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TRADING RULES

Kingdon maintains several trading rules. The first is to cut losses. The second rule is not to forget rule one.

The third rule is to find out what the Street considers the critical variables for the security and its industry. Kingdon says to use every legal means to monitor these on a timely basis. Other rules are: Don't try to turn a losing trade into an investment. If you buy a stock for a reason that is no longer valid, sell it. If you're brave (and dumb) enough to buy a stock in a bear market, trade and/or hedge it. If a stock is fully valued relative to its growth rate, comparable companies, or interest rates, it is a sale candidate. If the company misses the upper quartile of Street estimates, sell it. A technical breakdown or 15 percent decline from cost is a sufficient reason to reverse the trade. No matter how much time or money you have invested in the stock, it owes you nothing.

"We think about the consequences of being wrong before we invest," Kingdon says. "We are very concerned about liquidity."

QUIET, INTENSE CULTURE

Quiet and intense, Kingdon frequently uses sports analogies as he speaks. "You can't play the same game as everyone else and wonder if it's the eighth inning or the ninth inning. If you're wrong, it's like a game of musical chairs [and someone will be left without a chair]. It's not a game of baseball." Is the game worth playing? Yes, if sufficient potential return exists and downside risk is manageable.

Kingdon does not use a lot of leverage. In fact, there has been virtually no leverage for 13 years. "I haven't seen circumstances that would warrant lots of leverage." He avoids the use of leverage to try to turn mediocre returns into good returns. "A bad return is a bad return. Using leverage is only going to leverage you on the downside."

Being long value and short technology or vice versa isn't a hedged portfolio. It doubles your risk.

Resilience is an important word for Kingdon. Resilience reflects how a manager reacts to adversity or client withdrawals. "It is about believing in yourself and not confusing a bull market with brilliance and a bear market with stupidity. . . . Markets are markets. You can't take it personally."