The Truth About "Trading Gurus" From a Hedge Fund Manager

this video has been a long time coming i got a professional investor to come on the show and tell us what he thinks of all these ridiculous fake gurus i wanted to know do these professional investors people who run hedge funds people who are institutional investors do they actually respect people like ricky gutierrez tim sykes are these actual traders that you should listen to or are they just frauds so you're going to hear it straight from an actual professional investor forget about these 20 year olds on their little laptops telling you that it's so easy just spend an hour with us come on you know i know you guys like to see the lambos we don't have any of that for you i know you guys want to see the nice houses we don't have any of that for you what we do have is somebody who has spent his life in the stock market and he's going to tell you that not everything you've been told is gold so please enjoy this hour-long video and uh i'll see you in the next one welcome to coffeezilla today guys we have patrick boyle patrick you've been an institutional investor for over 20 years you teach at university in the uk and you're now a hedge fund manager is that correct yes that's correct yeah and on top of that you have a finance youtube channel which is criminally undersubscribed to um because you talk about you know a bunch of interesting real finance topics not how to make 500 in a day you're actually trying to educate people on how to trade you know with a quantitative approach uh and you reached out because you said look um we were talking about something i had said about day trading but i said hey why don't you come on the show and talk to people because obviously you understand trading at a higher level than probably 99 of any of these youtubers or coaches or anything like that and so i'd like to talk to you about reasonable expectations for people who are getting in the stock market um reasonable expectations for how to know if somebody's selling you something rather than actually giving you a real education and uh we'll go from there but let's just start off as someone who's been on the institutional side now you're on the hedge fund side you teach this stuff at a university level what do you think the state of education is with trading on youtube right now you know it's interesting because there are there are some good channels out there that i quite enjoy like that that kind of just give a good explanation of um sort of what various products are i think you know there's a fairly obvious uh differentiation between the people who are telling you how to get rich and the people explaining things to you and i would argue in a funny way i think that you know the sort of fake guru thing is not just a an investment world or a money-making thing it's it's there everywhere like in that you know and some of it relates as you said reasonable expectations like if you you know you'll see uh someone telling you you know how to lose 50 pounds in in two weeks and have a you know six-pack abs or how to learn the guitar in one easy lesson and you know all of these things like you have to sort of ask yourself is it reasonable like these you know like like is it reasonable to think that someone could very quickly within a few weeks tell me how to do this sort of thing yeah and i think though the problem with stocks is that with weight loss it's pretty easy for most people to understand why that's unrealistic the stock market's much more complicated and most people who have no experience with the stock market might very well be taken in by the idea that like oh yeah it's reasonable to expect i'm making two percent a day and that's like a reasonable rate of return can you talk about what should people be expecting for day trading what is an excellent return and what's just like that doesn't happen let's actually start just with that two percent a day argument because that's kind of a slightly comical one you know if you think about it it might sound reasonable to someone initially like if you say well if you took something and bought it for a hundred dollars and sold it for a hundred and two dollars that sounds within the range of reasonable expectations but if if we then kind of annualize it out you know if you take two percent a day that would turn into about i don't know 140 000 percent a year roughly like that that's what you're talking about um and in three years you could take your hundred dollars and that would that would make you probably about 16 times wealthier than jeff bezos for example it would make you in if you were 16 times wealthier than just basis you're actually would be probably wealthier than the 100 wealthiest people in the world combined right and so two percent a day you know when you kind of go oh well i bought something for a hundred and solder 102 now i'll do that every day that that's not how the world works you know um a good example like when i i looked up like some of the returns of the the greatest investors of all time so people like george soros and warren buffett have probably the best records out there and you know a lot of people kind of go oh buffett it's boring or at least if sort of fake gurus would but warren buffett and george soros have each returned about 20 a year over 40 years you know which is about twice the return of the market you know so that's amazing returns to to have gotten away with um steve cohen of sac capital returned around 30 a year over a much shorter time frame and it's worth noting that he has been banned from trading client money by the sec and you know there are i don't know that anything is proven but there have been questions around his uh his trading that's certainly worth noting let me say though so what these people will say to this when i when i say this or when you say this they go hey well that's because you're talking about people handling very large accounts and my genius strategy that's making me two percent a day consistently just doesn't work on that scale and that's why i can only make i'm only making like let's say they say they make a hundred thousand five hundred thousand dollars a year they go so i this is like a tim sykes things i can really take people from trading with like nothing to trading about a one million to two million account size but after that my strategies don't work which is why i'm not uh you know i'm not a warren buffett that's what they'll say what would you say there is something there in that even the the fund palomar that i run um you know we capped the amount of investor money we would take in because we're doing short-term strategies and that means they're less scalable but the nature of something being less scalable also makes it less shareable right because why would you take something if he's able to turn we'll say a thousand dollars into a million in a year and then continue continually trade that why would he ever give that to to the public and