Ego-on legs, Tim Sykes, tells us how in 10 easy steps.
A bit of background first - Sykes is the precocious trader who, at the tender age of 22, started his own fund, Cilantro. The fund closed in 2007, down by about a third after four years, according to Wikipedia. Sykes has since gone on to write a book about his experiences and appear in the TV documentary Wall Street Warriors.
His advice starts out with this ode to himself story. Hubris highlighted by us:
I brought an outline of my strategy and performance to a friend of a family friend, who supposedly had access to many hedge fund and rich clients - he was impressed, but wanted to know the details of my strategy but wouldn’t give me any assurances he simply wouldn’t use it for himself. In addition, he wanted my returns audited and only then would he consider helping me raise capital in exchange for a ’slight’ fee. I couldn’t trust this guy and I didn’t want to tell him my secrets so I passed. This encounter made me realize that audited returns would be necessary because my success was rather unbelievable. I figured this expense would be crucial to my fund raising, so I found a local accountant familiar with stock trading and spent a college semester’s tuition to have my tens of thousands of trades audited. After a few weeks of patiently reviewing all my trades with this accountant, the audit was finally finished and the numbers looked good. In fact, the numbers looked too good. Yes, my ridiculous returns might be a problem.
And goes on with these gems of headlines:
Lesson #1: If you consistently beat the market, you will face endless questions about whether or not you are a fraud.
Lesson #2: Everything takes much more time in the real business world compared to the trading world.
Lesson #3: Focus on trading first; never schedule investor meetings during market hours.
Lesson #4: Do not feel bad about changing brokers if they are ripping you and your clients off. They are not girlfriends; there is always somebody cheaper and better out there.
Lesson #5: The larger the ‘nest egg’ stake the manager has, with the initial startup–the better.
Lesson #6: Focus on what works for you and do not change to accommodate others.
Lesson #7: Raising money does not come easily for a startup hedge fund manager.
Lesson #8: With capital introduction, there’s always a catch.
Lesson #9: This industry is full of frauds and con artists.
Lesson #10: Results are much slower in the real world compared to the trading world.
We’ll leave you to dissect the rules yourselves, the full version is here.
One thing that did jump out at us, however, was this bit of wine advice buried in the full version of Lesson #2.
I chose the second least expensive [hedge fund admin] boutique I could find (probably something ingrained in me ever since my dad advised to always purchase the second cheapest bottle of wine from a restaurant’s wine list).
Which is usually the worst-value bottle in the restaurant. In vino veritas?
Related links:
Set up a hedge fund, tips from Sykes - Hedgefundblogger.com
Tim Sykes has a fund only a mother could love - FT Alphaville
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