Larry Hite
- Larry Hite was a terrible student, partially blind, and dyslexic, but that didn't stop him from becoming one of the world's most admired and well-known traders.
- He adopted a systematic trend-following strategy that effectively nullified his learning disability and led him to windfall profits.
- Hite's new book is called "The Rule: How I Beat the Odds in the Markets and in Life - and How You Can Too."
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Larry Hite isn't your typical Wall Street trader.
He didn't have straight A's. He wasn't a good athlete. And he wasn't well connected. Far from it.
In fact, he has a learning disability, is partially blind, and comes from a working-class background in Brooklyn.
But none of those variables slowed him down. Hite's tenacity and stoicism drove him to succeed despite difficult circumstances. As a testament to this notion, his firm - Mint Investment Management Company - was the first hedge fund to hit $1 billion in assets under management, with Hite steering the ship.
"I had to find a way to use the tools that were open to me," he said on Trend Following with Michael Covel, a trading podcast. "I'm living proof that you can get very rich doing a very simple thing."
The straightforward thing that Hite is talking about is trend following - and he says anyone can do it.
"A lot of people do not like trend following," he said. "And they don't like it because it's accessible to anybody."
For the uninitiated, trend-following is a systematic, quantitative approach to trading that advocates for an investor to buy when an asset's price is going up, and sell when it's going down. It's as simple as that.
"The math is not complicated," he said. "You want to know if the market's going up or down? Go look at an average."
Generally, traders use moving averages, support/resistance levels, and defined channels to identify, confirm, and dispel current trends. The strategy is basically akin to hopping on a bandwagon or following the herd. It doesn't matter whether the market is going up or down: the trend is your friend.
"I've tested that for years - and it really works," Hite said.
Through the application of Hite's own proprietary trend following strategy, his firm was able to garner 30% average annual compounded returns from 1981 to 1988. What's more, in 1987 - the year synonymous with a 20% market crash - he earned 13%. And that was his worst year on record.
Regardless of his elite track record, Hite is incredibly humble and isn't afraid of being wrong. In fact, he knows he's going to make a ton of mistakes. That's why he has an exit strategy in place before he even places a trade.
"Anybody can do this," he said. "Take 10 of anything that's trading on an exchange, any kind of exchange - it doesn't matter. So you have 10 of these things - 5 of them - they hit their stops, which is the safety. You have to do that to do this correctly. You have to cut your losses."
In the event of a mishap, his downside is capped - and he's out and on to the next one in no time. He doesn't ruminate or tread on miscalculations. In fact, he does something that almost no other traders do: He takes the money that's leftover from the losers, and pumps it directly into his winning trades.
So if Hite's strategy is so foolproof, why doesn't everyone do it? A big part of that stems from his approach being the exact opposite of the ones used by more traditional investors. To others, losing trades quickly become "investments," and winning trades get cut short as eager investors scoop up profits. Hite is swimming in the opposite direction.
To that end, a flexible trader looking for a similar strategy could spread bets across 10 different securities, with close trailing stops, say 5%. If their trade gets stopped out, they can what's leftover and pump it into a winner.
Against that backdrop, Hite shares an inspiring piece of wisdom.
"I have learning disabilities. I have a lot of other problems. But I can take this [trend following], and apply it - and I've got close to $100 million," he said.