Very good and useful. I didn’t improve my position sizing and risk management until I document every move like what Lynch did with the note pads. It helps keep me in check on how exposed I am to everything and how much I can really afford to lose. Even then, I do stupid things and lose plenty of money… I also think having steady incoming cashflow is so important to us as it gives lots of dry powder without needing to market time (think Berkshire subsidiary profits and floats). Murray Stahl also does that with FRMO given its fee revenue streams.
Good points, Michael. Tacking moves is helpful and safe cash flow is a huge psychological advantage. In his book, How They Did It, Stahl talks about about how many of the best investors had this advantage which allowed them to act confidently in downturns.
Exceptional piece! A must-read for every market participant, regardless of his or her field.
Traders and investors share more than they wish to confess. The importance (and negligence) of risk management is a common trait.
Gaining experience in markets has taught me a few lessons:
1. Never forget about time. It has the highest opportunity cost of all assets we have in our possession. Therefore, options become an integral part of my approach.
2. Absolute returns are essential, but the negative correlation between assets we own is even more critical. In other words, combining assets with opposing behavior during the business cycle provides a statistical edge.
3. Underperformance is a bitch. Anyway, there is a nuance. Do not measure your performance against any benchmark on an annual base. Do it every three years. Then, if the trailing average is below the S&P500, it's time to revisit your game. If not, keep doing whatever you do.
Very good and useful. I didn’t improve my position sizing and risk management until I document every move like what Lynch did with the note pads. It helps keep me in check on how exposed I am to everything and how much I can really afford to lose. Even then, I do stupid things and lose plenty of money… I also think having steady incoming cashflow is so important to us as it gives lots of dry powder without needing to market time (think Berkshire subsidiary profits and floats). Murray Stahl also does that with FRMO given its fee revenue streams.
Good points, Michael. Tacking moves is helpful and safe cash flow is a huge psychological advantage. In his book, How They Did It, Stahl talks about about how many of the best investors had this advantage which allowed them to act confidently in downturns.
Exceptional piece! A must-read for every market participant, regardless of his or her field.
Traders and investors share more than they wish to confess. The importance (and negligence) of risk management is a common trait.
Gaining experience in markets has taught me a few lessons:
1. Never forget about time. It has the highest opportunity cost of all assets we have in our possession. Therefore, options become an integral part of my approach.
2. Absolute returns are essential, but the negative correlation between assets we own is even more critical. In other words, combining assets with opposing behavior during the business cycle provides a statistical edge.
3. Underperformance is a bitch. Anyway, there is a nuance. Do not measure your performance against any benchmark on an annual base. Do it every three years. Then, if the trailing average is below the S&P500, it's time to revisit your game. If not, keep doing whatever you do.
+1 evaluating against a benchmark on a longer timescale than annually
Yes
Thanks for adding these thoughts!