Wooing My Dream Job (Part 1)

I recently stumbled upon a job listing that captured my attention.

Well… more than “captured my attention.”

Fine: it was virtually love at first sight, okay?!?

Minus some particular details to protect the innocent, the listing reads as follows:

“[We are] a private, non-profit research foundation… formed in 1973 [to help] achieve… objectives around economic development through the commercialization of intellectual property…

[We] manage a… [multi-] million [dollar] endowment, built from decades of licensing revenue derived from… intellectual property. In addition to providing… [millions] in research funding… annually… [we] operate four subsidiary organizations…

[We are looking] to hire a Jr. Investment Analyst to work closely with the Executive Director, Director of Finance, and Chair of the… Foundation’s Investment Committee to assist with the management of the investment portfolio…

The… Foundation’s portfolio is created from decades of licensing revenue derived from licensed intellectual property. It is… a flexible and sustainable resource that creates the margin of excellence for… [us] as a research organization.

As a flexible resource, [we] must be prepared to provide financial support at higher than sustainable expenditure levels in response to extraordinary circumstances… As a sustainable resource… [we carry] an obligation to invest and grow… assets to ensure benefits to this and future generations…

The Board of Directors… is responsible for making decisions that govern all aspects of the… Foundation and its investments are overseen by the… Foundation Investment Committee…

The Investment Committee sets investment objectives and performance measurement standards and has the responsibility to oversee the investment management of the Fund, Endowment, and Restricted Funds on its behalf. The Investment Committee has the responsibility to ensure that the assets of the… Foundation are managed in a manner that is consistent with the policies and objectives of each respective pool of capital.

The portfolio is generally segmented into four main categories including Global Public Equities, Hedge Funds and Fixed Income, Private Equity and Venture Capital and Program Investments. Together, the Investment Committee and… Foundation leadership manage several service providers to assist within the main categories and direct relationships with investment managers to perform diligence, asset allocation, manager selection and reporting.

Job Brief
This role is ideally suited for an individual early in their career. The Jr. Investment Analyst will work closely with the Executive Director, Director of Finance and Chair of the Investment Committee in all aspects of the investment portfolio management and reporting. From monitoring the portfolio positions, preparing, and presenting performance reports, reviewing contracts and fees for managers, capital calls, and performing analysis, the Jr. Investment Analyst will have hands on exposure to helping oversee this important resource.”

I will continue next time.

2020 Career Counseling Update (Part 2)

Picking up where I left off, here are my current thoughts about becoming an investment advisor representative (IAR).

I don’t feel like I can really talk to friends or family about investing because I am not registered to give financial advice. Strictly, a three-prong test exists for what constitutes an IA:

• The person gives advice on securities.
• The advice is given as part of a regular business.
• The person receives compensation for the advice.

In talking to others, I would be regarded as doing the first. I may be regarded as doing the second if I give advice along with trading, which is now my regular business. While I would never accept compensation without being registered, two out of three is too close for comfort. I therefore choose to say nothing at all.

And since I haven’t written this in a while:

     > Nothing in this blog constitutes investment advice or any recommendation
     > that any [portfolio of] security[s], investment product, transaction, or
     > investment strategy is suitable for any specific person. As a blogger, I
     > cannot assess anything about your personal circumstances, your finances, or
     > your goals and objectives, all of which are unique to you. Any opinions or
     > information contained in this blog remain just that: opinions or information.
     > You should not use my blog to make financial decisions. You should seek
     > investment advice from someone authorized to provide it.

Returning to the topic at hand, while part of me resents not being able to communicate with friends/family about the topics I love, another part is at peace. Quite honestly, I still have reasonable doubt as to whether anything I have studied is significantly better than long-term passive investing despite trading full-time for a living over the last 12+ years.

While I maintain hope that some strategies I implement do offer alpha, I am not qualified to evaluate the suitability standard (see here) in recommending them. As an IAR, I would be well-versed in suitability from training to everyday application.

