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Interesting story, I can imagine you were pretty worried at first. What brokerage do you use to configure that type of automated order execution?

I met my financial planner when she cold called me at Sun.

She worked for the company handling Sun's employee purchase plan and stock option plans. I've stuck with her as she he moved from company to company (generally by acquisition). Establishing a standing order was simply a matter of calling her up and telling her what I wanted to do. I'm not sure how it was implemented on her side though.

What is her fee structure?

Currently, it is 0.78% of the assets under management.

Oof that hurts

Have you considered using IBKR to do the same sort of automated order execution, but without the AUM fees?

Not really. Basically the basic calculation I make is what is my time worth vs what I'm paying in management fees. I've been pretty happy and the managed assets have consistently out performed the S&P 500[1] even after accounting for fees.

Everyone is different of course, I'm not a min/maxer trying to eek every cent out of my investments. My goals are/were around not having to work if I don't feel like it. I do understand people who use their net worth as some sort of 'score' they feel they need to 'win.' That is not who I am.

[1] I basically consider a zero fee robo-investment strategy in specific ETFs as the 'null hypothesis' here. If the team out performs that, it is okay, if they don't we need to talk.

For how long have you outperformed the S&P500 including feeds ?

I find it hard to believe this strategy works with any kind of long term horizon. This story reads like easy money. Tell us about some of your losses.

My old man always taught me: People love to brag about their wins (in the stock market), but rarely share their losses. The best traders know: You learn the most from your losses.

If this strategy is so good, why don't you run a prop trading firm doing exactly this? And do you run the same strategy for oil, natural gas, soybeans, and pork belly futures?

He wasn't bragging about it. He was just mentioning it because it had a side-effect of bringing the SEC onto him.

"If your strategy in trading microelectronics stock (largely hype-based and that you have an intuitive understanding of) is so good even though you didn't actually claim it as being all that, why don't you run the same strategy in trading pork (no one has ever gotten hyped about pork)?"

Agreed they weren't bragging about it, but it is worth pointing out it's a horrible strategy and will probably produce a net loss over time unless you happen to be incredibly lucky.

>it's a horrible strategy and will probably produce a net loss over time

I dunno. Too many variables to dismiss as horrible out of hand. For one, it depends on the actual companies involved.

Also depends on exactly how he executed it. If the stocks followed the typical average of 10% YoY gains as the rest of the market, then there's a way to execute this strategy wherein he wouldn't lose by definition. For instance, he might set a mark on the sell side to ensure he's not selling at a loss vs. his last buy.

Now, he might get stuck holding the stock for some time (especially after a big downturn) and that might incur him some opportunity cost. But, that wouldn't mean a net loss if he was willing to wait. And, that'd be no different a risk than, say, a typical buy and hold strategy.

> will probably produce a net loss over time unless you happen to be incredibly lucky

"Buying tech stocks" is probably the lucky bit. If the stocks are cyclic but there is a upward trend it probably works pretty well.

I interpreted the story as humble bragging. Too many HN stories-of-convenience are nothing more than humble bragging. It would have been a much more impactful comment if he spent the second half talking about serious losses and learning a lesson.

Every time I post about how I'm bad as something or made a mistake, then learned a lesson, it is followed by a bunch of humble braggers telling stories-of-convenience about how they avoided such an "obvious" mistake.

Finally, let me share yet another of my lifetime fails: During 2008/2009, I was convinced everyone was wrong about risk management at huge investment banks -- subprime mortgages and synthetic CDO^2! I was thought they were infallible, filled with financial maths geniuses would could navigate any financial storm. I was dead wrong. I was shocked when Goldman's legendary Global Alpha fund CLOSED after massive losses. Could. not. believe. it. It's still a bit shocking to write, because their record of outperforming the S&P 500 using partner money was the stuff of legend. And, yes, I lost so much money against Bear, Stearns & Co. and Lehman Brothers. Ouch!

It wouldn't have been a better comment. It would have been an off-topic comment, because the topic was the SEC going after people for insider trading.

> And do you run the same strategy for oil, natural gas, soybeans, and pork belly futures?

Some commodities have exactly the right kind of volatility and timing for these sort of trades.

Like most strategies it works until it doesn’t. If you’re on margin it will stop working more quickly. However it’s more likely a stock with the right beta will oscillate like this fairly often and let you make your small gains. But you also miss out on the big gains and also are left holding the bag when the stock drops 50% overnight on some news.

It’s a classic “picking up nickles in front of a steam roller” strategy. But it could work for a really long time. Until it doesn’t.

<<<picking up nickles in front of a steam roller>>>

This! I see so many "options trading strategies" for retail traders that are exactly this.

> I find it hard to believe this strategy works with any kind of long term horizon.

You are correct, to an extent.

It breaks when the stocks in question continue to go down. I happen to be a really conservative investor (I tend buy and hold, never got into the whole day trading thing during the dot com rush). Given that each 'up' blip was essentially a 10% gain on my investment (approximately) the cash gain would be banked[1] when it sold and there was a 20% stop loss[2] sale as well. But with a very cyclical stocks the returns were pretty steady.

