Bill Lipschutz, trading with other people’s money!
Acording to Jack Schwager, Bill’s trading at forex alone accounted for more than half a billion dollars profit for Salomon in the eight years he was there. That’s the equivalent of $250,000 profit each and every trading day for 8 years. Ok, that was at the end of the 1980’s, when Mr. Lipschutz was the head of Foreign Exchange at Salomon Brothers, but it’s surely put Bill in the hall of fame as one of the best FX traders in the world, what he was confirmed in the following years.
Bill worked at Solomon Brothers from 1982. to 1990. when he went and form his own company, Rowayton. They traded for a while and at the end of 1993., he and his wife started to raise ‘a little’ outside money. They raised about $150 million in about 18 months. While FX is the only thing they have traded, they developed three programs which all trade FX, but with different combinations of risk/reward objectives and different instruments, mostly day trading. For a variety of reasons, Mr. Lipschutz closed Rowayton in 1995. and formed a new company, Hathersage Capital Management. The company with similar trade programs as Rowayton, but much better in the administrative level. Trading with other people’s money!
It is often not realized that the source of trading funds can affect one’s trading style and performance. As Bill Lipschutz explains, this fact is something even the most experienced traders do not appreciate until they experience it. ‘I was unaware that different sources will definitely imply different trading strategies. The source of capital will invariably force different trading motivations on the trader. It is not simply a question of saying, “oh, I have some capital. It doesn’t matter what the source is. I will go out and do my best and at the end of the day try to make some money.” It is not like that. There are many, many different strengths that come from being a corporate entity, whereas dealing for high net worth individuals you do live and die by your monthly numbers.
‘The whole money-management game is a difficult game. It has not only to do with how well you perform, but what kinds of results investors are looking for in their portfolios. Absolute performance can be misleading.
As Bill Lipschutz explains, one way the source of funding can affect your trading style is through the motivation of the lender and the terms on which the funds were granted. We all, as traders, seek more capital with which to trade. Sooner or later, after a degree of success, we decide to seek out new sources of funds, whether as a loan, which then does not require us to be regulated, or as an investment by the lender. Whatever the source of money, you must be aware that since it can affect your trading style it may also affect your trading performance. The worse time to have a deterioration in your trading performance is when the money is not your own. Therefore, trading with other people’s money becomes far more complicated than with one’s own money. You have to consider both the likely outcome of the trade and the likely reaction of the investor to a positive and a negative trading outcome. So before you seek new funds think hard about how it is likely to affect your trading. It’s not an easy way!
This is only a small part from the interview with Bill, entire article you can read here. It’s apsolutely worh to read.