Cedric Yau

Never place a bet until you can identify who is wrong.  

Corollary to “If you don’t know who the sucker is, it’s probably you.”

Knowing how a security is valued is more important than knowing how to value a security. 

Everyone has a way of calculating a theoretical value.  Don’t fight the majority*.  Instead look for signs the dominant methodology is changing or that the inputs to the dominant model are about to produce an unexpected result.  * When you challenge an input, you challenge a belief.  When you challenge

Look two steps ahead.  Sometimes you don’t know the outcome of the immediate situation but you can anticipate the reactions.  

Sometimes the best bet is on the future.  Keep powder dry and join the war as a mercenary after the first shots have been fired.  With preparation, react immediately while other people are putting on their pants.  

A trade without thesis is a bet based on hope.

The toughest moments come when a thesis is disproven.  Does one hope for circumstances to change for breakeven to occur?  Or does one cut losses and look forward to the next trade?

Easily found third-party agreement with your thesis should be taken as warning of a crowded trade.  Nothing is more costly than an independently conceived idea whose time has already come and gone. 

Sometimes the problem isn’t when nobody agrees with you. The problem is when everybody seems to. The lack of dissent implies the party has reached it peak. The direction may be right in the long run, but look for short squeezes and margin calls to kick a few people off

There comes a point during a trade where the subconscious starts obsessing. When you spend more time looking for reasons you are right, take that as a sign that your confidence level has diminished below 50%. Per Kelly, it is time to close.

Adding to a position after it moves in your favor can be like betting more on your door after Monty Hall reveals the goat.  Reassess the probabilities for further gain. #DontBeGreedy

Bralek’s Rule for Success: Trust only those who stand to lose as much as you when things go wrong.

Understand what has been priced into the market. And bet on most likely surprise.  

Kelly Criterion comes into play.  Above assumes even payment for win/loss.  In the complex case, a less likely event may create a larger surprise and greater payoff.

Take the time to enjoy the fruits of your labor.  If you don’t, someone else will.