How much do hedge fund traders earn?(80000hours.org)
80000hours.org
How much do hedge fund traders earn?
https://80000hours.org/2017/05/how-much-do-hedge-fund-traders-earn/
195 comments
This:
...funds are doing just okay...
"Just ok" also means different things in NYC compared to San Francisco compared to Austin compared to Cleveland. Most of the finance guys I know in New York make what I would consider great money... but their lifestyle is such that they save almost none of it.
"Just ok" also means different things in NYC compared to San Francisco compared to Austin compared to Cleveland.
They're still doing objectively great, they just lack basic financial literacy. Plenty of people in NYC making a living on less than $50k.
Even in NYC or SF, 300k is way more than "just okay". There are people living in the region making 1/10th that.
Tell that to the $300k earners in SV who feel that they are not doing okay because they cannot afford to buy a nice house in a nice area.
The different costs of housing and living in different areas is of course a valid factor when it comes to comparing incomes. I disagree with your second sentence though.
> Most of the finance guys I know in New York make what I would consider great money... but their lifestyle is such that they save almost none of it.
I don't know, is how well you're doing really based on how much money is left after you choose to spend a bunch of it? If I make $2m/year but have several expensive mortgages to pay and therefore I don't save very much, that means I'm doing "just OK"?
> Most of the finance guys I know in New York make what I would consider great money... but their lifestyle is such that they save almost none of it.
I don't know, is how well you're doing really based on how much money is left after you choose to spend a bunch of it? If I make $2m/year but have several expensive mortgages to pay and therefore I don't save very much, that means I'm doing "just OK"?
Depends on what you're getting for those mortgages, I guess.
If your job requires you to live in a specific place or have a hellish commute, then I think comparing (and griping about) like for like is fair.
E.g. a finance analyst whining about his tiny NYC apartment to his friend in Indianapolis with a tiny apartment, etc.
If your job requires you to live in a specific place or have a hellish commute, then I think comparing (and griping about) like for like is fair.
E.g. a finance analyst whining about his tiny NYC apartment to his friend in Indianapolis with a tiny apartment, etc.
I'm not sure many people in the industry feel 'entitled' to FU money. But you don't go the Olympics without intending to try for gold.
I second this. Been in the industry for many years now. Typical people you run into:
- People who are constantly looking for a new gig. They have a model, they have experience, but either they can't find the appropriate fund for their style, or they have a bad streak.
- People who can make money, but only in small size. Some guys I know sit and home and trade. Enough to pay themselves, but not enough to even get a fund job.
- People who were on the team or near some star trader. Amazing how many of those there are, and how little it rubs off.
On the whole I'd say don't believe the hype. It's very hard to get a seat, and hedge fund managers are not smarter at recruitment than tech people. So you'll spend a long time in that support style role, wondering whether you'll ever get to be the main guy.
- People who are constantly looking for a new gig. They have a model, they have experience, but either they can't find the appropriate fund for their style, or they have a bad streak.
- People who can make money, but only in small size. Some guys I know sit and home and trade. Enough to pay themselves, but not enough to even get a fund job.
- People who were on the team or near some star trader. Amazing how many of those there are, and how little it rubs off.
On the whole I'd say don't believe the hype. It's very hard to get a seat, and hedge fund managers are not smarter at recruitment than tech people. So you'll spend a long time in that support style role, wondering whether you'll ever get to be the main guy.
That's eerily similar to the people you meet in startups:
- most consultants
- "lifestyle businesses"
- "worked at facebook, give me money"
So much hype in both industries, for similar reasons. There are always ways for smart people to make money. Most people with some experience in either industry are doing better than the national average but hardly wealthy and generally spend too much money.
I do get the impression there's better pay in finance though. $250k as an experienced engineer strikes a lot of people as high. $250k for someone w/ a few years at a good hedge fund is... about right, maybe even low.
- most consultants
- "lifestyle businesses"
- "worked at facebook, give me money"
So much hype in both industries, for similar reasons. There are always ways for smart people to make money. Most people with some experience in either industry are doing better than the national average but hardly wealthy and generally spend too much money.
I do get the impression there's better pay in finance though. $250k as an experienced engineer strikes a lot of people as high. $250k for someone w/ a few years at a good hedge fund is... about right, maybe even low.
Sadly the "I worked st google, give me money" angle seems to work pretty well since there's a lot of dumb money in the valley lately? (Small upstart seed funds with partners with very little track record / weak deal flow)
Ugh, yeah, I've recruited a few of these people. They're the worst because:
1) they're used to the benefits that come from a company that is swimming in cash
2) they didn't personally take any of the risk to create that firehose of cash but they want you to treat them like they did.
3) they don't realize it, but they're used to working in very protected environments. Typical career paths look like top-tier college -> Google / FB / Twitter / whatever. None of this prepares them for sitting in a room with some shitty Ikea desks and trying to make hard decisions that will have a direct impact on the companies growth. No, we don't have the time or resources to build a new JS framework.
I'd much rather higher someone from a second-tier US college or from overseas that can show me a time when they took significant risk / projects they built from scratch.
^ All of this is in relationship to < 20 employee companies trying to get from zero to 1.
1) they're used to the benefits that come from a company that is swimming in cash
2) they didn't personally take any of the risk to create that firehose of cash but they want you to treat them like they did.
3) they don't realize it, but they're used to working in very protected environments. Typical career paths look like top-tier college -> Google / FB / Twitter / whatever. None of this prepares them for sitting in a room with some shitty Ikea desks and trying to make hard decisions that will have a direct impact on the companies growth. No, we don't have the time or resources to build a new JS framework.
I'd much rather higher someone from a second-tier US college or from overseas that can show me a time when they took significant risk / projects they built from scratch.
^ All of this is in relationship to < 20 employee companies trying to get from zero to 1.
Are the people in point 2 able to make hedge-fund level money? Or are they just pulling the equivalent of a decent tech salary would get you?
Well one guy I know works 20 mins a day and makes maybe £30K a month. Not enough to turn into a fund, but a comfy living trading from home. If things had worked out differently he could easily sit at a fund and punt larger size.
The mean and average upsides are still better than what one would get at a typical startup.
What do you mean by "average"? Unqualified, it refers to the mean.
What makes you say that?
+1 too many brilliant brains lost
Genuinely curious: why haven't you applied your advice to yourself?
Oh, I have! I spend my days building software for a variety clients, and some happen to be investment banks and hedge funds, so I am still heavily involved with the industry. I am not employed by a fund or bank anymore. I quit my job in finance, not because I was doing badly or making less money, but because it was a terrible use of my time; all I could see was stagnation. It got to a point where I was earning a healthy 6 figure salary for "attending meetings about other meetings". A monkey could have done my job (the only reason a monkey wasn't doing my job is because it couldn't get past the damn finance interview, which is incommensurately harder than the job itself).
When I quit, it took guts, because a job in finance does give you a false sense of comfort and security. But looking back, I was infinitely happier from day one, and am better off than my peers who stayed in their front office roles (this, of course, is not guaranteed and ymmv). I also feel my potential to grow is much more than my past colleagues, who still seem to be trapped in their job's safety net.
Now I'm a passionate engineer and building good products makes me happy, so that's what I do. I have, through my company, launched a couple of private SaaS products, and hope to launch another, more public product soon. I also do a bit of property development in the UK. Whatever time is left over, I use to play tennis or spend time with family. It's great!
When I quit, it took guts, because a job in finance does give you a false sense of comfort and security. But looking back, I was infinitely happier from day one, and am better off than my peers who stayed in their front office roles (this, of course, is not guaranteed and ymmv). I also feel my potential to grow is much more than my past colleagues, who still seem to be trapped in their job's safety net.
Now I'm a passionate engineer and building good products makes me happy, so that's what I do. I have, through my company, launched a couple of private SaaS products, and hope to launch another, more public product soon. I also do a bit of property development in the UK. Whatever time is left over, I use to play tennis or spend time with family. It's great!
grass is always greener though. I have friends that moved into finance from elsewhere and regretted it quickly. For some of them, the pay boost was drastic enough to suffer through the misery. That pay change isn't so meaningful when moving from one high paying career to another.
As an aside, the software engineer complaints about technical interviews always makes me laugh. Finance ones were even worse. Mostly useless and much more intense and time consuming. Engineering is tough because it's hard to point back at prior performance in a tangible way. Anyone can sit in a large corporation and write some for loops. It's much easier to hide in the background in software. Trading was easier to vet: "someone gave me $30m and I didn't lose any of it".
As an aside, the software engineer complaints about technical interviews always makes me laugh. Finance ones were even worse. Mostly useless and much more intense and time consuming. Engineering is tough because it's hard to point back at prior performance in a tangible way. Anyone can sit in a large corporation and write some for loops. It's much easier to hide in the background in software. Trading was easier to vet: "someone gave me $30m and I didn't lose any of it".
How can they afford to pay you that much to let you do work that a monkey could have done?
I suspect he was being hard on the organisation, as in he was providing value but just not the kind of value that he wanted to be adding.
It's valuable for middle/upper management to have someone 'technical' in meetings. Often as a sounding board/is this kind of thing possible/how should we do X/can you explain how Y works/explain it to me like I'm 5. You're providing what feels like 'general knowledge', but is actually knowledge/perspective gained over a number of years working on/in technology.
And depending on the industry, you might also be wheeled between projects and end up having the same conversations again and again just with different people.
From a personal perspective it feels like you're not learning anything (and you probably aren't), and it's a waste of your time. Rather than explaining to people the difference between message queues and databases you'd rather be building systems and solving 'hard' problems (either problems that are hard, or not involving 'soft skills' :-)).
