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i should be taking 4-5% positions to catch some of the value.


Why you cowboys --said with a smile-- think you need to bet big (or not bet at all) is beyond me. Linda Raschke --one of the world's top traders, who consistently ranks within the top 1-1/2% of all hedge fund managers -- says this of her position sizes. "I keep them all the same size, because I never know ahead of time what's going to work". But George Soros, whom I equally admire, is/was notorious for "putting on size". A story --maybe apocryphal-- is told of him. One day one of his traders came to him and expressed worry about a currency trade he was doing for the firm. George asked his size.

"Ten million", the trader said.

"Ten million? You call that a position?"

But two further things need to be said. Linda doesn't let positions move against her. She takes her losses fast, knowing she's be able to make them up later. And George is notorious about reversing in the blink of an eye. He's totally without emotional attachment to the position. Two different styles with regard to size, but the same ferocious attention to managing losses. I know I fall into Linda's camp. Yeah, in retrospect, sometimes it looks as if I coulda/shoulda bet bigger. But that's nonsense. If long-term survival is what matters, and by that I mean, one would be willing to run a Monte Carlo simulation on one's investing/trading plan and live on the least favorable cases, then one bets small. In Taleb's terms, one chops left-hand tails, leaving oneself convex to positive Black Swans. But the "bet-big" boys are concave to left-tailness. That's just the nature of the game in the Fourth Quadrant. Sooner or later, big bets will blow you up. Maybe not in this turn of the wheel, maybe not in the next. Maybe not for 50 or 60 years, because outlier runs of luck do occur of, which there are plenty of egregious examples. (Buffet being one of them, as several studies have demonstrated.)

In his first book, Taleb contrasts the two betting styles. John, the emerging markets bond trader, bet big. For years, Nero envied John his success, but he ran his account so that no single trade, and no combo of trades, would ever blow him up. Well, you know what happened. One day, Nero saw John and knew the inevitable had happened. His run of luck had come to an end. John's temporary ability to make outsized bets and to get away with them came to an end, because it was due to curve-fitting, and markets had changed. Same story with Long Term Cap Mgmt and the Nobel winning idiots who advised it. Their models and ability to leverage their trades worked until they didn't. But if they hadn't over-bet their hand, they could have hung on, and six months after the firm was liquidated, the market did turn back in their favor. But they weren't there to profit.

Good investing/trading ideas are like the stars in the sky. They do come in clusters. But there are infinitely many of them if one just looks. Or to use a more urban image, good investing/trading ideas are like buses. If you miss one, there'll be another along soon enough, and you're going to need capital --and more importantly, both stamina and calmness -- to catch it. "Grinders" are survivors. Not an exciting gig. But food gets put on the table, and the bills get paid, year after year after year.

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