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Picking the Trader Right For You

Feedback to consider if your looking for a trader to manage your money:

Dear Michael, I appreciate the personal response. At risk of wearing out my welcome, I’d like to get some advice. I’m an economist, and I used to think that I understood the macro-economy well enough that I could make decent investments. After a pounding in the early 2000’s I got more astute. I was lucky enough to miss the 2008 crash, primarily because I saw the housing bubble coming. But in general, as you say, I don’t have any special knowledge that would allow me to do better than a monkey. My wife and I are in our mid-50’s and in the process of retiring. Our combined 401K balance is about $800K, which, along with other income is enough to live fairly comfortably, so long as we are careful. I recognize that the most successful trend followers also have some big drawdowns. I’d like to invest with a trend follower, but I can’t afford the risk of a significant drawdown right off the bat. Reasonable gains for the first few years would give us some padding, and we might get a little less risk averse after that because we could afford to be. You mention in Trend Following that Jerry Parker has developed a system that earns lower average returns, but that it is also lower risk. The returns he gets are significantly better than I can get in traditional investments and is entirely acceptable. Perhaps that is the appropriate place for us. My question of you is, is this a good way to look at it? Also, are there other trend followers like Jerry that I might consider? I’ve looked through the book and the websites of many of the people you mention in the book, but Jerry is the only one I can find that specifically seeks lower risk trades. Any advice you can provide would be greatly appreciated.

Regards,
David [Name]

I don’t recommend individual traders. As far as all the issues that go with making a decision, not sure I follow your exact question beyond a desire for a manager recommendation?

Mike, nearly all of the traders mentioned in the book seem to focus on maximizing the return. That’s fine for people that can afford a significant yet temporary decline, but I cannot. I like trend following, but I’d like to find a trader that uses a system that sacrifices return to gain lower volatility. Perhaps that’s what I should have said.

Regards,
David

That’s not true that they all focus on absolute return alone. As I said from the top my books (plural) cover a wide selection of trend following issues and traders. I can’t advise you on a particular trader, but your view that trend following only shoots for absolute returns alone is not accurate. One question that I have? Were you fine with the S&P dropping 50% twice in last 13 years? And the Nasdaq 77% drop?

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