Individual account statement discussion

I love to tackle problems. The more intractable the problem seems, the more I like it. I think that’s one of the main reasons I like the market so much: so many things to try to figure out. Anyway, I was pondering as I often do about ‘the statement problem’, this time for a trader trading an individual account. There seems to be some problems that just don’t have any solutions, so I thought I would post this, too. Maybe someone has some ideas.

As in the other statement thread, please only address the specific points, and nothing else. I only want specific answers to the exact questions below, nothing else. If anyone asks any questions or makes any comments not specifically addressing these questions, as the moderator of this thread I will edit them to say ‘This is not on topic, please start a separate thread for that topic’. Please do not reply to a post marked this way. Let’s only address the specific questions below.

Let’s make some assumptions in this example. Understand, this is a generic example, not an example referring to me, or anyone specifically. Over the years there have been many requests for statements, and this would apply to all those requests, here and on other forums. So, let’s assume the main reason for the statements request is that the person who is to post the statements is not trusted. They are considered a big, fat liar by the requester. Hence, here’s problem number one: the statements won’t be trusted.

Let’s say the person posts statements. These statements are completely unverifiable. I have racked my brain and I can’t come up with one way to verify them. They will not be taken on face value, after all the motivation in asking for them is that the person is not trusted. So, the minute they are posted, the questions will arise, and they should, about their legitimacy. Think about this folks, don’t think of anyone specific and use your common sense. Would you take the word of someone posting statements about their legitimacy if the reason you wanted them posted is you don’t trust that person in the first place? Of course not. I surely wouldn’t.

Here’s the next problem, number two. No one in their right mind would post who their broker is online in public. With all the hacking that goes on (it seems a day doesn’t go by without another announcement of another institution that has been compromised) it would be plain nuts to do so. Anyone out there want to post in here where you do your banking, with your full name and city (something that would easily be available for any vendor)? I didn’t think so. Your money is in your brokerage account. You want to tempt fate like that? Regardless, it has nothing to do with verification of legitimacy. Anyone can put any broker logo they want on any fake statements.

Let me also add that my experience has shown it is wise not to overleverage. The amount of leverage I think is reasonable has the margin per contract for the ES at its current valuations at about $15K per contract. Any less than that is overlevered in my opinion. Sure, you can get daytrading margins a lot lower, and most amateur traders will argue incessantly about how the much lesser amounts are just fine. To me, it’s a bad accident waiting to happen. Just give it enough time, then talk to me.

Point is, if you trade small, just ten contracts, you’d need $150K in your account. Now, does anyone really think it is wise (be honest, not just caught up in proving a point) to scream out online ‘Here I am, I have $150K in cash in this account’ (no less tell them which brokerage it’s in)? If you think that’s wise, well, you and I are on a totally different page. I have known some traders who swing a line of 750-1,000 ES contracts, and one well-known trader who does live trading videos trades around 100. Imagine calling attention to a balance like that (or personal wealth like that).

And that leads me into point number three. Statements are so easy to fake I am pretty sure any eighth grader who has basic computer geekery skills could do it. Okay, here’s a low, pick a buy price near there, write down the time, here’s a high, pick a sell price near there, write down the time. Do that a couple three times a day, throw in a stop out here and there, and you have your statement. Match the font of a real statement and ‘Photoshop’ it in there. Like I said, eighth grade computer geeks do this kind of stuff all the time for fun.

Now, given how absolutely easy it is to fake statements, who is going to take them, once posted, as legitimate, if they do not trust the poster in the first place? Use your common sense, the ink wouldn’t be dry on the post and they would be called into question, especially if the results are quite good. You know that’s true.

Now, we have a posted statement that has no broker name on it (as we discussed, it wouldn’t change one thing if it did), no account number, barely a name. Imagine calling up ABC Brokerage Company and saying ‘I need to verify the account balances and trade sequences of John Doe for last month. No, no I don’t have an account number. No, I’m not John Doe, I just need you to verify all this.’ Use your common sense, what will be the answer. Yep. Click.