I added the stop loss after I found myself holding stock that just became more and more worthless after the dot com crash. (when you buy on the dip and the dip keeps right on going :-). It is also the reason I had Agilent stock for a while in that I was holding HP stock when they spun off Agilent, the HP sold when it continued to tank and there were no instructions on the Agilent. So between 1990 and 2005 when I had this in place I think the annual rate of return on that part of my portfolio was about 8%? The crash wiped out a lot of gains that took a while to undo (I think if I had sold off what I was holding in 2001 it would have been like 2% annualized gain over the 10 years.

Note, I have never been, nor aspired to be, an "elite" trader. It was in 1990 when I had about $1500 in my brokerage account that was just sitting there in cash and I wanted to something more interesting with it than put it into a bank CD. Hence my foray into "algorithmic" trading :-).

[1] That cash was taken out of the pool, it wouldn't be re-invested on the next dip.

[2] Stop loss -- a 'good til cancelled order to sell a stock at the market price if it's price falls below a set value.

For the same time period, if you had put all your money in an ultra low fee ETF that tracks S&P 500... I bet a lot of money the ETF strategy would easily outperform.

Twenty years ago, I used to closely read articles like ... <<<Miller's Legg Mason Fund Beats S&P 500 for 15th Year in a Row>>> Before I understood more about "finding alpha", I assumed you could find an active manager as a retail investor that could beat S&P 500. With age & experience, I no longer believe it true. Legg Mason beat the S&P 500 for a long, long time... but if you look closely, they only beat by a little bit. Then one year they got crushed and gave back all their winnings and trailed S&P 500. Plus you paid active management fees for 20 years. In the end, investors didn't beat S&P 500 over the long term.

It was crushing for me when I put all the pieces together. For so long, I believed I could outsmart the market as a retail trader by finding the right active manager. After that, I never looked back -- 100% ultra low cost passive index trackers against WIDE, well-established indexes, so I'm not "stock picking" by another name.

FWIW I went through a similar "education." For roughly 3 months in 1999 I had a combined restricted stock (already granted with an 83b election filed but vesting over time) and incentive stock (fixed strike price, 1 year cliff, .25%/yr thereafter) options in a single stock that in 2003 (4 years later) if the stock was trading at the same price as it was in 1999 ($120) was "worth" $12,000,000.

In 2001 that stock was trading for $0.83/share[1]. And while I didn't have any opportunity to sell it, being an employee and all, what really pissed me off was that I had Sun stock that I could sell that would have been worth $360,000 after taxes (which would have paid off my mortgage). Instead I rode that stock down to about $9000 when Oracle bought them.

Similarly my 401k savings account, that I had put in the max amount every year for decades, had under-performed the S&P500 and even some lousy mutual funds.

So yes, I've had my share of ups and downs, and yes if I had put all of the money I ever had in my brokerage account into an SPX ETF I might have more in it now than I do.

But here is the thing for me, and perhaps spending my teen years in Las Vegas warped my perception of money enough to make this possible, I recognize that the equities market is essentially "random" and various studies have born that understanding out in the large view. As a result it doesn't "feel" to me like I somehow lost money through my own actions, it feels like the bet I made didn't pay off. That is a different approach than getting emotionally invested in the financial outcome of investment decisions. When I came to understand that I was not going to spend all of my time reading financial reports and resumes of senior management like my Dad's ex-swiss banker friend does to get an "edge" I had two choices, go the ETF route or let my financial manager manage some of my assets.

[1] At $0.83 that was about $40,000 in the restricted stock (nobody exercises their incentive stock options that are underwater :-), And yes, I recognize that $40,000 is way better than nothing, and because of my 83b election I have a long term capital gains loss that I can claim for $3,000 a year on my tax return every year and that will continue for the next 75+ years if I were to live that long (I won't).

It's probably a good thing you removed it, because I bet if the SEC were bothered enough they could argue that NOT changing your standing order is possibly informed by insider knowledge. No idea if that is actually something they'd try to argue though.

So would changing it to potentially avoid losses.

They should have removed all orders the day they became an employee.

I know high frequency trading firms that are heavily inconvenienced by insider knowledge. They have to shut down so many things. Securities Insider trading is really tricky in the US as it isn't a specific law specifically about insider trading, only a bunch of court cases by the securities regulators that they sometimes won.

I'm confused by this sentence: <<<I know high frequency trading firms that are heavily inconvenienced by insider knowledge.>>>

Normally, HFT firms don't care about insider trading. They are trading "noise" -- finding signals from past and present trading activity to make small bets that are 51% likely to be successful. They manage risk very carefully. This is not a secret. Cliff Asness from AQR Capital has given multiple long-form interviews on this topic. You can Google to find podcasts and printed articles.

