Daily Speculations

The Web Site of Victor Niederhoffer & Laurel Kenner

Dedicated to the scientific method, free markets, deflating ballyhoo, creating value, and laughter;  a forum for us to use our meager abilities to make the world of specinvestments a better place.

 

Home

Write to us at: (address is not clickable)

8/26/04:
James Sogi: When Losing is Winning:

A friend visiting from Taiwan told me an ancient Chinese proverb today: Losing is winning. The fable goes like this: an old man loses his horse and is distraught. It turns out that the horse ended up killing a young boy his own son's age. So his small misfortune was really good luck, avoiding his own son's death. The only time it is possible to consistently get the bottom tick is when trying to short, otherwise some sort of drawdown is common. This is where 'losing is winning' comes into play. During the drawdown the mind becomes distraught and thoughts of failure and self-doubt arise. Your statistics show the trade should be a winner, but by succumbing to defeat the trade becomes a loss. I've seen tests showing that a larger stop loss will yield a higher percentage of winners. Dr. Williams describes using a large stop loss. We've all been in the trade where in a tizzy we exit at the bottom only to see the market go on to great gains. In order to get the 1.5 million per cent gain this century that Dr. Dimson describes you need to survive an 84% drawdown. Many speculators' biographies mention losing a job as a key to later successes. Ancient Chinese proverb, assuming good money management, can help with trading and life.