and it's not even it's not like you ran into him and he's a friend of yours and he offered to help you out with this advice right like when you search if you just google like great trading strategies like the first 10 odds will be from these guys right like so not only are they you know not only are they they willing to give it away but they're willing to spend money on ads to tell you that they'll give it away to you so in other words if it's a strategy that is limited in scale that doesn't make any sense because they're they're paying good money to scale it to the moon yes okay well not not only that it's actually even an interesting thing is because what i run is sort of quantitative strategies and what that essentially means is that i take a lot of data and i analyze them and look for opportunities within the market that uh that you know in theory work repeatedly now now you the the what you actually find them when you do that is you find a mix of strategies that work quite well and you find other ones that look like they will work quite well but then they don't out of sample and it's it's always difficult to differentiate between those before uh you know on day one but the nature of those kinds of strategies as i've said they're usually not scalable and so you keep them as a secret you know and you keep them as a secret not even out of a lack of generosity but it's a lot of work for me to find a good trading strategy and if i even if i worked in offices with great people and they've sort of said to me like oh could you explain how this works and it's like i can't tell you that because then everyone will do it and then it won't work you know because that's the nature of some you know actually the first guy i worked with the first kind of really interesting uh fun manager was a guy named victor niederhoffer who wrote a great book called education of a speculator and in the opening of the book he he basically says there will be no trading secrets in here because if i could tell you this sort of thing why would i tell you that and put myself at a disadvantage and return myself to being a mere mortal you know struggling to feed himself you know and so you know and actually an interesting one because when i did start that job i was around 20 years old and i remember kind of arriving in the office with a guy who i knew had you know he had run sources quantum fund throughout the 1980s you know under periods of huge returns and i kind of thought you know like this is great i'll sit here and he will teach me his ways you know and instead he sat me down he said there's a computer there's a there's a load of data go and find a good trade because he didn't hire me to teach me stuff he hired me to find stuff that he could find useful and that's kind of the nature of any of this stuff like when when people look at my youtube channel i often try to explain unusual technical things in the market like one of my bigger videos was a while ago when oil prices had gone negative it was all over the newspaper oil prices were negative and what i tried to explain in the video was how sort of the nature of the futures market means that that the that when you're buying and selling oil futures you're not really buying oil that's in the ground you're buying oil that expires at a certain time and so therefore the the price relates to storage costs and all these other things and you know i put up this video and it did well but a funny thing is a lot of the people in the comment section then wanted me to say well should i buy oil or not and it's like no no i'm not telling you what to do because if i tell you to buy something you don't have to come back to me and be told when to sell it right like i'm i'm explaining how it works and once you arm yourself with all of these ideas you're better able to make decisions you know what you understand the products you're trading better and that that's kind of my goal with my channel right no and i think that's the nature of real education is not like okay tell me what to do now i'm gonna do it and i'm gonna come back to you and now you tell me what to do again and i'm gonna do it and then i'm gonna do it again uh and i think a lot of these things end up sort of also being a bit of pyramid schemes where these people they give signals to their audience who then rushes out and buys the thing and they sell it on they sell it on the way up like the person that's sort of the oldest scheme in the world you know you read you know one of the things i would advise people if they want to learn about investing and trading is to read a lot of books and there's books going back hundreds of years on the idea of financial speculation or investing or whatever it might be and these tricks are all as old as the hills you know these guys have been around forever um it's just kind of a new coat of paint is what you're saying it's just exactly like it's just you know there's there's uh there's nothing necessarily that new about about their claims but uh you know the pump and dump scheme is basically what you're describing there and you know it's it's a thing that's been around forever it you know the internet gives it new life because you're able to reach more people over the internet than you're able to reach but interestingly enough one of the things we first started chatting about was jordan belfort the the wolf of wall street you know who is now i guess setting himself up as a an investing guru of some sort he's joined ragingbull.com for those of you who don't know which is under ownership by this guy jeff bishop i believe or here let me look it up real quick raging bull and i know interestingly enough you know i i see the ads once again all over youtube the funny thing is if you create financial content you get financial ads and they tend to all be sort of questionable ads i would say and you know jeff bishop is one of these guys you know kind of getting on an airplane with wads of cash you know like for some reason like when when i invest in the market and i make a profit it usually turns up in my account well their brokers seem to drop off these large bags of cash that they then have to take on a private jet you know to to an island where presumably they bury it or something but um jeff bishop uh you know does there's two guys jeff bishop and jason bond who seem to head up raging bull now in the ad that i most often see jeff bishop says he's the founder of of raging bull and i remember thinking like raging bull's been around for a while you know and so the internet exists you can look up who founded raging ball it's founded in 1998 by three uh college roommates none of them were jeff bishop so that's and actually i think you could even find his uh his linkedin cv and it's not obvious to me that he ever worked in any sort of uh investing role other than sort of pitching stocks on raging bulls so oh my gosh that's so funny i did not know that but now to get to bring us back to belfort now jordan belfort