Thursday, 14 June 2007

Soros wisdom

George Soros, who is a well known, wealthy and highly successful trader and speculator, apparently had a philosphy for being a successful trader and I think it is worth mentioning here. He said, "The way to build long term returns is through preservation of capital and home runs".

So, he basically advises the opposite of what I have been doing (and a lot of others too, I reckon). That is, most people I know would snatch up any profit quickly but let a potential loss ride in the hope that it gets better. Chances are it will get worse, which means with the opposite approach, the Soros approach, the chances are that capital is preserved (as losses are cut early) and as profits are let run until momentum starts to fold, returns are maximised. Of course, when the market does a mad swing the wrong way, that nicely growing number of potential profit ticks may get lost but looking longer term, there should be some big home runs.

Another saying I have found that is attributed to George Soros is, "it's not whether you are right or wrong that's important but how much money you make when you are right and how much you lose when you are wrong"

I like that. It helps me make sense of my past trading mistakes, where I'd scalp a few points and be very happy only to mis-interpret the market direction and then sit there hoping it would swing back again, as my loss was creeping up.

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