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Importance of money management

In Jack Schwager’s book Market Wizards, Schwager interviewed some of the world’s top traders and investors, nearly all of whom emphasised the importance of money management. Here are a few of my favourite excerpts:

‘Risk management is the most important thing to be well understood. Undertrade, undertrade, undertrade is my second piece of advice.Whatever you think your position ought to be, cut it at least in half. ’-Bruce Kovner

‘Never risk more than 1% of your total equity in any one trade. By risking 1%, I am indifferent to any individual trade. Keeping your risk small and constant is absolutely critical.’ –Larry Hite

‘You have to minimize your losses and try to preserve capital for those very few instances where you can make a lot in a very short period of time. What you can’t afford to do is throw away your capital on suboptimal trades.’ –Richard Dennis

The Crowd Speaks Technical Analysis

Nice write-upcrowd on the benefits of adding some technical analysis to a rational, fundamental worldview by Anthony Bolton, the recently retired manager of the top-performing Fidelity Special Situations fund. A few excerpts (emphasis mine):

 My contention is that if you are trying to predict the mass action of thousands of investors, most of whom are investing on a rational or logical basis, you won’t be able to do this by taking the same logical approach as everyone else. (more…)