Don't.
in it 2 win it
- 1
What Kassad said. If you want to stay friends with them, don't invest their money. Not when your edge takes the form of "great intuition."
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- brandon st randy
- PE
- Rank: Senior Neanderthal
- 4,656
9y
brandon st randy, what's your opinion? Comment below:
There is already a comprehensive and very informative thread on this topic, complete with references to the Big Lebowski and all:http://www.wallstreetoasis.com/forums/starting-a-small-hedge-fund
The bottom line: the cheapest way for you to do this is likely through a separate account, custodied at an online discount brokerage (Charles Schwab comes to mind, they already custodies like $500 b plus of this type of client assets through thousands of independent investment advisors). This way you get to minimize your overheads and also your friends don't need to be accredited investors either.
Too late for second-guessing Too late to go back to sleep.
- 2
I know even way less about all this than you do. Just some ideas if you should cross that bridge with your friends. Something like Charles Schwab sounds good to me because you might be able to diversify half your friends money so if you fail & loose a big chunk of their money at least other half could be in a safer cheap S&P index fund or something else like that where at least half their money could still be growing even if it's at aslower rate.Some tips I bet most people would know. Your not diversified if you just own stocks. A financial agent or adviser might be able to help with one time fee per appointment when ever you want one & no ongoing fee's.
I would encourage your friends to also find another investment not just with you & a hedge of their own for better piece of mind. Cash seems to be king at the moment.But at the end of the day usually not a good idea handling your friends money unless maybe you were elected to be a trustee in someones will.
lol don't. listen to us
"Look, you're my best friend, so don't take this the wrong way. In twenty years, if you're still livin' here, comin' over to my house to watch the Patriots games, still workin' construction, I'll f*ckin' kill you. That's not a threat, that's a fact.
If you're actually good, like really good, and young, take the risk. Go for it. Why not? Because someone on anonymous message board told you not to? If you want to do it and you have great confidence that you'll do well, then go for it! Go big or go work for someone else that took the same old path as everyone else to eventually working for someone not named themselves.
Two people come to mind when reading this post and the debbie downer responses.
The first is a good friend of mine that started a small fund while in college so that the invested friends would have some extra beer money for spring break trips. Ended up doing well enough that the WSJ did a couple articles on him. With that, people he didn't know started coming to him asking if he'd invest their money. By the time he was 25, there were more millions in his bank account than he had years in his life.
The second person that comes to mind is someone that I do NOT know personally. But I know that he started out investing a little bit of money for people and proving himself. I would hope that everyone on WSO has heard of him before. His name is Warren Buffett.
As bad as it sounds, reality is that friends come and go. Some end on good terms, others with resentment. It happens. If you're young, go for it. even if you lose a couple friends, you'll bounce back. It will provide good experience and great opportunity, with limited downside risk, career wise (assuming the fathers of the friends aren't turbo connected in high-finance). If you're good, you'll probably make a lot more friends that want to invest. If you're bad, well, just don't tell anyone about it when you walk in for an interview. Best of luck man!
This is all very beautiful and optimistic; truly the lens through which all society should view every endeavor.
However, my logic is that if he needs to come to an online message board to ask people how he can legally manage other people's money, he likely doesn't have the ability to properly manage said money.
Sound money management skills take hard work to develop - not having had a few trades that went your way. If you don't have the work ethic to simply find out how to set up a business structure that will permit client asset management as well as find out what bar you have to reach to do so, it is very, very unlikely that you are some sort of asset management whiz.
OP, you can keep trading on your own and do as you like. But if you go ahead with managing any large sum of investor capital, have a lawyer handy.
By the way, here's a pro tip for you: discount brokers like E-trade will eat in to your margins so quickly that you'll have to be a rockstar just to break even.
in it 2 win it
- 5
- 1
ELbric:
As bad as it sounds, reality is that friends come and go. Some end on good terms, others with resentment. It happens. If you're young, go for it. even if you lose a couple friends, you'll bounce back. It will provide good experience and great opportunity, with limited downside risk, career wise (assuming the fathers of the friends aren't turbo connected in high-finance). If you're good, you'll probably make a lot more friends that want to invest. If you're bad, well, just don't tell anyone about it when you walk in for an interview. Best of luck man!