is being pitched as some stock guy and you made the hilario you made some hilarious uh observation that maybe you should just like repeat here because i find it hilarious because he is a salesman i will give him he's a good salesman and that's what he was teaching for some time and i was like okay at least at least you're obviously a good salesman that's fine i i don't really have that big of a problem with it but now that he's selling stocks it's like you were arrested for what you did with stocks he received a four-year sentence for securities fraud and money laundering i believe just to be clear you know so i kind of think that if he was setting up teaching you how to maybe sell a pencil on amazon you know that that might be you know i've i've seen the wolf of wall street film and he seemed to be an excellent pencil salesman but it's just not obvious maybe the only thing he's maybe less suited to having watched that film is maybe teaching someone lamborghini maintenance tips you know that that's the only thing i mean you know this is a guy in fact amusingly as well on his wikipedia page where you can see i get all of my information it says that his greatest regret he claims is losing people's money you know and he didn't lose people's money he stole people's money you know there's a difference he didn't lose it they lost it right yeah he stole it and then he he stole i believe or at least he was required to return to his clients 110 million um apparently 10 was paid back and that was through asset forfeiture and so on which means you know the way these guys talk about how much money they've made or how wealthy they are jordan belfort it would appear to me possibly as a net worth of minus 100 million dollars you know so that's who you're that's who you're finding yeah uh i believe that it's i forget what the product line is called but they're pitching it as free but it requires a membership so it's like yeah well and another thing i'd recommend to people who might be interested in signing up for these kinds of courses is if you look on websites like the better business bureau you can see how well people have done we'll say if they subscribe to a service and try and cancel whether they get their money back and so on and you know you can find raging bull has a you know a score on the better business bureau website if anyone's interested look not up what is the score it's it's not five stars okay that's a nice that's a very nice way to put it oh it's one in that one in like a third stars out of five imagine so bad better business bureau rating of f yeah and they're not even like the better the better business bureau it's not even a lot of people can get a's even being fraudulent so the fact you have an f anytime i see an f on the better business bureau i think wow you must be really doing something wrong well it means you haven't upset some of your clients it means you've upset most of them you know that's right so actually i have a question so let's say somebody uh because i feel like this is a great opportunity let's say somebody wants to get into investing first of all specifically day trading because i made a video that made a lot of people mad where i said day trading you'll probably lose money i cited a couple studies that have looked at a bunch of day traders and what their returns were and as you know even the day traders who do well one year even two years typically it's only a minor indication of how well they'll do the next year and the year after that and whatever so i basically said look you're better off probably unless you're going to spend your life doing this you're better off just investing the market um would you agree with that and then if somebody wants to day trade what are reasonable expectations like if they actually want to learn how to do it what are the books maybe to look into and then also we're talking returns here there's some people who think they're going to make a hundred thousand dollars a year day trading pretty quickly what do you think about that okay so there's a few things like uh because uh you know i teach finance at a university and a lot of the students ask me about starting up trading you know and and to a certain extent i slightly say to my students it's a good idea to have a brokerage account and to invest some money because even just if you go to a job interview you know if you're you know often you'll have someone in a job interview and they'll say my passion is investing in stocks and you kind of go what stocks do you own and they go well i don't own any and it's like well it's it's not exactly your passion you know and that's alright things don't have to be your passion but um you know i i do say to them you know it doesn't hurt to have an investment account but that's different to day trading um i i usually advise them if they want to sort of start this sort of thing up is just get an excel spreadsheet and put in the trades that you would do and see how they work out and and that gives you a bit of a feeling and i you know there's some people and they they kind of can't play with pretend money and act like it's real money and there are others who really can and if you are the kind who can you'll you'll possibly learn quite a bit about yourself and about risk tolerance and things like that um you know i i think that's a good approach to start in truth i think for the majority of people day trading doesn't make sense and it's basically based you know i did see the video you're talking about and i think it's entirely accurate and and it's not me being negative but you know the reason you know i do a lot of short-term trading but i have very good uh relationships with brokers and that kind of thing where i trade very cheaply and it's not like um you know some of the trading apps tell you they don't charge you a commission but you know people make money one way or another and if they don't charge you a commission but route your your trades to you know a high frequency trader they've been well compensated for this you know so i i can you break that down a little bit for people because they're thinking okay no it's a no commission how can i you know once again there's kind of the you know the basic rule of economics there's no such thing as a free laundry but essentially firstly a lot of these brokerage firms are actually they're not making the money they used to because they've brought their commissions close to zero but high frequency trading firms will pay them to send those trades into the pool in fact the guy who invented this thing of paying for flow was bernie madoff interestingly enough but um he had another business besides ponzi schemes but um and uh and interestingly when i was at university we did a case study on whether bernie madoff was a fraud but it was it wasn't whether he was afraid whether his business was ethical because it was about rerouting trades like this uh we deemed it not ethical we just didn't know how unethical it was