V.2:2 (76-79): Analyzing Risk/Reward Tradeoffs by Fred S. Gehm

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.