Size Matters

Published on
February 12th, 2018
31 minutes

Size Matters

The Big Story ·
Featuring Victor Haghani, Mark W. Yusko, Alex Gurevich

Published on: February 12th, 2018 • Duration: 31 minutes

A close look at how investors can improve at this under-appreciated art. Victor Haghani, founding partner of Long-Term Capital Management and founder of Elm Partners, discusses the role that sizing played in the demise of LTCM. Mark Yusko of Morgan Creek Capital Management and Alex Gurevich of HonTe Investments also provide advice on how to get better at sizing positions.


  • RA
    Robert A.
    14 February 2018 @ 00:12
    On a somewhat related topic, IMO is the decision (or lack thereof) as to when to double down or cut a position in its entirety. One of THE most important bits I have ever picked up from RV was in a Very early hour long presentation by someone who ran a large Family office and hired/fired/and supervised dozens of different managers across many different asset classes. I continued to watch it even thought I kept thinking “gosh, there is nothing in this for me as I’m just an individual investor!”......and then I got one of the most valuable and usable bits ever from RV. What this Gentleman was focused on with every manager and the most important thing to him was the following: What do you do when you have a great idea, have the trade on and then it has gone against you 12%? Do you MAKE a decision?! You must. You either decide you still believe in your premise and double down or figure you have missed something and stop yourself out. This Gentleman talks to ALL his managers about this and tells them the one thing he will NOT tolerate is for them to NOT make a decision. He has been there himself and with his best managers—and what is done is desperately hope the position comes back and do nothing...or only take a little off or put a little more on. He wants them to come to him and explain the situational thinking and either cut entirely or double down. This dilemma has happened to me so many times over the years.....when 12% begets 20-25%. I try to always think about that RV interview on “sizing” and force myself to make a difficult decision.
    • DS
      Doug S.
      14 February 2018 @ 09:57
      Robert, I think what you're describing relates a bit to what Mark Yusko was saying about edge - if your edge has reduced then you should reduce your position.
    • SD
      Suraj D.
      14 August 2020 @ 08:10
      Thanks for sharing!
  • CB
    Conor B.
    12 February 2018 @ 20:26
    Haghani's takeaway regarding the partners' personal investments in LTCM seems backwards to me. It actually surprises me that the partners did have so much of their respective net worth's in the fund. However, if they had less been less invested in the fund I think that would have made them less likely to size the positions in the fund appropriately given the lower of alignment of interest between GP and LP investors. Also still amazing that these "Geniuses" couldn't foresee a scenario where this 100x levered trade would ever move in a way that could significantly impair capital.
    • EF
      Eric F.
      13 February 2018 @ 18:09
      Totally agree. Incentives matter. Too invested to detriment of investors? Makes no sense to me.
    • my
      markettaker y.
      31 July 2018 @ 01:26
      well, they're thinking of themselves. That is obvious.
  • AC
    Andrew C.
    13 February 2018 @ 09:32
    The reoccurring discussion point; "position sizing.” The details were very vague in here, a bit disappointing…. I have watched/listened-to/read the remarks of John Burbank in the original video and replayed in this video, and still don’t get the details of what he is trying to say. The long-term trade on uranium is a great example of where details will be useful. Discussed by Raoul in Macro Insiders and by Mike Alkin in April’17 (URANIUM OVERSUPPLY IS OVER). A trade horizon of 3-5 years and one would think not much more downside. So how would one size the position? What about sizing for URA (the EFT), or for different producers, or for explorers? This video was a good introduction to the topic; now can we delve into the details, please?
    • EF
      Eric F.
      16 February 2018 @ 11:53
      Agree, this is sorely lacking details. I don’t need consensus on this from the contributors but how can you discuss this properly without once having any sort of explicit figures mentioned?
    • MM
      Michael M.
      22 March 2018 @ 19:36
      What's not to understand? Risk is all about how much % you're willing to lose on a position.
  • DS
    David S.
    15 February 2018 @ 07:54
    I am not a trader, but I was surprised that Mark Yusko said never double down. Mark seems to think that the market is never wrong. If that were true he could never have an edge. Mark suggests getting out of a losing position because you can get back in latter. The market is only the sum of the collective wisdom" for that moment. If you believe in a stock for the long term, you can size down on a stock - not as a trade, but as a long-term investment. DLS
    • MM
      Michael M.
      22 March 2018 @ 19:34
      You're not thinking about it correctly. What Mark essentially says is do not double down on risk. If your total risk on an investment or trade is 2% then you could scale into a position. Put 1% risk in at x level. If price drops to your interested level, then add to the position by "doubling down" and add the next layer of 1% risk. The danger is when you say, ya know what, let's make this trade a 4% risk on capital. And then 6%. Etc..
  • SB
    Stuart B.
    18 February 2018 @ 16:49
    A lot of good points brought up. It's clear we all think about risk differently. What's more important is understanding our own comfort level with risk. That only happens through losses. The more you have the more durable you will become.
  • RP
    Ryan P.
    17 February 2018 @ 17:43
    What I don’t understand is the fact that everyone expects some concrete cookie cutter answer to the best “size”. It all comes back to risk. Watch Alex again in his last segment & Listen. Risk first.
  • cb
    chris b.
    12 February 2018 @ 19:41