Odds are that OP isn't that good. And yea friends come and go, but ruining a friendship over money is one of the worst ways they can go.
Don't do it OP.
Your right, I don't have a college degree, I don't have any idea how to properly manage a portfolio, I am not an, "asset management whiz" either but correct me if I'm wrong, managing money is easy. All you gotta do is take money off the table, rebalance n diversify because who doesn't want a free lunch right? Haha no but seriously tho, I'm a firm believer in behavioral finance. I do not believe in efficient markets either, just a little bit like in the long run only. I'm really good at understanding people's emotions and I know what's hot n what's not so ya that's why I think I'm good.
Yea the commissions do eat into my returns but I don't care because I started with 2gs n I now have 24 so im not close to breaking even and no I'm not a rock star haha but I wish I was. All I know is we're in a bull market...nuff said. Well that could change pretty soon haha I know.
Anyways yea so I'm probably just gonna invest the money of one of my friends. He's gonna give me a thousand, and I'll just use my own account. I'll hold onto the tax n keep like 10% for myself I'm not really doing it for the money I just want to see what it feels like to make someone happy by making them a decent return.
I do have a work ethic too, I'm just lazy sometimes. I figured maybe I can get pointed in the right direction if I join a forum you know
- 2
Well, if it's just 1K then knock yourself out. It would probably cost more than $1K just to set up the business structure. I honestly thought you were one of those kids who comes on here going "hey I inherited all my parent's money and decided to start a hedge fund."
in it 2 win it
- 1
Managing money is easy if you want to do it poorly. Rebalance and diversify? Yes. Take money off the table? No. If you're a believer in behavioral finance, you let your winners run and cut your losses short. I don't think this will turn out well, but hey...do you.
Best Response
Prudentprophet:
Your right, I don't have a college degree, I don't have any idea how to properly manage a portfolio, I am not an, "asset management whiz" either but correct me if I'm wrong, managing money is easy.
Managing money is definitely easy, especially for those that don't have any idea how to properly manage a portfolio.
Prudentprophet:
I'm a firm believer in behavioral finance. I do not believe in efficient markets either, just a little bit like in the long run only.
I can't imagine a scenario where blind faith isn't rewarded, you should be good.
Prudentprophet:
I'm really good at understanding people's emotions and I know what's hot n what's not so ya that's why I think I'm good.
Makes sense. Seems repeatable.
Prudentprophet:
He's gonna give me a thousand, and I'll just use my own account. I'll hold onto the tax n keep like 10% for myself I'm not really doing it for the money I just want to see what it feels like to make someone happy by making them a decent return.
If that's not Kosher, I don't know what is these days.
Prudentprophet:
I do have a work ethic too, I'm just lazy sometimes.
You definitely have a work ethic, just like everyone else. Of course, not everyone has the same level of work ethic, but even if you're a little lazy sometimes, you're just really good at reading the emotions of other people and that surely should be enough to be a huge success. Just purely out of curiosity, what percentage of the population do you think considers themselves to be below average at reading people?
- 9
Lol a small percentage but most miscalculate all the time. Realistically we only have three probabilities; will happen, maybe, and won't happen. People don't pay attention to detail and don't factor in all the variables when considering a prospect. People make decisions quickly, and let their ego get in the way of the logical thing to do. Since the human mind puts the present before the future, we get sidetracked all the time by news that will not or have very little implications on future outcomes. I take advantage of those rare events when when prices dramatically increase or decrease. With the advent of automated trading, you can take advantage of mistakes they make when the computer algorithems accidetally sell or buy on false news via twiiter or some other source or whatever or too much weight on. For example, check out MasterCard, those guys reported great 2q earnings but news came out that same day about the fed and some debit card fee limit or something and the stock went from 630 if I can remember correctly to like 575! Lol like something like this is wicked easy! Obviously markets are not efficient all the time. You could of easily realized, the news wasn't that bad at all and bought weekly call options and made 5 times your money. BOOM! Easy money just like that. Then you sit back and wait for another rare event. Simple as that. If you only make 5 trades in one year but each trade doubled or even tripled your money then you would beat the market every time. Just don't ever bet the ranch and take money off the table. But obviously if your managing millions or billions, you'll have to deal with market impact, then that strategy won't work obviously. But like I dont got that much money so I don't need to diversify my portfolio into like 45% equities because we all know they provide a better return than anything else over the long term. 25% high quality non-callable bonds to deal with market crashes 10% real estate to protect against inflation and 20% in alternatives which further diversifies your portfolio and increases your return but like you gotta hire you know smart fund managers who's interests are aligned with yours. You need to work with managers who work for an independent firm where creativity and entrepreneurial spirit thrives which contributes to superior returns. And obviously don't withdraw your investment from poor performers and get whip sawed to death.
