Richard Dennis Misrepresentation

From a reader:

Michael, I am interested in learning about trend trading and read a lot of amazing things about the turtles. However, I tried to find something online about Richard and his staggering losses during the late 80’s and 90’s. Maybe I am missing something here, but is there a reason that his system was not working after a certain period? Is there an article or resource you could point me to? Thank you.

Your premise/predicate is off. You got it correct that Dennis had losses, but you need to see the whole picture. The full story of these issues is here.

Lesson? The Internet is a limited source of knowledge.

26 thoughts on “Richard Dennis Misrepresentation

  1. This reader is asking the right question. The honest answer i think is, that every system can fail. The best way to deal with that risk is diversification of strategies or trading systems.
    Incidentally it seems that Trendfollower JWH has closed its former flagship fund Financials & Metals after a nine year long drawdown. That´s a good example that no matter how spectacular something works over two decades, it can fail in the next decade.

  2. People always focus on the drawdowns rather than the long term returns. TF is not a get rick quick scheme, it can be quite a long term game. TF is not possible without drawdowns but at least the right systems have returns to match the drawdowns which is more than I can say for most long-only equity funds

  3. And David I could be wrong (as I don’t know about that particular JWH strategy) but the key could be in the title….ie “Financials & Metals”. Broad diversification and exposure to a wide range of sectors is the best approach to TF in my opinion. There are plenty of TF systems applied to single markets (DAX, Oil etc) which have spectacular returns for a few years and then implode which is why the big TFs generally spread their portfolio over 100+ markets.

  4. Process v. outcome. Henry is a great example for many reasons, but any analysis of him/his career should have you paying close attention to where his attention clearly went to: The Red Sox.

  5. David, for the answer to this reader’s question my book was referenced for a specific reason: to quell misinformation. Your view of what went down with RD is off, and is further misinformation!

  6. Al, the Financials & Metals program was broadly diversified, trading dozens of futures markets including equity index futures, grains, soft commodities, whatever. A lack of diversification of markets was certainly not the reason the fund didn´t perform over the last nine years.

  7. I wonder why JWH’s Financials and Metals program has struggled while other TF strateiges have done well! Surely a trend is a trend is a tremd??

  8. There is no doubt Henry was affected by two things:

    1. Buying the Red Sox. A career shift/focus.
    2. Merrill switching from his CTA to other CTAs at the bottom of a drawdown.

    After 25 years of trading successfully, and then having much of his firms asset’s moved to another firm, and then starting a new baseball career, iif people want to harp on Henry for that–go for it.

    Once again, understanding what actually happens is critical.

  9. All other things being equal, shouldn’t having fewer assets under management be beneficial to performance?

  10. I made no statement about having certain sized assets as good or bad for trading. Simply pointing out that trying to draw much of a conclusion about Henry w/o considering all is silly.

  11. There other funds offered by JWH that did quite well over the last ten years, so the argument that the founder of the company was distracted with his baseball team doesn´t sound very compelling. I think it´s simple. The specific system used by the fund stopped working, because trends are indeed different. Maybe over the next ten years it would have worked again.

  12. Two issues with Henry:

    1. Life change with Red Sox and UK Football team.
    2. Merrill allocation change.

    Trends are not different today. People make up markets and make trends. Human behavior has changed in the last 50 years? That argument is specious.

  13. Why does lifestyle change effect a given system’s performance? Ditto funds under management?

    Perhaps I am missing something…?

  14. AdamL you are missing something–not unlike almost every post you have ever put on my blog–but perhaps you have now found that magical survivorship evidence that will allow you to sleep soundly at night knowing that all trend followers are just lucky?

  15. I see, attack me rather than answer the question!

    I just thought there night be a good reason for the poor performance.

  16. The question was answered. John W. Henry clearly made himself & clients a ton of money for 25 years. He then decided to become a sports team owner–which even at the time in 02 led people to thinking that it might take focus away from his trading firm. His biggest allocation eventually switched to another trading firm at the bottom of a drawdown, which most likely left his firm trading primarily closely held funds. So is it easy for a once multi-billion dollar funds to get back to the same size again regardless of why clients left? No, it’s not. For the trend following haters I am sure there is some nefarious message to be gleaned here (“I knew it — this proves trend following doesn’t work!”). For people with an entrepreneurial pulse, my explanation was not needed.

    To recap: John W. Henry traded a multi-billion dollar fund for clients for a very long time making fortunes all around. He then bought a downtrodden sports team, clearly a shift in focus, and turned it into the 2nd most valuable baseball franchise in baseball–worth over a billion dollars.

    I am sure somehow for someone this all says something negative about trend following.

  17. Michael,

    I can’t see how Henry going into baseball would affect his breakout system. If I remember correctly, your book Trend Following says he used the same system every year, with 0 discretion. That would suggest his involvement would have been minimal even before he purchsed the Red Sox.

    I think you are clutching at straws by trying to blame his blow up on the Red Sox.

    I have tried to find out what Richard Dennis is doing these days, but I can’t find anything. Any idea what he’s up to?


  18. I am not sure why I will even respond to #7 but it is a slow night for me.

    AdamL, obviously you are aware that there are various TF systems, with different variables/degrees of freedom. A trend is a trend based on the time frame of the signals being used.

    A moving average crossover system may be trading a position differently than a breakout based system.

    A system of multiple systems could be long and short the same asset at exactly the same time. A 5/20 could be long and a 20/100 short, or vice-versa, the same instrument

    If you understand TF this should be clear to you.

    If you need further clarification of my point, I would recopmmend to you, as I always do, that you spend more time actually studying Trend Following and less time debating that which you do not fully comprehend.

  19. In general to this thread, the system only works if the trader does not override his system. There is no room for discretion in systematic trading.

    Either you have a system, or you don’t.

  20. Actually, Henry’s decision to focus on a downtrodden sports franchise came in the late 90s when he bought the Florida Marlins. Following a rather convoluted series of transactions, which entailed Major League Baseball taking over the Montreal Expos and brokering the sale of the Marlins to the owner of the Expos, Henry and his partners bought the Red Sox in 2002 for $700 million in an auction in which they weren’t the high bidder.

  21. He actually started with a AAA team–a team a friend of mine played on. However, the Red Sox were a whole other world of commitment.

  22. The material underperformance of the Financials & Metals fund doesn´t question TF in general. The question is how to deal with the risk of unexpectedly lengthy drawdown periods. I think the answer is to at least use one system with two different set of parameters.

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