It's valuable for middle/upper management to have someone 'technical' in meetings. Often as a sounding board/is this kind of thing possible/how should we do X/can you explain how Y works/explain it to me like I'm 5. You're providing what feels like 'general knowledge', but is actually knowledge/perspective gained over a number of years working on/in technology.
And depending on the industry, you might also be wheeled between projects and end up having the same conversations again and again just with different people.
From a personal perspective it feels like you're not learning anything (and you probably aren't), and it's a waste of your time. Rather than explaining to people the difference between message queues and databases you'd rather be building systems and solving 'hard' problems (either problems that are hard, or not involving 'soft skills' :-)).
Very insightful; your analysis is spot on! There is also a worryingly large proportion that are well paid but don't add value. Also, a significant subset who don't even fully understand the job they do, and just wing it!
I really don't know. This is something that confuses me about the finance industry in general. Perhaps it's the percentage fee structure on large deals that ends up routing a lot of capital towards finance firms. They spend it frivolously on offices and people.
You know what hppens when you have been driving at 70mph - 30mph seems incredibly slow.
So it is with money and finance.
So it is with money and finance.
Getting someone to give you a job, what kind of job, is not the important thing.
In both finance, tech as well and every other field, if you can make money for other people, you can make money for yourself. Traders who can make money consistently always have options, they dont need worry about who can give them a job.
In both finance, tech as well and every other field, if you can make money for other people, you can make money for yourself. Traders who can make money consistently always have options, they dont need worry about who can give them a job.
As someone who has worked in the industry, I second this. Also, the article does a poor job of delineating what strategy-category he's talking about. From context, it looks like he's talking about more of an algo/quant driven fund, which as a category is a low % of the AUM out there (most of the capital in hedge funds goes to equity long/short); in other words, to the extent the picture he paints is accurate, it's a picture of a pretty small slice of the pie.
> A little message to the intelligent engineers, scientists, mathematicians out there: don't be taken in by the propaganda of the finance industry.
^ This. I was greatly disillusioned. When looking for positions after PhD, recruiters told me people were making 800k (after bonus) and I got an offer from a supposedly top hedge fund for... 120k, with an expected 50%-100% first year bonus. Not guaranteed, of course.
I'm not saying that isn't nice money, but in NYC it is not absurd. Plus, one can make that with a less risky lifestyle at many of the BigCo software firms. Finally, as a science PhD, I was skeptical of completely going 'zero sum' in terms of my contribution to society in life.
^ This. I was greatly disillusioned. When looking for positions after PhD, recruiters told me people were making 800k (after bonus) and I got an offer from a supposedly top hedge fund for... 120k, with an expected 50%-100% first year bonus. Not guaranteed, of course.
I'm not saying that isn't nice money, but in NYC it is not absurd. Plus, one can make that with a less risky lifestyle at many of the BigCo software firms. Finally, as a science PhD, I was skeptical of completely going 'zero sum' in terms of my contribution to society in life.
I'm also here to echo the trader != portfolio manager which seems to be described in this article. There's a vast difference in duties and comp between the same job title at a bank, hedge fund, or prop shop and you really cannot look at only comp and job title for comparison. I suspect some data points from hedge funds and prop shops got mixed together. A typical trader at a hedge fund is not making anywhere near the comp claimed in this post and "senior trader" at most places is like giving you a gold star because they didn't want to promote you to portfolio manager.
Additionally, 2 and 20 literally does not exist anymore for the vast majority of funds. Downward pressure on fees has been all over the news for the past several years and having the inaccurate data point as well as no mention of recent trends leads me to doubt other data points in this article.
The revenue split also makes no sense and does not account for fund size or strategy which has a huge influence on costs.
Additionally, 2 and 20 literally does not exist anymore for the vast majority of funds. Downward pressure on fees has been all over the news for the past several years and having the inaccurate data point as well as no mention of recent trends leads me to doubt other data points in this article.
The revenue split also makes no sense and does not account for fund size or strategy which has a huge influence on costs.
IMO a lot of the information in this article is suspect. Perhaps the terminology is different in the states, but decision makers tend not to be known as "traders" in the UK: they're portfolio managers. Traders are middle-office guys who handle execution. Secondly, there are very few shops that can charge two and twenty these days. Even in the good days, two and twenty was the 'sticker price', a point at which to begin fee negotiations. Any client with a decent-size ticket would pay less.
As a junior / mid-level front office hedgie I made £120k last year. I wouldn't be surprised if my boss made double that. Not a stunning amount, but easily enough to be comfortable and save for the future. Unless you're an equity partner at a hedge fund, that's what you can expect to earn in the uk.
The appeal of asset management is mostly about the lifestyle rather than the comp: interesting, varied work, with fifty hour weeks and no weekend work. On a per hour basis, you might do better than someone on the sell side, but those guys work a lot of hours.
As a junior / mid-level front office hedgie I made £120k last year. I wouldn't be surprised if my boss made double that. Not a stunning amount, but easily enough to be comfortable and save for the future. Unless you're an equity partner at a hedge fund, that's what you can expect to earn in the uk.
The appeal of asset management is mostly about the lifestyle rather than the comp: interesting, varied work, with fifty hour weeks and no weekend work. On a per hour basis, you might do better than someone on the sell side, but those guys work a lot of hours.
You've also got to account for the incredible variance in what a hedge fund constitutes when dealing with terminology. Reinsurance, Property, Bonds, Options, FX etc etc
It seems unwise to try and generalise across even just a generic equity fund, let alone the world of hedge funds.
It seems unwise to try and generalise across even just a generic equity fund, let alone the world of hedge funds.
What are the hours and the perks? That's the only question.
It's more than many other jobs. Everyone gets to work early. Many front office personnel get to work before 8 and the floor is mostly full by 830, but many people leave at 5 and most by 630. Most people eat lunch at their desk.
There are a lot of extra curricular activities though. You need to do dinners and events to build relationships.
There are a lot of extra curricular activities though. You need to do dinners and events to build relationships.
Some observations having put some time in on Wall Street between tech stints...
1 - There are a lot of jobs a few years out of undergrad or MBA that pay low 6 figures.
2 - The hedge fund jobs that are mid to high six figures are much harder to get. It's not "Graduate, sit and wait"
3 - Most of the comp is in bonus, and there is tremendous job risk. (Base salaries top out around 100K) If you make $750K for a good year, and then have 2 bad quarters, you're fired without any bonus, and good luck getting the next job due to the weak track record.
4 - The industry goes through purges every 6-8 years where masses of people get laid off. (2008 was the last - they're overdue)
5 - The industry is cutting employment over time.
1 - There are a lot of jobs a few years out of undergrad or MBA that pay low 6 figures.
2 - The hedge fund jobs that are mid to high six figures are much harder to get. It's not "Graduate, sit and wait"
3 - Most of the comp is in bonus, and there is tremendous job risk. (Base salaries top out around 100K) If you make $750K for a good year, and then have 2 bad quarters, you're fired without any bonus, and good luck getting the next job due to the weak track record.
4 - The industry goes through purges every 6-8 years where masses of people get laid off. (2008 was the last - they're overdue)
5 - The industry is cutting employment over time.
Can anyone shed light on how an machine learning focussed software engineer or data scientist might get a piece of the action? Specifically, how might such a person land a role that has potential to pay say, 300k+ ?
That depends on your degree level. If you have an MSc or a PhD you should be able to more or less walk onto an interview at many hedge funds, including relatively well-known ones. With less than that, it's going to be more difficult (but doable).
Many quantitative funds specifically hire math/stats/comp sci without a background in finance. The interviews will be very math/stats focused with coding (maybe algorithms) thrown in.
Don't expect $300k your first year (or second, honestly). Expect more like $150k. The lucrative compensation will be in bonus, and you (or your team) will eat what you kill. You should research the industry more so you're not walking in blind. "Quant" is an overused term and means different things. That skillset can land you in roles for execution (mostly development), strategy research (much more math/stats), risk management, trading, etc. There are few roles that will start off at $300k+ without any time in the industry, and where it happens those are generally cases of very well-known firms poaching someone from academia.
Many quantitative funds specifically hire math/stats/comp sci without a background in finance. The interviews will be very math/stats focused with coding (maybe algorithms) thrown in.
Don't expect $300k your first year (or second, honestly). Expect more like $150k. The lucrative compensation will be in bonus, and you (or your team) will eat what you kill. You should research the industry more so you're not walking in blind. "Quant" is an overused term and means different things. That skillset can land you in roles for execution (mostly development), strategy research (much more math/stats), risk management, trading, etc. There are few roles that will start off at $300k+ without any time in the industry, and where it happens those are generally cases of very well-known firms poaching someone from academia.
Apply for a job at a top quant hedge fund or prop shop. You've probably heard of the most famous ones: Citadel, DE Shaw, PDT, Renaissance, Two Sigma,... There are also a fair number of quieter/newer ones like Edgestream, Headlands, Princeton Alpha, Stevens Capital/Tewksbury, TGS, Voleon,...
Get a masters in Financial Engineering and work in risk management.
Here is a visualisation of different assests including Hedge funds which explains the high salaries. Hedge funds are the top of the financial world.
http://money.visualcapitalist.com/all-of-the-worlds-money-an...
The comments below point out that the numbers or the math may be right or wrong but one lesson for people choosing a career:
1. Industry matters big time!
2. Reputation of the teams your on matters big time!
3. College (High School..) you go to/went to matters big time!
4. Moving industries can be done ... but in the more mature industries (like finance), it's hard to break in 2 years after college.
