One of the few books in my investment library that I still thumb through on a regular basis is Market Wizards – every other book gets read once and then dumped in the back of the bookshelf. One lesson that I took from Market Wizards was from Stanley Drunkenmillar who used to run George Soro’s Quantum Fund before running Duquesne Capital. The point that resonated the most with me was his idea of aggression in trading –
On what he’s learned from George Soros: “Perhaps the most significant is that it’s not whether you’re right or wrong that’s important, but how much money you make when you’re right and how much you lose when you’re wrong … Soros has taught me that when you have tremendous conviction on a trade, you have to go for the jugular. It takes courage to be a pig … As far as Soros is concerned, when you’re right on something, you can’t own enough.”
This sort of sentiment is in sharp juxtaposition to what is normally espoused as investment wisdom, particularly the nonsense notion that you cant go broke taking a profit. Drunkenmillar goes onto to say –
On when to take more risks: “Many managers will book their profits when they’re up a lot early in the year. It’s my philosophy, which has been reinforced by Mr. Soros, that when you earn the right to be aggressive, you should be aggressive.”
The notion of being a pig has guided my own trading philosophy for as long as I can remember and i have pondered whether this is personality dependant. Over the decades I have met many who are simply not cut out to trade simply because the necessary aggression is lacking to be really successful. Consider the chart below which looks at the comparative returns generated from the Shanghai Composite, Dax, S&P 500 and the ASX 200.
As you can see the standout market has been China closely followed by the Dax. This rather simple chart is telling me a story – the markets that are moving and the markets that I want to be as exposed to as possible are China and Germany. As such I am going long everything I can find in these markets. It should be apparent that I dont believe in traditional diversification. Diversification as represented in traditional finance texts is in my opinion a passport to mediocrity and should be consigned to the bin along with such things as dollar cost averaging and contrarian investing. The simple message is that if you are not long China in some way shape or form then you are missing out. There should be no excuse for missing out since this chart featured in my charts of interest several times.