#005: BUILDING A HEDGE FUND #2: THE BIG IDEA


starting a hedge fund

Let’s make it clear: if you want to succeed in today’s world and achieve your goals, you need to come up with an idea. We live in an era of new ideas and innovation. It is not only big conglomerates or multinational companies who can make billions of dollars. History is being overwritten. Today’s billionaires aren’t large companies’ CEOs, but individuals with brilliant ideas. They are inconspicuous and you wouldn’t recognize them in a crowd. They don’t wear trendy clothes or ride in limousines. They don’t have to show off their wealth because they have something the others don’t: ideas, abilities and skills to fulfill them.

If you want to succeed in trading, you need one thing - a high level of creativity and invention. Forget about brokers’ promises - most of them are just sellers and liars, good at marketing, but not at trading. Forget about all the latest and the greatest software there ever was. None of these will help you to become a better trader. You only need one thing - a constant source of new, good and original ideas. And you need it 24/7. Why do you need it 24/7? Because most of your ideas won’t work anyway, or will fail really soon after their implementation. I know they will; I experience it every day. This is why you don’t only need one good idea, you need to have at least a dozen every day (or, at least, a dozen every week). All my trading career has been built on my only valuable quality (and also an advantage) - to be creative constantly. Trading isn’t an exact science like math, it isn’t only logic. It’s especially about ideas and creativity.

I became more aware of that when I decided to build a hedge fund - I decided to enter an unforgiving world of pure capitalism, where only the best survive. It’s the world full of unmerciful competitors, where lots of them have significant advantages like almost unlimited funds, coworkers with Nobel Prizes and technologies that you cannot find anywhere else (maybe in Pentagon or NASA). When I decided to become part of that stream, I knew that I’d have to come up with something new, which could give me, at least, a little chance to survive for a while and let me try to succeed (even though chances for success are really small). So, my plan for the next day in Singapore was clear: to find an area which I could possibly innovate. As a matter of fact, there were only three options and I rejected the first two right away.

Option 1: Edge

Most people, when creating a hedge fund, rely on this less appropriate, less stable and the riskiest part: they try to find an advantage in markets using an edge and build a future career on it. The edge might be a new and great system, a unique algorithm, statistical arbitrage, new option combinations or just a couple of excellent traders, hired by private funds who are willing to share profits with them.

Going this way, I’d encounter a couple of obstacles - there are well incumbent companies that are very well equipped to continuously find the best edge. They have the best technologies and human resources you can imagine. Your chances compared to these guys’ aren’t big. Yet, a bigger problem is that every edge will sooner or later fail.

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