INDEX
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Acting career, 27–28
AL (see Asymmetrical leverage)
Analytics, in sports, 119, 120
Anderson, David, 107, 108, 113
Anderson Man Limited, 108
Annual returns:
backtesting for, 148–150
losing roughly the size of, 157
Arrogance, 90–91
Assumption(s):
testing, 37–39
that market owes you money, 86
Asymmetrical bets, 54
Asymmetrical leverage (AL), 113–122, 191–206
definition of, 191–192
entrepreneurial examples of, 196
financial examples of, 193–194
operational examples of, 197–200
proposed project for, 203–204
with stock options, 135
structural examples of, 195
suggested working groups for, 203–204
in theory and practice, 200–202
Automated trading system:
development of, 103–106
Awards:
from Hedge Funds Review, 3–4
from Madison High School, 15
for Mint, 112
Backtesting trading systems, 105–106, 147–150, 168–169
Backup plans, 34
odds and risk in, 39–40
ruling out, 176
winning, danger of, 40
Bad positions, staying in, 87–88
Barclay CTA Index, 75
Bayes, Thomas, 142
Bayesian statistics, xxvi, 142
Beane, Billy, 118–120
Beat the Dealer (Thorp), 37–38
Beatles, 33–34
Bell Resources, 194
Berkshire Hathaway, 198
Bets:
asymmetrical, 54
controlling timing of, 52–53
in dating, 58
defined, 16
in everyday life, 76
failure potential with, 16–17
on future prices, 29–30
kinds of, 39–41
knowing odds for, 118
losing, 39
spreading, 128
technique in making, 61
Betting:
for the big win, 54–57
control in, 127
with money from second job, 125
only what you can afford to lose, 49, 66, 88
on people, 143–149
for small gains, 54
Bezos, Jeff, 40
Bias, 133
Black Monday (1987), 149
Black swans, 149–150
Blue chip (term), 35
Booms, 149
Boyd, Jack, 36–37
Broken Hill, 194
Buffett, Warren, 126, 164, 165, 198
Bush, Barbara, 16
Businessweek “best of” award, 112
Buy and hold strategy, 71–75, 149, 164, 165
Chardant, 201
based on clear goals, 21
control over, xx
to do what you love, 177
doable, 178–179
to help others, 182–186
as power, 177–178
probabilities in making, 176
questions to ask when making, 178–179
understanding, 50
for when you win, 181–182
Citicorp, 143
Clients, choosing, 141
Coffee option futures, 55–57
Colson Caster Company, 197, 198
Commodities, 29
betting across markets, 44
Boyd’s trading in, 36
with rising or falling values, 132
volatility with, 31
Commodities options market maker partnership, 43–45, 91–99
bond and treasury markets company formed form, 92
corn futures, 47–49
division of skills in, 92
formation of, 91
interest rate futures trading, 93–95
losses caused by partner in, 94–98
pork bellies trading, 45–47
recovering from losses in, 97–99
Commodity futures, 29–32
control over timing of bets in, 53
corn, 47–49
pork bellies, 45–47
Commodity trading advisor (CTA), 109
Commodity Trend Time, 67
Conditional probability, 142
Confidence:
finding, 14
overconfidence, 171
Conflicting goals, 21
Confucius, 182–183
Confusion, about your objective, 90
Control:
in amount of bets, 127
of odds, 39–40
Core capital, 161–162
Corn futures, 47–49
Counting, 30–31
in finding money for first investments, 124–126
making money by, 126
Crisis events, 154–155
decision making during, 70–71, 157
market during, 70–71
rules of thumb in, 156–157
trend following strategy during, 149–150
CTA (commodity trading advisor), 109
Cultures, adapting to, 110–111
Cut losses and let winners run, xxviii, 131–139, 170
bad bets, 135
in business, 81
buy and hold vs., 71–75
