Market Wizards on losses

Discussion in 'Trading' started by a529612, Jun 13, 2006.


    Throughout my financial career, I have continually witnessed examples of other people that I have known being ruined by a failure to respect risk. If you don't take a hard look at risk, it will take you.
    Larry Hite

    Frankly, I don't see markets; I see risks, rewards, and money.
    Larry Hite

    My philosophy is that all stocks are bad. There are no good stocks unless they go up in price. If they go down instead, you have to cut your losses fast... Letting losses run is the most serious mistake made by most investors.
    William O'Neil

    [Michael Marcus - another top trader] taught me one other thing that is absolutely critical: You have to be willing to make mistakes regularly; there is nothing wrong with it. Michael taught me about making your best judgement, being wrong, making your next best judgement, being wrong, making your third best judgement, and then doubling your money.
    Bruce Kovner

    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?'
    Paul Tudor Jones

    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.
    Paul Tudor Jones

    Don't focus on making money; focus on protecting what you have.
    Paul Tudor Jones

    The elements of good trading are: (1) cutting losses, (2) cutting losses, and (3) cutting losses. If you can follow these three rules, you may have a chance.
    Ed Seykota

    When I get hurt in the market, I get the hell out. It doesn't matter at all where the market is trading. I just get out, because I believe that once you're hurt in the market, your decisions are going to be far less objective than they are when you're doing well... If you stick around when the market is severely against you, sooner or later they are going to carry you out.
    Randy McKay

    I'll keep reducing my trading size as long as I'm losing... My money management techniques are extremely conservative. I never risk anything approaching the total amount of money in my account, let alone my total funds.
    Randy McKay

    When I became a winner, I said, 'I figured it out, but if I'm wrong, I'm getting the hell out, because I want to save my money and go on to the next trade.'
    Marty Schwartz

    Learn to take losses. The most important thing in making money is not letting your losses get out of hand.
    Marty Schwartz

    I always define my risk, and I don't have to worry about it.
    Tony Saliba

    The key to trading success is emotional discipline. If intelligence were the key, there would be a lot more people making money trading... I know this will sound like a cliche, but the single most important reason that people lose money in the financial markets is that they don't cut their losses short.
    Victor Sperandeo

    I think investment psychology is by far the more important element, followed by risk control, with the least important consideration being the question of where you buy and sell.
    Tom Basso
  2. A loss never bothers me after I take it. I forget it overnight. But being wrong - not taking the loss - that is what does damage to the pocketbook and to the soul.
    Jesse Livermore
  3. Daal


    Cut your losses quickly. wow, groundbreaking
  4. Easier said than done. We all think ourselves to be smart, and smart people (tend to like to think that they) don't make mistakes.

    But we do. Traders who do not accept this will one day lose it all.
  5. August 1971 was a very exciting time. We were long Japan and short America, and one Sunday night, Nixon announced that he was taking America off the gold standard. I didn't even know it had happened. I had been off somewhere on my motorcycle, and I came in Monday morning without having read the papers. That week the Japanese stock market went down 20 percent, and the U.S. stock market went up. We were losing heavily on both sides.

    Did you have to liquidate your positions right off the bat?

    You can't liquidate at a time like that. Who can you sell to in Japan? Who could you buy from in the U.S.? If you covered your shorts, you made things worse. In a situation like that, you have to figure out whether you are right or wrong. If there was going to be a major fundamental change forever, the first loss is the best loss. But if fundamentally you are basically correct, then you do nothing but sit there and let the market hysteria wash around you.

    Did you stay with your positions?


    So, you really had to ride out a rather treacherous paper loss.

    There is no such thing as a paper loss. A paper loss is a very real loss.

    What was the analysis that gave you the confidence to stay with your positions?

    Our analysis was that this was not the end of the world. America had simply taken a short-term step, and it was not going to solve our country's long-term problems.

    Did that position actually turn out to be OK?

    It turned out fine. The Nixon announcement was just another step in the dissolution of the Bretton Woods Agreement [a 1944 international pact that, among other things, established guidelines for foreign exchange rate stabilization] and the decline of America. America was rallying in its own bear market.

    Jim Rogers
  6. Redneck



    Managing losers boils down to only one thing – discipline

    Livermore was smart – but he lacked discipline – right up till he pulled the trigger – and lost his smarts (sadly ironic)


    Discipline is one of those counter intuitive skills

    Without it one can make a tremendous amount of money quickly – AND – lose it, and more – just as quickly (a fact often overlooked by most)

    With it one has a rev limiter of sorts on their ability to make money – BUT – they also have complete control over their losses

    Personally I’ll take discipline and consistency all day long

  7. A very good thread. Not one to be glossed over.
  8. DrEvil


    Good thread! Personally I have no problem cutting losers, but when I get a real runner I find it hard to risist the burning temptation to take profits. It's silly really.
  9. Good point! The points quoted by OP are easy said than done properly: most people's uncle point, common wisdom, is
    the worst point to get out, which is the most likely reversal point. You either get out earlier, unharmed, or later tough it through for reversal if your analysis is sound.