Sign up today for an exclusive discount along with our 30-day GUARANTEE — Love us or leave, with your money back! Click here to become a part of our growing community and learn how to stop gambling with your investments. We will teach you to BE THE HOUSE — Not the Gambler!

Click here to see some testimonials from our members!

One Hedge Fund Manager’s Lesson On When To Take Profits

Courtesy of ZeroHedge

Authored by Eric Peters, CIO of One River Asset Management, who has written the following anecdote about learning to take a profit, a lesson learned in 1992.

Black Wednesday – 16 September 1992. How the newspapers reported the sterling crisis.

“Let’s step into my office,” he said. So I did. He was my boss. “The firm’s most important client needs help,” he said. I listened, uninterested, unconcerned about clients, their problems. Barely cared about my boss. I had a game to play, solo sport, and loved it to the exclusion of all else.

“They need to do a very large trade,” he explained. A twenty-six-year-old proprietary trader’s mind is rather primitive. Which is good and bad. Being young and dumb allows you to see things elders can’t. And take risks one rarely should. In 1992, I’d done both.

“They need to buy three hundred million Mark/Lira.” The Europeans established a mechanism to lock their exchange rates into narrow ranges to reduce market volatility and promote economic convergence. In theory it worked, in practice it didn’t. Politicians named it the ERM.

“What would you like to do?” he asked, calm. I stood there, processing. Such a sum was extraordinary even before the ERM blew up, which it just had. For months, I’d bought options in anticipation of its demise. Honestly, it was obvious. The ERM encouraged speculators to build massive leveraged carry positions, discouraged corporations from hedging exchange rate risk, suppressing volatility and interest rate spreads everywhere. The process was reflexive. Today’s central bank volatility suppression regime resembles it and will end in spectacular fashion. All such things do.

“I want to buy more!” I answered. My foreign-exchange options left me long the exact amount our client needed to buy. No other bank would sell them such a large sum. So naturally, I wanted to own even more.

“You should sell them your whole position,” he told me, firmly. I couldn’t understand, it made no sense.

“Big customer orders like this usually mark the highs – never forget it,” he said. I left his office angry, irate, sold my whole position. And he was right. 

 


Do you know someone who would benefit from this information? We can send your friend a strictly confidential, one-time email telling them about this information. Your privacy and your friend's privacy is your business... no spam! Click here and tell a friend!





You must be logged in to make a comment.
You can sign up for a membership or get a FREE Daily News membership or log in

Sign up today for an exclusive discount along with our 30-day GUARANTEE — Love us or leave, with your money back! Click here to become a part of our growing community and learn how to stop gambling with your investments. We will teach you to BE THE HOUSE — Not the Gambler!

Click here to see some testimonials from our members!