I still have great interest in backtesting and developing trading systems. I would like to learn more about programming and statistics to acquire powerful tools to answer my research questions. I may or may not be able to continue this work as a full-time IAR working 40+ hours/week. I certainly don’t see this work fitting in with my target clients—most of whom will probably be laypeople when it comes to financial literacy.

I miss working with others. Other traders with whom I can communicate have been like a proverbial “flash in the pan” on a variety of different wavelengths. Many of them have been quick to believe what they get from books or the internet as opposed to doing the hardcore testing to confirm or deny hollow claims (so many of which are not true or actionable). For these reasons and others, I have been unsuccessful in cementing long-term collaborative relationships.

As an IAR, I would be able to collaborate with colleagues on the advising; could I also find other professionals committed to quantitative work? Or is the only place I could really hope to find such like-minded folk among the hedge fund and other performance-chasing firms that look to hire MSFEs and PhDs? One thing I don’t want to pursue at this juncture is a whole other degree field* unless I can merge it with IAR training (and tuition reimbursement?) to ultimately benefit my firm.

As a final thought, I definitely want to continue trading options even if I go the IAR route. I’ve never been a day trader and I do not require being glued to a screen to watch every tick. I would want to check the market 1-2 times per day and place trades/adjustments accordingly, though. This would have to be approved by my firm’s compliance department.

* — For what it’s worth, I did pass the Series 65 exam [for the second time] in fall 2019.

2020 Career Counseling Update (Part 1)

I have experienced increased frustration lately finding others with whom to collaborate on trading-related projects. The time is ripe to update my career path.

I’m about one year into my algorithmic trading journey, which includes months taken in 2019 to begin learning three different programming languages (Python, VBA, and TradeStation EasyLanguage). The road has not been smooth. I have been through two different software platforms. I have paid a pretty penny for education. I have undertaken a handful of statistical studies that leave me with questions about what part of the financial roulette wheel I am likely to land by becoming an algo trader: red or black, anyone?

I have more research questions to pursue, but it gets somewhat stale not having others with whom to collaborate or to critique. I would ideally like to work with a group like this. Reasons for a team approach are discussed in the sixth paragraph here as well as here.

I find negative results to be eye-opening and insightful due to the sheer volume of promising blog posts, articles, and products available purporting to teach profitable trading/investment techniques and approaches (e.g. this post, second paragraph here, and here). The positive claims and compelling marketing contradict the harsh reality of negative findings.

Given the recent political climate, a brainwashing hypothesis may appeal to some.

I do not subscribe to conspiracy theories, however (see second paragraph here). I also do not find the negative approach (e.g. avoid X and Y strategies because they won’t work and can lead to loss) to be marketable when diving deep into the details. I discussed this in the third- and fourth-to-last paragraphs here and in terms of the “worst sales pitch ever” (see two of three final paragraphs here).

My outlook on the asset management industry has been dynamic over the years. I had a negative outlook when I began trading full-time for a living in 2008. In the last few years, my outlook has turned positive. Some of my thoughts on this topic can be found here and in paragraphs 2-3 here.

After 12 years, I view the asset management industry with respect and humility. The investment landscape can be very rough.

I remain largely alone, on an island, managing assets for myself.

Ever heard the saying “if you can’t beat ’em, join ’em?”

I will continue next time.

Meeting with Rob Pasick (Part 3)

Today I conclude my notes from a meeting with executive coach Rob Pasick just over one year ago.

As opposed to starting an investment advisory (IA), Dr. Pasick suggested branding myself as a domain expert and marketing that way. He said much of industry today is centered around knowledge. I mentioned this blog, which I use to keep myself on task. He asked how many followers I have and I said I don’t publicize it or track analytics since it doesn’t serve a marketing purpose (nothing to market). He talked about potentially self-publishing a book (he has two, which he gave me gratis).

