John W. Henry Rebound

John W. Henry’s longest standing fund posted a +27% return for October 2008. Yes, up nearly thirty percent for one month in one of the worst months in the history of markets (S&P down -17%). Sure, Henry is no longer trading the billions upon billions he once was, but Henry can’t be blamed for the “fast money” of the last few years that ran away from his trend following off to investment banks and long only hedge funds (geared with 30:1 leverage) trying to take advantage of a real estate market that supposedly could never go down. Looks like trend following was validated…again. My new theory? The next time trend following funds go into an extended drawdown look around because there is most likely a bubble somewhere else about to pop. And when the pop happens…the winners seem to always be predictable.

11 thoughts on “John W. Henry Rebound

  1. I am just curious what exactly makes you think that “the next time trend following funds go into an extended drawdown (…) there is most likely a bubble somewhere…”.

    Indeed, this is very interesting observation. That is why I has caught my eye.

    Thank you very much.

    Mike, Slovakia

  2. Hey Mike

    Since following your site everyday since last year and purchasing yours and Van Tharps books,i have tried trend following and am up 200% on my small investment.
    With my pension fund i am down 30% using buy and hold!

  3. Trend followers don’t do well when the Fed/government starts engineering things. Like lowering rates after 9/11 to 1%, which started the credit bubble. Trend traders did not do as well during the real estate bubble, and many people wondered why. Now we know. The market was artificially geared up by the government and trillions of dollars chased that opportunity to its now dead end. So, yes, the next time trend traders are in healthy drawdowns, look around to see if everyone else is making money. Cause if everyone else is making money, if people with no experience are making money, if people with no money are making money, we are most likely in the middle of another bubble that will eventually pop.

  4. I use a trend following system with ETFs and October was a good month for me. It would seem to me that all of the press about hedge fund liquidations pushing the stock market down must have come from funds that use a system other than trend following since if they were trend followers, they would have been short. If they had been short and needed to close positions to cover redemptions, the closing transaction would have been a “buy” which would have created a “short squeeze” and driven the markets up – not down.

  5. Mike, I am a trend-follower myself. However, pointing out 1 month for a fund that has been obliterated is not validation, but rather self-selection. Many “Black Swan” traders posted 100%+ gains in October. Yes they caught the downward “trend” but 99% of the time they don’t do well. I think you could have found better examples of trend-followers that have been profitable all year long and not just October. As for Henry, you make it sound like it wasn’t his fault that his funds did not do well. If I invested money with him and got that type of performance the past few years, he is the only person I would blame.

  6. I disagree. Oct 08 is another event like the others in chapter 4 of my book “Trend Following”. Those were all self-selection too? No, not the case, unexpected events is where trend returns come from. Trend followers don’t wake up and say “October will be great!” Doesn’t work that way, clearly, and I state this in my book.

    In terms of Henry and other trend followers, they don’t do well when government rigs things, but they aim to survive. More of my view here.

  7. I read your book and I enjoyed it. However, I actually agree with the other poster. A broken clock is right twice a day and whenever that clock is right, you jump all over the opportunity. When Henry posts a good month, it’s all trend following. When he’s getting killed, it’s because the government “rigs” things. Michael, your book discusses a very important topic for any trader. However, after the countless e-mails and discussions I have followed on your site and others, your attitude is a turnoff. As soon as someone poses a different viewpoint, you make it sound like that person is ignorant for not seeing the obvious.

  8. My views are clear. My research is clear. There is no doubt ignorance on this subject. If someone wants to see October 08 as just another month, we are going to disagree and I will not be “light” on my disagreement. No apologies there.

  9. Stating that markets are rigged doesn’t absolve John Henry or anyone else of their performance numbers. What my statement does is explain the style of trend following. It allows people to better understand the style. To understand why performance can vary. Big picture wise October 08 could very well be a sea change…where the rigging of the economy does not continue as before. What this all leads to is the big question of: what is the next bubble? Dot come, real estate, credit, & Dow. If there is no bubble on the horizon it is my opinion that trend following performance could do very well for an extended period.

  10. My last comment has still not come in previous post, but another thought.

    You say “Trend traders did not do as well during the real estate bubble, and many people wondered why. Now we know. The market was artificially geared up by the government and trillions of dollars chased that opportunity to its now dead end. ”

    Well, was not that too a Trending Market. Fact that it failed in my opinion has nothing to do with a Trader not having been able to take advantage of it unless he was biased on the wrong side. But when you are biased, there is No Trend Following you are doing in any case.

  11. The biggest bubble of all is still out there looming like a great white. That is the dollar bubble that has been created by the huge world wide credit expansion and the lack of restraint by our august politicians who have no idea of what is happening. Why a dollar bubble you may ask? Think for a minute, What is the reserve currency of the world banking system? The dollar which was supposed to be backed by gold according to the Bretton Woods agreement. But in the early ’70’s we closed the gold window because the US could not support the huge costs of the Vietnam war and Lyndon Johnson’s great society. Again we have a war and now another socialistic president with a democratic congress. The printing presses will smoke and the credit will flow even faster once more. The outcome is inevetible, the dollar will devalue untill the world banking system begins to regurgitate their dollar and trillions of dollars that have been hiding will hit the market. We have a slight reprieve now as the dollar has been rising for a short period of time because of risk aversion. The world has been supplying us with dollars that they got by selling us their goods, but this is stopping because Americans cannot borrow, from their homes and stocks, anymore. Our trading partners will continue selling us their dollars (for treasuries and bonds) eventually flooding our system with those dollars that are now stuffed away in their banks. As the dollar inflates (looses value) the banks will get rid of their diminishing asset faster. The dollar bubble will collapse. I trade currencies, it seems like a great opportunity to jump on a trend to me as the biggest bubble of all collapses. Watch for the signs, as described in Mr. Covilles trend following book and you may get rich.

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