Thursday, October 2, 2014

Taking Losses. Being Strong.

The best traders in the world take losses.

They also focus on longer term records, not on daily performance.

Of course, daily performance matters because days add up to weeks, then months, and years.

One of the best, strongest traders is Bruce Berkowitz.  There is a good lesson for today's trader ten minutes in his recent setback in the Fannie/Freddie case.

Berkowitz lost 9.6% in one day on the Fannie/Freddie bet, losing all gains back to July 2013.

His fund spokesman responded:

     “The Fairholme Fund has the aim of achieving long-term growth of capital through investing in a focused portfolio of securities. This strategy can lead to higher near-term volatility than more diversified funds. As a result, our focus is on performance over longer time periods rather than on any single day.”

This is not a mere marketing statement.  Berkowitz, one of the best traders of all time, lives this!

He has produced 12% annual returns since 12/99 vs 4% for the SPX. Lost 32% in 2011.  Made 36% in 2012, 2013, putting him in the top 2 and 4% of investors.

"We are focused," he said. "We want to pick the best investments.  We don't want to buy the number ten investment if we can buy more of number one."

What a lesson in being focused on the right time frame.  And what an example of strength.  It brings to mind when P. T. Jones says in his video biography "The Trader," when describing another trader who had just experienced horrific losses:

"I couldn't believe he could be so strong!"