So like I do know some crap about investing but I don't know anything about the mathematical models and stuff. The only reason the models even work anyways is because everyone uses them. I'm good at math but I don't want to invest money because some model told me that a particular security should go up or down. How do you get any pride or honor out of that non sense?
I invest in companies who have great management, happy employees, everyone is compensated fairly, products or services that are popular and have a huge growth potential. Like tesla! As soon as I saw that car in Boston I was like, "what the hell is that!!" I drove up next to it and looked inside. Besides the three nerdy looking dudes with perfectly combed hair, the interior was dope. As soon as I noticed the huge screen I was like, "I gotta get one of those!" I understand style and I know that a lot of guys my age who have money are gonna be buying those things. Sure enough, I noticed they were reporting earnings soon. Even tho tons of hedge funds were betting against it (haters with an ego who believe in the status quo and think it can't be changed) I bought $70 call options and made a killing. Thank you Peter lynch. I'm so thankful I read his book a month before that encounter with that model S.
Anyways I'll wrap up here, yea I don't have any legit education on finance and economics. I don't know what I'm doing trying invest my friends money knowing all well his friends are gonna be hitting me up asking me to invest theirs. At which point I'll probably say no so I guess I'm really just trying to experiment a little and see what it feels like to make someone happy investing there's money for them. I wanna be able to say, "here you go man, I just made you a 60% return on your investment!" Haha
That's pretty Kosher right haha
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- SkylerThereIsRot
- AM
- Rank: Senior Orangutan
- 469
5y
SkylerThereIsRot, what's your opinion? Comment below:
Such a small amount that nobody will give a sh*t. Just put it in your brokerage account and keep track on the side. You probably aren't that good, but if you are then it's a good way to make some money and get some experience. Really no reason for anyone to tell you unequivocally that it's a horrible idea. It's a horrible idea if you started with $5M in family retirement money. But if you're buddy is giving you $1K and you probably have a comparable amount, who gives a sh*t? Trust me, the regulators won't. If you end up picking up a decent amount of money then you have to go the legit route. Until then, the world's your playground and nobody is going to come looking to collect on your $2K AUM.
Edit: Just saw your Tesla reasoning. I f*cking love you. There's no way this doesn't work out for you... straight up Buffett style thinking right there.
I hate victims who respect their executioners
- 6
Related Topic
How to file taxes if you invest for a friend? (Originally Posted: 12/04/2017)
How would you file taxes if you invest money for a friend? Would it simply be considered a gift tax? Suppose a friend gives you $1,000 for you to invest for them and you make them $100,000 (overexaggeration), is it just going to be considered that you gifted him the $100,000 and file it as a gift or would he have to state that it's from stocks? And how about me if I'm the one investing? Would I have to consider it as part of my income and tax it normally?
- 1
Hey Prudentprophet, sorry about the delay, but are any of these useful:
Hope that helps.
Federal gift tax is basically moot in this situation now that there's a lifetime exclusion of $5.49MM. However, tax laws can change. Re dividends/cap gains, whoever's TIN (taxpayer identification number) is on the account will be liable for the tax.
If you're investing on behalf on another person, you must get professional legal/tax advice to structure the investment properly. I learned this the hard way, after my family got sued by my aunt's estate to recover money she gifted my dad, from which we were paying her a life income (my dad predeceased her). My brother and I lost $500K each because the trust had never been documented.
Don't become a fiduciary for somebody else's assets without documenting the arrangement based on professional advice.
For the situation you describe, a friend giving you $1K to invest, a simple alternative is having him open an account under his own name, and you suggest how to invest it. He can have duplicate statements sent to you so you know what's going on in the account. Be aware, though, if you charge him a management and/or performance fee, you'd be acting as an unlicensed investment advisor.
