Larry Hite: What Can You Learn from Him?

[analyst75 12]

INSIGHTS INTO THE MINDSET OF SUPER TRADERS – Part 9

 

“The best strategy loses its effectiveness when you trade from a place of fear.” - Mercedes Oestermann van Essen

 

Name: Lawrence D. Hite

Nationality: American

Profession: Funds manager, trading systems developer, philanthropist

 

Career:

Larry Hite is an award-winning funds manager who’s one of the forefathers of trading strategies. In 1981, he co-founded Mint Investments, and several years later, the firm became the most successful of its kind (at that time).

 

He was featured in Jack Schwager’s book titled Market Wizards. Larry also partnered with Man Group and started some ground-breaking trading concepts – which also proved successful. In the year 2000, Larry shifted gears and focused on other things that also mattered to him, including family, investing, funds management and philanthropy. For instance, he founded his own foundation, called The Hite Foundation, which he heads. One source says he also serves as chairman of the Development Committee for the Institute of International Education’s Scholar Rescue Fund, whose goal is to provide safe haven for academics and professionals who are at risk throughout the world.

 

Insights:

1. No matter how great your trading method or analysis is, no matter how much information you’ve or how much knowledge you’ve, you can open a position and still experience negativity. Always see a new trade as a potential loser. Don’t think of how much you can make, but think of how much you can actually lose. With that mindset, you’ll risk as low as possible and trade defensively, thus ensuring your safety. What you can determine is how much you’ll lose; you can’t determine how much you’ll gain.

 

2. Protect your wealth. Protect your capital. You need capital to play the markets, and without playing the markets, you can’t make money. Without your capital, you can’t play the markets, and that’s why you need to protect your capital.

 

3. When you’ve a good system, please be faithful to it. It can’t work always, but try to never deviate from it. Make this a hard-and-fast rule.

 

4. Always respect the market; otherwise, you’ll suffer for your stubbornness. Go with the flow.

 

5. Larry says this: “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.” Lesson: Simply cut your loss. Never allow it to run.

 

6. What you call markets are really risks, rewards, money and means to financial freedom. When risks are controlled and the flow of the markets is respected, things will work for you as traders.

 

7. Many speculators may have different kinds of stories to tell, but the truth is that we’re all speculators. We’re the same. We all have access to a level playing field.

 

Conclusion: All challenges we face in trading have their hidden blessings; but we’re often blind to the blessings and allow disappointment, ire and fear to take control of our lives when a position doesn’t do what we want it to do. One expert advises that trading should be treated as another splendid opportunity to learn something and improve our skill. We shouldn’t concentrate on money alone.

 

This article is ended with two quotes from Larry:

 

“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 for you.”

 

“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.”