He suggested I could also start a podcast, make professional use of financial media, and increase my exposure to the point that others would seek my services. Many people are simply too busy to manage their own money or just flat-out don’t want to deal with it and are willing to hand this off to “professionals.” He is aware of the migration to robo-advisors in modern-day asset management.

A related question he asked is whether I have any special sort of intellectual property (IP) to sell or whether my success is due to hard work. I said I feel strongly about options, which I discussed in this blog mini-series. However, I don’t want take up the cause of why options are better and the traditional approach to asset allocation is bad, which echoes more along the lines of IP (see second paragraph here). While I could be a small voice in a [relatively small] chorus, some individuals already dedicate themselves to pounding that table. Besides, while I do think traditional garden-variety asset management (sans options) is lackluster, I still believe they offer significant improvement (fifth paragraph here).

Finally, Rob extended an invite to his Leaders Connect monthly networking event. I really didn’t see how something like that would help me. In order to network and build my business, I need an asset management business (an IA) to build.

I asked him if he has worked with IAs before in context similar to my own. He said he has never worked with someone looking to build from the ground up. He has worked with existing IAs to build their businesses, though, and he has worked with financial advisors for national firms looking to become independent. He sounded confident in being willing to work with me…

…but as mentioned in the beginning, things like this have a price. His charge is about $300/hour. He suggested a three-month time frame to start at a cost of roughly $1,000 per month. He suggested it might take six months to really make an impact at a cost of roughly $5,000. In the beginning, he mentioned asking for a percentage of my new business as a fee. That would be more akin to a fee schedule I can see myself accepting.

If I knew up front this would grow into something successful, I’d bring multiple checkbooks. Since I don’t, as mentioned in the third-to-last paragraph here, the decision is very difficult for me to make.

Meeting with Rob Pasick (Part 2)

Today I continue reviewing a meeting I had roughly one year ago with executive coach Rob Pasick.

As a second alternate to starting an investment advisory (IA), I could form the previously-mentioned “option trading workgroup” with the primary focus being practice of various option trading strategies (not the research discussed near the end of Part 1). Once familiar enough through practice or backtesting, perhaps, I should feel more comfortable adding different strategies to my regimen. These could serve as future profit centers.

Pasick tried to get at my true motivation for starting an IA by asking why I am not content sitting at home and continuing to trade for a living. I said it feels like a logical next step if I am able to trade successfully for myself. I also said it would also be a challenge—meaning that it would force me to practice weaknesses that I can hopefully turn into strengths.

Starting a business with actual clients would help reclaim my professional edge. This is a reference to getting “soft” rather than having soft skills. Working for someone else requires us to meet explicit goals and requirements. We typically have a dress code (other than sweats and underwear). We have places to be and deadlines to meet. We have presentations. We have protocol to organize and keep straight in case the supervisor makes a surprise visit. All of this represents solid discipline that, for the most part, I don’t need when working for myself (although I believe retaining these practices would increase probability of success even in the latter case). Here is an interesting post about working for oneself.

I explained that I could make some of these things happen just by spending a bunch of money. I could spend money to start an IA or hedge fund. I could hire someone to build me the automated backtester. As discussed in the fourth paragraph here, though, it’s really difficult for me to do these things when I don’t see a clear path to assets. I said the one thing I can’t guarantee by spending money is a successful new business venture.

This is where I need the plan and a vision. A business coach could probably help with this.

I’ll conclude next time.

Meeting with Rob Pasick (Part 1)

Upon recommendation from a friend, I met with Dr. Robert Pasick one year ago. I composed this post (never finished) to serve as personal notes of that session.

Rob is an executive coach. I’m not sure if my referral had friendly contact or business in mind, but Rob is all business and he made that quite clear.

Not that I should really expect anything less—and I don’t. If ever the end product is making money, then it would seem a willingness to pay for the service is in order. I discussed this in the second paragraph here.

