Wednesday, July 28, 2010

REPOST Fund My Mutual Fund - The Apprentice

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This is a repost from last week.  Currently I have about 9-10 candidates which is a great start.  My thought process is to get this first group up in a model contest between 'early' August and Dec 31st, 2010 and see if any weed themselves out and/or I can review for a 5 month period to see if their strategy is truly scale-able.  Just a repost so anyone who might of missed it last week can determine if this is of interest to them.  A few items based on feedback

  1. Per one of the questions from reader there is NO OBLIGATION at the end of said contest to take "the job" (if there is a job).  But obviously that is the end goal. 
  2. Also - you don't need to 'prove' anything to me with your background; I am getting that feel from some of the emails I received from contestants.  I only care about end results - that's the whole point, find non traditional talent.  If you have a BA in Art History, have worked only in art galleries but can beat the S&P 500 by 4-6% annual over the course of time, that's all that matters to me.   If you have a CFA designation, work at a hedge fund but struggle - well, this is a bottom line business.  So I do not care about your background other than you have experience in the market in some form (the only education that matters) and your own success.  Then you need to prove it out in the open with people watching.
  3. If you have an existing Covestor or Kaching account that is even better since it's real money, don't bother with the 'contest' - I'll review what you are doing there over the course of next few years.  If those services were up and running when I first got started I would have used them rather than starting something from scratch, although they also have their own limitations (specifically option strategies)
  4. If all my plans work out I plan on repeating this in multiple iterations to find new non traditional talent.  So this time around will have the least amount of publicity hence the easiest to 'win'.  Next time around it will be coming from an established fund family, etc.
  5. I edited item #2 below (new part is bold) to better outline my thoughts; more than any duration I want to see how people do in up, down, and sideway markets. 
Thanks.

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A reader came up with an excellent proposal in email yesterday that I thought was worth sharing, as it could potentially kill 2 birds with 1 stone. 

First, if fund #1 enjoys success and creates a viable long term business my long term goal is to create a boutique fund family which would consist of multiple funds using various strategies, run by people not much unlike me in that they might have a talent and passion but not the 'pedigree' nor traditional upbringing into the mutual fund world.   They would employ their own strategies but the whole theme of the family would be to have hedged techniques in which the manager could protect assets during downturns (if not make money from the downturns) - but the specifics for each fund would be up to manager's strategy.  In fact my hope would be to find multiple people better at this than me... if all my employees made me look like the worst manager of the group I'd be tickled.

Second, I have a website with a "brand" built through much blood, sweat, and lack of sleep.  What to do with it aside from mothball it in the future?

The reader's proposal gave me a potential solution for both issues. He offered that since I was looking for potential fund managers "down the road", the website could be a sort of platform for an "apprentice" program if you will.  Essentially create the same ideals as I began with - an open, transparent arena for a cadre of new managers to showcase their skills for an audience and over a similar time frame (say 3 years) let them compete amongst each other.  After perhaps 12 months, and 24 months the worst would be culled until the strongest are left and based on returns, strategy, and scalability have one or multiple candidates standing at the end who have proven their ability in a structure everyone can have followed.  This/these candidate(s) would be natural fits for the next evolution of mutual funds for the boutique firm.

Of course the devil is in the details and much must be developed from this skeleton of an idea, but judging from some emails I've received over the years I know there are quite a few people who have a similar dream, but due to the obvious roadblocks have not pursued this course.

What I would propose is today I have shared this idea.  I would like to gauge in the next week if there is an interest by a decent amount of people.  If I only get 2-3 responses the idea is probably moot.  If I get 10 responses or 30 responses, than there are different ways to approach this.  So let me leave this nugget of an idea on the screen for readers to mull, but let me list some stringent requirements so this does not turn into a free for all that does not encourage the ultimate goal.
  1. First and foremost, you want to do this as a career.  Not only want, but will do it as a career if offered in 3 years time.  That means quitting your job of course. There is nothing more important because if you waste 3 years running a virtual portfolio and then do not wish this for a career path, it's just been an exercise in being flamboyant.  Of course there is no guarantee - this would be dependent on fund #1 (mine) being successful but being the manager of my "2nd" fund would be the ultimate carrot; if this is not your goal please do not participate.
  2. You will need to be willing to keep at it for nothing other than fame for aprox 2-3 years - this is about the time I think it will take to weed out whose techniques will work - maybe its 2 years, maybe its 4 years but it is certainly not 12 months.  I think 30-36 months would be a good time frame, but it will depend on the market - I'm looking for different market environments to see how your techniques work.  For example if I started this in March 2009 and ended it in April 2010 when the market went straight up, there is no value add in seeing how your skill set works in down markets.  So rather than an exact amount of months, it will largely depend on various markets.
  3. You must have a technique that hedges... long time readers will know my complaints with the mutual fund industry.  First and foremost it disrespects capital as a whole with its "cash is trash, long is the only way".  I don't care what your system is and I prefer it be not much like mine in fact (easier to differentiate down the road when marketed) - but it must offer some protection to the downside.  Let me repeat that does not mean you need to make boffo bucks, just lose less than the market as much as possible.
  4. You must have a technique that can scale.  If you are an awesome daytrader who can put up 1000% annual returns trading 3 stocks that you hold for 8 minutes at a time, it won't work.  But HAL9000 would probably love to interview you.   You need to demonstrate something that I determine can work in a $200M fund, this is what I have been trying to do with my own strategy I've had with FMMF.  I ran a quite different system for my own account (I generally would only hold 4-7 stocks) but you need to have some diversification (say 20 positions) and hold positions for a time length of greater than say more than 5 days on average.  Otherwise you are just a good trader but perhaps not a mutual fund manager.
  5. I don't ask that anyone put in nearly the amount of work I have the past 3 years... I am a loopy guy who had to start from scratch with a crazy idea to an audience of one in 2007.  You would have a massive head start over what I was facing.  That said, whatever form the future website would take you'd have to explain on a weekly basis your general strategy so readers can follow you (and I can follow your thought process to determine if it makes sense to what I am looking for).  This might mean 4-6+ posts a week.  (I have been doing 35-50 posts a week)  The posts need not be during the day if you cannot manage it, as I respect the fact people need to do their normal jobs - but end of day summaries of what you did (if anything) to keep readers updated are a must.   If you are a manager who has a strategy of holding positions for 2 years than I suppose you would have it much easier than active traders.

Those are my first thoughts on how I think it would work.  The website would need to be redesigned which is another challenge but I envision (in a perfect world) 6 to 10 people with their own 'tabs' and their own virtual portfolios competing with each other, out in front of the world.  The Apprentices.  Over time some will be weeded out ("you're fired) based on their results, and if all goes well at the end 2, 3, 4 will be viable candidates to hear "you're hired".

If this idea catches on, I'd like to start the competition Jan 1, 2011.  If I get a lot of interest we'd need to cull the field to something manageable and I have an idea on how to do that but will cross that bridge if it's an actual problem needed to be dealt with.   If only 2 people are interested than I suppose it's a moot idea, but I thought the proposal was worth advancing.  So mull it over during the next week and if you are the person or knows someone who has had this dream, shoot me an email of interest (email address is in top right of the page) and I'll assess over the next week if this is a tangible idea based on feedback.

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