as cardinal rule of trend followers, 37
how to let winnings run, 136–139
in jobs, 81
in marriage, 78–80
stops and options, 133–135
and trend following in life, 76–82
Dating:
communication technology and, 73–74
odds in, 57–59
and quest for love, 76
trend following applied to, 76–80
Debt, smart use of, 126
Decision making:
with moving averages, 132–133
objectivity in, 119
observable facts in, 53
as opportunity to fail, 131
removing human emotion from, 103–104
strategic, in game theory, 49–52
understanding of human nature in, 29
when fearful, 129
Delman, Michael, 105–106, 108, 131, 206
DePodesta, Paul, 119
Detachment, 171
Discipline, 128
Donating money, 182–186
Donchian, Richard, 66–67
Dreams:
of others, backing, 144
in overcoming limitations, 177, 188
Dumas, Patrick, 206
DuPont, Glore Forgan Inc., 36–37
Dyslexia, xxi, 7–8, 38, 92, 176
Economic theory, 64
ED&F Man/Man Group:
asymmetrical leverage offered to, 115–116
asymmetrical leverage paper written for, 191–205
commodity trading activities of, 204
Hite Capital accounts with, 201
MIMC acquisition by, 191, 200–202
and press coverage of guaranteed fund, 115
relationship of Mint and, 108–112
separation of Mint and, 121
social networking at, 113
start-up money from, 121
structural factors in initial partnership, 116
Education:
author’s school years, 6–15, 27, 29–33
“grades” marketplace in, 32–33
Edward R. Murrow High School, 18–19
Edwards & Hanley, 34–36
Efficient markets, 33, 71, 143
EFTs (exchange traded funds), 75
Einstein, Albert, 51
Emergency fund, 125
Emotions:
being misled by, 129
and bias in investing, 133
in decision making, 103–104
Ending, knowing the, 167–168
Entrepreneurial asymmetrical leverage, 196
Epstein, Brian, 33–34
Equity:
in Mint Software, 151–152
risking, 127
Evelina London, 184–185
Exchange traded funds (EFTs), 75
Failure:
as an advantage, 15–19
creativity arising from, 8–9
dealing with, 179
decisions as opportunities for, 131
expecting, 4–5
as foundation of success, 175–176
to get out of bad position, 87–88
protection from, xxiii
Family background, 5–8, 11, 136–137
Family foundation, 182–186
Fear, xx, xxiii, xxix, 129, 170
Federman, David, 206
Fees, of Mint, 114
Feldman, Steve, 51
Financial asymmetrical leverage, 193–194
Financial theories, xxiv–xxv
Financial Times, 152–153
Fink, Lord Stanley, 113, 121, 152–154, 184
Flaws, embracing, 15–19
Foundation, family, 182–186
Four-week rule, 67
Freedman, Howard, 15
Freedom, xxii–xxiii
financial, 166–167
identifying worst possible outcomes as form of, 154–157
Futures trading:
applying game theory to, 51–52
coffee option, 55–57
commodity, 29–32
corn, 47–49
interest rate, 93–95
in London, 108
people’s reactions to, 43–44
pork bellies, 45–47
in United States vs. in other countries, 107
Gamblers, good vs. poor, 127
Game(s):
knowledge of, 118
rules of, 51–52
stock market, 13
that you love, 41
treating trading as a, 171
understanding moves of, 13
Game theory, 49–52
“Game Theory Applications” (Hite and Feldman), 51–52
Geneen, Harold, 167–168
General Electric (GE), 192
Genius, as way to lose money, 85
Getting in the game, 23–41
author’s story of, 23–39
and four kinds of bets, 39–41
looking at odds, 36–39
in love and dating, 58
Ginsberg, Ruth Bader, 14
Goals:
choices that bring you closer to, 178
conflicting, 21
dividing life into, 96
finding the game you love, 23–41
inefficient markets’ incentives to create, 180
in love and dating, 77
need for, 166–167
pursuing, xx–xxiii
