“My mood is best when I execute according to my plan regardless of outcome.” – Derek Hernquist
Lee Ainslie III is a trader and a self-made American billionaire who lives in Dallas, Texas. He’s happily married with kids. He got his BA at the University of Virginia and his MBA at University of North Carolina. He worked for Julian Robertson at Tiger Management. 3 years later, he began to run Sam Wyly's Maverick Capital whose initial fund totaled $38 million. Being a managing partner at Maverick Capital Ltd (New York and Dallas), Lee is a hedge fund manager who manages assets that are worth $10 billion. He was making decent profits when, unfortunately, Tiger management was making considerable losses. He’s involved in some boards and charities.
These are the lessons from Lee, a trading maverick at Maverick capital:
Lee’s main watchword is integrity. Integrity is crucial in your personal character and business. Talented and experienced partners also help a lot. At the end of everything, the real asset a business can have is people. People tend to perform better when they’re inspired and encouraged.
Lee has no magic trading systems, yet his strategies work over time. Where many greedy and impatient traders evaluate their results on daily, weekly, monthly or even quarterly basis, Lee’s company evaluate their trading results in a few years’ time or so. This has allowed great stability, consistency and comfort.
Your beliefs about other types of business can’t help you in trading. Ironically the rookie speculators tend to take high risk and think every trading method they’re using is foolproof. This emphasizes the real need for coaching and the fact that trying experiences would personally be had by the budding trader. In contrary to what certain traders want, Lee doesn’t double his portfolios quickly over short periods of time. On his funds, he makes something like 24%, 11.1%, 33.3%, 45.4%, 17.4% etc. He doesn’t go for 100%, 150%, 250% 1500%, 2600% etc. You know, that’s possible, but too risky. So go for smaller returns, which mean you need to lower your expectations.
It isn’t safe to think high probability trades are what bring low risk. What really brings low risk is small position sizing and conservative risk control. Targeting 1500%, 100%, 3500% and so on, is high risk which comes with very huge drawdowns. When one has an open position, one may feel reluctant to smooth them – particularly when the stake is high and one refuses to change one’s opinion and is determine to hold the positions indefinitely. On the other hand, targeting small percentages is low risk. One advantage of low risk is that it comes with minor drawdowns when there’s negativity. In the year 2011, Lee’s main fund had a roll-down of 14.8%. You know, that roll-down was small enough to be recovered. Despite occasional roll-downs, Lee has always made a comeback. Do you have a positive expectancy strategy? You’ll occasionally experience short-term or protracted losses. However, if you stick to that positive expectancy, you’ll always make a comeback.
Conclusion: Good trading mentors breed great traders. Lee Ainslie once worked for Julian Robertson (father of hedge funds). Now he’s a great trader. No doubt, Julian Robertson would be very proud of him. Do you have a good mentor at the moment? Perhaps you can become another great trader, even if you capital is very much smaller.
This article is concluded with a quote from Lee:
"There are no 'holds.' Everyday you're either willing to buy more at the current price, or, if you aren't, you should redeploy the capital to something you believe does deserve incremental capital."