The Most Important Lesson From 2 Hedge Fund Titans

Amongst the numerous traders who serve as inspiration, one of those I admire the most is Paul Tudor Jones. What separates Jones from many other traders is his view on the market from a risk perspective, as well as his ability to sift out the noise of the markets and profit from his convictions. In one of his most prominent quotes, Jones suggests that “where you want to be is always in control, never wishing, always trading. And always, first and foremost, protecting your ass”. It is with this outlook that I was able to learn an invaluable lesson, specifically, to focus on risk!

Not only is it critical that you have all strategic options covered when entering (and exiting) a trade, it is invaluable to calculate and understand your risk-reward tradeoff so that you know how you are positioned at any given moment. Something else that Jones contends, is that when it comes to defining the best traders, those who are successful are able to focus on the money they have at stake rather than concentrating on what they stand to make – “That’s why most people lose money as traders or as individual investors because they’re not focused on the money they have at risk. If everyone spent 90% of their time on that instead of on how much money they’re going to make, they’d be incredibly successful as investors.”

Another hedge fund titan to share his wisdom is Peter Borish, previously a partner of Paul Tudor Jones. Borish shares a view that I have spoken about many times, whereby trading talent is not sufficient without some degree of coaching – “It’s a combination of both. If you don’t have talent, you can’t succeed. But talent alone is not sufficient to succeed. If you look at any profession, those who work the hardest are the best.” Furthermore, Borish is a believer that the market never lies – “It’s all about making money and not being right. Too often, people get stubborn. The point is to be flexible. The market is always right. That’s one of the main things I learned from Paul… you’ve got to be around to play for another day. That’s capital preservation.”

When traders ask me about my own outlook on risk management, I offer them the following words which support the logic of Jones and Borish. That is, if you focus on not losing money, you will make money. Preserving capital and remaining in control of your own destiny are crucial to trading success. Once you start neglecting what you have at stake, or thinking you can outsmart the market, you’ve already lost – even if you haven’t realized it yet.