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What could you buy if you had an extra $6.5 billion?
I did a little research, and I have a few suggestions:
You could buy a brand-new Porsche Boxter for every man, woman, and child in Connecticut's capital city of Hartford and have $91,364,000 in change…
You could fund the total economy of Kyrgyzstan, Guinea, or Somalia (by matching their GDP) and let everyone take the year off…
The bottom line is, $6.5 billion is a lot of cash.
But what if I told you that 11 years ago, that same amount was lost by the Amaranth Advisors LLC hedge fund in the space of one week?
Branded as the biggest hedge fund collapse in history, the culprit behind the fund's demise boiled down to one tragic mistake.
Brian Hunter – the trader that single-handedly accounted for the largest hedge fund meltdown since records began – ignored one of the most important lessons you can learn as an investor: proper position sizing.
Proper position sizing is widely overlooked among investors, making it a potentially disastrous – and costly – trading lesson.
Fortunately for us, our 10-Minute Millionaire system is designed to save us from making the same financially catastrophic mistakes as Mr. Hunter.
And today, I'm going to show you how by taking a closer at the all-too-important lesson this Wall Street disaster has to teach…
A Billion Here, a Billion There…
Hunter was known as a gunslinger, taking huge positions, especially in futures contracts that were for delivery many years out.
He was also seen by some as an innovator, adding liquidity to markets where none existed before.
But in this case, "innovation" was just a euphemism for poor position sizing.
According to The Wall Street Journal and other sources, Amaranth is not revealing the details of the series of trades that went badly awry.
The best guess is that there was no one to take the troubled contracts off of Amaranth's hands in such large volumes in these distant futures contracts.
When trouble came calling, the firm suffered the double whammy of poor position sizing and lack of liquidity at the same time.
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About the Author
Nationally recognized technical trader. Background in engineering, system designs, and risk reduction. 26 years in the markets.