(See also Want[s])
Gokuldas, Vikram, 146
Golden rule, 182–183
choosing, 177
odds and risk in, 39–40
over time, 128
Goodman, Allan, 185
Grab, 73
Grant, James, 65
Greyserman, Alex, 75
and asymmetrical leverage moves, 151, 152
background of, 146
at ISAM, 152–154
Guaranteed fund, 114–115, 117, 121
Guilt, 139
H. L. Green, 193
Hamlet (Shakespeare), 32
Hanging on when losing, 88–89
Hanson Trust, 198
Happiness, making money and, 47
Hard work, 177
Havel, Theresa, 195
Hedge Funds Review awards night, 3–4
Helping others, 182–186
Hentz, 43
Hill, Napoleon, 126
Hilton Hotels, 196
Hite, Sybil, 58–59, 80, 92, 98, 136, 184
Hite Capital, 141–153
merged into ISAM, 153
Mint Software equity for, 151–152
personnel from Mint at, 141–142, 146, 147
simulation projects of, 147–150, 153
Holmes á Court, Robert, 194
Hope, value of, 89
Horseracing, 60
Humans:
emotional reactions of, 95, 103
fallibility of, xxv–xxvi, 15–16, 19
as fundamental constant in markets, 169
irrationality of, 76
Humility, 179
Hunt, Bunker, 198–200
Hunt, H. L., 199
Hunt, Lamar, 198–200
Hunt, Ray, 198–200
Hunt Oil Co., 199
Hyatt Corp., 197
If— (Kipling), 186–187
Ignoring trends, 86–87
Illegal investing, 135
Income, living on 90 percent of, 125
Inflation, interest rate futures and, 94
Innovation, 180–182
Insider trading, 135
Interest rate futures, 93–95
Interest rates, counting, 126
International financial markets, 107
International Standard Asset Management (ISAM), 152–154
Intuit, 152
Investing, 21–22
emotional attachment in, 133
finding money for first investments, 124–126
human nature in, 29
insider trading, 135
in real estate, 181–182
removing human emotion from, 103–104
tax issues in, 44
testing strategies for, 168–169
trading vs., 164
using other people’s money in, 30, 31, 46–47
(See also specific topics)
Investopedia, 135
Irrationality, 76
ISAM (International Standard Asset Management), 152–154
ITT, 167
James Madison High School alumni, 14–15
Kabat-Zinn, Jon, ix
Kaminski, Kathryn, 75, 148–150
Kaufman, Henry, 185
King, Carol, 14
Kipling, Rudyard, 186–188
Kiyosaki, Robert, 167
KKR (Kohlberg, Kravis and Roberts), 192
Knowing who you are, 3–22
and “assumption of wrongness,” 19
author’s story of, 3–15
and finding confidence, 14
flaws and failures, 15–19
needs and wants, 20–22
Knowledge:
in asymmetrical leverage, 118–120, 202
of the ending, 167–168
overconfidence in, 171
perfect, 150
unconventional sources of, 119
Kohlberg, Kravis and Roberts (KKR), 192
Kroc, Ray, 193
Landau, Martin, 14
Law of large numbers, 68
Let winnings run (see Cut losses and let winners run)
Leverage, 32
asymmetrical (see Asymmetrical leverage [AL])
with perfect knowledge, 150
time as, 117
in trading commodities, 30
Levin, Michael, 143–146, 151, 152
Lewis, Michael, 118
Life expectancy, 164
Life philosophy, xxiii–xxiv, xxviii, 4
on bets, 41
on business, 81
choices in, 177–178
dividing life into goals, 96
on jobs, 81
letting trend run with people, 143–149
on marriage, 77–80
speculation in, 188
time horizon in, 53
trend following in, 131–132
(See also Knowing who you are)
Limitations, xx–xxii
dreams in overcoming, 177, 188
Lisiak, Paul, 144–146
London, 106–107
Loser’s guide to winning, 60
Losing at card games, 38
Losing bets, 39
Losing money, 83–91
by assuming market owes you money, 86
author’s story of, 90–99
by being a genius, 85
by being a winner, 89
by being arrogant, 90–91
calling clients when, 129–130
by confusion about your objective, 90