5. College really freaking matters (even if you drop out of Harvard).
6. Your humanity must always be top of mind and any of the prior points are swamped by the importance of 'to thine oneself be true'.
1. Industry matters big time!
2. Reputation of the teams your on matters big time!
3. College (High School..) you go to/went to matters big time!
4. Moving industries can be done ... but in the more mature industries (like finance), it's hard to break in 2 years after college.
5. College really freaking matters (even if you drop out of Harvard).
6. Your humanity must always be top of mind and any of the prior points are swamped by the importance of 'to thine oneself be true'.
How much do poker players earn? Can't answer by looking at top players unless you take the remaining 99% into account. Survivor bias.
What is this shit
I would advise lots of you who have answered here to watch the TV show "Billions", lots of your answers made me immediately think of this show !
Are we here talking about salary or including bonuses? In my opinion bonuses should be excluded from salary (especially when discussing your salary).
I am not sure if the salaries are accurate, but today data is very cheap (just search for stock market data in eBay and you can find 20 years for less than 100 bucks) and with a little python knowledge you can test any trading idea imaginable, passive ETF investing, etc...
You've mentioned that before. Buying financial data from Ebay sounds insane. There's all sorts of issues with that recommendation...just for one, what kind of data is it? OHLC? 1m? 1s? Tick data?
Real historical tick data costs five to six figures per year from a well-regarded source. There's a price signaling issue here - if you have legitimately identified alpha, the cost of the data is not unreasonable (just as a colocated server is not unreasonable expensive if you can capitalize on it). If someone has high quality data, why would they sell it on Ebay for that price? It signals several things:
1) They don't care about selling where their customers are,
2) They don't care about leaving (ridiculous amounts of) money on the table,
3) They are probably not going to provide any verification or due diligence for the data, let alone any support for it afterwards.
What are these people doing, scraping Yahoo Finance, throwing it in a CSV and selling it? I find it exceptionally difficult to believe that "with a little Python" you'll be testing anything close to "any strategy imaginable" using this data. Vendors that sell real data do not share many of the characteristics of a fly by night operation.
Real historical tick data costs five to six figures per year from a well-regarded source. There's a price signaling issue here - if you have legitimately identified alpha, the cost of the data is not unreasonable (just as a colocated server is not unreasonable expensive if you can capitalize on it). If someone has high quality data, why would they sell it on Ebay for that price? It signals several things:
1) They don't care about selling where their customers are,
2) They don't care about leaving (ridiculous amounts of) money on the table,
3) They are probably not going to provide any verification or due diligence for the data, let alone any support for it afterwards.
What are these people doing, scraping Yahoo Finance, throwing it in a CSV and selling it? I find it exceptionally difficult to believe that "with a little Python" you'll be testing anything close to "any strategy imaginable" using this data. Vendors that sell real data do not share many of the characteristics of a fly by night operation.
I am talking about daily data for long term trading/investing, obviously if you plan to run high frequency or day trading operation and need one minute or tick data, neither eBay nor python will help you :-)
Thanks, the way reported salaries mask total compensation is very opaque between industries.
Trading/Dealing and portfolio management are two very different functions and this article doesn't begin to touch the distinction. This article is not a good source of information, especially about the current state of the industry
Would you care to elaborate on what the actual state of the industry is then?
"Portfolio management" is traditionally the domain of IBs, isn't it?
Finance seems to have a lot of different terminology in different areas. From my experience in "sell side equity research" (i.e.: we researched stocks, but didn't own much ourselves, other than our market-making trading desk), I've come to associate "portfolio management" with the "buy side" - hedge funds, mutual funds, pension plans, and so on. Investment banks were something else entirely; they pitched and ran mergers and acquisitions. They didn't manage stocks themselves.
It gets confusing since some firms can do both. E.g., Goldman or Morgan Stanley are generally well known as investment banks, but they also have an equity research side. But folks who work in equity research aren't called "investment bankers" and "investment bankers" don't work on the equity research side. In fact, there's regulations that try to limit the interaction between the two sides.
But in any case, I wouldn't consider either side to manage a portfolio.
It gets confusing since some firms can do both. E.g., Goldman or Morgan Stanley are generally well known as investment banks, but they also have an equity research side. But folks who work in equity research aren't called "investment bankers" and "investment bankers" don't work on the equity research side. In fact, there's regulations that try to limit the interaction between the two sides.
But in any case, I wouldn't consider either side to manage a portfolio.
By "portfolio manager" I (the author) just mean the more senior person who oversees trading. It seems like a couple of different titles get used.
We don't mean portfolio management in the sense of advising individuals on what to do with their portfolio, which is what some investment banks use. That's a totally different job.
Like I say, this article is only based on a couple of interviews, and we still have a lot to clear. I'd be keen to get more data.
We don't mean portfolio management in the sense of advising individuals on what to do with their portfolio, which is what some investment banks use. That's a totally different job.
Like I say, this article is only based on a couple of interviews, and we still have a lot to clear. I'd be keen to get more data.
Could you refer us to some more appropriate articles or sources about this topic?
Hedge fund traders get some small percentage of what they earn for their clients. This is not a problem. The problem is that when they fail, their clients lose money, and they don't (yes, there are some career risks, but they are minor).
Elementary knowledge of game theory tells us that becoming a hedge fund trader is a great opportunity. Thankfully, now it is easier than ever — just show that you can consistently earn money by trading, and you'll get calls.
Elementary knowledge of game theory tells us that becoming a hedge fund trader is a great opportunity. Thankfully, now it is easier than ever — just show that you can consistently earn money by trading, and you'll get calls.
> when they fail, their clients lose money, and they don't
This is limited liability. It applies to employees and start-ups, too. (If a Boeing employee makes a shitty engineering decision, we don't put them in debtor's prison. Similarly, if a start-up fails we don't pillory them.)
We limit investment in start-ups and hedge funds to wealthy individuals, in part to protect the masses from this principal-agent problem solving.
This is limited liability. It applies to employees and start-ups, too. (If a Boeing employee makes a shitty engineering decision, we don't put them in debtor's prison. Similarly, if a start-up fails we don't pillory them.)
We limit investment in start-ups and hedge funds to wealthy individuals, in part to protect the masses from this principal-agent problem solving.
A problem for who? People who feel the world should work differently? :-)
For what reason is it now easier than ever?
Low barriers of entry. Availability of low-cost market data sources. Bitcoin venues as the perfect training ground.
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How would you go about getting started in Bitcoin trading?
coinbase.com is the way the IRS wants you to do it, and it's easy. And their new gdax.com exchange is fun to watch. Do it ASAP as the BTC price is getting pretty high pretty quick. On a side note, your Econ + minor CS is a good idea. But get your BS in CS while you're at it. Can you imagine looking back and thinking that was time wasted?
> The problem is that when they fail, their clients lose money, and they don't (yes, there are some career risks, but they are minor).
You can lose your deferred compensation, which is very common at both hedge funds and banks once you start earning more money.
> Thankfully, now it is easier than ever — just show that you can consistently earn money by trading, and you'll get calls.
Have you ever tried raising institutional money? It's not that easy even if you have a good track record. Many times it will come under extremely investor friendly terms and often it will be a SMA rather than an actual investment. Of course you can raise millions of F&F money, but the economics for most strategies don't work out until you get into the 9 figure range.
You can lose your deferred compensation, which is very common at both hedge funds and banks once you start earning more money.
> Thankfully, now it is easier than ever — just show that you can consistently earn money by trading, and you'll get calls.
Have you ever tried raising institutional money? It's not that easy even if you have a good track record. Many times it will come under extremely investor friendly terms and often it will be a SMA rather than an actual investment. Of course you can raise millions of F&F money, but the economics for most strategies don't work out until you get into the 9 figure range.
I have the opposite problem — my strategies are scalable up to some AUM, and I am constantly looking for ways to raise this limit, meanwhile rejecting new clients :)
Why does it matter if it's a separately managed account?
>yes, there are some career risks, but they are minor
I wouldn't refer to getting put on a blacklist as minor
I wouldn't refer to getting put on a blacklist as minor
> The problem is that when they fail, their clients lose money, and they don't.
This isn't really a problem - they only take accredited investors because of this risk.
VCs also lose money when startups fail, but they don't ask the founders and employees to pony up past salaries. Understanding of the risk of failure with no recourse is a prerequisite to investing.
This isn't really a problem - they only take accredited investors because of this risk.
VCs also lose money when startups fail, but they don't ask the founders and employees to pony up past salaries. Understanding of the risk of failure with no recourse is a prerequisite to investing.
> The problem is that when they fail, their clients lose money, and they don't
You think they should pay up if their customers has realized (or unrealized?) losses?
> Thankfully, now it is easier than ever — just show that you can consistently earn money by trading, and you'll get calls.
No biggie, just download HedgeTrader Pro from pirate bay and get started, right?
You think they should pay up if their customers has realized (or unrealized?) losses?
> Thankfully, now it is easier than ever — just show that you can consistently earn money by trading, and you'll get calls.
No biggie, just download HedgeTrader Pro from pirate bay and get started, right?
No. Just open an account with Interactive Brokers or anybody else. Or, go to GDAX or other Bitcoin venues if you don't have $10k lying around (their data feeds are excellent and free).
It's going to be very difficult to do any sort of proper risk management on an account size that is smaller than five figures (and five figures is already very difficult).
