Saturday, September 16, 2023

Rational investing through rules - Seth Klarman

 


One of our strategies for maintaining rational thinking at all times is to attempt to avoid the extreme stresses that lead to poor decision-making. We have often described our technique for accomplishing this: willingness to hold cash in the absence of compelling investment opportunity, a strong sell discipline, significant hedging activity and avoidance of recourse leverage among others. 

-Seth Klarman head of Baupost 

From a quant perspective, there are simple rules that can be applied from Seth Klarman. 

  • Make conditional bets.
  • Set a threshold for expected return - beat a cash return 
  • Form a strong exit strategy - Know when to get out.
  • Minimize directional risk or pure beta.
  • Control leverage.

The common thread for good discretionary and quant traders is discipline. Follow a set of rules and play the odds. Know the count. 

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