by hanging on when losing, 88–89
by ignoring trends, 86–87
inevitability of, 38–40
intolerance for, 128
making room for, 54
by not getting out of bad positions, 87–88
not risking more than you can afford to lose, 49, 66, 156, 161
practicing, 89
roughly size of annual return, 86
Losses:
amount vs. percentages of, 171–172
avoiding, 84
capital vs. ordinary, 44
cutting, xxviii (See also Cut losses and let winners run)
fear of cutting, 170
gains providing for, 54
getting back on your feet after, 176
limiting exposure to, 133–135
that pave the way to wins, xxxi
Love:
failure and success at, 16
risk in, 76–77
trend following applied to, 76–80
Lyft, 73
Margin call, 32
Market(s):
assumption that market owes you money, 86
and buy and hold strategy, 71–75
and crisis events, 70–71
fundamental constant in, 169
inefficiency of, 180
predicting, 150–151
for school grades, 32–33
stock, 35
as trend following indicator, 69
volatility in, 131
Market makers, 91
Market Wizards (Schwager), 67, 112
Marmon Group, 197
Marriage, trend following applied to, 77–80
Match Group, 73
Matthews, Peter, 104–106, 108, 206
McCrory Corp., 193
McDonald’s, 193
McGrath, Allison, 184
Merrill Lynch, 88
Method acting, 28
Microsoft, 68–69
MIMC (see Mint Investment Management Company)
Mindset, 172
Mint Guaranteed Ltd. Fund, 115, 117, 121
Mint Investment Management Company (MIMC), xxxi, 106–118, 120–122
asymmetrical leverage used by, 113–117
as commodity trading advisor, 109
computers of, 126
domain name of, 151
fees of, 114
founding of, 106
Hite Capital personnel from, 141–142, 146, 147
income from guaranteeing in, 112
Islamic portfolio of, 117, 192
London as location for, 106–107
“no lose” fund of, 114–115
partners’ complementary abilities, 108
relationship with ED&F Man, 108–112, 115–116
risk management techniques used at, 127–128
separation from Man, 121
trading system of, 108–109, 112, 130–131
as world’s biggest hedge fund, 113
Mint Software, Inc., 151
Mistakes:
blindness to, 84
that lead to losing money, 83–91
Money:
in asymmetrical leverage, 120–122, 202
autopilot system for making, 67
as confirmation of system success, 138
fears associated with, xxiii
for first investments, 124–126
giving away, 182–186
and happiness, 47
how to lose (see Losing money)
needed for financial freedom, 166–167
owing, 97
small vs. big gains, 54
using other people’s money (see Other people’s money (OPM))
wanting, xxii–xxiii
Moneyball (Lewis), 118
Moneyball (movie), 118
Morgenstern, Oskar, 50
Moving average, 132–133
Music promotion, 33–34
Mutual funds, 75
National Basketball Association (NBA), 119
Needs:
in finding money for first investments, 124
knowing your, 20–22
Negative thinking, 175–176
Negotiation, with those you owe, 97
Neuberger Berman, 195
New York State Regents Exams, 12–13
“No lose” fund, 114–115
No regrets, 24–25
Number of trades, 162
Numbers, xxvii
in betting odds, 39–40
in casino games, 165
law of large numbers, 68
NYU School of Commerce, 27
Oakland A’s, 118–120
with asymmetrical bets, 54
in asymmetrical leverage, 118
control of, 39–40
in dating, 57–59
in game theory, 49–52
in good and bad bets, 39
improved by adapting to places, 111
learning about, 36–39
in making life decisions, 19
overcoming, xxv
respecting risk, 49
setting, 173
in standardized tests, 13
in stock market, 35–36
time horizon, 52–53
Oluwole, Kolade, 159–173
author’s discussion with, 160–173
background of, 159
Operational asymmetrical leverage, 197–200