I'm not sure if you were being sarcastic, but saying "just open an Interactive Brokers account" is really closer to the sink side of Sink or Swim philosophy. And trading with less than $10,000 on GDAX sounds like a great way to blow out your account (I don't trade forex so I don't know personally, but I'd be concerned about the drawdown periods on that kind of capital...most of the forex traders I know who do it outside of a firm typically work with $150k+ in capital for this reason).
Is cryptocurrency market making/scalping something you personally do?
I'm not sure if you were being sarcastic, but saying "just open an Interactive Brokers account" is really closer to the sink side of Sink or Swim philosophy. And trading with less than $10,000 on GDAX sounds like a great way to blow out your account (I don't trade forex so I don't know personally, but I'd be concerned about the drawdown periods on that kind of capital...most of the forex traders I know who do it outside of a firm typically work with $150k+ in capital for this reason).
Is cryptocurrency market making/scalping something you personally do?
Yes, I mostly do market making.
Yes and no. Incentives have to be right but you can't ask your physician to harm himself if he doesn't cure you. "Sharing the pain" should be kind of asymetrical if you want anyone to take the job.
Physician doesn't get paid more if you're healthy. He's paid more if he tries longer (in time) or better (more exams). (Ofc the analogy stops here and we're not really discussing physician compensation). Big difference: you don't get compensated for risk taking while not suffering the consequences if not.
Physicians get paid more if you remain sick.
There is no shortage of sick people.
"can only be used by accredited investors"
"3.6% of assets under management"
Hold on. Let me take another swig of coffee so I can decorate my screen with it.
How can this possibly be true? This would mean that there is some form of accreditation for investing that allows someone to qualify who thinks that a 3.6% fee is a good investment. Who are their investors? Do they know this?
I have no special access to the markets (no investor status, no massive sums under management) and I pay no more than 0.07% in fees, in total. Were I resident in the US it would be about 20% less.
No wonder they're raking it in.
"3.6% of assets under management"
Hold on. Let me take another swig of coffee so I can decorate my screen with it.
How can this possibly be true? This would mean that there is some form of accreditation for investing that allows someone to qualify who thinks that a 3.6% fee is a good investment. Who are their investors? Do they know this?
I have no special access to the markets (no investor status, no massive sums under management) and I pay no more than 0.07% in fees, in total. Were I resident in the US it would be about 20% less.
No wonder they're raking it in.
All accredited investor means is you have $1m+ in net worth or $250k+ in salary. Out of the range of the average young American, but small peanuts for most people worrying about asset mabagement
I'm slightly less appalled now. It still baffles me though, as common sense would seem to indicate that having money and paying 3.6% are mutually exclusive.
Thanks for clearing that up.
(If only i had a cloth to clear my screen up too..)
Thanks for clearing that up.
(If only i had a cloth to clear my screen up too..)
If you have the degree of money to invest and you believe the expected the net return exceeds your other investments, you very well might make the bet.
We are, after all, talking about hedge funds. How much variance are you willing to tolerate?
We are, after all, talking about hedge funds. How much variance are you willing to tolerate?
[deleted]
In order to be an accredited investor as an individual, you need (quoted from Wikipedia) "a net worth of at least $1,000,000, excluding the value of one's primary residence, or have income at least $200,000 each year for the last two years (or $300,000 combined income if married) and have the expectation to make the same amount this year."
That's it.
That's it.
Some investors are in fact wising up and moving away from hedge funds:
http://www.cnbc.com/2016/07/26/hedge-funds-suffer-207-billio...
http://thebamalliance.com/blog/hedge-funds-miss-the-mark/
The trick is that some hedge funds do produce outsize returns, and every rich customer wants to think he's going to pick the winner.
All in all, charging a percentage of AUM is a pretty neat scam they've got going for themselves.
http://www.cnbc.com/2016/07/26/hedge-funds-suffer-207-billio...
http://thebamalliance.com/blog/hedge-funds-miss-the-mark/
The trick is that some hedge funds do produce outsize returns, and every rich customer wants to think he's going to pick the winner.
All in all, charging a percentage of AUM is a pretty neat scam they've got going for themselves.
> "3.6% of assets under management"
It's not an agreement to pay someone 3.6%. The author probably means that since you get 2 and 20, with a bit of performance it ends up being in that ballpark.
It's not an agreement to pay someone 3.6%. The author probably means that since you get 2 and 20, with a bit of performance it ends up being in that ballpark.
Their investors don't know what else to do with their cash.
Getting rich and doing something with the riches involve two different skill sets that most people can't master in one life time.
Getting rich and doing something with the riches involve two different skill sets that most people can't master in one life time.
A lot of people regard it as a solved problem. (Stick it in in an index fund?).
Obviously you'd never advise someone to put all their eggs in one basket, but in this case, you're comparing identical baskets - and one of them as a hole in the bottom.
Obviously you'd never advise someone to put all their eggs in one basket, but in this case, you're comparing identical baskets - and one of them as a hole in the bottom.
Aren't hedge funds often thematically a form of insurance? If I had a million, I'd probably put 80% in index funds, 10% in hedge funds that were shorting companies that would be negatively affected by global warming, 10% in hedge funds that were betting on another recession.
At one time, they were a "hedge", but the term is an anachronism today.
How is buying 3000+ of the worlds largest companies "putting eggs in the same basket"? Buying some bonds and real estate funds can be nice as well but the diversification benefits are usually overstated. Worldwide stocks are already incredibly diversified.
I maybe should have clarified:
In this case, the basket would be equities.
And in that respect, both are plays in the same market for wildly different charging structures.
In this case, the basket would be equities.
And in that respect, both are plays in the same market for wildly different charging structures.
An Index fund can refer to one of the many many different types of weighted/diverse indexes that exist.
Dumping all your money into an ASX200 Index Fund is a lot different to putting it all into Vanguards Total World Stock fund.
Dumping all your money into an ASX200 Index Fund is a lot different to putting it all into Vanguards Total World Stock fund.
All the advice about simple investing is of the Total World Stock type.
There's no skill set involved in knowing how to invest reasonably these days. Index funds are cheap and plentiful.
Obviously, the numbers vary a lot, but most top tier firms will start you at a minimum of 150-200k usd including bonus the first year. If I had to estimate the median salary growth from there on, I'd guess it to be around 50% a year, with the rate slowing down as you get to 750-1mm. After five years on the job, the median would be around 700k, with the top 10 percentile making more than 2-3mm. At that point, if you're good, you're probably leading a team (or are a senior quant in an all-star team), and your bonus depends almost entirely on performance.
An interesting downside to this, especially for young traders who get to the high numbers, is that they often begin to treat their bonuses as a given. Once you make seven figures, it becomes easy to assume that your smarts will ensure financial prosperity for the rest of your life. But bonuses in trading are very volatile - I think of mine like an NFL player's paycheck, rather than a software engineer's salary. Competition from different firms, financial regulation and shifts in market structure often come in the way of long term salary guarantees. Over the years, I've seen that those who survive through thick and thin (well, 'thin' in a strictly relative sense) are the ones genuinely passionate about the intellectual challenges of trading.
From Quora: https://www.quora.com/How-much-do-traders-at-big-quantitativ...
An interesting downside to this, especially for young traders who get to the high numbers, is that they often begin to treat their bonuses as a given. Once you make seven figures, it becomes easy to assume that your smarts will ensure financial prosperity for the rest of your life. But bonuses in trading are very volatile - I think of mine like an NFL player's paycheck, rather than a software engineer's salary. Competition from different firms, financial regulation and shifts in market structure often come in the way of long term salary guarantees. Over the years, I've seen that those who survive through thick and thin (well, 'thin' in a strictly relative sense) are the ones genuinely passionate about the intellectual challenges of trading.
From Quora: https://www.quora.com/How-much-do-traders-at-big-quantitativ...
That starting range is approximately correct, but the median is not $700k after 5 years.
so what's the num?
I would guess that the median is around $300k if you consider only PM-track roles at top firms. It depends on the firm, but the typical breakdown will be somewhere between $100k salary plus $200k bonus and $150k salary plus $150k bonus.
If you consider non-PM track roles then the average is lower and if you consider lower tier firms then the average is lower. That doesn't mean that nobody makes $700k -- there's a very famous example of someone at a lower tier firm who took home $10 million.
There are firms where the PM takes the bulk of the money and little filters down to junior level staff.
There are firms where by 5 years you're either fired or getting paid a lot.
There are firms that hire relatively few people and pay junior level staff very well. I don't know if I would estimate as high as $700k, but the median here is going to be very good. These firms make up a small minority.
If you consider non-PM track roles then the average is lower and if you consider lower tier firms then the average is lower. That doesn't mean that nobody makes $700k -- there's a very famous example of someone at a lower tier firm who took home $10 million.
There are firms where the PM takes the bulk of the money and little filters down to junior level staff.
There are firms where by 5 years you're either fired or getting paid a lot.
There are firms that hire relatively few people and pay junior level staff very well. I don't know if I would estimate as high as $700k, but the median here is going to be very good. These firms make up a small minority.
Thank you for the interesting estimates!
I work at a hedge fund (as a dev for an average Dev salary). The pay for head manager seems roughly right, and we're 1bn between about five-ten analysts with one making most of the calls. ( I give a range because some are kind of apart from the fund proper, working on starting new funds by building a performance record.
I think the article might have some survivors bias, you can't say "I'm going to be a hedge fund trader" and equate that to the average income if you survive thirty years. It's cut throat and people burn out or get unlucky, we need the drop out rate. Also quant funds are getting bigger and must have a pretty different compensation scheme.