this is before this is before yeah oh that's so funny in 2004 there's a business school case study out there you can find you know um but uh you know in terms of why the problem with day trading is we'll say for example if you start out like even if you have a good amount of money you've got a million dollars and you want to invest that in day trade um a good year might give you sort of a 10 maybe 20 return which is one to 200 000 a year you know and that's great but there are also months and days and years when you will have uh horrible returns you know and that's just the way it is and look at the greatest investors out there and their returns and you'll see that there are you know even multi-year periods of terrible returns and you have to sort of still put food on the table throughout those those difficult periods and you have to stick with it through those periods if that's reasonable and so that's if you start out with we'll say a million dollars most of the people who are talking about doing this or talking about starting out with a lot less money and the problem is if you if you start out with 10 000 and want to make 10 000 a year you know you have to double they want to make 10 000 a month are you kidding well that that won't happen because it you know it's kind of like saying you know go to vegas and you can make ten thousand uh in a month and it's like if you're lucky but the long run expectation is that you will lose all of it you know and and that's another problem i have with a lot of the sort of fake gurus is that you know i watched a video uh uh uh i think uh jeff bishop video on options the other day and i have a bit of expertise i've written a book on pricing derivatives and that sort of thing and his video was firstly filled with errors to be clear but then on top of that he was saying that the beauty of investing using options is that uh you know you can you can ten times leave for your money so instead of if the market moves up ten percent you'll you'll make uh you'll double your money you know and that's great and it's like he doesn't mention or he kind of glosses over that if it moves against you at all that you will materially uh you know lose everything yeah and and and that this this is expected to happen like this and not only that then he also advocates the most volatile stocks like when he says you could trade and he lists out five stocks and they're all like the most volatile things and not only have you found the craziest thing but then you're you're levering it ten times he made these other errors where he said that um you know when you buy an option that that it's made up of intrinsic value and time value and the time value is the amount that you can lose and it's like no you know when you sign up to trade options you sign a disclosure degree uh disclosure that states that you can lose more than you invest and that is that is the truth that's what you can lose is more than the initial capital but on to like whether people should day trade or not i think it's reasonable for people to learn about finance and to invest i think it's reasonable to start out small not ten times levered and i also think um that the the other thing you have to look at is sort of your lost earnings from other things you know because when these guys are sort of sitting on a beach with a laptop claiming to make two percent a day i i i don't leave the office i haven't had a holiday in five no probably eight years since i've had a holiday okay yeah but but patrick respectfully that's because you actually do this for a living well these people don't these these people don't actually do it they just sell it and so part of their job is to show up on the beach with a photograph with a photo photographer and that's their job is to sell the lifestyle of this so-called mysterious day but you're out here saying look if you actually want to do this for real for real you're not taking a day off you're it's hard and grueling work it is emotionally stressful you know because whenever things go well you feel like a genius and when things go badly you feel like the world's greatest idiot and a fraud you know you look at yourself and you're like why did i just i could i could have done other things with my life and that that was actually a point i was getting to is that you know for a lot of people if you want to talk about like should i i remember in the late 90s there was a friend of mine who uh her husband shut down his dental practice to become a day trader because he could make more money trading stocks than he could working as a dentist but you have to look at the the income you've given up by doing this as well you know like if you um if you quit your job to be a day trader the problem is you know you you have to make the amount of money that you need to feed yourself for one thing um which might not be easy and secondly you don't have like any steady income coming in so there's opportunity cost also your cv isn't if you're young because i feel a lot of this stuff is pitched at quite young people and oh yeah you know it's all on instagram and things like that where you know no one over the age of 30 as has ever logged in you know and um you know the the thing is that it uh it's misleading as to you know you don't just damage you don't just lose some of your savings you can also sort of harm your career and it's it's prob you know a funny one when i launched my fund i had worked in the in the investment management business for probably around 15 years at that point and i was slow to launch my business because i'd seen so many people like good smart people that i knew start up and then it just doesn't go very well and they spent five years kind of breaking even or making a little bit of money but never enough and they're kind of never able to go back to doing a real job again because there's always this hope that it's going to work you know and i i really waited until firstly i was able to start with a reasonable amount of capital but secondly even that that i had sort of you know i had 15 years of trading experience including through the financial crisis and sort of stressful situations before because you know someone who's honest with themselves also asks are my returns random and it's not always you know it's not always obvious we'll say for example even you know when i brought up that soros and buffett have amongst the best records out there you know the truth is there's a lot of people trading stocks right they'll always be two people would like if it was a coin flipping contest there would always be two people with weird records that are way outliers that they're just always seeming to win it's just the nature of random and you know a funny thing um because i i worked for vic niederhoffer and and he met occasionally george soros and saurus would um soros was stressed about this you know he would never put himself forth as someone with genius ideas you know victor used to say that at the end of the