OPM (see Other people’s money)
Opportunity horizon, 55
Options, 134–135
coffee futures, 55–57
failing strategy for, 88–89
in games, 52
running simulations with, 169
stock, 134–135
taxes with, 44
Other people’s money (OPM):
arrogance in handling, 90–91
in asymmetrical leverage, 120–122
in commodities trading, 30, 31
in pork bellies trading, 46–47
Outcome, in winning and losing bets, 39
Overtrading, 162
Owing money, 97
Patzer, Aaron, 151–152
Payoff, in asymmetrical bets, 54
Perfect knowledge, 150
Persistence, 99
Philosophy:
of life (see Life philosophy)
of trading (see Trading philosophy)
Pitchers, 119–120
Place, right, 178
Pork bellies, 45–47
Portfolios of commodities, 31
Positive mean game, 147
Positive sum game, 147
Price risk, 134–135
Priorities:
in Mint trading system, 130–131
ranking, 20
Pritzker, Jay, 202–203
Pritzker family, 197–198
in card games, 38–39
conditional, 142
in game theory, 49–52
and inevitability of losing, 40
in making life choices, 176
in standardized tests, 13
in Thorp’s method, 37–38
of wrongness, 19
Pursuing dreams, xix–xxii
Rapid American, 193
Real estate investing, 181–182
Reciprocity, 183
Relationships:
making bets with, 41
odds in dating, 57–59
trend following applied to, 76–80
Reliance Insurance Company, 205
Resiliency, 145–146
Ricardo, Abraham, 63
Ricardo, David, 63–65, 163–164
Ricardo’s Rule, 65–66
Rich Dad, Poor Dad (Kiyosaki), xxii
Riklis, Meshulam, 193–194
Risk:
in asymmetrical bets, 54
in asymmetrical leverage, 113, 117
in commodities market, 30, 32, 44
with commodities portfolios, 31, 32
controlling, xxix, 39–40, 127–131
of core capital, 161–162
and human bias, 133
with insider trading, 135
leverage in decreasing, 150
in life and lifestyle, 34, 76–80
limiting, xxvi
of losing, 38–39
of more than you can afford to lose, 49, 66, 89, 170–171
with options, 134–135
when to think about, 156
Rockwell, George Lincoln, 24
Rosenkrantz, Robert, 205
Rowling, J. K., 17–18
and bad bets, 135
in betting on people, 143–149
count in, 124–126
cut losses and let winners run in, 131–139
options and stops in, 133–135
risk control in, 127–131
want in, 124
Rules:
advantages conveyed by, 52
in automated trading system, 105
in buying options, 134
cardinal rule of trend followers, 37
four-week rule, 67
of games, 51–52
in other cultures, 111
of Ricardo, 65
Sabermetrics, 119
Safety in betting, 54
Sanders, Bernie, 15
Sandor, Richard, 93
Schemes, 98–99
Scholar Rescue Fund, 185–186
Schumer, Chuck, 14
Scientific trading system (see Automated trading system)
Self-knowledge (see Knowing who you are)
September 11, 2001, 145
Shakespeare, William, 32
Shearson Lehman bond indices, 195
Simulations, 147–150, 153, 168–169
Smart work, 177
S&P Index, 72
S&P Total Return Index, 75
Speculation, 188
in commodities futures, 31–32
control over timing of bets in, 52–53
Stand-up comedy, 27
Statistics, xxvii
in scientific trading system, 103–106
in success of Oakland A’s, 118–120
Stock options, 134–135
Stock trading, 75
odds in, 35–36
trend following in, 68–69
Stocks:
blue chip, 35
with rising or falling values, 132
sinking prices for, 86–87
Stops/stop-losses, 133–135, 161, 163
Strasberg, Lee, 28
Structural asymmetrical leverage, 195
Student Loan Corporation, 143–144
Success:
baked goods businessman’s formula for, 154
from being in the right place, 178
being prepared for, 139
from counting, 126
expectations engendered by, 47
failure as foundation of, 175–176
of Mint trading system, 131
