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How to avoid a common investment mistake

Think less about what to buy, and more about how much

Published Fri, Sep 22, 2023 · 10:10 AM
    • In an experiment using a rigged coin, few participants considered the optimal, lucrative strategy of betting a constant fraction of their wealth on the better chance.
    • In an experiment using a rigged coin, few participants considered the optimal, lucrative strategy of betting a constant fraction of their wealth on the better chance. PHOTO: PIXABAY

    IF YOU ever hear a professional investor talk about a trade that taught them a lot, prick up your ears. Usually, this is code for “a time I lost an absolutely colossal amount of money”, and you are in for one of the better stories about how finance works at the coalface.

    On this front, Victor Haghani is a man to whom it is worth listening. He spent the mid-1990s as a partner and superstar bond trader at the hottest hedge fund on Wall Street.

    In its first four years, Long-Term Capital Management (LTCM) made its initial backers average returns of more than 30 per cent a year and never lost money two months in a row. Moreover, its partners had been trading the capital of Salomon Brothers, an investment bank, for the preceding 20 years, with similar results.

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