current CTAs as possible. The goal is MAJOR diversification, to keep supporting slow, stable, low-volatility growth of 15-20% annually on average with lots of ways to spread a potentially huge amount of money.
2.Assessed all the other possibilities we have to make the whole enterprise as safe as possible and decided to create an option-based portfolio too. One of the biggest risks is markets with very low volatility (we usually make a killing in high volatility). So we decided to hedge this risk with non-directional option strategies which I have plenty of great experiences with. (In the past I used to do a ton of options trading and I’m glad I can use these skills again).

Now, here’s why I’m sharing this with you:

I want you to keep remembering that DEFENSE is everything. Don’t focus on making money when you are starting out. Care more about DEFENSE. How to PROTECT your money first. And worry about profits later. In fact, if your defense is strong, then…

PROFITS WILL TAKE CARE OF THEMSELVES.

Because without great protection, you end up with no trading business really fast.

So, keep this in mind and always do things like

1.spread your capital among as many different trading strategies, markets, and even timeframes and trading approaches as possible to achieve outstanding diversification,

and

2.always feel encouraged to think outside-of-the-box, come up with even more ways to protect your money first.

And if you still don’t have strong enough protection in place (most traders don’t, even when they think they do), definitely check out Market Internals or Smashing False Breakouts.

Happy and SAFE trading!

Tomas

 

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DISCLAIMER: Trading involves significant risk of loss and is not suitable for everyone. People can and do lose money. Hypothetical results have many inherent limitations. Past performance is not necessarily indicative of future results.

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