On the other hand, long-short hedge funds, such as Steven Cohen's legendary Point72, love insider information! It is the backbone of their business model. The best ones employ an onion-like defense strategy to launder inside information as legitimate analyst reports. Only the outermost layer is directly transacting in insider information. As the information moves closer to the center -- real traders -- it is carefully masked to hide its origin. The SEC was never able to catch Steven Cohen, but they caught many, many people around him and eventually forced his original fund to close.

Where on the spectrum is RenTech?

I assume you mean Renaissance Technologies. I categorise it as pure HFT. They are not taking long-short technical or macro positions in their main fund -- that I know. (Others: Please correct me if they have other funds, or changed strategies in last few years.)

That said, RenTech was under intense scrutiny by SEC and IRS for their incredibly aggressive tax strategy. I did not follow it to the end.

Medallion fund? I thought it was stat-arb.

Interesting point/question.

First: Yes, Medallion fund is the primary fund of RenTech.

Second: To me, stat-arb can be HFT or non-HFT. They were/are doing HFT stat-arb in Medallion fund. AQR, Virtu, and Citadel are probably doing both HFT and non-HFT stat-arb. Twenty years ago stat-arb was called "pairs trading". Today, it is much more complex: basket vs basket.

HFT firms don't care about insider trading. If they get exposed to it anyway, they have to shut down their active trading in that specific security for some time, and exclude it. Its not the only thing many firms do.

In practice, there is no way to reliably know why a stock is changing price. There is lots of insider trading that is so small it does not materially impact the trading prices. As of date, there is no scientifically reliable way to measure "market impact" real-time. I assume the best HFT funds are trying to do this using AI/ML.

Right, and that’s not a factor in insider trading charges.

If a firm - that also has an agnostic active trading strategy - gets any inside info they have to cut the active trading strategy for liability reasons. That’s a conclusion some firms have made, not whether the SEC will actually bother them in a quantum reality or whether they can successfully defend it.

Hands-off standing orders are typically fine with the SEC and are actually preferred to actively trading if there's even a remote possibility of being exposed to insider info. But, I'm not a lawyer and this isn't advise. Talk to your lawyer and investment advisor about any compliance issues.

The problem is unless they account for it, their trade could trigger during a 'blackout period' (before earnings) when they shouldn't be executing any trades at all.

Blackout periods have no SEC standing. They're purely a construction by your employer to avoid the appearance of trading on MNPI. Standing order trades (e.g., rule 105b-1) can execute at any time relative to earnings.

True

Not quite. Most executives and board members have standing orders for their own company (usually sell x amount every y days), this way they can’t be accused of doing something illicit.

There is a bit of a grey area with respect to insider trading and cancelling a standing 10b5-1 order and the SEC has recently commented that they’ll be looking at those foregone transactions with more scrutiny in the near future: https://corpgov.law.harvard.edu/2021/06/25/gensler-plans-to-...

> I referred them to my broker

Did you have any legal obligation to do that. What would have happened if you choose to remain silent?

If you can prove you didn't do a crime, seems like pointing out why is going to be in your best interest if the fuzz comes calling. Remaining silent is sure a good idea generally, but this seems like one of the rare cases where I don't see the point.

An interesting question. I was a Technical Director at NetApp which isn't a corporate officer (that is VP and above), and wasn't an identified insider (there are forms to file for that). NetApp had a policy against employees trading stock during "blackout" periods (typically two weeks before and two weeks after the earnings announcement) but were okay with and knew about my 'programmed' trades.

I think the SEC could have probably made a case that it was possible for me to know that NetApp's results were going to be better than the street expected (I didn't know that but I did know we weren't hurting like EMC was). And the money involved was small. I expect it was the timing more than the amount that triggered their call.

I was surprised I didn't hear from NetApp's general counsel at the time (I'm sure they were notified).

So if I said nothing? That would probably trigger a closer inspection. Sure its my right to not speak to them, but doing so would have probably made them more suspicious. And frankly, I have seen so many times when people trying to be "tricky" got into more trouble than if they had just been open with what was what that I have rarely felt tempted to push back on that sort of thing.

I'm surprised they got to you that quickly. Having worked in finance most of my career, some of which involved fielding SEC inquiries, my impression is they are way behind enforcement. Although, to be fair, usually the inquiries I was fielding were more to do with spoofing and manipulation, not insider trading.

I know a few ppl in compliance at different exchanges, they move pretty quickly if they think it’s a one off, if it looks like it’s part of a larger game they’ll be more methodical. But this sounds pretty standard, it looked odd but not too odd so just warranted a quick call.

roughly what kind of netapp volume did your orders trigger the SEC into looking into it? $1000s, $10,000s, ... ?

It was a while ago, maybe $4,000 - $5,000 ? I was definitely not more than $5,000. As I said above, I think it was more the timing than the amount that got them curious.

Which brokerages support triggering trades off moving averages?

I expect none do, and this was probably implemented through a financial advisor who either has their own bespoke system for doing stuff like this automatically, or perhaps something more manual, like setting price alerts and then having a team of people react to them.

Nowadays you can do it with Alpaca.

What were your returns on this strategy?