year soros would would be dejected and say you know i'm out of ideas i don't know what to do and victor would say well you've just had a 100 return last year this is you know you're the greatest trader in the world and source would go yeah but that was then you know i i don't know that i have that anymore and that's how a real person thinks that's these guys don't you know one of the things i would say if you want to try and differentiate between a fake guru and someone who's really knowledgeable is just look at how they behave because they behave quite differently you know like if you look at how you know look at the sort of forbes uh wealthiest people in the world and how they behave and then look at how these guys are like sort of flashing their lamborghinis and you know a bookshelf in the garage because that's where you keep books and um you know like this is not how normal people behave and i think they've kind of triggered in all of these like little psychological reactions like they've worked out how to make you jealous and they've worked out and instagram i think is just an amazing jealousy machine you know that's true it's it's main function is just to make people constantly jealous of each other exactly and these guys just they show you all of this kind of crazy kind of lifestyles of the rich and famous or mtv cribs lifestyle and tell you a year ago i was just like you and it's it's not really believable but gosh you know people like to dream you know like i i understand why people sort of fall for it you know yeah absolutely and one thing i'd also like to say is one way you can differentiate i mean this is my humble opinion you should tell me if you agree or disagree is i feel like people who understand what they're doing don't dumb it down and make it seem easier than it is trading is extraordinarily difficult if you want to achieve a outsized alpha um you know repeatedly and so i think that what people i you know when i when i see your videos i'm not seeing how to make all this money so quick it's like sort of like fundamental principles of this statistics you know all these kind of basic techniques and those are the basics i mean that's just even to get your feet wet in the field but if you actually want to do real work you have to underst uh understand it to an even more technical level i think so what do you what do you think when you see all these people doing so much technical analysis and just like constantly trading just candlesticks and stuff like that do you what do you i mean what do you think of that well uh a funny thing is that you know as i told you when i started that first job and i i sort of expected to be told all these trading strategies and people said to me no go and find your own trading strategies so step one was to go to a bookshelf and to take down all of these technical analysis books and so i sat there and methodically tested them and in particular actually candlesticks they're the easiest to test because it's just open high low close data right and so you and there's often just three candlesticks in there right so you can take that sort of pattern and run it through uh all the stock market data that you want to and see if it works or not and amazingly like i was almost surprised how because even according to randomness you'd expect like some of it to work better but it was there were very few things that had any sort of a sharp ratio at all and many of them that were sort of supposed to be bullish signals were were bearish signals and so on and so it's actually giving you the opposite it's like actually doing worse than you expect from just even randomness exactly and you know the problem like one of the problems with being a day trader with short-term trading is that you you firstly you're running up a lot of trading costs it's expensive to trade even on top of like not only do you have these high trading costs but you also then have it's all short-term gains right which is taxed at a terrible rate and you know the investments no one ever tells you that no one ever tells you that no and in truth i don't even think it's reasonable like i don't know why a short-term gain is worse than the long-term gain but that's the tax code and it's the tax code in most countries now the kind of people because what i do is short-term trading there's certain tax advantages in futures but not only that the kind of people who invest with me are usually people who have non-taxable accounts so there are certain strategies that might make sense in a retirement account that don't make sense in your regular account and you know these are all subtleties like you know jason bonder whoever isn't going to tell you this stuff you know but this this an interesting one like even when i was at university when the first studies i did was to look at the behavior of stock prices around their dividend dates right the idea was that a stock that pays a dividend if it pays a one dollar dividend you'd expect it to fall by one dollar in value right and and the problem is that the dividend is taxed at one rate and so you would think that that maybe there might be an arbitrage in there that you could buy dividend paying stocks will say in your retirement account and that you could buy non-dividend paying in fact i think it's a great idea still that you could split your retirement account of the dividend payers and your regular account of the non-dividend payers and then you're tax efficient you know but that's a smart kind of quantitative trade that's not there's no way investing guru telling you to do things like that right right that's like this like subtlety with the tax code where you can kind of like cheat out a little bit of extra income and yeah no no no well each other gutierrez isn't going to tell you this actually that's the problem is that almost any good trading strategy often involves detailed knowledge like it involves knowing uh all of the rules of the markets how they open how they close like why people do certain things like there might be certain trading strategies that would be driven by we'll say for example i did a video a little while ago on index ads and deletes you know relating to tesla possibly getting added to the s p and there there are all kinds of ideas you can come to based around little technical things like that but that's that's more work than sort of in fact there's one guy i wish i knew his name like he has the worst possible he's one of the bag of money guys you know and he has these videos where it shows like stock price going up and stock price going down he's like what i'll teach is how to buy when it's going up and so when it's going down other people do the opposite and it's like it's amazing that he's worked out he's worked out this trick you know it's like a magic trick i know it's like i feel like these people are like magicians trying to convince you that magic is real when really they kind of have a con going on behind the scenes and they're basically