CTA Commodity Trading Advisor

Learning that customers can’t stand minor swings – regardless of how “professional” they portray themselves…

In 2011 I decided that it would be a good idea to open a CTA. I had a multi-year personal track record that was pretty darn good and my time with Linda Raschke and the Granat Fund provided the experience I would need to run a successful CTA.

But, as any business owner knows, your business is only as good as your customers.

A Lesson in Frustration

As it turns out, my customers claimed that they could handle a double-digit draw-down. And, as my historical record showed, that wasn’t unusual – occurring at least once every 12- 18 months.

Yet, as soon as the first significant draw-down arrived, most of them ran for the hills. And it wasn’t even in the double-digits!

This was frustrating because now my customer records will always show that I LOST money for my customers. If customers run on every draw-down instead of waiting for a new equity high, the CTA is always going to get screwed on their performance record. Always.

For this reason, I stopped recruiting customers in 2013 and formally shuttered it in 2015. I kept it open for an extra two years because one customer stuck around for that time-frame. Otherwise I probably would have shut it down earlier in 2013 or 2014.

Lesson Learned

I learned a valuable lesson with this venture – make sure investment capital is locked up for a multi-year period so that you have a chance ride out the ups-and downs. This applies to investments such as CTAs and Funds as well as for private equity (VC investments in your start up)! Otherwise, the capital will flee at the first sign of an obstacle. I did not ask for the capital to be locked up because I thought our customers would be professionals – but as it turns out, even professionals panic for no reason…

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