I started by reciting my 60-second elevator pitch:

     > After working several years as a staff pharmacist and pharmacy manager, I retired
     > to start a securities trading business at the age of 36. This has been a journey
     > without clients or co-workers that has required extensive self-study, intrinsic
     > motivation, and outside-the-box thinking. I have since learned a great deal about
     > the mechanics of trading and investing. I have succeeded at replacing a six-figure
     > pharmacist salary by posting average annual returns in excess of 15% from 2007
     > onward. Having risked my own hard-earned capital to learn the craft, I now seek
     > to manage wealth for others.

I explained some of my road blocks. The main one is lack of a sales background (see fourth paragraph here). Another is the fact that I trade options, which the financial industry views as extremely risky (as discussed here). He later noted the lack of a network of wealthy individuals who say “here’s a few million for you to manage… we love you, Mark!” is another block for me.

I have recently felt the need to really “network my *ss off” to get this business going. I also consider networking to be a weakness since I am not practiced at it.

Rob did not understand my sense of loneliness, which I proceeded to clarify. I said I have been unsuccessful at finding other full-time, independent, retail traders like myself (not of retirement age, but that’s not as important provided they have sufficient interest and dedication to collaborate) who trade for a living. In the absence of an investment advisory, which is probably #1 on my list of desired next steps, I could potentially form a research team to build the automated backtester (see paragraph #8 here) and proceed with my extensive list of research topics. That could shape my future trading* and/or serve as a foundation for professionally managed accounts.

I will continue next time.

* — I have since become more interested in trading futures, as discussed in many posts since (e.g. here).

My Journey (2019 Update)

My focus has definitely shifted since I took a break from blogging.

2018 was first the losing year since I started trading full-time 11 years ago. That was certainly a wake-up call. I decided my trading approach was too risky to be doing with more than a limited portion of the account (akin to what I discussed in the second paragraph here). As a result, I have traded a small position size all year. While I have been profitable, I have significantly underperformed the benchmark.

My focus has gradually turned toward incorporating other asset classes in addition to equity options. I hope such diversification can increase total returns more than drawdown thereby improving my risk-adjusted return.

One way to accomplish this is to trade a basket of long uncorrelated futures. In other posts, I will detail my reasoning and plan for this strategy. Said discussion also begs for some space devoted to the concept and implications of correlation.

Another way to trade multiple asset classes is to develop multiple trading strategies. I will delve into this next time.

Been a Long Time!

Welcome back!

I’m actually saying that to myself because from your perspective, nothing may be different. Truth be told, however, I took a relatively long (for me, anyway) hiatus from blogging.

Worry not, though: this has happened before!

It happened here.

It happened here.

It happened here.

It’s now happened again.

But as I say with the omnipresent COVID-19, which now dominates the headlines and the structure of our everyday lives, we will get through this. I will ease back into my writing, which should help me go faster. I will relearn WordPress (and perhaps even update). I will relearn what HTML I need to manage the behind-the-scenes formatting of these posts.

And hopefully, I will bring you much more in the way of useful content. I certainly have been doing some interesting stuff, and I would love to be able to bring some of that to you.

Stay safe out there!

Status Update

Today I will detail my current tasks and projects.

I want to do more butterfly backtesting, but I’ve found this extremely cumbersome to do in OptionVue, which drains my motivation in a hurry.

Instead, I will go back 12-14 months and start backtesting several different strategies.* I will track various parameters in a spreadsheet and generate equity curves for the whole portfolio. The goal is to see what is working and to try and get a sense how they perform together.

Strategy #1 will be the NP. I will sell 1 SD NPs (if backtesting alone, then I would do one contract per day to minimize margin or concentration concerns). I will close at 2x. I will watch for IV increasing by 30% or first backwardation in 30 days (arbitrary) as a signal to hedge (e.g. close half the position). Exit at 21 DTE.

