Friday, September 26, 2014

Potpourri of Quotes by Brilliant Traders

Today I reviewed my notes for ten minutes and found these great quotes from some brilliant traders.  What I want to hear when great traders speak at conferences is how they think, not their latest hot stock pitch.

Bill Ackman after losing $500M on JCP investment:

“I’m not emotional about investments. Investing is something where you have to be purely rational, and not let emotion affect your decision making — just the facts.”

“Investing is inherently probabilistic — not every investment is going to be profitable.”

Joel Greenblatt:

“My definition of value investing is figuring out what something is worth and paying a lot less for it.”

“When you are very concentrated, you have the chance to make 20, 30, 40% annualized returns.”

“One common characteristic of many of the stocks that we buy is that everyone hates them.”

“Even if you don’t know what the upside is – if you just know there’s upside – you can create scenarios where you have excellent risk/reward.”

“The difference between those who are successful and those who fail is perspective – the viewpoint of how they look at the market- understanding how to filter out the noise.”

“If you want to get good at investing, read a lot and practice a lot.”

Ray Dalio:

“The type of thinking that is necessary to succeed in the markets is entirely different from the type of thinking that is required to succeed in school….Most school education is a matter of following instructions—remember this; give it back; did you get the right answer? It teaches you that mistakes are bad instead of teaching you the importance of learning from mistakes. It doesn't address how to deal with what you don’t know. Anyone who has been involved in the markets knows that you can never be absolutely confident. There is never a trade that you know you are right on. If you approach trading that way, then you will always be looking at where you might be wrong. You don’t have a false confidence. You value what you don’t know. In order for me to form an opinion about anything involves a higher threshold than if I were involved in some profession other than trading. I’m so worried that I may be wrong that I work really hard at putting my ideas out in front of other people for them to shoot down and tell me where I may be wrong. That process helps me be right. You have to be both assertive and open-minded at the same time. The markets teach you that you have to be an independent thinker. And any time you are an independent thinker, there is a reasonable chance you are going to be wrong.” 

I agree strongly with Ray Dalio here.  Even in my highest conviction ideas, I am never more than about 60% confident that the trade will work out as hoped.

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