Unresolved Quandaries (Part 2)

Today I continue review of my 2016 conversation with CJ about transitioning into the investment adviser (IA) industry.

I agreed with her suggestion that most people might not be capable of trading for themselves and suggested most do not even have the motivation to outperform.

CJ agreed and said even if I could average 20% annually trading options as opposed to 10% with stocks, this would not make a marketable difference. Most people don’t have the financial literacy necessary to understand what a huge long-term difference this would make without being scared off by the specter of derivatives. Far less than that additional 10% per year is needed to motivate money managers and IARs (salespeople) because institutional money will gravitate like moths around a flame but an appreciation for options requires a higher level of understanding.

In addition to the financially literate that can calculate compounded returns and understand options, the value of outperformance might appeal to those with a more competitive drive. Beating the “benchmark” has always motivated me because it represents personal accomplishment. Many wealthy individuals also have high degrees of ambition as evidenced by the hard work getting them to where they are. They just don’t have any desire to [learn how to] manage their own wealth, which could go back to what CJ said about brushing teeth or what I previously wrote about doing a brake job.

My preference would be to trade for a handful of wealthy individuals rather than a multitude of people with less to invest. In trading options, I would want to give each account individualized attention like I do my own. To make it worth my while, I would need a sizable amount of assets to manage.

“People aren’t going to give you a whole lot of money since you are just starting out with no track record,” CJ said.

Another good point…

As my optimism dimmed, I started to reflect on some big lifestyle sacrifices I might have to make. With my current trading strategy I have great flexibility. I must check in with the market at the same time every day but I can do non-trading activities at my convenience. I can go shopping or to the gym during the business day. I can travel and work remotely. For better or for worse, in managing other people’s money I would feel obligated to have my finger on the pulse of the market all day long.

I am disciplined now by holding myself to a 30-40 hour weekly schedule but in managing money for others I would feel the obligation to be even more so.