I think the article might have some survivors bias, you can't say "I'm going to be a hedge fund trader" and equate that to the average income if you survive thirty years. It's cut throat and people burn out or get unlucky, we need the drop out rate. Also quant funds are getting bigger and must have a pretty different compensation scheme.
Right, but isn't the compensation a bit of a waste from a commercial perspective for what's been proven repeatedly to be a roll of the dice?
Am I seeing it wrong? Is the compensation really for convincing Joe Public to part with his money for a really terrible deal?
Am I seeing it wrong? Is the compensation really for convincing Joe Public to part with his money for a really terrible deal?
What you are saying applies to vast swaths of the industry, but not all of it. Consider the track record of Renaissance Technologies' Medallion fund, which had annualized returns of 71.8% for 1994-2014 [1]. It's not all smoke and mirrors - there are some funds beating the markets consistently that are worth every bit of their fees and then some.
[1] https://en.m.wikipedia.org/wiki/Renaissance_Technologies#Med...
[1] https://en.m.wikipedia.org/wiki/Renaissance_Technologies#Med...
> Consider the track record of Renaissance Technologies' Medallion fund, which had annualized returns of 71.8% for 1994-2014
Kind of a side point but I don't see how this can be true. Wikipedia says Renaissance had $65 billion AUM as of 2015. If we back-track this compounded at 71.8% annually, that means Renaissance must have had at most $1.2 million in 1994, which is implausibly low. And $1.2 million is a maximum, because that figure assumes Renaissance hasn't received any new capital since 1994.
Kind of a side point but I don't see how this can be true. Wikipedia says Renaissance had $65 billion AUM as of 2015. If we back-track this compounded at 71.8% annually, that means Renaissance must have had at most $1.2 million in 1994, which is implausibly low. And $1.2 million is a maximum, because that figure assumes Renaissance hasn't received any new capital since 1994.
The fund has a very low cap and their employees can only put in a certain amount in the fund in the first place (depending on seniority and individual performance).
Also, you're assuming everyone who's put money into the fund has never taken it out, which would throw off your math quite a bit.
Also, you're assuming everyone who's put money into the fund has never taken it out, which would throw off your math quite a bit.
Medallion fund is said to be about $10B, and at capacity - that means that returns don't compound, because they pay out the profit each year as they can't invest any more money.
You're confusing RenTec with the Medallion fund, which it manages. RenTec manages other funds as well. Their AUM is the sum of the assets of the funds.
By definition an outlier as one of the most successful funds of all time. Also "The firm bought out the last investor in the Medallion fund in 2005 and the investor community has not seen its returns since then"
Nevertheless, it is a fund that has beaten the markets consistently. I was just saying that it is possible to do, so the entire industry is not the sham that most people think it to be. Just the vast majority of it is.
Ask a million people to toss coins repeatedly and it's likely you'll find someone who gets twenty heads in a row.
There's a lot of survivor bias in the industry. All the old players have made a lot of money at some point. If they hadn't, they wouldn't be old players.
There's a lot of survivor bias in the industry. All the old players have made a lot of money at some point. If they hadn't, they wouldn't be old players.
But if the person who called all 20 flips properly is a math PHD who discovered the Chern–Simons secondary characteristic classes of 3-manifolds which has had a profound effect on modern physics[0] - I might think they've figured out some deep shit about coin tossing.
[0]https://en.wikipedia.org/wiki/James_Harris_Simons#Academic_a...
[0]https://en.wikipedia.org/wiki/James_Harris_Simons#Academic_a...
I know who Jim Simons is. But that sounds like an argument from authority to me.
I was citing in case anyone reading was unaware of his mathematical chops.
That's a fair point. I'm not one for argument by authority.
My point with his discovery is that he's empirically demonstrated a capability of uncovering understanding and deep mathematical relationships, which have practical implications. The PHD part is less relevant.
In my opinion, this information decreases the probability that rentech has been consistently outperforming on the basis of pure luck. By how much, though, I can't say.
That's a fair point. I'm not one for argument by authority.
My point with his discovery is that he's empirically demonstrated a capability of uncovering understanding and deep mathematical relationships, which have practical implications. The PHD part is less relevant.
In my opinion, this information decreases the probability that rentech has been consistently outperforming on the basis of pure luck. By how much, though, I can't say.
It's a little worse than that as there are vast incentives to be that guy with 20 heads so people will record themselves fillping coins over and over then only talk about their best streak.
Thus you end up with most companies having an 'above average' streak in a given year even if the average investment does poorly. https://m.youtube.com/watch?v=rwvIGNXY21Y
Thus you end up with most companies having an 'above average' streak in a given year even if the average investment does poorly. https://m.youtube.com/watch?v=rwvIGNXY21Y
There is survivorship bias, but the coin flipping analogy is a tired trope (and it implies something utterly different). There aren't a million traders, and there are more than 20 consistently beating the market. Significantly more. Do the actual math with some attempt at empirical numbers and your argument might make sense. Until people start doing that, repeating this line about coin flips and the law of large numbers doesn't add anything to the discussion.
First of all, you haven't qualified who you're including in the set of "traders" and who you're including in the set of "winners." Is everyone who signs up for ETrade included? That's like major league baseball players being judged the same as way as high school baseball players. More importantly, have you done the cursory research to account for funds that consistently beat the market? How do you account for the firms that beat the market over periods that span decades? Just ridiculously lucky? What counts as a coin flip? A single trade? A trading day? Are the coins summed per trader or per fund? How are we quantifying this assessment?
It's like every time someone brings up the coin flipping analogy they use these outrageous numbers without any attempt at citing a grounded source in reality. As I say every single time in threads like this: yes, it's incredibly difficult to purposefully and consistently beat the market, but that's worlds away from impossible. There is information asymmetry in the market, relatively few people/firms are capable of identifying alpha based on that, and fewer still are capable of capitalizing on it. But they exist!
Stubbornly repeating the coin analogy is like insisting on proof that basketball players have inherent skill instead of luck, because most people can't make it to the NBA. We have clear examples of firms beating the market consistently for decades at a time, net of fees. I am personally familiar with people whose strategies profitably trade on small pockets of predictable events in timeseries tick data. Their strategies are smaller (~high 6 - low 7 digit accounts using personal capital), but they consistently earn 27-30% each year by trading strategies that are too capacity-constrained for larger firms (and usually they do this after being in the industry for some time).
I make this point not to pick on you (it's not personal!), it's just that I see this repeated in every thread related to trading on HN. Referring to trading as coin flipping when your familiarity mostly stems from news reports flies in the face of people who are capable of developing profitable trading algorithms and who have seen it. It's as if someone told you that it's impossible to develop well-engineered software. It's exhausting. There's this weird leap from (correctly) concluding that most people in the industry can't beat the market, to damning the entire concept.
If you want to say there is a lot of survivorship bias in the industry, sure, I'll agree with that. But what's the point of using Fama's coin flipping analogy if there's no rigor behind it? It precludes so much nuance in fund performance. Many funds can't beat the market at all. Many do beat the market, but they purposely decide to eat away all those gains with fees when they could run a far leaner ship. And the elite do consistently beat the market, until they eventually get large enough to diversify into multiple funds (accepting that most will be mediocre) or they return investor money because they don't need it and their strategies are capacity constrained.
First of all, you haven't qualified who you're including in the set of "traders" and who you're including in the set of "winners." Is everyone who signs up for ETrade included? That's like major league baseball players being judged the same as way as high school baseball players. More importantly, have you done the cursory research to account for funds that consistently beat the market? How do you account for the firms that beat the market over periods that span decades? Just ridiculously lucky? What counts as a coin flip? A single trade? A trading day? Are the coins summed per trader or per fund? How are we quantifying this assessment?
It's like every time someone brings up the coin flipping analogy they use these outrageous numbers without any attempt at citing a grounded source in reality. As I say every single time in threads like this: yes, it's incredibly difficult to purposefully and consistently beat the market, but that's worlds away from impossible. There is information asymmetry in the market, relatively few people/firms are capable of identifying alpha based on that, and fewer still are capable of capitalizing on it. But they exist!
Stubbornly repeating the coin analogy is like insisting on proof that basketball players have inherent skill instead of luck, because most people can't make it to the NBA. We have clear examples of firms beating the market consistently for decades at a time, net of fees. I am personally familiar with people whose strategies profitably trade on small pockets of predictable events in timeseries tick data. Their strategies are smaller (~high 6 - low 7 digit accounts using personal capital), but they consistently earn 27-30% each year by trading strategies that are too capacity-constrained for larger firms (and usually they do this after being in the industry for some time).
I make this point not to pick on you (it's not personal!), it's just that I see this repeated in every thread related to trading on HN. Referring to trading as coin flipping when your familiarity mostly stems from news reports flies in the face of people who are capable of developing profitable trading algorithms and who have seen it. It's as if someone told you that it's impossible to develop well-engineered software. It's exhausting. There's this weird leap from (correctly) concluding that most people in the industry can't beat the market, to damning the entire concept.
If you want to say there is a lot of survivorship bias in the industry, sure, I'll agree with that. But what's the point of using Fama's coin flipping analogy if there's no rigor behind it? It precludes so much nuance in fund performance. Many funds can't beat the market at all. Many do beat the market, but they purposely decide to eat away all those gains with fees when they could run a far leaner ship. And the elite do consistently beat the market, until they eventually get large enough to diversify into multiple funds (accepting that most will be mediocre) or they return investor money because they don't need it and their strategies are capacity constrained.
Ok, fair enough. The coin flipping analogy isn't great. But it's a pithy way to make a very valid point: there's a massive amount of luck in investment. To see this, let's think about coin flipping again :).
