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Ray Dalio, founder of Bridgewater Associates, who borrowed $4,000 from his father after being completely right about the 1982 crisis:
"Eight years after I started Bridgewater, I had my greatest failure, my greatest mistake. I had calculated that American banks had lent much more money to emerging countries than those countries were going to be able to pay back. In August 1982, Mexico defaulted. I was right. And I lost so much money I had to let go of every person I had hired."
This is the Kelly problem stated as plainly as it will ever be stated. Being right and staying solvent are two different skills, and only one of them compounds.
Dalio had calculated the crisis correctly. When Mexico defaulted in August 1982, his thesis printed exactly as forecast. He had testified before Congress that a depression was coming. He went on national television confident enough to stake his reputation on it. Then the opposite happened. The stock market entered one of the biggest bull runs in American history. His position was sized as if the thesis could not fail. It failed anyway, not because the analysis was wrong but because timing and sizing were never part of the calculation. Bridgewater burned through nearly all its capital. Dalio had to fire every employee until the company had one person left standing: himself.
He borrowed $4,000 from his father to pay his family's bills.
Same point as my article: the formula does not measure whether your macro call was correct. Dalio's call was correct. It measures whether the size of your exposure left you enough capital to survive the gap between being right and the market agreeing with you. That gap ran eighteen years in Dalio's case, not eighteen days.
Here is the catch. Most traders read this story and hear "he was humbled, then he learned." What actually happened is narrower and less comfortable. He rebuilt the entire firm around one rule: never again size a position as if certainty were possible. Every principle Bridgewater runs on today traces back to a single afternoon where full conviction met zero margin for error.
The lecture is free, eighteen minutes, on TED's own channel. The $4,000 loan from his father is in the transcript. Almost nobody watching it changes their position sizing the next day.
The Ten Best Trading Quotes Ed Seykota Ever Said:
About Trading Psychology:
"To avoid whipsaw losses, stop trading."
"It can be very expensive to try to convince the markets you are right."
"A fish at one with the water sees nothing between himself and his prey. A trader at one with his feelings feels nothing between himself and executing his method."
Risk Management for Traders:
"The elements of good trading are cutting losses, cutting losses, and cutting losses."
"Here's the essence of risk management: Risk no more than you can afford to lose, and also risk enough so that a win is meaningful. If there is no such amount, don't play."
"In your recipe for success, don't forget commitment – and a deep belief in the inevitability of your success."
On Trading Systems:
"The trend is your friend except at the end when it bends."
"If you want to know everything about the market, go to the beach. Push and pull your hands with the waves. Some are bigger waves, some are smaller. But if you try to push the wave out when it's coming in, it'll never happen. The market is always right."
"Systems don't need to be changed. The trick is for a trader to develop a system with which he is compatible."
"I don't predict a nonexisting future."
Ed Seykota is a legend in the trend-following community and has returns that would make even legendary traders jealous.
Ed Seykota achieved a legendary track record, with reported annual returns of roughly 60% over several decades, by using mechanical trend-following and strict risk management.
If you can fully grasp what Ed is saying in these quotes, it will dramatically improve your trading.
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Great truths.......
If you sell, you make money.
If you post, you build momentum.
If you network, you make friends.
If you practice, you become a master.
If you grind, you attract success.
Your habits will determine your future.
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I believe in every single one of you.
Don't ever give up on your dreams; always strive for better.
You deserve the world, and there's nothing anyone can do to stop you.
Peace and love, fam.
#Invest like a Goldfish, #Trade like an Alligator (An insightful thread)
Have you ever seen a goldfish?
Even though they’re usually alone in a bowl, they do not feel lonely. They continue swimming in circles in their bowl being less agitated or concerned about the world around.
Change is inevitable. Life moves on.
As milestones are reached, new chapters begin. What are you doing to accomplish and achieve? The answer is personal and demands reflection.
MICHAEL SAYLOR SAID:
“I’M NOT PROUD OF THIS, I’M THE ONLY PUBLIC COMPANY CEO IN THE HISTORY OF THE WORLD THAT ACTUALLY LIVED TO SEE HIS STOCK DECLINE IN VALUE BY -99.8%."
“MY STOCK WENT FROM $333 A SHARE TO $0.42. HODL? YOU HAVEN’T LIVED THROUGH ANYTHING.”
LEGEND 🔥
34 years ago, from today...
I was working 6 days a week. My net pay, per week, was less than $300.00. I was single, recently divorced and no children.
I was sick of the rat race, being broke, tired of being tired of it all.
Then Trading walked back into the chat...