Never add to a losing position?

[billyjoerob]

If you're managing billions and building a position, you might add to a loser. You probably have no choice.

But if you're managing thousands, then no I see no reason to add to a loser. Look at somebody like David Einhorn's portfolio. You will never see him increase a position quarter over quarter if that position goes down. He might sit on a losing position and not sell, but he will never add shares, not that I've seen, and I've been tracking his positions for a few years.

I'd like to hear a description of a strategy where adding to a loser works. It's probably some martingale strategy that's bound to blow up sooner or later.

 

[Free Thinker]

Quote from billyjoerob:

If you're managing billions and building a position, you might add to a loser. You probably have no choice.

But if you're managing thousands, then no I see no reason to add to a loser. Look at somebody like David Einhorn's portfolio. You will never see him increase a position quarter over quarter if that position goes down.

Einhorn owns 3568745 shares of Target Corp.. As of September 30th, 2007 TGT composed 7.55% of his portfolio.
David Einhorn increased his Target Corp. (TGT) holdings by 41.88% to 8,395,631 shares between December 31, 2007 and March 31, 2008.

 

[Myshkin]

Quote from billyjoerob:



I'd like to hear a description of a strategy where adding to a loser works. It's probably some martingale strategy that's bound to blow up sooner or later.

I am just talking from an intraday perspective but the probabilities are good on well correlated/cointegrated spreads coming back in from one ATR. If it goes out to 2.5 ATRs before 2 on no news and without volume indicating a gigantenormous institutional order, there is a great likelihood that the spread will converge, thus you add to the losing position.
I am guessing channeling could work similarly if there is a range within the top and bottom of a channel. Like if it goes to 32.43, short some and if it goes out to 32.64 short some more with a target at 31.60 and stop and reverse at 32.75, which would indicate a breakout. Just a guess

 

[Free Thinker]

Quote from Myshkin:

I am just talking from an intraday perspective but the probabilities are good on well correlated/cointegrated spreads coming back in from one ATR. If it goes out to 2.5 ATRs before 2 on no news and without volume indicating a gigantenormous institutional order, there is a great likelihood that the spread will converge, thus you add to the losing position.
I am guessing channeling could work similarly if there is a range within the top and bottom of a channel. Like if it goes to 32.43, short some and if it goes out to 32.64 short some more with a target at 31.60 and stop and reverse at 32.75, which would indicate a breakout. Just a guess

it depends what you are trying to do. if you are an intraday highly leveraged futures player adding to losers is bad for your health.
if you are a short term swing trader with a nice sized account averaging a diversified instrument is a valid stradegy.
this thread is about successful hedge funds stradegy. most of them are not scalpers trying for 2 ticks.

 

[Pension_Admin]

Quote from vhehn:

what the hell are you even doing giving advice when you dont trade. you should be in the mouth shut ears open mode until you have a clue what you are talking about.
i swear we need an age limit on this site.

You are not too logical. You tend to put words in others mouth. Your perception is your reality, making you highly vulnerable to deception. Your defense for averaging down/adding to losers indicate you have total disregard for others lives in the trading community.

I do hope they put an age limit on ET, so you can't do any more damage.

 

[ammo]

Quote from billyjoerob:

If you're managing billions and building a position, you might add to a loser. You probably have no choice.

But if you're managing thousands, then no I see no reason to add to a loser. Look at somebody like David Einhorn's portfolio. You will never see him increase a position quarter over quarter if that position goes down. He might sit on a losing position and not sell, but he will never add shares, not that I've seen, and I've been tracking his positions for a few years.

I'd like to hear a description of a strategy where adding to a loser works. It's probably some martingale strategy that's bound to blow up sooner or later.

an example of selling and adding more shorts higher, you sell the bottom of an area because many times the sellers will come in and it wont go higher,if you didnt sell, u got none, if that doesnt happen, you add higher, under a determined resistance area, if it holds and turns ,you wait for your target and close, the numbrs on right side of chart sh b 06 07,not 36 37...in this exmpl, you sell 02,03..if it goes higher u add up to 06 .08...if it stalls here u r short around 05 and your target is 95-89,at the bottom u start taking off at 95 ,it may not make it it 89, and u end up paying 97,98,so on both ends, you avg in, avg out, doesnt mattter if u add to loser or winner, at least adding to loser ,u are in the trade and didnt miss the move

 

[Myshkin]

Quote from vhehn:

it depends what you are trying to do. if you are an intraday highly leveraged futures player adding to losers is bad for your health.
if you are a short term swing trader with a nice sized account averaging a diversified instrument is a valid stradegy.
this thread is about successful hedge funds stradegy. most of them are not scalpers trying for 2 ticks.