Suppose I have a 90% chance of making a positive return in any given year. The chance that I'll make money every year for ten years is about 35%. Over 20 years, it's about 12%.
Now, I don't believe that anyone has a 90% chance of making money in a given year. Even if I conceeded that it's possible to have a long-term edge in the markets, I'd say it's more like a 55% chance of making money. So instead of there being a handful of elite geniuses with a 90% edge, I think it's more likely that there are many smart people with a 55% edge, all tossing coins.
I've hidden a lot of things away in this analysis, and I'd need to write a full essay to give the issue its due. For example, I've ignored the possibility to "beat" the market by leveraging up your S&P exposure and charging fees on top. If the S&P goes up, you beat it. If the S&P goes down, you blow up and start again.
Suppose I have a 90% chance of making a positive return in any given year. The chance that I'll make money every year for ten years is about 35%. Over 20 years, it's about 12%.
Now, I don't believe that anyone has a 90% chance of making money in a given year. Even if I conceeded that it's possible to have a long-term edge in the markets, I'd say it's more like a 55% chance of making money. So instead of there being a handful of elite geniuses with a 90% edge, I think it's more likely that there are many smart people with a 55% edge, all tossing coins.
I've hidden a lot of things away in this analysis, and I'd need to write a full essay to give the issue its due. For example, I've ignored the possibility to "beat" the market by leveraging up your S&P exposure and charging fees on top. If the S&P goes up, you beat it. If the S&P goes down, you blow up and start again.
What you say might be right. But there is the purely ontological question (do traders exist that outperform consistently?), and the different pragmatic question: Does it make sense to part with my money and give it to active asset managers?
The answer to the theoretical first question might well be "yes, there are exceptional traders outperforming the market". The second "real-world" question is much more involved:
* can I reliably identify them, ex ante? That's pretty hard.
* do I have access to them? Many of the examples cited (Renaissance Tec, individual traders trading personal account) are closed to outside investors. Many golden investment opportunities are channeled to people that are very well connected (either in the finance industry, or old money, or close to politics). Similarly, there might be legal access restrictions - you must be a qualified investor, or reside in a certain jurisdiction, etc. etc.
Personally, I think most of the asset management industry is basically a giant rent seeking exercise, charging extraordinary fees (over the long run) for very little value. There are exceptional performers, but they are not accessible to most people. (As a side note, much of their exceptional performance might come from insider information more than exceptional analysis.)
Thus, the standard advice stands: put most in cheap index funds/ETFs, and maybe develop some expertise in certain areas and dabble in it with a fraction of your assets, if you're so inclined.
The reasons that the finance industry is particularly prone to unproductive money skimming (rent seeking) include:
* massive information asymmetry (similar to real estate)
* psychological biases (most people don't realise that someone taking a tiny 2% fee per annum has basically taken half your savings by the time you retire)
* mostly experience goods (or even post-experience goods): enormous difficulty of evaluating quality ex ante, or sometimes even ex post (your pension pays you X per month. Could a competitor have done better?)
* regulatory capture
etc.
The coin analogy is a perfectly legitimate parable to highlight how difficult it is to evaluate asset manager performance. Sure, the actual analysis then still needs to be done, but the outcome, from what I can tell, remains pretty damning.
The answer to the theoretical first question might well be "yes, there are exceptional traders outperforming the market". The second "real-world" question is much more involved:
* can I reliably identify them, ex ante? That's pretty hard.
* do I have access to them? Many of the examples cited (Renaissance Tec, individual traders trading personal account) are closed to outside investors. Many golden investment opportunities are channeled to people that are very well connected (either in the finance industry, or old money, or close to politics). Similarly, there might be legal access restrictions - you must be a qualified investor, or reside in a certain jurisdiction, etc. etc.
Personally, I think most of the asset management industry is basically a giant rent seeking exercise, charging extraordinary fees (over the long run) for very little value. There are exceptional performers, but they are not accessible to most people. (As a side note, much of their exceptional performance might come from insider information more than exceptional analysis.)
Thus, the standard advice stands: put most in cheap index funds/ETFs, and maybe develop some expertise in certain areas and dabble in it with a fraction of your assets, if you're so inclined.
The reasons that the finance industry is particularly prone to unproductive money skimming (rent seeking) include:
* massive information asymmetry (similar to real estate)
* psychological biases (most people don't realise that someone taking a tiny 2% fee per annum has basically taken half your savings by the time you retire)
* mostly experience goods (or even post-experience goods): enormous difficulty of evaluating quality ex ante, or sometimes even ex post (your pension pays you X per month. Could a competitor have done better?)
* regulatory capture
etc.
The coin analogy is a perfectly legitimate parable to highlight how difficult it is to evaluate asset manager performance. Sure, the actual analysis then still needs to be done, but the outcome, from what I can tell, remains pretty damning.
> The answer to the theoretical first question might well be "yes, there are exceptional traders outperforming the market". The second "real-world" question is much more involved:
> * can I reliably identify them, ex ante? That's pretty hard.
The answer to question one, as you say, is yes. If it was purely coin tossing any group of performers would get halved each year (let's not mention skew). Now there are funds that fall quite hard, like Odey. But it's clear there are funds that seem to defy gravity.
Question Two. Here's how I decide if I believe in a fund.
Here's a real life example. A friend of a friend came to a meeting and explained that under certain circumstances, you can buy certain unit trusts cheaper than they're worth. You need to dig out the nitty gritty details of each fund: the holdings, the rules, the fees, trading regulations, and so on. You put all this in a computer, which tells you when there's a mispricing. You need good relations with various counterparties, or you won't get the trade. And you can only do it up to a certain scale, because there's only so much mispricing. And it's sensitive to costs, so you need his particular cost agreements.
This also explains why you'd have to invest in this particular guy. He has the infrastructure and relationships already in place, so even if you knew his method, you couldn't do it yourself.
You're right about a lot of funds being smoke and mirrors though. I used to run one, and the investors never ask the right questions. Mostly they chase returns, but they don't even know how to tell the difference between one track record and another. It makes a huge difference how they're generated, yet most questions are simply trying to put you in a category, like produce in a supermarket.
The answer to question one, as you say, is yes. If it was purely coin tossing any group of performers would get halved each year (let's not mention skew). Now there are funds that fall quite hard, like Odey. But it's clear there are funds that seem to defy gravity.
Question Two. Here's how I decide if I believe in a fund.
Here's a real life example. A friend of a friend came to a meeting and explained that under certain circumstances, you can buy certain unit trusts cheaper than they're worth. You need to dig out the nitty gritty details of each fund: the holdings, the rules, the fees, trading regulations, and so on. You put all this in a computer, which tells you when there's a mispricing. You need good relations with various counterparties, or you won't get the trade. And you can only do it up to a certain scale, because there's only so much mispricing. And it's sensitive to costs, so you need his particular cost agreements.
This also explains why you'd have to invest in this particular guy. He has the infrastructure and relationships already in place, so even if you knew his method, you couldn't do it yourself.
You're right about a lot of funds being smoke and mirrors though. I used to run one, and the investors never ask the right questions. Mostly they chase returns, but they don't even know how to tell the difference between one track record and another. It makes a huge difference how they're generated, yet most questions are simply trying to put you in a category, like produce in a supermarket.
> You're right about a lot of funds being smoke and mirrors though. I used to run one, and the investors never ask the right questions.
Wow!!!!!
I've never heard an owner of a hedge fund refer their fund as "smoke and mirrors". I really hope for your sake that you just misspoke.
I'm sorry it didn't work out for you. I understand how hard the industry can be, if you ever think of trying again, don't let your past failures dissuade you.
I'm available to chat if you'd like:)
Wow!!!!!
I've never heard an owner of a hedge fund refer their fund as "smoke and mirrors". I really hope for your sake that you just misspoke.
I'm sorry it didn't work out for you. I understand how hard the industry can be, if you ever think of trying again, don't let your past failures dissuade you.
I'm available to chat if you'd like:)
We've already spoken, well emailed. I'm doing prop for an HFT, not a million miles from running a fund. Well, it's better anyway.
As for smoke and mirrors, naturally I mean other people's funds! Mine actually would have won the bet with Warren by a fair margin.
Come to think of it, I was a partner before that in a fund that wasn't so good, but had lots and lots of investors climbing over each other to invest.
As for smoke and mirrors, naturally I mean other people's funds! Mine actually would have won the bet with Warren by a fair margin.
Come to think of it, I was a partner before that in a fund that wasn't so good, but had lots and lots of investors climbing over each other to invest.
> the investors never ask the right questions. ...
> most questions are simply trying to put you in a category, like produce in a supermarket.
Yeah, and who can blame them? It's very hard unless you have an inside edge. And lamentably many funds cater to those investors, put out nice and shiny brochures, and get good amounts of money to manage.
> most questions are simply trying to put you in a category, like produce in a supermarket.
Yeah, and who can blame them? It's very hard unless you have an inside edge. And lamentably many funds cater to those investors, put out nice and shiny brochures, and get good amounts of money to manage.
The coin flip being tired or a trope is irrelevant. The million and 20 may not even be correct (haven't checked). the point is that people see patterns even where they don't exist. That's why science has methods for telling whether a pattern really represents something or if it would likely be seen even if the data were random. Until you do those stats on hedgefund returns your irritation at the trope remains unconvincing.
