Hedge Fund Market Wizards Quotes

Traders focus almost entirely on where to enter a trade. In reality, the entry size is often more important than the entry price

Buffett being penalized for underperforming versus managers riding the long side of the dot-com bubble is a perfect illustration of a common investor mistake—failing to realize that often the managers with the highest returns achieve those results because they’re taking the most risk, not because they have the greatest skill.

You can use charts to give you a plus or minus toward your view, but you can never start with the chart.

you have enough monkeys randomly striking keyboard keys (they have recently traded in their typewriters for PCs), one of them will eventually type Hamlet

Big market price changes happen when lots of people are forced to reevaluate their prejudices, not necessarily when the world actually changes. — Colm O'Shea

relationships. For example, if the S&P was moving in an inverse lockstep to the bonds, and bonds were down for the day, but the S&P was not responding on the upside, it would tell me I should sell the S&P.

Investors often make the mistake of equating manager performance in a given year with manager skill. In some instances, more skilled managers will underperform because they refuse to participate in market bubbles. In fact, during market bubbles, the best performers are often the most imprudent rather than the most skilled managers.

So, one of your shortcomings has been in letting your rational assessment of a situation keep you from participating in a psychologically driven trade. Yes, failing to participate in markets when the fundamentals are less important than the psychology. But how do you recognize that type of situation? Well, that’s the key question, isn’t it? [He laughs.]

I have what I call my Evel Knievel screen. These are companies that are trying to jump the Grand Canyon and probably won’t make it. There are only two conditions for the screen. First, the company is trading at more than five times book value. Second, the company is losing money. My job is to figure out which stocks won’t make it across the Grand Canyon and then go short those stocks.

Coming back again to the investment bank world, they have meetings and all sorts of stuff going on that suck up time. Traders would all complain about the waste of time, but what it actually meant was that it limited the amount of time they were in front of their screens staring at their positions. You don’t want to be sitting in front of your screen and staring at market prices for 12 hours a day. Staring at the price is not going to tell you very much.

At Bridgewater, criticism is encouraged, including subordinates criticizing superiors. Do any of your employees ever criticize you? All the time. Can you give me an example? I was in a client meeting with a big European pension fund that was visiting managers in Connecticut. After the meeting, the salesperson criticized me for being inarticulate, running on too long, and adversely affecting the meeting. I asked others who had been at the meeting for their opinions. I was given a grade of “F” by one of our new analysts who was just one year out of school. I loved it because I knew they were helping me improve and that they understood that was what they were supposed to be doing.