ex Goldman Sachs Trader Tells Truth about Trading - Part 2
Major Indices vs Major Currency Pairs
The speaker discusses the volatility of major indices compared to major currency pairs, based on historical data spanning over 50 years.
Volatility Comparison
- Major indices are one and a half to two times more volatile than major currency pairs.
- This comparison is based on historical data from over 50 years.
Diversifying Your Positioning
The speaker advises diversifying your positioning by allocating your investments across different asset classes such as equities, commodities, forex, cash, and interest rate situations.
Asset Allocation Recommendations
- Allocate at least half or the majority of your portfolio to equities.
- Allocate around 20% to commodities.
- Allocate around 10% to forex.
- Keep cash or margin in reserve for taking advantage of short-term opportunities.
Time Horizon and Percentage Split
The speaker discusses the recommended time horizon for positions and suggests a percentage split for different asset classes.
Time Horizon and Position Duration
- For beginners, the recommended time horizon for each position across asset classes is one to three months.
Percentage Split Recommendation
- Personally, the speaker suggests allocating 65% to equities due to their higher volatility.
- Allocate 20% to commodities.
- Allocate 10% to forex.
- Keep cash or margin in reserve for taking advantage of short-term opportunities.
Importance of Short-Term Opportunities
The speaker emphasizes the importance of being able to take advantage of very short-term opportunities in trading.
Key Point
- Being able to capitalize on very short-term opportunities can be beneficial in trading strategies.
Criteria for Choosing a Broker
The speaker discusses important criteria to consider when choosing a broker, particularly focusing on the broker's approach to taking the other side of trades.
Choosing a Broker
- It is important to know whether the broker takes the other side of your trades.
- Avoid brokers who aggressively take the other side of your trades as it creates a conflict of interest.
- Consider commission rates and spreads, but be cautious as tight spreads may indicate aggressive turnover strategies by brokers.
Downsides of Brokers Taking Other Side of Trades
The speaker explains why it is crucial to avoid brokers who aggressively take the other side of your trades.
Key Point
- Brokers who take the other side of your trades may not have your best interests in mind and may encourage actions that are not beneficial for you.
Impact on Brokerage Industry
The speaker discusses how changes in technology and market participation have impacted the brokerage industry.
Market Size and Technology
- The switch from dial-up to broadband has significantly increased market participation.
- Trading has become cheaper due to technological advancements.
- The brokerage industry has downsized overall due to increased market participants.
Benefits of Working as a Broker
The speaker highlights the benefits of working as a broker before trading with one's own or others' money.
Learning Experience as a Broker
- Working as a broker for a couple of years can provide valuable insights into understanding conflicts of interest and learning about different aspects of trading.
- It is beneficial to gain knowledge about brokerage operations before venturing into personal trading endeavors.
Culture and Success at Investment Banks
The speaker shares insights on the culture and success factors at investment banks, particularly highlighting the differences between Goldman Sachs and other banks.
Culture at Goldman Sachs
- Goldman Sachs stands out in terms of culture and success.
- The best people in the market often work at Goldman Sachs.
- They have a strong work ethic, intelligence, and entrepreneurial mindset.
- Innovation and meeting client demands are key factors contributing to their success.
Conclusion
The transcript covers various topics related to trading strategies, asset allocation, broker selection, and insights into the brokerage industry. It provides recommendations for diversifying investments across different asset classes, understanding the importance of short-term opportunities, choosing brokers wisely, and gaining experience as a broker before personal trading endeavors. Additionally, it highlights the unique culture and success factors at Goldman Sachs compared to other investment banks.
The Culture Shift in the Industry
The speaker discusses how the culture in the industry has changed over time, from a focus on company profits to a culture of greed and self-interest.
Culture Shift in the Industry
- The culture in the industry has shifted from working for the company and making company profits to a political culture of greed and self-interest.
- During that time, there was a lot of capacity and slack in the industry, leading to untalented individuals being hired for important jobs.
- The industry now has tighter capacities, but back then, it was driven by self-interest and greed.
Account Sizes Managed
The speaker discusses the account sizes they managed during their investment banking career.
Account Sizes Managed
- At Goldman Sachs, they managed the largest account sizes, starting with $10 million on day one. Eventually, they were part of a team managing about $500 million on the trading desk.
- At Lehman Brothers, there was an increase in risk exposure for many individuals within a short period of time. This led to some concerns about deserving such high levels of risk.
- At JP Morgan, there was also an increase in risk exposure compared to others at the bank. They personally had a limit of $100 million with occasional risks reaching up to $200-$300 million.
Work-Life Balance
The speaker discusses the lack of work-life balance in the industry during that time.
Work-Life Balance
- During that time, work-life balance did not exist. A typical day involved waking up at 5 am and being in the office by 6:10 am. Trading would continue until late evening, with additional calls from traders in Hong Kong during early morning hours.
- There was also a social side to the business where traders were expected to go out with salespeople to meet clients. This often meant being out until late at night, leading to little personal time.
- The speaker shares a personal anecdote about their private life being affected by the demanding schedule and lack of work-life balance.
Future Banks to Watch
The speaker is asked about banks that are moving up the chain and could be worth watching in the future.
Future Banks to Watch
- The speaker does not provide any specific information or opinions on banks that are moving up the chain and could be worth watching in the future.