Category: Trend Following

Turtle Jerry Parker noted the other day in Chicago that his trading is 100% systematic. Not news to me or the many others familiar with trend trading, but I suspect for people not familiar with trend following that fact takes time to digest. Parker also noted how bad of a thing it was for the Turtles to make money the wrong way. He said that if they made money the wrong way they were in trouble with Richard Dennis.

Yesterday’s Turtle panel in Chicago yielded expected results: all of the Turtles adhere to long term trend following techniques rooted in those original Turtle lessons from so many decades ago. Many said they sill use the money management guides as taught. I still need to get the exact phrasing, but Turtle Paul Rabar had a fantastic statement on why trends and trend following persists as a great money-making strategy. What separates some Turtles from others? I go into this subject in chapter 11 of my book “The Complete TurtleTrader”, but this quote from Jim Rogers gets to the point:

“Most of us don’t have the discipline to stay focused on a single goal for five, ten, or twenty years, giving up everything to bring it off, but that’s what’s necessary to become an Olympic champion, a world class surgeon, or a Kirov ballerina. Even then, of course, it may be all in vain. You may make a single mistake that wipes out all the work. It may ruin the sweet, lovable self you were at seventeen. That old adage is true: You can do anything in life, you just can’t do everything. That’s what Bacon meant when he said a wife and children were hostages to fortune. If you put them first, you probably won’t run the three-and-a-half-minute-mile, make your first $10 million, write the great American novel, or go around the world on a motorcycle. Such goals take complete dedication.”
-Jim Rogers

For the first time publicly today Richard Dennis appeared on stage with four of his Turtle students. Joining him were Jerry Parker, Liz Cheval, Tom Shanks and Paul Rabar. The room was packed so I may have missed other Turtles in the audience, but Brian Proctor (Turtle) was sitting behind me.

If you wanted to judge Bill Dunn or David Harding it makes much more sense to judge success or failure after looking at their month by month track records across decades over any randomly selected 3-month performance window. For example: “Computer-Trading Models Meet Match “.

If link doesn’t work article here too.

For those who still want to argue that the success of Richard Dennis and the success of some Turtles was “nature” over “nurture” you may want to take a read of “Talent Is Overrated: What Really Separates World-Class Performers from Everybody Else.” The book’s conclusion is the exact same conclusion I wrote about in my last chapter of “The Complete TurtleTrader”: the dividing line for greatness is deliberate practice, not talent. The Turtles were absolutely an example of nurture trumping nature. And for the ones who have endured their long term success is all about their hard work.

Below is feedback in today from a reader about the continued debate of what to call “trend following”. The regulators and exchanges use terms like managed futures and commodity trading advisers (CTAs), but these describe an instrument not the strategy (David Harding makes the point here too). On to the feedback:

Hi Michael, I recall somewhere where you initiated a discussion in an attempt to find a better name for managed futures. You may have seen this discussion on managed futures – from the perspective of a former public pension fund director – (ex-Virginia retirement system investment head) who has been involved in the alternative investment industry for nearly twenty years. One of the very best overviews on managed futures that I have seen (Worth a view despite its length).

https://admin.na3.acrobat.com/_a777821181/p89835260

At around the 53 minute mark he touches upon the need for a better descriptor for the industry and he suggests Global Micro and Long short futures and FX. He argues that global macro is similar and well known but trades are more discretionary and more thematic around certain markets. Managed futures tend to incorporate the same markets but are more systematic and more diversified and tend not to take the large macro bets, instead smaller bets across a number of markets. Also long short equity is the largest and well known hedge fund strategy, more often than not CTA’s are long and short across many market. Not perfect descriptors by any means, but I thought they were better than others that I have heard.

Oh gosh, those names are terrible! Ug. Just as bad. They should call it trend following since the vast majority of CTAs are trend followers. Why do they all run from ‘trend following’? Commodity is a misnomer. Futures is a misnomer. Those things describe an instrument! Why do they not call it by the strategy? My associate writes back:

So mean reversion, econometric, spread, pattern recognition, etc., those programs would fall under ‘trend following’? That wouldn’t make sense. Most are trend based, but [you] can’t describe an entire industry [that way].

I disagree that managed futures exists beyond trend following. The ‘other’ strategies are tiny by comparison. Why should the average person be burdened with mean reversion, econometric, spread, and pattern recognition strategies when the strategy with all the assets and success is trend following? To me that makes no sense! Bottom line, much of this insistence to have a title with the word ‘future’ in it must lay at the feet of the CME. I get it. I know that ‘futures’ and ‘commodities’ are their core business, but for people in 2009 to continue to believe the strategy of trend following only exists in the ‘commodities’ world is asinine. And trust me, very smart people continue to say things like, “Don’t trend followers just trade commodities?” Every time I hear that I cringe.

From a reader today:

I have made $15 million investing in CTAs [regulatory term for trend followers] over the last 20 years, starting with Bill Dunn. I have read many books on Technical Trend Following and bought Trade Station and played with it. I read the three ‘Market Wizards’ interview books, and ‘Managed Trading, Myths…’ Having said all that, I am looking forward to learning from the interesting chapters in your book.

Thanks!