just fooling their audience and then the people sort of in the know are like do not fall for these guys they're like selling you a lie so okay let's just because i absolutely things aren't black and white but let's say somebody's sitting out there they have an account size of less than a hundred thousand dollars and they're saying patrick i see that you've got experience i see that you teach university yes or no should i try day trading or should i just forget about it as a primary income i think it would be a horrible mistake you know because your expected return off of that is is zero right because it just it will say if you're exposed to randomness your expected return is zero and that's just mathematically right we'll say if you happen to have an edge you might you know then look at all the like the the good hedge funds out there and their returns you know 20 a year for buffett and source right so if you're as good as buffett and source which chances are you're maybe not um your return is 20 000 a year you need to get a job do you know what i mean like because you'll earn more if you're the kind of person who's able to save up a hundred thousand dollars you're probably a high enough earner that earning twenty thousand a year and also then it gets taxed as short-term gains so the government takes half of it away from well you'll be in a lower tax bracket but you know being in a lower tax bracket is its own problem yeah right having not enough income is definitely its own you it's it's its own unique set of challenges uh i'm glad you say that said that get a job that's what i always say all these people are trying to they they really dismiss jobs like they're like yeah you shouldn't be a guy with a job it's they hate jobs it is a sort of a disgusting thing like the revolt they have for like people who do real things you don't work there's one of them there's one of the ads and it kicks in with like i remember the day my boss told me he was giving me a five percent pay cut and i told him to stuff it so you know it starts out like that but it's all um you know like there's there's such a scorn like it's kind of like look at me and my lamborghini i have such scorn for someone who works hard to put you know food on the table of his family you know this is terrible it's terrible and then they go yeah this is realistic come sign up for my stupid course which is the reason he owns the lamborghini and the only way he can pay for it and then you go sign up you get less than expected returns and once again when i say like look at how these people behave and how actually wealthy people behave like i've i've i've been fortunate in my career i've met a lot of some of the wealthier people around and i've never heard them be dismissive of a person's work because it's work that work generates wealth you know like it's it's really like if you if you can do something that helps someone that makes their life better they will pay you for that and even that's my business like i invest money for people and i do a type of analysis that is frankly grueling and unpleasant to do and i trade it and people will pay me to do that but like if you're not it's sort of uh doing stuff that makes the world but you know my old boss once again vic needer offer had these t-shirts printed up that said add value on them you know and he felt that that was the route to all success in life is if you are adding that it's even like if you have a youtube channel if you have a channel that that is that some people can watch and get some value out of it then it's worthwhile if it's only for you it's maybe less it's not going to grow and it's also not necessarily worth it it's not worth your time maybe yeah and that's a lot of what these people are doing is they're they're taking they're trying to teach like short cuts to getting more wealth than you actually even are cr like you're not actually doing anything so why do you expect to create this wealth so there's kind of a mismatch of you're expecting to turn a hundred dollars into a hundred thousand but you know nothing about the stock market prior to this guy's course and it's like he's supposed to take you there come on get real well it's even uh you know the the kind of these people telling you you can make a fortune like buying stuff and selling it on amazon and it's like you know the the most famous quote of jeff bezos is is uh your margin is is my profit opportunity or he's got it's got some line like that where and everyone is terrified that amazon will enter the business they're in because they grind the margins down to zero yeah and for some reason people think that jeff bezos has left all of this fat for them to eat you know anything it's just no no hold on that is the craziest thing i always tell people this i'm like you think amazon fba is the greatest opportunity you're talking about the most most ruthless businessman probably the 21st century has ever seen and you're saying that that guy is going to make you like a millions and millions of dollars without dry basically grinding your bones and sucking as much blood as he can out of you you've got to be kidding it's insane and not only that but also there's kind of this idea like i i think what they often do as well is they rename a business something else like you had the term they use there for like amazon something something you know yeah it's just drop shipping you know they call it that because what it is is opening a shop on the internet you know like if you're buying stuff we'll say cheaply from a manufacturer and selling it to someone else that's a shop that's called a shop you're now competing with walmart and target but they have actual shops you don't even have your own website you're using jeff bezos's website you're gonna get rich uh yeah i mean it's it's absolutely hilarious so for people who are like okay well how can i make the stock market work for me because obviously how these people get away with doing this is because everyone knows the stock market itself is not a scam there are ways to make people make fortunes on the stock market they just don't make it overnight so i usually recommend that people do things like index funds just really safe super low fee strategies things where you can get 95 of the value let's say out of the stock market with basically doing no work at all um that's how i usually advise how do you when when you look at things people average everyday people who are just like how do i get the most out of this without basically subjecting myself to extraordinary risk or um extraordinary amounts of time that aren't may not pay off for me let's just say they don't want to be a professional investor what do you do with your money what are your recommendations you know i i would advise people firstly to to put money when don't even look at it like so when you invest it don't even look at it like if it's for your retirement if it's in 30 years time start looking at it in about 25 years you know