need for, 20
reasons behind, 60–61
from smart use of debt, 126
Survival, 95–96
Taxes:
for commodities options partnership, 98
and operational AL, 197
with options trading, 44
in United States, 107
Taxi and limousine industry, 73
Tech bubble, 144
Technological change, 72–74, 180
Telephones, 73
Testing assumptions, 37–39
The Theory and Practice of Asymmetrical Leverage (Arranging Big Wins for Small Risks) (Hite), 191–205
“Theory of Games and Economic Behavior” (von Neumann and Morgenstern), 50
Thinking:
counting as tool of, 126
negative, 175–176
training your mind, 19
what vs. how of, 147
Thorp, Edward O., 37–38
Time:
in asymmetrical leverage, 117, 202
as most important currency, xxviii–xxix
as powerful tool, 52–53
winning over, 128
Time horizon, 52–53
choosing, 132
and volatility of markets, 131
Time risk, 134–135
Tinder, 73–74
apartment door frames project, 25–27
commodity futures, 29–32
with corn futures trade, 48–49
at DuPont, Glore Forgan Inc., 36–37
early career lessons, 28
at Edwards & Hanley, 34–36
on game theory, 49–52
in kinds of bets, 39–41
in testing assumptions, 37–39
understanding of other people in, 28–29
Trading philosophy, xxiii–xxv, xxviii–xxxii
for automated trading system, 105
count in, 124–126
foundational principles of, xxx, 65
never betting your lifestyle, 156
probabilities in, xxix
questions in, xxxi
risk control in, 127–131
the rule in, xxviii
time in, xxviii–xxix
want in, 124
why and how in, xxviii
Trading system:
author’s success with, 136–138
creating, 160–161
discipline in following, 128
at Hite Capital, 141–142
identifying opportunities in, 162–163
of Mint, 108–109, 112, 130–131 (See also Automated trading system)
number of trades, 162
overtrading, 162
staying with, 131
timing in, 163
what vs. how of thinking in, 147
Trailing stop, 134
in automated trading system, 104–105
backtesting, 147–150
by Boyd, 37
cardinal rule of, 37 (See also Cut losses and let winners run)
in coffee option futures, 55–57
computerized, 67
during crisis events, 149–150
description of, 161–162
in handling rejection, 107
in love and dating, 76–80
mechanics of, 131–133
mindset for, 172
and money goals, 166–167
by Oluwole, 164–165
in pork bellies, 45–47
Ricardo’s Rule for, 65–66
statistics in, 66–71
in stock trading, 68–69
studies of, 148
using the Rule in, 131–139
Trend Following (Covel), 70–71
Trend Following with Managed Futures (Greyserman and Kaminski), 148–150
Trends, ignoring, 86–87
Trump, Donald, 196
Typesetting, 72–73
Uber, 73
Uncertainty, xxvi
US Treasury bonds, 114, 121, 195
US Treasury notes, 195
Volatility:
with commodities, 31
losing capital subject to, 156
tracking, 131
Volcker, Paul, 94
Von Mieses, Ludwig, 76
Von Neumann, John, 50
Want(s), xxii–xxiii
in finding money for first investments, 124
knowing your, 20–22
understanding, 180
(See also Goals)
Weak position, power of, 97
Wealth-building models, 164–165
Who you are (see Knowing who you are)
Wilkinson, Priscilla Ann, 64
Winners:
how to let winners run, 136–139
staying with, xxviii
(See also Cut losses and let winners run)
in asymmetrical leverage, 113
loser’s guide to, 60
losing because of being accustomed to, 89
by making smart bets, 178
over time, 128
payoff for, 179
planning what to do after, 181–182
Work, hard vs. smart, 177
Worst-case scenario:
freedom from identifying, 154–157
in making choices, 179
in Mint’s guaranteed fund, 114
Wrongness:
expecting, 130–131
and intelligence, 85
Zero-sum game, 147