Strategy #2 will be a 16/25 IBF. Consider requiring UEL to be no more than 5% LEL (arbitrary). Watch for IV increase of 30% or first backwardation as signals for potential exit or adjustment. One potential adjustment is to buy LP to cut NPD by 67% on a 1.6 SD (arbitrary) or larger downmove. I will close LP on a move (close?) above the high of the entry candle. If market falls and remains outside BE for three days (arbitrary), then close trade. Profit target 10% with max loss 15%.

Strategy #3 will be a monthly ATM calendar. Profit target 10% with max loss 15%. I can adjust into DC if market moves to BE (or down 7% on the trade).

Strategy #4 will be a 30-64 DTE ATM straddle. As above, I will monitor for IV increase by 30% or first backwardation as signals to hedge (e.g. close half the position, neutralize delta, close puts). Exit at 21 DTE.

Strategy #5 will be a 1 SD strangle. As above, I will monitor for IV increase by 30% or first backwardation as signals to hedge. Exit at 21 DTE.

Strategy #6 will be a LP unbalanced IC per my guidelines.

Each strategy needs to be allocated appropriately (perhaps 10% of account for 50% total). While diversified with regard to time, they are not diversified with regard to underlying and they are all delta neutral (or bullish).

In addition to backtesting, I want to pursue leads at both U of M and MSU. Once the move is complete, I should be more focused and able to concentrate my time in one place.

I will continue trying to assemble a trading group, as I have discussed.

Finally, I will once again look into ONE as December approaches because my OV subscription will expire.

* I initially wanted to backtest daily trades on four strategies, but this really makes for a
   headache. I tried entering the respective trade ID for each strategy in OptionVue, but it
   defaults to “all” upon every refresh. I also find there to be too much stuff to monitor
   on each day: 20-30 trades per day per strategy and multiple parameters on each trade.

   If I want to get a sense of trading a portfolio together, then the best way is probably
   to keep it to the six open trades at a time. I can get decent portfolio diversification
   by opening positions for each strategy every 4-5 trading days.

One Last Misadventure

My last misadventure was not of the Meetup variety but rather a Yahoo! Group I started in 2015.

This was an online group called “AmiBroker User’s List.” I was able to find six people who were interested in joining my online group to be focused on learning and using AmiBroker. Locally, I met a seventh who indicated interest in learning to invest directionally with options. I told him about AmiBroker, he said he was interested, and he joined the group in March 2015. I followed up after two months because I didn’t hear from him or anyone else in the group. He said he was studying options a little, but work had gotten busy to the tune of 60-80 hours/week.

Two weeks later, I sent the seventh this message:

     > That group is a bust. I’m about to close it down. I don’t
     > blame you but rather everyone in general (including
     > myself). Bottom line: we’re just not interested enough
     > in it to make things happen.
     >
     > For me, I have my bread and butter trading and the
     > trading I’m trying to learn. Obviously I’m not excited
     > enough about this other trading interest (system
     > development) to make it work because I can’t even
     > put in 15 minutes on a consistent basis to learn the
     > software. That’s been my problem for a long time.
     >
     > In my opinion, trading is hard work. It’s not something
     > that’s intuitive and it’s not something anybody is going
     > to learn by osmosis. Unless there is continued,
     > sustained effort, it’s never going to happen. I’ve gone
     > to a lot of trading group meetings and talked with lots
     > of traders and heard many more. People work at it
     > when it’s convenient and then when things turn sour
     > they turn their backs and walk away. Maybe they return
     > at a later time. I think this feeds directly into how
     > the markets work on a macro level. It will never lead
     > to successful, long-term traders, though, if such
     > a thing is even possible.

Clearly I was frustrated in general and especially frustrated with myself. I have always had a difficult time forcing myself to learn coding. I wish I knew why.

Despite the frustration, I do think my comments on sustained, long-term effort are applicable to aspiring traders.