but just put it as you say in a low-cost uh mutual fund like place like vanguard or they all provide them right if you want to mix it up and sort of use your head a little bit more like if the purely passive approach doesn't appeal to you you know all of those big index fund services provide a bunch of indexes right and you can probably improve your diversification by maybe adding like uh opportunity like you may be sometimes uh you know in recent years uh growth stocks you know all the technology stuff has done really well in other periods value stocks like kind of the more boring companies do well you know you might want to um you know if if you have if you feel that you can add value you might allocate a little bit differently between those rather than just a pure index fund you might want to you know buy an international mutual fund or uh emerging markets or something like that if you feel there's been a big sell-off in that area if it makes sense but that's kind of as active you know the stock market is a great thing and it really is the route to well well it it can be the route to growing your wealth but in that when you invest in stocks what you do is you own a business or you own part of a business and you should expect the kind of returns that a business will get um you know so if if you're invested in amazon you should expect the kind of returns that amazon will get or whatever and so sorry no problem so you know investing in stocks is a good way of growing your wealth i think it should i think everyone should invest just to be clear but i think that that you need to do it with an amount of money that doesn't stress you like if if you are staring at the daily moves it probably means that you've exposed yourself to too much risk you know if you're afraid of it and just back your size down um there's a a friend of mine who is a big fund manager and he um he refers to the stock market as being a lot like a casino but he says you have the great fortune of being on the correct side of the tables you know because over the long run the stock market grows we'll say at about five percent greater than the risk-free rater than what you'd earn in bonds right and you get to put your money in and be like the house and sort of have the edge in your favor but then what you do is you just put it in and you leave it in and and often you know we all have these faults um we all have uh urges to do things differently and they often harm us in in the world of investing you know and a great example actually the same guy he did he uh i'll send you a link later he wrote a paper on a coin flipping game and it was set up that the the students who did it were told that the coins would flip i think 60 percent of the time you'd have a heads right and you get to bet on it and you wanted to see how well people bet on this is this argument or is this burton malcolm no this is uh his name he's actually one of the partners from long-term capital management victor hagani okay um and and another friend of mine you and kirk wrote a really good kind of follow-up paper on it but you've got a coin flipping contest you've been told that you have a 60 chance of winning if you flip if you bet on heads every time and he really wanted to see whether people sized accurately because if if you bet too much of your bankroll on that you will still go bankrupt there's actually kind of a a formula the kelly formula for correctly sizing your bets that is a kind of quant trader idea or a gambling idea but so he wanted to see how close to like the kelly optimal bed regular people came to and he was shocked because he found that a lot of the time there were people and after a long run of heads they would bet on tails because they just felt it's time for tails to come up you know and there's sort of a thing where we want to express ourselves like our prove our our abilities and often that's harmful you know like when you've been told the winning strategy a lot of people can't stick with the winning strategy they go with the losing strategy because they go i i just want to be different or i want to be [Music] maybe they think it's time for it's time for tails for change and and they sort of feel that that that will prove that the return is about them rather than that it's sort of a return that they're harvesting and in the real world like even all of my quan trading it's about harvesting returns like i find a return stream it's a risky return stream always by the way there's no such thing as a risk-free high returns i find these return streams and i try and harvest them and then i try and find more of them and basically like when someone invests in something like a hedge fund firstly you shouldn't really usually invest in a hedge fund unless you've got tons of money that's already in the stock market and then you kind of say what could smooth out my returns and and the way i would tell an investor what you get from a hedge fund is actually uncorrelated returns you know where you're you get access to a return stream that's not easily available that isn't tied necessarily to the return of the s p 500 but it's not a better return stream it's not a risk-free return stream it's different and by being different it's sort of if you look at the sort of correlation mathematics it should overall give you a better risk return trade-off but because you're trying to basically diversify out your risk exactly it just gives you diversification so even it's like private equity and hedge funds you know you might get a better return out of them but what you should be aiming to get out of them is diversification from the easily available good returns that are available with a stock market investment i i would expect that to go over a lot of people who barely understand the stock market i expect some of that to go over people's heads but those of you at home if you understood that that is a amazing kind of nugget of wisdom there um because what people are looking for a lot of the times is some uncorrelated market and it's so hard to get an uncorrelated rate of return a lot of times nowadays because markets are so highly correlated something that happens in america oftentimes will affect markets in china and stuff and so people are constantly if you're really in the market you're looking for some sort of thing to diversify your risk away and so that's really interesting i i personally did not know that i've often wondered what is the what is the like real draw to hedge funds so that's something for me to take away if people are super interested in this i have a playlist that's put up i think it's called applied portfolio management and no one watches it on youtube because it's about six one-hour videos because people don't actually want to learn the stock market they just want to they just want the hype of like i'm a trader they want to say i'm a trader they want to say i day trade they want to say i've got forex life they want to talk about the lifestyle but