Bill Lipschutz Trading Strategy and Investing Philosophy

Who Is Bill Lipschutz?

Born in the small village of Farmingdale, New York, Lipschutz always had his eyes set on financial markets. He completed his bachelor’s degree in fine arts followed by an MBA in Finance and it’s no secret that his academic background is partly the reason behind his celebrated financial success.

Lipschutz’s trading journey began when he inherited a sum of $12,000 after his grandmother’s death. At that time, he was pursuing his bachelor’s degree at Cornell University. With all the knowledge he had and some rigorous additional research, he managed to turn this sum into a multi-fold figure of $250,000. But the next part of his story is as cliché as it gets. His tremendous profitable run soon turned into a dreadful loss-laden journey as he almost blew up his entire account, and that, too, in one single trade. An ordinary trader would’ve called it quits at this point but that was the exact moment when Lipschutz displayed character, simply by not quitting.

He then pursued his master’s degree and got into the rat race of corporates. But again, for him, it wasn’t a source of cash flow safety, but rather a pursuit of experiential learning. Only a year after joining Salomon Brothers in 1984, he was bringing in business worth $300 million annually for the company. And he never looked back since then. He left Salomon Brothers in 1990 to gain exposure to different business settings through Rowayton Capital Management and the North Tower Group. By 1995, he and his classmates from Cornell University had accumulated enough knowledge of the financial world to incorporate their firm Hathersage Capital Management, of which he is the Principal and Director of Portfolio Management. He did all of this while continuing to work on his trading strategy and his efforts certainly paid off.

Bill Lipschutz’s net worth

Although there are no concrete estimates of Lipschutz’s net worth, a rough estimate by analysts suggests the number should be around $2 billion. We must not forget that all he started with was $12,000 in inheritance and he managed to turn that into the aforementioned sum of roughly 2 billion dollars.

Bill Lipschutz’s advice for novices

Lipschutz has been a subject of discussion in many renowned books including The Mind of a Trader: Lessons in Trading Strategy From The World’s Leading Traders, by Alpesh B. Patel and The New Market Wizards: Conversations with America’s Top Traders, by Jack D. Schwager. In these books, he shared some highly valuable tips for those looking to begin their trading journey and some of them are as follows:

1. Never underestimate time as a risk factor

“If most traders would learn to sit on their hands 50 percent of the time, they would make a lot more money.” ~ Bill Lipschutz

When you enter a new trade, it isn’t just the capital that is at risk, but also the time and attention that would go into monitoring it. So any trade with a longer time horizon automatically comes with higher opportunity costs in terms of the capital and attention dedicated to it. This makes concentrating on multiple trades at once a fairly difficult task. So, a clear interpretation of this advice is to take up one trade at a time and weigh all the costs related to it (implicit and explicit).

2. Absorb the pain that comes with the losses

According to Lipschutz, most traders enjoy beginner’s luck when at the start of their trading journey but only a few manage to sit tight when the losses start to mount up. This is where most trading careers end. His advice to newcomers, or even seasoned traders, is to feel the pain of the loss without letting it psychologically affect you. But why feel the pain? So that you don’t become numb to it. A mind that is numb to pain from financial losses tends to gamble more.

3. Never underestimate externalities

When you design a trade set-up, it is very convenient to ignore the fact that there are probably a million factors that could change the outcome of a trade. This is one of the biggest mistakes that traders make. The outside forces are powerful enough to make or break your trading system and so, always give them due consideration in your plan of action. A simple example of this advice would be a fundamental analysis trader confirming his potential trades using technical analysis. It might not be his go-to technique but it also doesn’t hurt to consider it.

4. Make trading your passion

The thing about passion is that it gives you a burning desire. When trading becomes your passion, you shift your entire focus to learning the system that could improve your trading game. This is exactly what you need. But how do you know if you have that passion in you? Well, the fact that you’ve read this article thus far does hint toward a positive side.

5. Overconfidence is your biggest enemy

Lipschutz often talks about his own experiences of going from rags to riches to rags to riches again. Through his journey, he wants his followers to absorb the fact that Forex trading has the potential to change one’s life, both positively and negatively. It’s their actions that decide what side of the coin they’d fall on. He stresses quite a bit the idea that overconfidence in one’s self often leads to negative outcomes while discipline paints a brighter picture.