21 Mag SOME LESSONS WE LEARNED – PART 1
Some lessons we learned – part 1:
- Usage of collateral to operate in normal markets is fine but that is not the case during uncertain times: it adds leverage and builds risk upon risk.
- Risk and uncertainty are deeply different
- Uncertainty is the process that takes place in tails or in the distant future and that has subjective aspects that are not quantitative and are not repeatable in terms of frequency. Uncertainty is a QUALIA.
- Payoff and leverage are crucial in situations of uncertainty or fat tails.
- To survive in the tails one should adopt a fractional Kelly criteria and avoid any negative gamma position
- Use systematically close stop loss
- Reason in the short term to understand longer term dynamics, often entering and leaving the market
- Don’t listen anyone. In the storm, no one has control, just think to survive
- Trade to protect the remaining capital
- Trade indexes only (no single stocks, no illiquid instruments, no negative carry)