nobody actually cares to understand anything nobody actually cares to actually go and research and do the work to understand what they so-called are investing in or talking well even like two two of those six videos they go through what hedge fund strategies are and i kind of explain like okay so merger arbitrage when two peop companies are combining there might be an opportunity this is how it works this is the return statement so if you're super interested in this stuff you know you can watch six to 12 hours of content on my channel that no one else watches but uh i love it no i i love and that actually is a true taste of whether you like trading because most people love the idea of trading again just to be clear mo but actually trading most people don't wouldn't find it that interesting because really good trading is a grind it's oftentimes boring it's oftentimes about finding something and then doing it over and over again yeah because once you find something why would you it's repetitive you know there's a another book i would recommend to people there's this edward torp a man for all markets and he's a fascinating guy he um he's the guy who kind of cracked blackjack you know all those blackjack systems back in the 60s then he turned to markets and found all these market efficiencies uh so he wrote two books beat the dealer was the gambling one beat wall street i think was the the stock market one then this is sort of uh his life story it's a great story but like you get the real feeling of what it is to be an investor reading you know an another book and now i'm just talking about books but there's no no no this is what people need to hear yeah go ahead well actually what i would say is if you want to learn how to make money you can just read an awful lot of books your work for tai lopez and um you know you guys you know some of these jokes are really decriminally underrated here this is some good jokes you're dropping some heat right now it's good but there's um there's a great book called shoe dog by i think his name is phil knight you know the guy who's founded nike and he describes like why it's the best book i've read on like what it's like to run a business and it's a grind and he talks about like the the toll it took on his family and dealing with bankers and dealing with suppliers who try and rip you off and all of the like you know what everyone wants all this money that that people say is freely available everyone wants it and they'll fight you to the death for it you know and so no one is going to give you these ideas because they want it for themselves and equally if there was something easy out there someone else would grab it like why why wouldn't people make will say like a copy of a louis vuitton handbag and sell it if it's not profitable right so not only do you have to sort of have the product but then someone will copy it and rip it off and people will you know there's just there's hundreds of like everyone is out to make the money that's out there because people need it you know people need to feed themselves you know and and it's not it's it's not easy and it shouldn't be easy very well said um let's close this by talking i i like what you said i like that you're bringing up books because ultimately that's what i'm constantly preaching on the show i'm like you guys are buying two thousand dollar courses you haven't even cracked your local library once yeah i mean are you kidding me you say you want knowledge but you've never gotten your library card out um or much or god forbid spend ten dollars you know on a kindle book or something like that so that is the way i see to most deep knowledge is i really see it in books even there are incredible like obviously there are you're making great videos and stuff like that but i think the best way to condense information is still in print yeah i don't think videos quite crack the educational market because i think video trends towards entertainment rather than information in a weird way um which is just a talk for another time so i want you to recommend some books for people who actually are in this and they say okay i do still want to learn but i maybe shouldn't follow these gurus what should i do what should i read firstly there's there's a bunch like george soros you know one of the greatest traitors ever has written about ten books there's guys like howard marx wrote a really good book it's called um i can't you know what i'll do i'll rather than me try and list from my faulty memory a bunch of books i'll send you uh kind of like a reading list that you can stick on the bottom of uh of your uh that sounds perfect that sounds absolutely perfect um and people can find you at patrick boyle yeah on youtube you have 5 000 subscribers which is just insane to me these idiots these scammers have like millions of subscribers i'm gonna photocopy some big wads of money and carry them around and wave them and i think that's the it's just so insane it drives me nuts but if you actually care about finance you wanna learn um you know you're a really good resource where else do you do you have some other channels you like to follow that you think are good um you know there's a really good uh what is the guy called it's uh you know once again let me email you but there's a guy that's called donut something he has this great channel um but i i can't remember oh i think i've seen this guy i think he's out of canada or something like that it's like oh man it's like yeah i know what you're talking about it's like half donut one donut finance or something something like that i know this guy oh shoot he was talking it's high quality and it's also uh you know it's little animation like it's watchable and educational absolutely i'm man i'm it's really making me frustrated not being able to find this guy because i've also seen him and i also thought at the same time i was like oh this is really good uh yeah just send it to me we'll get we'll get all the links up thank you so much for coming on patrick i really appreciate it and i think uh pleasure to speak to you thank you for clearing up the myths on in the stock market and and uh day trading appreciate it [Music] okay [Music] comes along

Channel: Coffeezilla

Views: 655,296

Rating: 4.9224401 out of 5

Keywords: day trading, tim sykes, make money online, day trader, lifestyle, patrick boyle, hedge fund manager, trader, trading guru, trading, hedge fund, warren buffett, trading educator, anton kreil, coffeezilla, fake guru

Id: JfP4rVsmL_Q

Length: 57min 46sec (3466 seconds)

Published: Mon Aug 24 2020

Reddit Comments

[u/Silver_Doller]

just hodl

[u/c12022]

He also covers in his series (which is great) how people let their emotions take control and begin supporting investments like they would a sports team. Which unfortunately happens a lot in crypto.

[u/east_e]

So we buy, right?

[u/Courimis]

I would recommend subscribing to his channel and listening to him, it is top quality finance content.