Tom Basso spent 28 years managing money before retiring in 2003. At peak, he was running $600 million. He has been through every major market crisis since the late 1970s and came out the other side intact each time. When he talks about what it actually takes to survive and profit across different market conditions, he is not drawing on theory.
His website runs the motto “enjoy the ride,” which might seem a bit casual for someone with that track record. But the idea is precise. Markets will always be volatile. There will always be drawdowns, flat periods, and conditions that do not suit your strategy. The traders who survive are not the ones who figured out how to avoid all of that. They are the ones who built systems that keep working through it, and who developed the discipline to follow those systems when it hurts.
This episode covers his core principles for both profiting and protecting capital across different market conditions: position sizing, extreme diversification, the “filling the potholes” concept, discipline under pressure, and how he thinks about running a portfolio of multiple strategies at once.
Watch the full episode below, then read on for the complete breakdown.
The two pillars of long-term survival in trading
Tom attributes his longevity to two things above everything else. The first is position sizing and risk management. The second is awareness and discipline. Both are required. Having one without the other is not enough.
On position sizing: the math is straightforward in principle, even if many traders ignore it in practice. You need to size every position so that no single trade or small group of trades can seriously damage your account. His framing is useful. If you have 50 positions and all of them simultaneously hit their stop losses, how much of your account do you lose? If the answer is more than you can absorb without fundamentally changing your trading, your position sizes are too large.
The practical upper limit is not just about avoiding ruin. It is about maintaining the psychological ability to keep trading after losses. A trader who loses 10% can get back to breakeven relatively quickly and with their conviction intact. A trader who loses 50% faces a mathematical and psychological mountain. They need a 100% return to get back to where they started, and they will be doing it while questioning whether their whole approach is flawed.
Awareness and discipline: the psychological side of the equation
The second pillar is harder to quantify but just as important. Awareness means recognising when you are deviating from your plan and why. Discipline means correcting that deviation before it compounds.
Tom’s example of the two classic failure modes is worth understanding directly. The first is cutting profits short because you are feeling greedy and nervous at the same time, wanting to lock in the gain before it can reverse. The second is doubling position size after a loss to “teach the market a lesson” or to get the money back quickly. Both are emotional decisions that override the system, and both destroy long-run performance even when they occasionally work in the short term.
He has been even-keeled about this for a long time, but he is honest about the fact that even he has days where a string of losses catches his attention. His approach to managing this is deliberate. During drawdown periods, he actively reminds himself of the periods when he was making new highs. During strong periods, he reminds himself that a drawdown is coming. The goal is to stay in the middle, never too elated, never too demoralized, so that following the plan feels like a sustainable practice rather than an ongoing battle against your own emotions.
Extreme diversification: why 50 positions beats 5
Tom runs somewhere between 50 and 60 positions on a given day, across about 30 different futures markets, a range of ETFs, and some option credit spreads. He trades 10 strategies simultaneously. He calls this approach “extreme diversification,” and the logic behind it is straightforward.
If you have 50 positions and one of them moves sharply against you, it represents roughly a tenth of a percent of your portfolio. You will notice it, but it will not dominate your day or your decision-making. If you have 5 positions and one of them moves sharply against you, that is 20% of your portfolio in trouble. That grabs your attention in the wrong way and creates pressure to act emotionally.
The same logic works in the other direction. Overconcentration in a winning position creates a different problem. Many traders hold large winning positions past the point where they should have been trimmed or rebalanced, because the position has become emotionally meaningful. Tom’s way of describing the ideal relationship to each position is memorable: “They’re like 50 children. I love them all. I don’t want to favour one over the other.”
For traders with smaller accounts who cannot access 50 positions, the goal is directional. Start with what you have, but work toward more. Get to 10. Then 20. Add different asset classes as your account allows. The benefit does not require perfection to be real, and each genuinely uncorrelated position you add moves the needle.
Filling the potholes: systematic diversification across strategies
Tom borrowed a concept from Laurens Bensdorp that he found immediately useful: “filling the potholes.” The image is a road going upward, representing your equity curve. A perfect road would be a straight line going up at a steady angle. The real road has potholes, the drawdowns, flat periods, and rough patches that every strategy goes through.
The goal of a multi-strategy portfolio is not to eliminate the potholes entirely. That is probably impossible. The goal is to make each pothole shallower and shorter, by having other strategies performing reasonably well at the same time a given strategy is struggling.
His practical approach to identifying what to add: look at your portfolio’s worst periods and ask what was happening. Where were the losses coming from? Were your long-term trend strategies getting whipsawed? Were your short-term strategies suffering in a low-volatility environment? Once you identify the conditions that hurt you, you can look for strategies and asset classes that tend to do well in those same conditions. The new addition fills the pothole caused by the original strategy’s weakness.
What genuine diversification looks like across markets
Tom approaches market selection using common sense rather than formal correlation matrices. His test for whether two things are genuinely diversifying is simple: do they care about each other? Would a move in one reasonably cause a move in the other?
A semiconductor ETF and a soybean futures contract have essentially nothing to do with each other. Adding both to a portfolio is genuine diversification. Ten different technology stocks all respond to the same macro and sector news. Trading all ten instead of one is not meaningful diversification, it is concentration with extra steps.
His current portfolio spans:
- 30 different futures markets
- Multiple ETFs giving exposure to sectors and asset classes
- Option credit spreads
- 10 active strategies with different time horizons and entry criteria
The strategies themselves represent another layer of diversification beyond the assets. A trend-following strategy and a mean-reversion strategy can be trading the same markets and still produce uncorrelated returns, because they are capturing different types of market behaviour at different time scales.
The engine analogy: multiple strategies working together
Tom uses an image that captures how this kind of portfolio feels in practice: the cutaway view of a car engine, where different pistons are moving up and down at different times. No single piston determines whether the engine runs. The power output comes from all of them working in sequence, each contributing at its own moment.
A well-constructed multi-strategy portfolio works the same way. At any given moment, some strategies will be in drawdown, some will be flat, and some will be performing well. The composite result is smoother than any individual strategy. The key requirement is that the strategies are genuinely diverse, different time horizons, different market conditions, different entry logic, so they do not all struggle at the same moment for the same reason.
Practical steps for building toward this from any starting point
Tom is realistic about the fact that most traders cannot immediately jump to a 50-position portfolio across 30 futures markets. His advice for building toward it:
- Start where you are. One strategy is better than no strategy. Two strategies that are uncorrelated are a meaningful improvement.
- Add fractional positions or micro contracts when capital is limited. Both exist now in a form they did not 20 years ago. You can get exposure to crude oil, equity indices, and many commodity markets at very small position sizes.
- Choose additions based on genuine non-correlation. Think conceptually about whether two things actually move together before adding.
- Rebalance positions, not chase them. When a position grows large relative to the rest of the portfolio, trim it. The goal is balanced exposure, not riding concentrated winners.
- Keep 20 to 30 reasonably diversified positions as a practical target. At that point, the benefits of diversification are meaningful and manageable.
Related episodes
- Consistent equity growth through diversification with Nick Radge
- Effective market regime techniques with Cesar Alvarez
- How to detect a failing trading strategy with Kevin Davey
- How to optimize strategies for robustness with John Ehlers
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