The strategy a $69 billion hedge fund uses to make sure it never loses money in the stock market

• Millennium Management lost money in just one year after it was founded in 1989.

• The $69 billion hedge fund uses a strict trading strategy to ensure it consistently makes money.

• This trading strategy helped founder Israel Englander become a billionaire.

The $69 billion Millennium Management hedge fund uses a simple but effective trading strategy to ensure it almost always makes money in the stock market: reduce your stock positions as quickly as possible.

The firm, which is one of the world’s largest hedge funds, was founded in 1989 and has since lost money in a single year – 2008, when a financial crisis turned into a sharp recession and caused the S&P 500 to collapse by 38%.

The fund still managed to massively outperform the S&P 500 that year, producing a small loss in the low single digits.

Aside from that one anomalous year, Millennium has posted earnings every year of its 35-year history, racking up $56 billion in cumulative profits for its investors.

When the S&P 500 fell 10 percent in 2000 as the dot-com bust began, Millennium had its best year ever, delivering a 35 percent return for its investors, according to data from Bloomberg. And in 2022, when the S&P 500 ended the year down 19%, Millennium was up 12%.

Millennium’s consistent string of positive returns comes from the fact that it is a multi-strategy approach.

This means that its 2,600 traders, investment analysts and portfolio managers run independent groups using different investment strategies in stocks, bonds, options and commodities.

According to a report from The Wall Street Journal, the game is simple: make money and stay employed, or lose money and likely get fired.

The report said that when a Millennium portfolio manager managing $1 billion loses $50 million, or 5%, the first threshold is reached and that manager’s pool of equity available for trading is cut in half to $500 million of dollars.

From there, if the portfolio manager loses another $25 million, or a total of 7.5 percent of the initial billion allocated to them, they will likely be fired, the report said, adding that exceptions are sometimes made.

This strict stop-loss trading strategy means the hedge fund goes through a lot of staff, with a high turnover rate of around 15%-20% of its staff each year.

But the trading strategy is also what turned its founder, Israel Englander, into a billionaire.

According to data from Bloomberg, Englander is worth $13.3 billion, making him the 172nd richest man in the world.

And the strategy still works. Millennium has seen returns of around 10% in 2023 and is up another 9.5% year to date.

The story continues

Millennium Management declined to comment.

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