Important Lessons from Big-Time Trading Crooks – Introduction
The financial world is full of many people who have made a fortune as traders. People like Ray Dalio, Paul Tudor Jones, and Carl Icahn have made a fortune in the financial market. They are respected people in the society.
The world is also full of people who have used the financial market in the wrong way. Bernard Madoff is the biggest crook of all. In his scheme, more than $63 billion was lost. Today, Madoff is serving a 150-year sentence. His two sons, Mark and Andrew have died.
On a smaller scale, Martin Shkrelli, also known as the pharma bro, is currently in court – not for jerking prices of drugs – but for the crimes he committed while running his hedge fund. He faces more than 10 years in jail.
A few years ago, a movie, Wolf of Wall Street was released. At its peak, it was one of the best-performing movie in the United States. The movie was based on the true story of Dana Giaccheto. Dana was a money manager for celebrities like Leonardo DiCaprio and Cameron Diaz. At his peak, he used to manage a lot of money before he lost it all. He was locked up for five years. After his release, he tried to rebuild his life before meeting his death.
Recently, one of my best friend disappeared without a trace after losing more than a million for her investors.
As a trader – especially if you have ambitions for managing other people’s money – this article is very important to you. In the article, I will provide a summary of key lessons you can learn from these people.
- No one starts as a crook
No one who ends as a financial crook starts his career wishing to be a crook. They all start with a very noble desire of making money. They have a desire to be the next Carl Icahn, George Soros, or Warren Buffet. Bernard Madoff’s goal was to run the most profitable fund in Wall Street. The same with all the crooks mentioned in this article.
The trend is usually the same. They start out innocently, make a fortune for themselves, and then reach out to potential investors. They show their performance and promise their investors that they will protect their money. After receiving the funds, they start making money for their investors.
Then along the way, a mistake happens. They make a single bet that ruins their streak. To avoid being found out, they start falsifying their data and sending clients reports that are incorrect. Happy about the returns, the investors bring in more money and introduce their friends to the scheme.
At a point, some investors will want their money back. The manager will then take money from the account and pay them.
The problem comes when a large investor wants to redeem all his funds and the trader does not have it. This prompts panic calls.
- Need for honesty
To avoid being in this position, honesty is key. It is the most important attribute that you must have. You must be ready to face your investors and tell them that the performance has not been good. Doing this is not easy.
The best way to start this is by talking to your investors when they sign up. You should tell them these realities of the financial market. First, there is no pro in the market. When the market opens, we are at the mercies of the market. Anything can happen. Second, you should let them know that the past performance is not always an indication of your future performance. Third, you should tell them that you are not a bank. Banks are tasked with protecting people’s money. As a trader, your task is to grow the funds. As you strive to grow these funds, you can lose them too.
When the investors know this, chances are high that they will be hoping for the best while still expecting the worst.
- Don’t game the system
Most trading crooks go wrong when they start gaming the system. Unfortunately, no one can efficiently game the system without being caught. As I have mentioned before, the world of trading crooks can be traced to centuries ago. They have always been there. Only a few of them have gone without being caught.
To stay in line with the system, you should be open with your investors. The best way to do this is to send them regular updates. These updates could be on a monthly or quarterly basis. You should ensure that the updates are accurate. Even when you make a loss, you should be open to your investors by telling them the truth.
- Legal opinion
Money is a very serious issue. People are emotionally attached to it. To avoid being sued by your traders, the best thing for you to do is to have a legal opinion. When you sign up new customers, ensure that you use the experience and expertise of a lawyer. The lawyer should ensure that you are not sued when the trades don’t work out.
These are the practices that have been performed by the best investors and traders. For example, hedge fund managers release their quarterly letters to their investors. In these letters, they explain their ideas and the performance of their funds.