Larry Hite quotes
Hedge fund manager
Never risk more than 1% of your total equity in any one trade. By risking 1%, I am
to any individual trade. Keeping your risk small and constant is absolutely critical.
If you diversify, control your risk, and go with the trend, it just has to work.
I don't trade for excitement; I trade to win.
We approach markets backwards. The first thing we ask is not what can we make, but how
much can we lose. We play a defensive game.
No matter what information you have, no matter what you are doing, you can be wrong.
We always follow the trends and we never deviate from our methods. In fact, we have a
written agreement that none of us can ever countermand our system.
Two basic rules: (1) if you don't bet, you can't win. (2) If you lose all your chips, you can't
Wall Street is a great place because never have so many been paid so much for adding so
People don't change. That is why this whole game works. In 1637, tulips in Holland traded for
5,500 florins and then crashed to 50, a 99 percent loss. Well, you might say, "Trading was
relatively new then; these people were primitive; capitalism was still in its infancy. Today we
are much more sophisticated." So you go to 1929 and find a stock like Air Reduction which
traded at a high of $233 and after the crash fell to $31, a decline of 87 percent. OK, you
might say, "The Roaring '20s were crazy times, but now things are surely different...
It is incredible how rich you can get by not being perfect.
I met the guy who wrote this best seller now called, Bringing Down the House, it's about
these MIT guys who beat the blackjack tables. And part of the problem, if you're going to be
a blackjack counter is that the casinos don't like you. They actively don't like you. And they
come and tell you in rather strong things to take your business away. Well, the beautiful thing
about the markets, they don't like you, they don't dislike you, they just don't care. They are
there everyday. You want to play, you can play.
The truth is that, while you can't quantify reward, you can quantify risk.
I start out with the one thing I can know - how much am I willing to lose?
There are just four kinds of bets. There are good bets, bad bets, bets that you win, and bets
that you lose. Winning a bad bet can be the most dangerous outcome of all, because a
success of that kind can encourage you to take more bad bets in the future, when the odds
will be running against you. You can also lose a good bet, no matter how sound the underlying
proposition, but if you keep placing good bets, over time, the law of averages will be working
When I get together with other traders and they start exchanging war stories about different
trades, I have nothing to say. To me, all our trades are the same.
If you argue with the market, you will lose.
Whenever I go to a money management conference and sit down with a group to have some
drinks at night, I always hear the same story. "My system worked great, but I just didn't take
the gold trade, and that would have been my biggest winner."
Frankly, I don't see markets; I see risks, rewards, and money.
I have a cousin who turned $5,000 into $100,000 in the option market. One day I asked him,
"How did you do it?" He answered, "It is very easy. I buy an option and if it goes up, I stay
in, but if it goes down, I don't get out until I am at least even." I told him, "Look, I trade for a
living, and I can tell you that strategy is just not going to work in the long run." In his next
trade he put his money in Merrill Lynch options, only this time, it goes down, and down, and
down. It wiped him out.
Respect for risk is not just a matter of trading; it applies to any type of business decision.
When I first became involved in commodities, I noticed that if you bought pork bellies in
September and sold them before July, you almost always made a profit. So I formed a fund
with a group of friends, and I put on this trade. It worked. I doubled the money. I felt like a
While the speculator doesn't have the product knowledge or speed, he does have the
advantage of not having to play. The speculator can choose to only bet when the odds are in
his favor. That is an important positional advantage.