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

The $69 billion Millennium Management hedge fund employs a simple yet effective trading strategy to make sure it almost always makes money in the stock market: cut losing stock positions as quickly as possible.

The firm, which is one of the largest hedge funds in the world, was founded in 1989 and since then has lost money in just a single year — 2008, when a financial crisis turned into a sharp recession and sent the S&P 500 crashing 38%.

The fund still managed to massively outperform the S&P 500 that year, shedding just 3.5%.

Other than that outlier year, Millennium has posted gains every single year of its 35-year history, racking up $56 billion in cumulative profits for its investors.

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

The consistent string of positive returns at Millennium stems from it’s being a multi-strategy approach.

That means its 2,600 traders, investment analysts, and portfolio managers run independent groups concurrently using various investment strategies across 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 probably get fired.

The report said that when a Millennium portfolio manager that manages $1 billion loses $50 million, or 5%, the first threshold is reached and that manager’s pool of available capital to trade is slashed in half, to $500 million.

From there, if the portfolio manager loses an additional $25 million, or a total of 7.5% on the initial $1 billion allocated to them, they will likely be fired, the report said, adding that sometimes exceptions are made.

This strict stop-loss trading strategy means the hedge fund goes through a lot of employees, sporting a high turnover rate of about 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 person in the world.

And the strategy is still working. Millennium posted returns of about 10% in 2023, and year-to-date it is up another 9.5%.

Millennium Management did not respond to a request for comment.