Ten Enduring Principles to Interpret Constant Market Change by Whitebox Advisors
1. The source of investment return is the efficient reduction of risk.
2. Know the drivers of your investment; maximize exposure to the mispricing and minimize exposure to everything else.
3. Right or wrong, the market always has a message; listen critically.
4. Ask yourself THE 4 QUESTIONS
- How large is the apparent mispricing?
- What is your level of confidence in the mispricing?
- What is the most efficient hedge?
- What is your level of confidence in the hedge?
5. Focus one level below the obvious.
6. See a lot, be a generalist. Be security agnostic.
7. Be more invested at the bottom than the top. If more things can go wrong than can go right, you are too close to the top.
8. Surprise is the enemy of thought; plan for volatile scenarios before they occur.
9. Avoid strategies that might overwhelm your abilities—or sensibilities.
10. The most dangerous mistake is the one you miss because it hasn’t lost any money—yet.