Okiedoke brother V, it seemed as if the thread had degenerated into a debate over IF you should add to a losing position. My bad
If you don't mind, though, what would be an example of a diversified instrument and would said instrument be hedged against systemic risk?
Regarding hedge fund strategies, in the earlier post, I was referring to intraday trading but most folks I know of trading spreads/pairs hold them overnight (to as long as over a year) adding to the losing positions in however many layers their risk tolerance (both financial and psychological) affords as long as the correlation/cointegration is still fundamentally sound. I know he is not a hedge fund manager but I remember reading in an interview with Bob Bright that he preferred the first "layer" of his hedged pair to go against him so that he would have the opportunity to add more relative size to his losing position in the subsequent "layers" as they have greater probability of coming back in, all equating to better returns in the long run.
I know many hedge funds now aren't even hedged, per se but some do use similar techniques to pairtrading like buying puts of XOM against long XLE shares or even a simple buying the deemed undervalued MON against shorting overvalued POT, etc.
I think it fits in the thread but I am an idiot, especially on Friday night at midnight when my cranium turns into a large orange gourd with a thin patch of scraggly, fetid hair on the top, which makes it, luckily, unappetizing

 

[Free Thinker]

Quote from Myshkin:

If you don't mind, though, what would be an example of a diversified instrument and would said instrument be hedged against systemic risk?

diversified instruments would be things like spy,qqqq,rut,dia ect plus smaller etfs. no they are not hedged against systemic risk. that being said. can anybody hedge all risk and still make over a risk free return?

 

[billyjoerob]

Quote from Myshkin:

I am just talking from an intraday perspective but the probabilities are good on well correlated/cointegrated spreads coming back in from one ATR. If it goes out to 2.5 ATRs before 2 on no news and without volume indicating a gigantenormous institutional order, there is a great likelihood that the spread will converge, thus you add to the losing position.
I am guessing channeling could work similarly if there is a range within the top and bottom of a channel. Like if it goes to 32.43, short some and if it goes out to 32.64 short some more with a target at 31.60 and stop and reverse at 32.75, which would indicate a breakout. Just a guess

That's fine . . . But I'd only want to be doing a strategy like that if I had it nicely automated and was trading a large number of pairs. That's an insurance strategy, taking lots of small risks and hoping they don't add up . . . As a small piker, I buy insurance, I don't sell it.

 

[Myshkin]

Quote from vhehn:

diversified instruments would be things like spy,qqqq,rut,dia ect plus smaller etfs. no they are not hedged against systemic risk. that being said. can anybody hedge all risk and still make over a risk free return?

Hey bro, I was thinking you may have been referring to one of the index ETFs as they are the easiest form of diversification you can easily(and inexpensively) get into and out of (as opposed to similar mutual funds). However, as there is much more in the trading world that i don't know than i know, i thought it may be a crazy basket of well hedged mutual funds or something else new in this wacky world of financial instruments.
Hmmmmm, can anybody hedge ALL risk with that particular technique? No, but as billyjoerob had suggested, if you are diversified over 50 (or 200) pairs with relatively equal capital distribution on each pair, then I would say you would consistently beat the risk-free return, especially because it is ridiculously low right now (what, like less than 1%?).
As risk free as you can get with this, like trading a stock against its hard to find uber-liquid preferred or the cash indices against their futures, us regular harrys have to be so on our game or totally automated with the killer commish rates to even try to compete with the discrepancy devouring algos of the institutions. Otherwise, with the volume you would have to use to make it worthwhile, it could be very risky if it isn't 99.999999% precise with executions.
Thanks dude, good thread