Beating the Best in the World (Realistically)

Beating the Best in the World (Realistically)

August 16, 2017

The other day I got an email from someone asking me about the potential of robot returns.

Specifically, this person asked me how to make at least $1,000 per month. Reasonable.

This person then said he’d need to make that amount on just a $1,000 account. Yikes.

That’s asking a robot to double the account every month. If you’re scoring at home, performing at that level means a $1,000 account would turn into $4.1 million at the end of one year (when you compound the gains).

That’s a pretty good return!

“Unfortunately,”  I replied, “I don’t have any robots that can make 100% per month.”

When I told him a realistic number, this person was no longer interested in the conversation because he knew of robots already making 100% a month.

Which made me think: if that person knew of something making that much, why waste even one second talking to anyone else? Go get that $4 million.

I’ve found that expectations can be a huge obstacle when trading from home. It’s easy to turn on the internet machine and drown in the Fear Of Missing Out when we see the outrageous claims being made. And when we do see these million dollar claims, it can make us feel awful about the 6.2% we’ve made on our small, regular-person portfolios.

And when we feel awful, we make desperate changes.

And when we make desperate changes, we start losing money.

That losing leads to more angst, which leads to more changes, which leads to more losing. After a while, we find we haven’t made 6.2% on our accounts anymore, we’ve lost 24.5%.

Now we get sad and maybe we make even worse decisions. Or maybe we just give up.

All because we had crazy expectations.

If we’re going to succeed, we need to know exactly what success is. If we’re currently beating a lot of the best traders in the world, what’s the point of worrying about anonymous internet claims?

If Lebron James is one of the best basketball players in the world, does he worry about a kid in China who supposed can jump higher than him?

If Roger Federer is the greatest athlete of all time, does he worry about a kid from France who supposedly has better groundstrokes?

Of course not. If we’re already among the best, then we needn’t worry about the past or the future or the endless anonymous possibilities. We just need to focus and work on making ourselves a little bit better all the time.

The key for success, then, is knowing what our lofty, but REALISTIC, benchmark is.

For me, the best traders in the world would have to be the people trading the most money. If you manage tens of billions of dollars, that’s massive confirmation that a ton of rich people think you’re the best on the planet. Nobody gives a billion dollars to someone they think is a terrible trader. People give a billion dollars to the best traders they can find.

That’s why I love to look at huge hedge funds as the standard. If we little people can somehow match the billionaires, I’d say we’re doing pretty darn well. If we can beat the billionaires, I’d say we’re doing pretty darn awesome.

So let’s take a look at the superstars.

First let’s examine Bridgewater. It’s common knowledge that the founder of Bridgewater, Ray Dalio, is one of the smartest traders in the world (if not THE smartest). Just about every word that comes out of his mouth is pure gold. Not surprisingly, his group of hedge funds now manages about $160 billion of investor money.

Think about it. Bridgewater has the smartest investor in the world running its funds. It has more under management than almost anyone else, which means it’s generating fees that could make our brains melt. They have more money and more connections and more research & development and more execution advantages than we’ll have in 100 lifetimes.

In short, there’s no way we’ll ever be as good as Bridgewater at anything. If we could just somehow, some way, achieve a fraction of the success of that behemoth, we’d be doing quite well for ourselves.

So how has Bridgewater done this year? What’s our standard to try to live up to?

According to 2017 data calculated through July, Bridgewater’s Pure Alpha II flagship fund is down 2.8% for the year.

Wait, what?

The best fund from the best firm is DOWN 2.8% this year?


Well, what about their other funds?

Bridgewater’s Pure Alpha fund is down 1.6% in 2017, and their Major Markets fund is down 7%.

Three huge funds from the best trading firm in the world, and all of them are negative for the year.

Okay, but what about the trendy Two Sigma funds. Two Sigma is a wildly popular quant firm (robot traders) that investors have been drooling over in recent years.

The results? Two Sigma’s Absolute Return Macro Cayman (CTA strategy) fund is down 7.19% through July, 2017. And their Compass Cayman fund is also down 3.8% for the year.

Again, these are the biggest and the brightest. They have advanced degrees, unimaginable resources, and the trust of the smartest, richest investors all over the world.

And they’re all losing money so far this year.

What’s the takeaway?

If you’re sitting there reading this and have a trading account that shows a positive number, you are better than the best traders in the world.

Yes, you. Sitting there in your pajamas, eating a snack, watching Narcos season 3. You are better than a billionaire.

That doesn’t mean we can’t strive for more. That doesn’t mean we should be satisfied.

But it surely means we don’t have to feel less-than. It surely means we don’t have to feel like we’re missing out.

In short, if we’ve made even a dollar this year, we’re doing fine (and better than most). Let’s take the anxiety of internet braggadocio and the temptation to tinker– and throw it in the garbage. Any positive return means we’re beating the best in the world. Be confident in that.

And then get back to work.