Why did I put the month by month trend following performance tables in my books? Those track records teach. Those track records show the lumpy returns necessary to win big in the long term. Trend follower David Harding (in my books and film) recently opined:
What we haven’t invented is a magic money machine, which would be nice, into which you read the data and you make money every month. We know we haven’t got that we’ve never pretended to have that. On a good day we might have forecast that we had a Sharpe ratio of around about 1, on the basis of that last historic track ratio, have a Sharpe ratio of around about 1 that means you win seven months out of 12 on average, which means you lose five months out of 12 on average, which means you have plenty of losing months, plenty of losing back to back months, plenty of losing quarters and quite a few losing years. The fact that we are losing for the second year in the four or five, doesn’t in itself tell you anything, but if I said it didn’t worry me at all, it’s a bit of a straw in the wind I would say.
Speaking of Harding … my podcast today:
Synopsis: Michael Covel comments on four CNBC interview clips from legendary trend following trader David Harding of Winton Capital. Covel goes through the interviews with Erin Burnett, then of CNBC, Joe Kernen, and Fast Money. Covel comments as the anchors ask question after question that show they don’t yet understand the basic concepts behind Harding’s success. They beg for stock tips, ask predictive political questions, idiotically compare Harding’s approach to Long Term Capital Management, and otherwise not get the big idea. Covel’s analysis shows that reading teleprompters doesn’t necessarily imply one has insight. It’s an educational analysis to see how David Harding thinks and talks about trend following trading and to watch how the media system doesn’t get it. Those lessons alone are worth the price in gold. Special Offer free trend following DVD: www.trendfollowing.com/win.