So was it your aunt that made the orders to sue you? I'm not worried about my friend doing that , I'm just worried about the legality of the situation and how it would work for taxes. I think you already answered that basically saying that I would pay the tax and my friend would be free from the taxes if I understood you correctly. So is the only reason not to invest for a friend without having it properly documented that it gives the friend the option to sue you? And what is an unlicensed investment advisor and why should I be concerned if I fall into that category. Would I be considered one if I don't calculate exactly how much the friends investment turned into but I just give him a lump sum at the end? Thanks for your time sir.
- 1
I'm investing for one of my buddies in my personal account and I'm deducting his proportion of my total cap gains taxes from his chunk at the end of the year. I keep track of his money in excel and built out a tax calculator so he knows where he stands after every trade I do.
How about that TSLA call?
Prudentprophet:
I invest in companies who have great management, happy employees, everyone is compensated fairly, products or services that are popular and have a huge growth potential. Like tesla! As soon as I saw that car in Boston I was like, "what the hell is that!!" I drove up next to it and looked inside. Besides the three nerdy looking dudes with perfectly combed hair, the interior was dope. As soon as I noticed the huge screen I was like, "I gotta get one of those!" I understand style and I know that a lot of guys my age who have money are gonna be buying those things. Sure enough, I noticed they were reporting earnings soon. Even tho tons of hedge funds were betting against it (haters with an ego who believe in the status quo and think it can't be changed) I bought $70 call options and made a killing. Thank you Peter lynch. I'm so thankful I read his book a month before that encounter with that model S.
brb, I'm going all-in on Tesla.
- 3
Related Topic
Legalities of investing with friends (Originally Posted: 01/23/2017)
So a few friends of mine have gotten interested in investing in stocks. We have come to the conclusion that if we combine a portion of our income we could invest with more money, but my concern is the legalities of investing with multiple people. Also, we were looking to invest without a broker. If someone could share some insight upon this topic it would be greatly appreciated.
You make any money?
"We have come to the conclusion that if we combine a portion of our income we could invest with more money"
have you concluded on whether you want your long positions to increase or decrease in value as well?
With regard to bypassing a broker/fees, there is an app called Robin Hood, which allows for free trades of US equities.
- 1
Pooling your money isn't going to change the returns of the stocks. If you all buy the same stocks you will generate the same return... Keep you money separate
but bro if : $1 invested returns $2 profit. Is true then: $10 invested returns $20 profit. Better yet: $1,000,000,000,000 invested returns $2,000,000,000,000
WERE GOING TO BE RICH
Wouldn't it be less risky to advise your friends on trades and then take a small percentage of their profit if they follow your advice?
Related Topic
Investing for friends (Originally Posted: 03/25/2013)
Let's say that I'm 18 and I want to invest some of my friends (multiple) money (around $5000 total). Is this not legal because I don't have a series 63/7 or is it ok because its such a small amount?
No one has to find out thus no one will care. Only if your friends decide to sue you will it ever matter.
You can get an account from a lot of brokers w/out these licenses. So no, you dont have to get the licenses to trade. Also, you dont have a contract w/ those people who you have the money of (presumably), so there cant be legal recourse.
“...all truth passes through three stages. First, it is ridiculed. Second, it is violently opposed. Third, it is accepted as being self-evident.”- Schopenhauer
This probably won't turn out well.
Structure as an "investment group" ... in small amounts, it's easy to pull off even if you don't have much legal structure otherwise.
I love that its so hypothetical. "Lets say..." "I know a guy who..." "So in theory..." "If there existed such and such a person and events x, y and z occurred, what would the probabilities be for these different events in their future?"
“...all truth passes through three stages. First, it is ridiculed. Second, it is violently opposed. Third, it is accepted as being self-evident.”- Schopenhauer
It's all fun and games until you lose all their money.
The finance guys and I in my fraternity put together and investment club where we all throw in money. We have a separate broker actually do the investing but we do all of the research ourselves. We have a signed contract that says for every equity we invest in each member needs to do substantial independent research on it, so if it tanks we can't blame just one person for f*cking the rest of us over.
Do something like that?
