PTJ is not only a successful hedge fund manager and philanthropist,
but also very original and clear thinker. Here are some of his best
market-related insights:
1. Markets have consistently experienced “100-year events” every five
years. While I spend a significant amount of my time on analytics and
collecting fundamental information, at the end of the day, I am a slave
to the tape and proud of it.
2. I see the younger generation hampered by the need to understand
and rationalize why something should go up or down. Usually, by the time
that becomes self-evident, the move is already over.
3. When I got into the business, there was so little information on
fundamentals, and what little information one could get was largely
imperfect. We learned just to go with the chart. Why work when Mr.
Market can do it for you?
4. These days, there are many more deep intellectuals in the
business, and that, coupled with the explosion of information on the
Internet, creates an illusion that there is an explanation for
everything and that the primary tast is simply to find that explanation.
As a result, technical analysis is at the bottom of the study list for
many of the younger generation, particularly since the skill often
requires them to close their eyes and trust price action. The pain of
gain is just too overwhelming to bear.
5. There is no training — classroom or otherwise — that can prepare
for trading the last third of a move, whether it’s the end of a bull
market or the end of a bear market. There’s typically no logic to it;
irrationality reigns supreme, and no class can teach what to do during
that brief, volatile reign. The only way to learn how to trade during
that last, exquisite third of a move is to do it, or, more precisely,
live it.
6. Fundamentals might be good for the first third or first 50 or 60
percent of a move, but the last third of a great bull market is
typically a blow-off, whereas the mania runs wild and prices go
parabolic.
7. That cotton trade was almost the deal breaker for me. It was at
that point that I said, ‘Mr. Stupid, why risk everything on one trade?
Why not make your life a pursuit of happiness rather than pain?’
8. If I have positions going against me, I get right out; if they are
going for me, I keep them… Risk control is the most important thing in
trading. If you have a losing position that is making you uncomfortable,
the solution is very simple: Get out, because you can always get back
in.
9. Losers average down losers
10. The concept of paying one-hundred-and-something times earnings
for any company for me is just anathema. Having said that, at the end of
the day, your job is to buy what goes up and to sell what goes down so
really who gives a damn about PE’s?
11. The normal progression of most traders that I’ve seen is that the
older they get something happens. Sometimes they get more successful
and therefore they take less risk. That’s something that as a company we
literally sit and work with. That’s certainly something that I’ve had
to come to grips with in particular over the past 12 to 18 months. You
have to actively manage against your natural tendency to become more
conservative. You do that because all of a sudden you become successful
and don’t want to lose what you have and/or in my case you get married
and have children and naturally, consciously or subconsciously, you
become more conservative.
12. I look for opportunities with tremendously skewed reward-risk
opportunities. Don’t ever let them get into your pocket – that means
there’s no reason to leverage substantially. There’s no reason to take
substantial amounts of financial risk ever, because you should always be
able to find something where you can skew the reward risk relationship
so greatly in your favor that you can take a variety of small
investments with great reward risk opportunities that should give you
minimum draw down pain and maximum upside opportunities.
13. I believe the very best money is made at the market turns.
Everyone says you get killed trying to pick tops and bottoms and you
make all your money by playing the trend in the middle. Well for twelve
years I have been missing the meat in the middle but I have made a lot
of money at tops and bottoms.
Please share this article
The New York Times had the definitive take on the vicious sell off in gold.
The analysis provides a good representation of the current conventional
wisdom. The only twist here is that the article from which this summary
is derived appeared in the August 29, 1976 edition of The New York Times. At that time gold was preparing to embark on an historic rally that would push it up more than 700% a little over three years later. Is it possible that the history is about to repeat itself?