The Cost of Admission

“If it was easy, everyone would do it!” It’s a fairly over-used quotation in today’s parlance, a short-handed way to essentially say that difficulty of a task has a perfect correlation with future success. There are plenty of examples where this supposed relationship hilariously falls apart: cramming for a final, dealing with particularly noxious coworkers, many trade careers that are woefully under-compensated for their unique skill-set. But there is some merit to the saying, especially when it comes to fields where there’s a barrier of entry to admission to the veritable land-of-plenty. Finance is no stranger to this: there’s a long list of items that need to be tackled in order to go from the genesis of an idea, to the initial launch of the idea out into the world, to sustained success in the industry.

The first step is ubiquitous across pretty much any specialty: a unique idea, a new and profitable perspective on the current landscape that isn’t being seen. Development of this idea can take a long time, limited by skill, access to information, and time. I was a student in the UCLA Anderson MFE program when I started working on my idea, balancing researching it with coursework, extracurriculars, and social relationships. After graduating I continued to plug away at development in any available free time, making sure that the strategy was bullet-proof and sound enough to weather out-of-sample data points and massive flux in the global market. I was fortunate enough to obtain updated data recently, allowing me to test against the most-recent three years of market data and keep relatively up-to-date on the current landscape of the market. After nearly 3.5 years of work I’m finally ready to start a track record to truly determine if this idea works in-practice based on its expected success from research and development.

Still, that’s not to say that everything is free and clear. To be truly efficient in regards to market movements, I need access to daily end-of-day data. It’s not particularly cheap, and the type of data used isn’t readily available through many data providers. I’m essentially limited to my original data source, which is nearly prohibitively expensive at this point, mostly because most capital is going into holding positions for the strategy itself. There’s also the adaptations that need to be made when adjusting a theoretical strategy to the real world. Some positions aren’t as feasible to get into at low scale as they would be for larger positions, requiring some real decisions to go into how to adjust the strategy or whether to make the choice to go down the difficult route and ensure as much 1:1 accuracy as possible.

It was a long process it took to fully develop this idea and stress test it against in- and out-of-sample data in order to ensure it was a true measure of investment success instead of a reflection of “noisy luck”. However, this was only the beginning: developing a track record, determining the proper investment vehicle for the strategy once verified, and finding investors once a track record is established ensure that the journey is just beginning. The hurdles, both known and unknown, are numerous and hazardous, and any one of them can sink all the work that has been done. I’m writing these blog posts as both a small peek behind the curtain of developing a strategy such as this and as a sort of diary/log for the world to see the path I’m taking to progress forward, allowing future endeavors to either follow or avoid the steps I took. I know it’s not going to be quick, and I know it’s not going to be simple. But hey, if it was easy, everyone would do it.