Now, how about if the statements are audited. (Understand, I have never seen a request here from anyone for audited statements.) I recall a case where a fund got busted and the whole thing was a Ponzi scheme, and they had audited statements from one of the top firms. Except it turned out they cloned a real audit report and faked it (and also recall how many famous auditing companies went belly up after the tech bust where they were faking audited statements for money). So, if someone was going to fake statements wouldn’t they just fake audited statements?

Now imagine this. You see the audit report and call up the auditing company. Recall my example calling a brokerage company, use your common sense, and think how this will go. ‘Uh, XYZ Accounting Firm, I need to verify an audit report that you did that I saw posted online in a forum. The account number, no, I don’t have that. The brokerage company, no, I don’t know that, either. I have the person’s name, that’s all. Who am I? I’m a guy who saw this posted online in a forum and I want to verify its legitimacy.’ Click.

So, I see no way to verify any statements that are posted. Let’s call that issue number four. I have mulled this for hours and I don’t know how this could be done. Since this is kind of blatantly obvious, I think posting statements would open a forum can of worms that leads right down the Alice in Wonderland rabbit hole of going in circles with problems that have no solutions. The statements would get posted (by someone who is not trusted by the requester), and the results, being so easy to fake, would not be trusted. Then what? What is rather curious is that I have yet to see a requester say specifically where they stand on things like this. The answer is almost always ‘just post them’.

Now, here’s a possible request:

Post statements. When they are posted I will take them on a face value, that’s a promise (this request would not be a likely possibility, since the requester is requesting said statements because they don’t trust the person, and to now magically state they would trust the person, well, it’s a nonsequiter i.e. it doesn’t follow logically).

Here’s a more real world request:

Post statements.

No matter how many follow up clarification questions are asked, nothing will be added beyond ‘post statements’. Talk about a disaster waiting to happen…

And the last issue, let’s call it number five (I’m numbering them so they can be easily addressed). Anyone who has worked hard on their methodology and uses it to earn their living may not want to show a long sequence of trades. I was following some traders who traded in one of those live, online contests where every trade is posted. Among other reasons, they do this to get followers who will then invest money with them (via a subscription service where trades they execute do so in each individual's accounts). I got six months worth of daytrades for this one very successful guy, which they had made available. I think I spent between 200-300 hours charting and dissecting those trades. I think I did figure out what he was doing. Not so smart if you don’t want what you do to be known to the masses and all the ‘hedgies’ out there. To pooh-pooh that like it’s not a legitimate concern is just unrealistic.

So, any thoughts anyone? I’m trying to bring some real world issues into the discussion. It does no good whatsoever with a topic like this to not address the points specifically and instead keep repeating the same hypnotic mantra over and over (‘post statements’) like that will somehow address all these points if it is repeated enough. I am now more of the mindset after thinking on this that more often than not you don’t see statements posted for the reasons discussed in my two threads than for the reason often given: the person doesn’t have said statements (or doesn't like what they say). Now, of course those that are wedded to that idea will never change their minds, and I would not want to try to change them. But on the other hand I wouldn’t mind having some valuable, constructive, logical discussion on solving the problems of the realities of such requests.
I just showed this to a guy I know (he doesn't read the forum) and he found another issue, well call it number six I guess. He said that if a person shows six months of statements but gets to choose the continuous six month period they will present their best six month period over say the last five years or whatever. They may have had one streak for six months and been losing the rest of the time. So I suggested to standardize the rules always the latest six months. He came back and said this would have an issue with 'survivorship bias' in a sense, in that those who had a good last six months would post now, and those that didn't would wait and post when they did.

He also mentioned that six months doesn't mean much because many traders are very streaky, and some take wild chances (like they do to win trading contests, which is why the winners of those are not necessarily good traders over the long run), and so may look good now, but won't survive over time. He said you would really need to look at the long-term track record over the entire career, like they do with fund managers. I think he's right. The more I study this, the more difficult it gets trying to find real-world solutions, and I'm not getting much help, folks...