Larry Hite Trading Strategy

Larry Hite Trading Strategy – Mastering Risk Management

Larry Hite is one of the pioneers of system trading (computerized trading) together with Ed Seykota. His book, The Rule: How I Beat the Odds in the Markets and Life—and How You Can Too, was named a Wall Street Journal, LA Times, and a Porchlight Books bestseller. He co-founded Mint Investments in 1981, the largest commodity trading advisor in the world in terms of AUM.

In this article, we look briefly at Larry Hite’s early life and career, and we end the article with some of his most famous quotes.

Larry Hite is most famous for being interviewed by Jack Schwager in the Market Wizards. In that interview, Hite doesn’t talk much about his trading strategies, but mostly about risk. Hite’s approach is that as long as you take care of the risk, the profits will take care of themselves.

Larry Hite’s early life and career

He was born in 1941 in Brooklyn, NY. Larry was born blind in his left eye and his right eye vision is poor. He could barely see the letter E at the top of the eyesight chart. He also had difficulty reading and writing, “I did poorly at everything I tried and felt like a failure for most of my childhood,” he wrote in his book, “The Rule: How I Beat the Odds in the Markets and Life—and How You Can Too” (McGraw-Hill).

He got obsessed with financial trading when during a class, a professor discussed various financial securities such as commodities futures and options. However, the professor dismissed it and said it’s too speculative and volatile because of factors like weather and government policies affecting the price of the securities, but young Larry was fascinated by the concept.

Before his journey into the financial market in 1968, Larry was a rock music promoter during his college year and an occasional screenwriter and actor.

Larry introduced the first principal fund-protected concept, which led to many successful products and financial engineering innovations in the market. He adopted systematic trading of equity to the portfolios he manages at Mint same year. And in 1994, he retired as a manager at Mint. Afterward, he maintained the position at Hite Capital LLC as managing director.

In 2000, he shifted his attention to his family office, which included proprietary trading and continuous development and research in the area of computerized trading. He formed Hite Capital Management, partnering with his former colleagues at the Mint team. He became the chief investor and chairman of Metropolitan Ventures Partners (North American regional branch), a position which he maintained to date. Larry has partnered with International Standard Asset Management (ISAM), where he created a multi-strategy platform of fund of managed accounts and liquid hedge fund strategies.

A chapter of the popular book, Market Wizards, written by Jack Schwager, was dedicated to his trading and risk management philosophy. In describing his trading approach, this is what he has to say: “We approach markets backward. The first thing we ask is not what we can make but how much we can lose. We play a defensive game.”

He’s also a man given to charitable causes, founder, and chairman of The Hite Foundation. The Hite Foundation is focused on reducing the number of homeless persons in New York and assisting scholars whose lives and work are shaky because of the repressive nature of the society they live in.

He is currently serving as the Chairman of the Development Committee for the Institute of International Education’s Scholar Rescue Fund, whose aim is to provision for professionals and scholars at risk throughout the world.

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Larry Hite trading strategy quotes

We end the article with some quotes from Larry Hite, all taken from Jack Schwager’s interview in the Market Wizards.

He told me: “Larry, when you are on a motorcycle, never argue with a car. You will lose.” The same lesson applies to trading: if you argue with the market, you will lose. 

The insurance business provides a perfect analogy to trading. It’s the law of large numbers.

Because we know that we don’t know. No matter what information you have, no matter what you are doing, you can be wrong.

There are really four kinds of trades or bets: good bets, bad bets, winning bets, and losing bets.

Frankly, I don’t see markets; I see risks, rewards, and money.

I have noticed that everyone who has ever tried to tell me that markets are efficient is poor.

I have two basic rules about winning in trading as well as in life: 1. If you don’t bet, you can’t win. 2. If you lose all your chips, you can’t bet.

It is incredible how rich you can get by not being perfect.

People don’t change. That is why this whole game works. In 1637, tulips in Holland traded for 5,500 florins and then crashed to 50, a 99 percent loss. Well, you might say, Trading was relatively new then; these people were primitive; capitalism was still in its infancy. Today we are much more sophisticated. So you go to 1929 and find a stock like Air Reduction which traded at a high of $233 and after the crash fell to $31, a decline of 87 percent. OK, you might say, the Roaring ’20s were crazy times, but now things are surely different.

Throughout my trading career, I have continually witnessed examples of other people that I have known being ruined by a failure to respect risk. If you don’t take a hard look at risk, it will take you.

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.

While the speculator doesn’t have the product knowledge or speed, he does have the advantage of not having to play. The speculator can choose to only bet when the odds are in his favor. That is an important positional advantage.

What innovative concepts did Larry Hite introduce to the financial markets?

Larry Hite introduced the first principal fund-protected concept, leading to successful financial products and innovations. In 1994, he retired as a manager at Mint but continued his involvement in the industry, managing Hite Capital LLC and later shifting focus to his family office, Hite Capital Management, in 2000.

How did Larry Hite approach risk management in trading?

Larry Hite’s risk management philosophy involves playing a defensive game. He emphasizes the importance of assessing and respecting risk, stating that the first question in trading should be about potential losses rather than potential gains.

What advice did Larry Hite provide regarding trading and life?

Larry Hite offered valuable advice, including the importance of not arguing with the market and the analogy between the insurance business and trading. He highlighted the significance of recognizing the four types of trades or bets: good bets, bad bets, winning bets, and losing bets.

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