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.