Option FanaticOptions, stock, futures, and system trading, backtesting, money management, and much more!

Option Fanatic, RIA (Part 9)

In the last post I talked about my concern with investment transparency as a consequence of clients maintaining control of their funds in personal accounts. What if they figure out my trading and no longer need my services?

I suspect a lot of people hire investment advisers because they simply have no interest in doing it themselves. I think of it as analogous to installing new brakes. A mechanic friend could show me how to do that. I could get the parts from an auto supply store, jack up the wheels, remove the tires, and I’m off! I might get a little greasy but it could save me a few hundred bucks. The problem is I’m just not very mechanically inclined these days. Taking on this task would probably cause more pain, in the form of mental anguish, than money saved.

Besides the lack of interest, another reason clients might not try it themselves is because it’s flat-out dangerous. With the brakes, there’s the risk I might do it wrong. That could pose a danger to me or to others riding in the car. With option trading, mistakes will be made. A beginner needs to start small rather than trying to manage an entire account. If large sums of money hang in the balance then look out below!

For my concern to be realized a situation even worse than the brake installation would have to take place. In the analogy, the mechanic at least shows the other person how to install the brakes. If a client were to copy me then it would be without the “how-to” steps. My job as an investment adviser isn’t to teach people to trade. Lots of fine details go into trade design, trade entry, and trade execution. Whole classes could be done on these topics alone.

I’ll continue with more thoughts on trading transparency in the next post.

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