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Here are the trading lessons I learned from George Soros and Paul Tudor Jones: Peter Borish

What investors can learn from Derek Jeter: veteran trader

Video Transcript

PETER BORISH: Baseball player. If you have a year where you hit .250, it's hard to stay in the majors. But if you have hit .330, which doesn't seem like a big difference, you're going to be an all-star for a long time. Well, I don't know if I have that much wisdom. But I've been honored to have been associated with some of the best traders in the world.

Coming up and having worked with Paul Tudor Jones at Tudor and that risk management, having helped George Soros and providing all that data in the early days for his "Alchemy of Finance." And I recommend everybody read sort of-- that's a tough book. But "Soros on Soros." And in there, he says two things that always resonates with me when it comes to risk management.

One, yes, there are trend followers and there's momentum-type trading. And a lot of people think, oh, that's so silly and that's stupid. But it's successful. And he says most of the time you want to be with the trend. But you want to be mindful of inflection points. And those inflection points are a number of things, right. Waning momentum. I say to people trading is a second derivative business. It's not a first derivative. It's the rate of speeds. When things go up very, very quickly and then they slow down, that's when you want to get defensive.

And the other thing that George talks about when it comes to risk management is that markets are never stable. That's sort of the theory of reflexivity that he developed. And so when you're at extremes in a trend, you're going to see a pickup in volatility. And most big, big moves happen from oversold conditions or overbought conditions. And that is common in equity markets. And it's common in commodity markets. But I will just add personally that the beanstalk never grows to the sky.

The goal of our business, traders and everything else, is we're here to make money. We're not here to be right. So that's where I go back to my first line. I can change my mind immediately. I have to take my ego, put it aside, because being wrong is just part of the business. As Derek Jeter says, fans worry about the last game. The players worry about the next game. You take your loss. You try to minimize that loss through sophisticated risk management and then move on to the next trade.

Well, first of all, for me as the head of research and leading that effort, it was extraordinarily humbling. But to really put it in perspective you have to give Paul the credit for investing at that time in data and technology that cost a lot of money that people were not yet ready to invest in. That put us as a firm far ahead of the curve.

One of the greatest honors of my life was after the crash of '87 they had the Brady commission. And I was seconded to the Brady commission. And to work there, I was the youngest person on the commission. And if you read the report all the data about what happened intraday around that came from us because we had it. The big firms did not yet have it.

In fact, it was housed out of the Federal Reserve Bank, the commission of New York. And when it came time to go through the data, they didn't even have the ability to display it there. I brought them all over to our office. We even had an investor invested in those big large monitors. But we have to be careful when you go back to that. Everybody sees the outcome and they look at success.

But the reality is when we were building this model, there are points along the way and in the documentary where we thought certain things were going to happen. Maybe the rally was going to begin earlier. And if you watch it closely, we got really hammered on a couple of days there. We had to take our licks, like all traders do, and come back. Originally, when I had forecast the model, I thought this was going to happen and go into sort of January of '88. Many major market tops, historically, had happened in the month of January.

But then when all the data lined up-- and it's sort of interesting because we're in September. And when it lined up sort of post-September expiration then and into early October and then failed, then we got really, really confident. And that's where Paul's skills as a trader really came into play. And I always say that if I was a genius, which I'm not, but I got the exact low right and the exact high right in the market, he would still make more money than I would because markets don't go straight up and down. And he's a far better trader.