Whitebox Investment Principles
Ten Enduring Principles to Interpret Constant Market Change
- The source of investment return is the efficient reduction of risk.
- Know the drivers of your investment; maximize exposure to the mispricing and minimize exposure to everything else.
- Right or wrong, the market always has a message; listen critically.
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?
- Focus one level below the obvious.
- See a lot, be a generalist. Be security agnostic.
- 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.
- Surprise is the enemy of thought; plan for volatile scenarios before they occur.
- Avoid strategies that might overwhelm your abilities—or sensibilities.
- The most dangerous mistake is the one you miss because it hasn’t lost any money—yet.