I was wondering what the odds are of having a lucrative income as a stock professional? Sort of a second career. I have an MBA, and as a PhD I've taught statistics and have always excelled at math. No super significant grad classes in financial instruments but have enjoyed the field.
Series 7 then what?….
I'm over 60, (A&M engineering degree but long out of the field) and love to learn, but is it worth it at this point in my career to begin another career?
I know that nobody can answer such a specific personal question but what stories have you heard and what opinions, if any, do you want to share?

Do you have a hypothesis for a trading strategy that will beat index funds? Because if you don't, then just buy and hold index funds.

The John Tuld answer to this question is: be first, be smarter, or cheat. You're not going to trade faster than institutional investors, so that's out. Presumably you don't intend to cheat. That leaves outsmarting the market.

Outsmarting the market is tough and professionals fail at this all the time. If you believe markets are efficient, then asset prices already incorporate all available information and the only to achieve better-than-market returns is to exploit non-public information (we're back to cheating). I personally subscribe to the conventional wisdom of "weak market efficiency," which roughly says asset prices eventually reflect all information but information isn't uniformly incorporated by all. So you can potentially beat the market trading on information that is public but obscure. Trading firms do all kinds of crazy things like pay for real-time satellite imagery to get information advantages

Another for instance, I knew a guy who ran a fund that traded on firms by following their litigation. He was an attorney and would read the court briefs and trade on who he thought had a better case. It's public info, but with a high barrier to digest. He says he made a good run for several years, but eventually he closed the fund, so who knows.

To make money with other people's money you need clients. The first thing a prospective client asks when meeting an "advisor" is "How long have you been in the business?" Multiple degrees don't trump that answer. So whether you're setting up your own shop or working for some firm you still need clients or you'll fail. I spent a long time working in that biz and around the office I found the more initials a person had behind his/her name the shorter their tenure. You have to sell to stick around and for some reason the smart folks seemed to think too much. Ya gotta know how to close.

The ones I know that make bank sell whole life insurance

I think we're all a bit unclear on how you're defining what you want to "do" in your potential new career. Do you want to be a broker (advise others) or an investor (trade on your own account)?

Becoming a broker does take some education and effort, but once you've completed the required steps, it's really a sales and relationships-building job. Of course, if you provide advice that makes customers money, it helps a lot, so further education never hurts. Like some above have noted, it often takes many years to build up a solid customer base, so you may or may not want to stick to it during the early years.

Being an investor is quite different. Here, having access to liquid capital is much more important, and you only have yourself to blame if you don't achieve your goals. The range of self-education tools is vast, and you have to pick an approach that works for your personality and skillset. Typically, luck and timing are as important as skill and discipline to achieving better-than-market results, and the truth is that most are better off going the indexed investing route. The key things to watch out for are arrogance (especially if your first few trades are winners) and getting discouraged (keeping at it, even when you inevitably pick loser trades).

Just some food for thought.

BartInLA said:

---

I was wondering what the odds are of having a lucrative income as a stock professional? Sort of a second career. I have an MBA, and as a PhD I've taught statistics and have always excelled at math. No super significant grad classes in financial instruments but have enjoyed the field.
Series 7 then what?….
I'm over 60, (A&M engineering degree but long out of the field) and love to learn, but is it worth it at this point in my career to begin another career?
I know that nobody can answer such a specific personal question but what stories have you heard and what opinions, if any, do you want to share?

---

I envy your knowledge and skills.

The advice given above is probably good, but there are lots of mathematicians who've used statistics to find pricing anomalies and made billions off of them. Today, Wall Street hires them in droves and labels them quants.

Exhibit A is James Simons of Renaissance Technologies. He hired only mathematicians and PhDs from the hard sciences, but wouldn't let "traders" or MBAs in the front door. Renaissance has had perhaps the highest return to investors of all hedge funds even though its fees were also the highest, perhaps by at least one order of magnitude. Simons pioneered high frequency trading in order to take advantage of the pricing anomalies (often only fractions of a penny) that he found. His salary at Renaissance was 2-3 billion per year.

Another mathematician made billions after discovering that warrants were mispriced. In order to determine their "correct" price, he independently developed a formula that was simultaneously developed by Black and Scholes. Their formula, known as the Black-Scholes formula, is now used universally to price options.

A client of mine made billions by discovering that many bonds were mispriced. Until he discovered the anomaly, many junk bonds were priced as junk bonds, even though some were secured by first mortgages on real estate. He realized that they should have been priced as first mortgages despite the lack of credit worthiness of the borrower.

Your knowledge of statistics might enable you to discover and take advantage of other pricing anomalies. Of course, every shop on Wall Street is doing it now, and it requires a statistical analysis of vast amounts of data. What you learned in your MBA classes may be completely irrelevant to that approach.

Jabin said:

---

BartInLA said:

---

I was wondering what the odds are of having a lucrative income as a stock professional? Sort of a second career. I have an MBA, and as a PhD I've taught statistics and have always excelled at math. No super significant grad classes in financial instruments but have enjoyed the field.
Series 7 then what?….
I'm over 60, (A&M engineering degree but long out of the field) and love to learn, but is it worth it at this point in my career to begin another career?
I know that nobody can answer such a specific personal question but what stories have you heard and what opinions, if any, do you want to share?

---

I envy your knowledge and skills.

The advice given above is probably good, but there are lots of mathematicians who've used statistics to find pricing anomalies and made billions off of them. Today, Wall Street hires them in droves and labels them quants.

