Analyzing Risk/Reward Tradeoffs
by Fred S. Gehm
These days, more and more potential traders are avoiding the day-to-day problems of commodity trading
by committing their funds to professional money managers. For many, perhaps most, this is a reasonable
decision, although unfortunately it does not solve all of their trading problems. Deciding to use a money
manager only replaces the many difficult and important problems of trading with a few very difficult and
very important problems.
The most obvious and most important problem is that of selecting a money manager in the first place.
With several thousand individuals offering managed accounts of one kind or another, how can the "best"
money manager be selected?
Selecting a Money Manager
It's been my experience that most individuals ask the wrong questions when attempting this selection.
They look for a manager with the highest potential returns, that is, the one who might possibly make the
most money. A somewhat more reasonable approach is to select a money manager who is likely to make
the highest return, a subtle but all-important difference.