Related Topic
Investing on Behalf of Others (Originally Posted: 02/09/2017)
Greetings Forum Users,I have a question in regards to investing on behalf of others:What is the most efficient and legal (but cheapest) method to invest on behalf of others?I'm currently a senior at a prestigious high school, specializing in corporate finance, preparing to head to college. I actively trade shares, both public and private, but do not have the money to expand my portfolio like I would want to. I've considered launching a LLC to perform this process, but I'll admit I'm not very familiar with that task. I'm looking for any advice you would like to offer. Please be professional in your response. I read another forum similar to this one earlier, but the question was never answered. Please answer here and avoid redirecting me to another page as I would love to reply to your responses. Another thing, of course, is why trust a high school kid? I maintain a decent resume that outweighs 99% of people my age. Thanks in advance for your helpful advice.
- 2
I wouldn't go all in on Tesla lol it's overvalued right now, but that does mean it can't go to 200 a share. The market loves tesla. They're reporting earnings in Wednesday this week. Probably gonna increase guidance and beat eps, so I'm gonna buy some call options but like I said I wouldn't go all in. The risk reward is great. Definitely a good bet.
Nah, they don't know anything about investing. So I gotta do it.... Well I wanna do it. It will give me a sense of responsibility. I like that.
Yea just 1K for now anyway. Lol I wish I inherited a bunch of money, that would be nice. If I did I wouldn't start a hedge fund anyways, I would invest most of it, get my degree, pass the cfa exams, get a legit job on Wall Street, get some real world experience before I even contemplate starting a hf.
Thanks for the advice guys.
This website is pretty kosher
That's my new word. ^^^
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- CanadianEnergyBanker
- PE
- Rank: Neanderthal
- 2,126
5y
CanadianEnergyBanker, what's your opinion? Comment below:
You definitely maintain an ego that outweighs 99% of kids your age.
2/10you wanna troll, you gotta do better
With that ego, you will get laughed out of offices
Nice to see someone my age who is already heavily into trading. I don't really understand why you are criticising him.
- 1
If you do start a hedge fund, don't be like these guys:
http://nymag.com/daily/intelligencer/2012/10/worlds-most-oblivious-hedg…
in it 2 win it
Is it bad that I actually think like that when I decide what to invest in? If something is cool and trendy and undervalued, I just go and put a couple thousand in it.
Seems to always work out better when I use that as my reasoning as opposed to looking at multiples.
Prudentprophet:
They're reporting earnings in Wednesday this week. Probably gonna increase guidance and beat eps, so I'm gonna buy some call options
I want to try this on my boss and see how he reacts.
I hate victims who respect their executioners
- 3
I usually trade the weekly options to play a specific event.
I loss all the 20 grand I won, but I'm working on finding another sweet trade to bring me back into the game. I really wish I had a mentor who could teach me and help me succeed. I need someone to take me under they're wing and show me the ropes.
Galena Biopharma (GALE) looks interesting for 2014.
- 1
Well I turned $2,000 into $25,000 in less than a week with two trades using options. The. Over the course of the next month I lost it all trading every day. I just wanted more and more. I was being stupid.
Entertaining thread, would read again.
In the Market Wizards book there was multiple traders who blewup trading money in the beginning multiple times. Many started with no financial experience or pedigree. Yet, they learned from their mistakes and ignorance to make hundreds of millions.
I wonder if there was a message board back in there day what interesting posts they would have made. This guy seems clueless but you never know.
TSLA would have worked out
I nearly fell off my chair reading this. have you ever wondered why the disclosure "past performance is no guarantee of future results" is on literally every investment ad? everything works until it doesn't. ltcm was the best fund around until it wasn't, same for tiger management, pets dot com in the 90's, hlf in 2013 (possibly too soon to tell the depth of the fall), florida real estate in 2005.
I manage others' money for a living, it's not something to be trifled with. it's not like making your buddy an adirondack chair, it's far deeper than that. if you really want to do it, go work for a broker dealer, get licensed, make your friends become clients, and then when you get enough clients, break off and start your own fund. if your friends give you money and you lose it, you expose yourself to lawsuits. I'm assuming you open the account in their names and then you log in under their user and trade for them, that can be construed as illegal.
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