Exhibit A is James Simons of Renaissance Technologies. He hired only mathematicians and PhDs from the hard sciences, but wouldn't let "traders" or MBAs in the front door. Renaissance has had perhaps the highest return to investors of all hedge funds even though its fees were also the highest, perhaps by at least one order of magnitude. Simons pioneered high frequency trading in order to take advantage of the pricing anomalies (often only fractions of a penny) that he found. His salary at Renaissance was 2-3 billion per year.

Another mathematician made billions after discovering that warrants were mispriced. In order to determine their "correct" price, he independently developed a formula that was simultaneously developed by Black and Scholes. Their formula, known as the Black-Scholes formula, is now used universally to price options.

A client of mine made billions by discovering that many bonds were mispriced. Until he discovered the anomaly, many junk bonds were priced as junk bonds, even though some were secured by first mortgages on real estate. He realized that they should have been priced as first mortgages despite the lack of credit worthiness of the borrower.

Your knowledge of statistics might enable you to discover and take advantage of other pricing anomalies. Of course, every shop on Wall Street is doing it now, and it requires a statistical analysis of vast amounts of data. What you learned in your MBA classes may be completely irrelevant to that approach.

---

The highlighted paragraph is REALLY cool. Makes perfect sense, but SOMEONE had to discover it. I'm wondering if small business loans personally guaranteed by the business owner's assets have been treated the same way? It's a lot smaller potatoes than bonds, but might there be some arbitrage there by securitizing these selected loans? Our resident bankers can feel free to weigh in...

On the other examples, you're using the two all-time best instances ever recorded - - these obviously are uber-rare individuals (and both from decades ago). Most quants today are paid a corporate salary and benefits, plus a company bonus if they're lucky. So, I would have to take exception to the statement: "lots of mathematicians who've used statistics to find pricing anomalies and made billions off of them."

this may have been a very specific scenario, but I'm having trouble believing there was ever a time when collateral was ignored when pricing bonds.

Diggity said:

---

this may have been a very specific scenario, but I'm having trouble believing there was ever a time when collateral was ignored when pricing bonds.

---

It absolutely was with mortgage backed bonds heading into '07. Of course that is lack of quality of collateral.

We occasionally see a revenue bond that has some insurance added that improves rating, that is missed.

It happens often as the research it can take is not cost or time efficient. Those that can do it more efficiently and/or understand it better, can thus improve risk and/or return.

Yeah, that was the opposite (kind of)

I don't doubt there are mispriced bonds. Just skeptical about the thesis resulting in "billions" for this individual.

Well, your doubts are wrong. It was billions. It doesn't take too many mispriced bonds with face values in the hundreds of millions to get into the billions. The Trump Atlantic City casinos alone had bonds with face values of around ~$600 million, IIRC, and were being traded as junk bonds even though they were secured with a first mortgage on the casinos.

My client has frequently found other similarly mispriced financial assets. Another example where he made billions was purchasing massive amounts of debt secured by aircraft in the months after 9/11. The market panicked after that event and that debt was trading for nickels on the dollar.

I don't think it's that unusual for high-yield/junk bonds to be secured (looks like roughly 1/3 of them today are). Like anything else, there's different quality levels of high-yield bonds.

I read your first post to mean that your client had discovered some sort of unknown arbitrage with bond pricing.

Diggity said:

---

I don't think it's that unusual for high-yield/junk bonds to be secured (looks like roughly 1/3 of them today are). Like anything else, there's different quality levels of high-yield bonds.

I read your first post to mean that your client had discovered some sort of unknown arbitrage with bond pricing.

---

AFAIK, he was the first to discover the misclassification as junk bonds of bonds secured with first liens on real estate. Once he broke the ice, everyone discovered the same thing and now they're correctly classified.

I don't know if all such bonds were misclassified or just some, but he made multiple billions off of the ones he discovered.

I don't know why you're arguing this. I was with him during the applicable time period (late 90s and early 2000s) and witnessed it first hand. (I even took a very small position in one of the bonds - with his permission of course - and it turned out to be a very profitable investment.)

just trying to understand what the play was.

TriAg2010 said:

---

Do you have a hypothesis for a trading strategy that will beat index funds? Because if you don't, then just buy and hold index funds.

The John Tuld answer to this question is: be first, be smarter, or cheat. You're not going to trade faster than institutional investors, so that's out. Presumably you don't intend to cheat. That leaves outsmarting the market.

Outsmarting the market is tough and professionals fail at this all the time. If you believe markets are efficient, then asset prices already incorporate all available information and the only to achieve better-than-market returns is to exploit non-public information (we're back to cheating). I personally subscribe to the conventional wisdom of "weak market efficiency," which roughly says asset prices eventually reflect all information but information isn't uniformly incorporated by all. So you can potentially beat the market trading on information that is public but obscure. Trading firms do all kinds of crazy things like pay for real-time satellite imagery to get information advantages

Another for instance, I knew a guy who ran a fund that traded on firms by following their litigation. He was an attorney and would read the court briefs and trade on who he thought had a better case. It's public info, but with a high barrier to digest. He says he made a good run for several years, but eventually he closed the fund, so who knows.

---

Here's a strategy that always out performs the market--ALWAYS:

(a tiny bit NSFW)

Yea, Myron Scholes almost helped bring down the financial system: https://www.thebalancemoney.com/long-term-capital-crisis-3306240

that's interesting

but wouldn't AI computing and machine learning be even better than a human with a PHD?