I suppose we're at an impasse then, because the claim wasn't mine; nor is it even sufficiently formalized as to be falsifiable (which really was my point here). We cannot apply scientific methods to claims that are only semantically meaningful. For example, the definition of "coin flip" was never even specified, which is why the constant use of the analogy is absurd.
When firms like RenTec exist and continue to empirically generate market-beating returns over 20-30 year timespans, the burden ceases to be on the critic of a claim to empirically disprove it, especially if it's not even falsifiable. Here, you are doing the same thing as the previous commenter, except you're not using the analogy.
You cannot open your argument with the premise that returns are purely stochastic if that's not self-evident - you need to prove that. But I have never seen a single individual attempt to quantify the analogy, not even in a forced way to make it support their thesis. It's taken for granted that superlative returns are purely chance, and the goalposts are constantly moved whenever someone brings up successful funds.
When firms like RenTec exist and continue to empirically generate market-beating returns over 20-30 year timespans, the burden ceases to be on the critic of a claim to empirically disprove it, especially if it's not even falsifiable. Here, you are doing the same thing as the previous commenter, except you're not using the analogy.
You cannot open your argument with the premise that returns are purely stochastic if that's not self-evident - you need to prove that. But I have never seen a single individual attempt to quantify the analogy, not even in a forced way to make it support their thesis. It's taken for granted that superlative returns are purely chance, and the goalposts are constantly moved whenever someone brings up successful funds.
I understand you have declared we are at an impasse so I will just take the "last word". Your second paragraph is mere assertion. I assert the opposite. The existence of extreme outliers is exactly what we see in statistical distributions all the time. Being able to identify them in retrospect is childs play.Doing it in advance is the trick. That fund very likely does have great skills and plans at work that happen to have been met with circumstances that made them work. Yes you can attribute that to skill.
All posters are more or less right in this comment chain, but talking about coin flips and renaissance in the same breathe _seems_ to be silly, if you've read about the latter. (Not an expert so I might have been mislead by what I've read...)
> it's impossible to develop well-engineered software
That doesn't sound so stupid.
That doesn't sound so stupid.
It does to people who've done it consistently.
And if it were really like coin flipping, wouldn't the average industry profit be zero?
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It's slightly different when you get into the range of millions and billions of dollars. If you're investing 100,000, you're better off with an indexed mutual fund that charges .03%. If these funds can consistently return 10%, that is actually better than what index funds can get you, which is more like 7% on average over the course of decades, but with a lot of year-to-year variation. But then the expense ratio is 3.6% so the hedge fund clients only get 6.4%... but if that's consistent, it's a pretty decent return.
Warren Buffett put his money where his mouth is: he won his $1m wager on the S&P 500 beating a basket of hedge funds over 10 years. And he won despite buying the S&P right before the great recession -- you'd think the hedge funds would have thrived in that market crash by "hedging". It's one more proof point that the vast majority of hedge funds are more risky than justified by returns, regardless of the amount.
The salient caveat here is that Buffett's bet was against "fund of funds", not individual hedge funds. I would have happily taken the other side of that bet if it was about individual funds and I was allowed to choose them (Buffett also would have lost in that case, but to be fair it would be
a fundamentally different claim to bet on). I'd make such a bet even today.
I don't disagree that most hedge funds are poor investment vehicles, but that's the nature of active investing. If the majority of hedge/mutual funds underperform the market, and you choose to invest in a fund of funds (essentially an index of their net performance), it doesn't really take a $1M bet to see who is going to lose.
I don't think Buffett would take a bet he didn't feel extremely confident about winning, but Ted Seides was just foolish. The only rational reason I can see for taking the other side of the bet given its terms was to generate publicity for himself and his own fund at the expense of some reputation a decade down the line. If he profited from that, I guess it was worth it for him. I really can't imagine he seriously believed he'd win.
I don't disagree that most hedge funds are poor investment vehicles, but that's the nature of active investing. If the majority of hedge/mutual funds underperform the market, and you choose to invest in a fund of funds (essentially an index of their net performance), it doesn't really take a $1M bet to see who is going to lose.
I don't think Buffett would take a bet he didn't feel extremely confident about winning, but Ted Seides was just foolish. The only rational reason I can see for taking the other side of the bet given its terms was to generate publicity for himself and his own fund at the expense of some reputation a decade down the line. If he profited from that, I guess it was worth it for him. I really can't imagine he seriously believed he'd win.
This strikes me as typical gambler mentality. I'd definitely bet against you. I saw your post above about skill and I agree there are people who have better skills at this. The problem is they are operating against a chaotic system. Their way of doing things may get huge returns consistently...until it doesn't.
This is 110% true: "Their way of doing things may get huge returns consistently...until it doesn't."
And most people will never fully understand that until it happens to them. Then you have this eye opening moment, and you understand.
And most people will never fully understand that until it happens to them. Then you have this eye opening moment, and you understand.
Sure, but when that moment happens over 20 years after you've started your "way of doing things", and you've amassed a giant fortune in the process, your eye-opening moment is not, "Well, I guess I was lucky all those years." Your eye-opening moment is, "Well, it's time to retire my strategy and change my methodology, if I can."
Nothing lasts forever. Conditions change in every arena of competition, not just the market. If a professional basketball player is incredibly successful until their bodies literally begin to degrade, do we raise philosophical questions about the inherent attribution of their skill?
People don't seem to respond well to the quant fund examples, so how about this - how has Warren Buffett consistently beat the market through Berkshire Hathaway? If he ceased beating the market this year, would it because he has been lucky all these years? Would it be because the market conditions that supported his success have fundamentally changed? If so, why does that indicate his performance was due to chance?
Nothing lasts forever. Conditions change in every arena of competition, not just the market. If a professional basketball player is incredibly successful until their bodies literally begin to degrade, do we raise philosophical questions about the inherent attribution of their skill?
People don't seem to respond well to the quant fund examples, so how about this - how has Warren Buffett consistently beat the market through Berkshire Hathaway? If he ceased beating the market this year, would it because he has been lucky all these years? Would it be because the market conditions that supported his success have fundamentally changed? If so, why does that indicate his performance was due to chance?
> People don't seem to respond well to the quant fund examples, so how about this - how has Warren Buffett consistently beat the market through Berkshire Hathaway? If he ceased beating the market this year, would it because he has been lucky all these years? Would it be because the market conditions that supported his success have fundamentally changed? If so, why does that indicate his performance was due to chance?
People were asking this back during the dotcom boom, when he lagged the market by a huge percentage.
Gotta wonder how many Warrens were unlucky enough to have this happen early on in their careers.
People were asking this back during the dotcom boom, when he lagged the market by a huge percentage.
Gotta wonder how many Warrens were unlucky enough to have this happen early on in their careers.
As with many high performers he did it by fantastic returns at some point. I just looked up his returns in a business insider article and a quick calculation indicates that although someone who invested year one got rich, his returns over the past 30 years average to 6% (by my calculation- willing to be corrected)
I recall reading a stock book back in the 1980s that claimed that Buffet's legendary status at the time was entirely due to his purchase of Geico
I recall reading a stock book back in the 1980s that claimed that Buffet's legendary status at the time was entirely due to his purchase of Geico
Would you like to make a bet on longbets? I'm game.
Ok stranger on the internet :). How about this. You pick 20 hedge funds. If over the next 20 years they return more to investors after fees and such than the Vanguard S&P 500 Admiral fund you win, otherwise I do?
I'd even let you change your list Jan. 1st of each year as long as we agree that any hedge fund found to be a fraud of some kind counts as a zero in your sum.
This is actually a pretty good bet for you given how poorly one would expect stocks to perform over the next 10 years
I'd even let you change your list Jan. 1st of each year as long as we agree that any hedge fund found to be a fraud of some kind counts as a zero in your sum.
This is actually a pretty good bet for you given how poorly one would expect stocks to perform over the next 10 years
If you'd be willing to take that Buffet bet using a fund that you choose, then why not instead just pour all of your own money into that "sure thing" fund? Maybe you have, in which case I applaud you for putting your money where your mouth is.
I would be happy to put my money where my mouth is, which is why I trade with strategies I have developed. If those funds were accepting outside investors for less than 8 figures, I would absolutely invest in them. But the reality is that many hedge funds that achieve that sort of consistent capability soon stop accepting investor capital due to capacity constraints, which leads to a different sort of issue than those returns being fundamentally impossible.
> If these funds can consistently return 10%
Well, yeah, that's the point, isn't it? I thought these funds can't.
Well, yeah, that's the point, isn't it? I thought these funds can't.
Some of them can, have and do (e.g. Point72, Renaissance, Soros, et cetera). This extends to many more funds [1]. Furthermore, some institutions (e.g. Yale) are consistently good at picking those funds [2].
The average hedge fund seems to eat all its excess returns in fees. But around a third of all hedge funds, mostly upstarts, die in the first few years [3].
By analogy, if you can understand that Kleiner and Google create excess returns while most VC funds do not, you can understand why a similar exponential dynamic is at play with hedge funds.
[1] http://www.investmentreview.com/files/2009/12/18-241.pdf
[2] http://m.pionline.com/article/20141222/PRINT/312229982/big-p...
[3] https://www.forbes.com/forbes/welcome/?toURL=https://www.for...
The average hedge fund seems to eat all its excess returns in fees. But around a third of all hedge funds, mostly upstarts, die in the first few years [3].
By analogy, if you can understand that Kleiner and Google create excess returns while most VC funds do not, you can understand why a similar exponential dynamic is at play with hedge funds.
[1] http://www.investmentreview.com/files/2009/12/18-241.pdf
[2] http://m.pionline.com/article/20141222/PRINT/312229982/big-p...
