How to become a fund manager (in US)

[jobyts]

I was wondering what are the legal requirements to become a fund or portfolio manager in US?

I'm a computer engineer by profession, and I have no degree in finance. I can see, there are many highly qualified engineers who are really bad with their 401k/stock portfolio. Many of my colleagues think I am good at financial analysis and suggested me that I can get at least a million dollars from my colleagues to manage. Part of he reason is, I was able to predict the 2000 and 2008 market crashes with a fair amount of accuracy, and asked everyone to sell their stocks. What are my options as a part time fund manager, with a professional financial degree and without one?

 

[SELFMADE]

How did you foresee the crashes

 

[chingkui]

I am interested too how you were able to predict it. I have a few questions:
1. When you said you were able to "predict the 2000 and 2008 market crashes with a fair amount of accuracy", how accurate (in terms of timing and severity) was that? And based on what information were you able to make such a prediction?
2. So, you said you were accurate when you were bearish, were you able to be bullish at the right time too? If you are bias towards being bearish, then I would have no surprise in your ability in predicting crash. But to be able to take advantage of that and make money, you have to be able to predict accurately a bull market as well.

As for being a fund manager, I am not working in the finance industry, but as far as I know there are lots of regulations as to who can manage money or even give financial advise. I am very doubtful it can be a part time job. And even without those regulations, you could lose all your friends, and your shirts by just one mistake.

 

[jobyts]

I just tract the 200day moving average of SPY, and that gives a fair amount of accurate prediction to market crashes. I back date tested from year 1950 data onwards.

If the 200dayMA is bullish (means, the 200dayMA is higher today than the 200dayMA of yesterday), it is long term bullish. In year 2000, SPY went upo $150.00 and started coming down. When it reached $140, the 200dayMA started going down. So I could cash out at around within the 10% from the top.

In year 2008, SPY went upto 155.00 and the MA started coming down at 140.

When to buy back is a bit more heuristic. My strategy is to stay out for a year (historically, almost all of the recessions lasted 1 year to 2 years) and buy back based on dollar cost averages. Meanwhile if I see the 200dayMA start going up, I'll fully enter into the market.

This is a broader strategy I have.
There are fine details to my algorithm. But, If I tell you, I'll have to kill you :)

 

[twofish-quant]

I was wondering what are the legal requirements to become a fund or portfolio manager in US?

It really depends. If you want to go into business on your own you may need to be a registered investment adviser. If you are working for another company, you may need to pass a Series 7 test by the SEC.

I can see, there are many highly qualified engineers who are really bad with their 401k/stock portfolio. Many of my colleagues think I am good at financial analysis and suggested me that I can get at least a million dollars from my colleagues to manage.

Becoming a fund manager isn't that hard. Starting a fund to manage is much, much trickier, since there are all sorts of legal landmines. The big landmine is that you can get into very serious trouble if you do something that the SEC thinks is a "public offering." There are many, many fewer landmines if you just offer stock ideas and don't touch the money yourself.

Also a million dollars isn't a very large amount of money to manage, and the big problem is that you may be eaten alive by the cost of brokerage and legal fees. If you want to manage the money yourself, rather than either working as a fund manager for another company or providing investment advice without touching the money, you'll really need a lawyer set everything up.

Part of he reason is, I was able to predict the 2000 and 2008 market crashes with a fair amount of accuracy, and asked everyone to sell their stocks. What are my options as a part time fund manager, with a professional financial degree and without one?

It's rather difficult not so much for legal reasons but for financial ones. The basic problem is that in order to be able to support yourself you need a rather large pool of money. Suppose you have $1 million in assets, and suppose you can get 10% return. If you have to spend $50,000 in expenses (including the lawyer that you just hired), then your investors are no better off than if they invested in T-bills.

One other thing that surprises people is that financial professionals are *not* stock pickers. There are two types of professional investing. One is "value investing" which is what Warren Buffett does. You go into each company look at the balance sheets. The other is "index investing" where you take a large number of stocks and assets and then optimize for risk-reward using a mathematical model that is not predictive.

One problem with stock picking is that you just can't do it professionally. If you have $10,000 of stock X, you can tell your broker to dump all of that and buy $10,000 of stock Y. If you have $1M of stock X, you can't easily sell all of that at once without getting killed in the market.