The famous interviews with traders conducted by Jack D. Schwager in Market Wizards included Hite, who discusses how he got started in commodities trading and his trading strategy. Hite believes that successful trading is simply based on calculating and trading the odds and bases his strategy not on getting the highest return - but on getting the best return, in terms of keeping downside volatility to a minimum.
Hite, compares trading to playing poker. Profitable investing is really based on betting the odds, and if you can estimate the odds of a specific trade or investment, then you can establish if the price is to high or to low.
Similar to poker, favourable odds do not guarantee any individual trade will be successful but as any good poker player knows, if you keep playing the odds with tight money management, you can make a lot of profit.
Larry Hite famously said:
“We approach markets backwards. The first thing we ask is not what can we make, but how much can we lose. We play a defensive game.”
His goal was to achieve the best returns while employing tight risk control, Hite stresses three key trading rules.
First, he advocates never risking more than one percent of total capital on one single trade, no matter how good the trade looks
His second rule is to always follow trends and never deviate from your methods or systems and it's true, if you can't trade a system with discipline, you don't have a system This view is based on trading the odds and how the great poker players make money.
Losing money in the short doesn't matter, because if you continue to play the odds correctly, you will win but you must stay on course. You need to have the conviction and courage to cut losses and hold big trends, in the face of open equity dips and at the end of the day - it's the long term profit that counts and what happens in the short term is irrelevant.
Hite’s last rule is to diversify across several different areas and he traded in multiple markets across the world, diversifying his portfolio into several different asset classes which were not correlated.
The Mint Fund
“There are two basic rules about winning in trading and life. One, if you don’t bet you can’t win. Two, if you lose all of your chips you can’t bet.”
The Mint Guaranteed Fund – a Series A fund – proved to become one of the best publicly traded commodity funds, in terms of performance to draw down. Hite used diversification as a key tool for cutting risk and never over exposed the fund in any one area. The fund achieved an annual return of over 30% before fees over a 13 year period under his guidance and in term of the low downside volatility, this is a truly outstanding performance.
In 1994, Larry Hite retired as the hands-on fund manager at Mint. Since his retirement, he has held the position of managing director of Hite Capital LLC and in has performance in terms of profits to downside volatility compares with any other trader, making him one of the most important and influential traders of recent times.