[3] https://www.forbes.com/forbes/welcome/?toURL=https://www.for...
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Great response. I personally agree with Point72 but avoid using them as an example. In my experience it attracts the argument that their returns are illegitimate due to illegal insider trading, which draws the focus away from others like RenTec and Soros.
I don't think that the statement
Hedge fund returns average the same as passive equity
Implies that you should never invest in a hedge fund, because it's possible that they have individual characteristics which mean that they're more or less likely to fail, which you could notice when you invest. eg. Management is obviously incompetent, no track record, incoherent strategy, track record based on being long in a rising market etc.
If you believe that's the case, then you might still get above average returns by doing your homework.
But I guess given that assumption, still only worth it if you have enough money that you're completely able to lose that it's worth you spending the time to try and work out which hedge fund you trust (easier than spending your working days trading yourself).
So if you're an educated hnwi, maybe. If the chain is like you => your employer => your pension fund => some advisor => hedge fund, I'd guess not.
I don't have any evidence for this it's just what I believe.
Hedge fund returns average the same as passive equity
Implies that you should never invest in a hedge fund, because it's possible that they have individual characteristics which mean that they're more or less likely to fail, which you could notice when you invest. eg. Management is obviously incompetent, no track record, incoherent strategy, track record based on being long in a rising market etc.
If you believe that's the case, then you might still get above average returns by doing your homework.
But I guess given that assumption, still only worth it if you have enough money that you're completely able to lose that it's worth you spending the time to try and work out which hedge fund you trust (easier than spending your working days trading yourself).
So if you're an educated hnwi, maybe. If the chain is like you => your employer => your pension fund => some advisor => hedge fund, I'd guess not.
I don't have any evidence for this it's just what I believe.
Depends you might want to preserve capital and not try and shoot the lights out and use a hedge fund /active fund that is designed to do that RCP in the uk is one example.
Hedge funds are not open to Joe public rather only the accredited investors. From wiki - "Generally, accredited investors include high-net-worth individuals, banks, and other large corporations,".
The high-net-worth bar is lower than you might think. $1m in non-first home assets or $250k in income. Your dentist is not necessarily financially sophisticated by virtue of their high wages.
Are there no listed hedge funds you can invest in and could you not just buy shares in LSE listed hedge funds?
Pershing Square for example is an obvious choice on LSE and is an arbitrage play as it looks like it will join the FSTE 250 and have to be brought by index funds.
Pershing Square for example is an obvious choice on LSE and is an arbitrage play as it looks like it will join the FSTE 250 and have to be brought by index funds.
In a larger sense, it's about persuading Joe Public that this activity is in any way useful.
I think the main skill is probably parting clients from their money (convincing them to give it to you), not actually investing the money well. Marketing, essentially. If you can sell, you make money.
same could be said of venture capital
What qualifications do the traders usually have? Economics,s tatistics, math degrees?
My undergraduate degree was in Math and Economics with a minor in Applied Statistics. I used little to nothing of my Math degree. It all depends on the fund strategies.
I am about to enter my last year studying Economics with a minor in CS. What steps do you think I should take if I want to enter the field?
Totally depends on what type of fund/strategies you're interested in.
Luck.
This reminds me of a saying my boss used to tell me.
During a mass hiring event, they wouldn't even bother to pick up a resume if it fell down on the floor by mistake. When questioned about the practice and asked if those candidates were just unlucky to not make it, the hiring manager replied- He didnt want to hire unlucky people.
During a mass hiring event, they wouldn't even bother to pick up a resume if it fell down on the floor by mistake. When questioned about the practice and asked if those candidates were just unlucky to not make it, the hiring manager replied- He didnt want to hire unlucky people.
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A friend of mine is an analyst, he has a business studies degree.
The big man was maths and engineering. Others I dunno, they're normally pretty sharp and focused and good looking ( I guess it's intrinsically client facing)
Eli5 quant funds vs. hedge fund or vs. say like jane street?
- Hedge funds can be quant (i.e. computerised models) or non-quant (humans analysing and making judgement calls).
- Prop-trading shops or family offices do the same things as hedge funds, but are not open to the public, benefiting from less oversight or compliance requirement. Jane Street is an example, better (actually successful) examples are Renaissance Technologies and Soros Fund Management.
- Quant funds can be prop shops, hedge funds or mutual funds (or something in between like managed futures/CTA funds).
- Prop-trading shops or family offices do the same things as hedge funds, but are not open to the public, benefiting from less oversight or compliance requirement. Jane Street is an example, better (actually successful) examples are Renaissance Technologies and Soros Fund Management.
- Quant funds can be prop shops, hedge funds or mutual funds (or something in between like managed futures/CTA funds).
Thanks for the extra data point.
I totally agree you can't easily use these figures as your expected earnings, since you need to adjust for the chance of drop out. (And also future industry prospects and many other factors.) Also agree about quant funds being different.
I totally agree you can't easily use these figures as your expected earnings, since you need to adjust for the chance of drop out. (And also future industry prospects and many other factors.) Also agree about quant funds being different.
I like the statement: "or get unlucky" like its a casino.
do people get unlucky? or are the winners just lucky?
Have every reason to believe this story:
My instructor in a corporate decision making class talked, ironically about luck in this way
He and his college friend just received PhDs. He was hired by a consulting firm. His friend took a job in wall street.
At Christmas they got together. The friend told him of the time his "firm" manager called him into the office. The manager handed him an envelope and said this is your bonus. The friend said he was so new he didnt think he would get one.
He thanked his boss and left his office.
The friend returned to the bosses office shortly after opening the envelope. He said to his boss "there must be some mistake."
The boss said no, there isn't. We have a small group [of 13 he said later] and this is your share.
My instructor wondered out loud if he should have taken a job in wall street too.
The check in his friends envelope was for $5,000,000
My instructor in a corporate decision making class talked, ironically about luck in this way
He and his college friend just received PhDs. He was hired by a consulting firm. His friend took a job in wall street.
At Christmas they got together. The friend told him of the time his "firm" manager called him into the office. The manager handed him an envelope and said this is your bonus. The friend said he was so new he didnt think he would get one.
He thanked his boss and left his office.
The friend returned to the bosses office shortly after opening the envelope. He said to his boss "there must be some mistake."
The boss said no, there isn't. We have a small group [of 13 he said later] and this is your share.
My instructor wondered out loud if he should have taken a job in wall street too.
The check in his friends envelope was for $5,000,000
What the article talks about is not a typical hedge fund trader, but a kind of portfolio manager, that's what a prop trader is more like. A trader in a hedge fund is someone who usually earns $200k plus or minus something...but is more in executing trades and such, not coming up with investment ideas (so not that gigantic upside they mentioned there usually).
It seems difficult because the roles exist on a spectrum. I'd be interested in how to make the titles and claims more precise.
eli5 a prop shop vs. hedge fund? or hedge fund trader vs. prop trader is that's any different
Hedge Fund: an organization that invests client money and keeps some % of the fund/profits each year as a fee.
Prop Shop: a division within some financial institution that invests the institution's own money.
Prop Shop: a division within some financial institution that invests the institution's own money.
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Maybe someone can explain this to me... how is this different than saying that professional athletes are one of the highest paying jobs in the world ? There are a lot of hedge fund traders that blow up and are no longer part of the statistics of these senior guys who are taking in $10 million.
Our estimate of the mean is still 400-900k, whereas the mean in sports/arts/entertainment is only about $70k.
https://80000hours.org/articles/highest-paying-jobs/
Even the junior roles in trading are higher paid than this.
You're right that you also need to account for the chance of dropping out of the role all together, which is hard. (Though drop out rates are high in both sports and finance.)
You're right that you also need to account for the chance of dropping out of the role all together, which is hard. (Though drop out rates are high in both sports and finance.)
There is very little demand for professional athletes so training to a very high level in mathematics or finance is a much less risky proposition.
Probably because the perceived skill difference between this and many other modern jobs is small. I can imagine people being incredulous that this is skill rather than something less deserved (luck/situation/...).
The skill difference between your average SWE (or even average college basketball player) and an NBA player is pretty massive (and quite visible). I'd imagine it's much harder to find an someone that says 'yeah that's easy I could do that' about an NBA career...
The skill difference between your average SWE (or even average college basketball player) and an NBA player is pretty massive (and quite visible). I'd imagine it's much harder to find an someone that says 'yeah that's easy I could do that' about an NBA career...
20% of profit
Former hedge fund trader here at a big fund: these numbers are correct, but not representative. There are thousands of funds out there. Some huge and killing it, but most are small that aren't. The costs to launch and run a fund are huge, which really eats into the take home of the smaller operations. In large shops, a PM will often take half of what he earns for the manager (i.e. not for the LPs). So if he runs a book of $100m and makes 25% (so $25 pnl), the manager keeps (historically) 20% so $5, of which $2.5 might go to the PM. There are definitely guys who are making tens of millions, and obviously the guys that everyone reads about who are making much more. But the vast majority of front office personnel who are working at funds are making sub $500k/year.
> But the vast majority of front office personnel who are working at funds are making sub $500k/year.
cough poor them.
cough poor them.
Can you believe it, sub-500k? Hah!
This website again? I swear it's main marketing pool is just us, the population of HN.
A little message to the intelligent engineers, scientists, mathematicians out there: don't be taken in by the propaganda of the finance industry. The upside is potentially good, but on average, nowhere near as good as you are made to believe (and certainly not worth giving up your passion for). Ditch the hype and focus on contributing something more meaningful to the world - you'll probably be happier and perhaps financially better off!