I wrote a piece for FT Adviser last year about the lie retail investors get sold: that you need institutional firepower to make money in markets.
I will keep shoving it down your throat because it is so evergreen - it is what happens to every single fund that gets too arrogant.
You don’t. You need a process that still works when the trade goes against you.
Which brings me to Leo and SALP.
SALP is Situational Awareness LP, Leo’s fund. The book and the thesis got plenty of attention. The vehicle is another story. From the outside it looks like the risk management step never really got written down hard enough for what the market threw at it.
We have been boring on this point for a long time.
Before you buy, you need an answer to one question: what would have to happen for me to admit this idea is wrong?
If you cannot answer that, you do not have risk management.
A strong thesis does not invent that problem. Leverage and concentration just speed it up.
Leo did not need a floor of PhDs. He needed rules that still applied after the position started hurting. Invalidation, size, and what you do when logic leaves the room.
And the biggest problem is Leo was behaving like a retail investor… except he had $25bn to play with.
You do not need to be too clever to make money in markets.
You do need rules you still follow when you are wrong.
David Belle
Drop me an email with your view on this - I read them all.