Bruce Kovner is one of the greatest investors of all time. He is an American hedge fund manager and chairman of CAM Capital, a family office based in New York with a focus in the Americas and Western Europe.
In 28 years at his own fund, Kovner generated 21% CAGR (i.e., Compounded Annual Growth Rate), and prior to that, about 90% when working for a decade at Commodities Corp.
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What made Bruce successful, and how could such returns be achieved? Here are four trading principles that made him one of the great investors of all time:
- Risk management is paramount
- Macro is really important
- Be willing to make mistakes
- Studying the charts is critical
Risk management is paramount
Investing without risk management is not possible. As such, Kovner always traded with a stop-loss order, knowing when he would get out before getting into a market position.
The market should not reach a stop if the analysis is correct. If it does, it means you are wrong, and it is better to get out as soon as possible from a bad trade.
Macro is essential when investing
Macroeconomics is what moves markets. While technical analysis is important, it is the fundamental one that moves financial markets.
Understanding why the markets move is critical to successful investing.
Be ready to make mistakes
No one is perfect, and there is room for error in trading. Be ready to make mistakes as long as you are disciplined enough to take the correct size positions, have an independent view, and be a contrarian when other traders are unwilling to trade.
Technical analysis is critical
Technical analysis refers to studying the charts or past price action in order to forecast future market moves. To many, technical analysis looks like guessing, but to Kovner, the charts alert him on existing disequilibria and potential changes.
Drawing conclusions on what some other traders did in the past offers an educated guess regarding what they will do in the future.
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