    Good topic. Good overview. Really lacking in specifics and actual examples of "sizing". High conviction = greater size - I mean that is so generic it really isn't even worth mentioning. Kelly criteria - that shows up in any google search of sizing a bet. I was really hoping that the contributors would have gotten more granular - ie. "my highest conviction ideas we put 5% - 8% into that" sort of thing. The one contributor, I think Yusko, mentioned making an investment and if it is working adding more. It just begs the question how much did you start with and when did you stop adding (when it was 10%?). This really didn't do it for me in terms of learning anything specifically actionable.
    • EF
      Eric F.
      16 February 2018 @ 11:59
      Bang on, totally lacking specifics. Also agree, not actionable / applicable. Just having some ranges thrown in by the contributors would have been so useful.
  • KL
    Kathlyn L.
    13 February 2018 @ 02:48
    Great cinematography as always (mostly) but the audio is painfully inconsistent and RV needs better management either at the production level or post production level. Good audio is 80% of the success of successful content production, get this right
    • JW
      Joel W.
      13 February 2018 @ 19:32
      I agree. Further, I can’t stand the dissonance of the loud guitar riff adjacent to the quiet of individual speakers. I turn up the volume to hear the guests then paw madly at the volume when the guitar plays.
    • EF
      Eric F.
      16 February 2018 @ 11:57
      Totally, totally agree. More so in my case as I really value pretty much all the RV content but simply don’t have time to sit and watch, so download audio and consume that way. I think I pretty much get 99% of the value but not tied to desk. Always flick through transcripts (which I also value) to check on missed charts or audio I couldn’t discern.
  • EF
    Eric F.
    15 February 2018 @ 20:56
    Size matters but conspicuous by it's absence were hard guidelines. Not a single indication of this so very disappointed. Far too much theory etc., c'mon, give us some hard facts guys!
  • JH
    Jesse H.
    12 February 2018 @ 21:54
    That one piece of advice from Yusko for young traders was worth watching the entire video, as well as John Burbank’s brilliant statement, “there is no way to quantify risk/reward for things that haven
    • GC
      Grant C.
      13 February 2018 @ 22:38
      Agree, Yusko's comments alone are worth watching, especially for young traders/investors.
  • PC
    Peter C.
    13 February 2018 @ 06:16
    I feel position sizing, the issues & strategies getting to a maximum postion and the reverse, removals are really critical to us. For the most part we got money managers perspectives, I and I think many RVTV clients want an individual's / family's perspective. Regardless many of their points were valuable to me. I too was hoping for more specifics to help me assess my own use of concentrated positions. My example / situation of an "on maximum high conviction position" is I have LEAPs & shares in Facebook with a 7% portfolio allocation based on market value and 20% based on the FB shares' notional value. I also sold Feb 16th put spreads on FB that are currently underwater with a 180 strike (with a maximum 1% portfolio hit due to the wide spread used and expected to be closed out at roughly the original net premiums). So I can relate well to Yusko on doubling up on the winning side but I also added in on the pull backs,.... My asset allocation is 20% equities, 40% pref shares (rate resets & perpetuals) & REITs, and 40% cash. I welcome any & all feedback, insights.... on position sizing or this example of mine. Thank you.
  • Cb
    Chris b.
    12 February 2018 @ 23:32
    Really just old regurgitated info. I want to leave a thumbs down but it is not allowed? Whats up with that?
  • VA
    Val A.
    12 February 2018 @ 23:30
    Someone please tell me NN Taleb is watching this
  • CM
    C M.
    12 February 2018 @ 22:56
    Would love to see more comments on percentage losses one is willing to bear before exiting an investment, i.e. Alex's statement on 10% to 15%. Also, maximum size of position. I have seen managers who may limit to 2% to 5% and others that say if you believe in something, bet big, +10%.
  • JH
    Jesse H.
    12 February 2018 @ 21:56
    ...haven’t happened before. We are all chefs, having to be creative each day on the very big, seemingly unfathomable calls.
  • DS
    David S.
    12 February 2018 @ 20:48
    "Sizing" seems to be the "Achilles Heel" for hedge fund managers. The more they are leveraged the higher the risk/reward. Each person interviewed seemed to have his own heuristic developed through his own experience, i.e., it can be discussed but not taught. My simple take away is that I am not smart enough nor experienced enough to size my personal portfolio with leverage. DLS
  • KT
    Kay T.
    12 February 2018 @ 17:04
    really a critical topic for all serious traders deploying risk out there - would be great if we could expand more on this topic!
  • V!
    Volatimothy !.
    12 February 2018 @ 16:56
    Thanks RV, this is helpful info from great sources.
  • TB
    Tim B.
    12 February 2018 @ 16:56
    This is fantastic content, especially for those of us who are not full-times traders. We know we have weaknesses when it comes to sizing, but we're never sure how to improve. Bravo!
  • JP
    Janusz P.
    12 February 2018 @ 12:09
    One thing people forget is that there are thousands of ways to play the market. No single way is the right way. On a side note... seems to me like RV has run out out of (good) presenters/moderators for their interviews. I'm basing this not on this particular video but on a number of them, including the recent trend of not including in the videos the interviewers at all.
    • VK
      Viresh K.
      12 February 2018 @ 15:02
      I think they're just trying to get people to talk about specific themes, than them actually running out of ideas. But I'm with you, prefer the old style, we should be able to piece things together ourselves.
  • RA
    Ricardo A.
    12 February 2018 @ 14:21
    This topic deserves much more coverage. Would be willing to pay for a course
  • LK
    Lyle K.
    12 February 2018 @ 11:06
    very good on a personal level knowing when to profit take is my biggest hang up. But these interviews definitely add to the tool box and will make people better investors.