Category: Trend Following

Trend following critic Geetesh Bhardwaj has provided interesting hypocrisy here (and for my new edition of “Trend Following”), but the email that came in below from a trend following CTA is a topper. As you read it keep in mind that Geetesh worked at AIG and has written a paper ripping trend following (while he worked at AIG):

Great stuff with Geetesh…Very entertaining reading. Here’s a bit of irony for you – we manage a significant amount of money for AIG and have done so for several years!

Not really a surprise.

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Trend Following is for beginners, students and pros in all countries. This is not day trading 5-minute bars, prediction or analyzing fundamentals–it’s Trend Following.

Bob Pardo writes very good books on trading systems. He also trades as a trend follower. His annual compounded rate of return:

2003: +27.65%
2004: +4.84%
2005: -14.65%
2006: -15.13%
2007: +63.71%
2008: +114.62%

To those Madoff defenders on here who keep saying that no one could have known that 1% a month every month was a sign of trouble, take a look at Pardo. You don’t win every month and you don’t win every year. More from Pardo:

+19.08%; 11-2008
+114.62; YTD 2008
+937.41; Since Inception 06-1999
+27.92%; ARR Since Inception 06-1999

Follow along with this chain of events:

1. I made this post in November about Geetesh Bhardwaj at AIG who was criticizing trend followers.

2. Within a few weeks of my original post I noted on a new post that Geetesh Bhardwaj was now at Vanguard. Trend followers make fortunes in October 2008 and a mutual fund that has just been devastated is leveling criticism. I thought it was odd to say the least.

Now? The author Geetesh Bhardwaj has clearly noticed that I have been posting about him and his work. He posted here today:

If my affiliation is the only criticism that you have of the results, I am vindicated. So stop taking about who I work for and start justifying the industry wide Sharpe Ratio of 0.09 to your invstors [sic]. You have been stealing investor money for too long, 2-20 for trend following really?????

Let me get this straight:

1. Bhardwaj worked at AIG until a few weeks ago.
2. Bhardwaj now works at an index mutual fund – Vanguard.
3. Bhardwaj, who clearly wants to show off his intellectual prowess, thinks the Sharpe ratio is a fair measure of trend following traders. It is not. Read (PDF).

Bhardwaj is a pawn of the mutual fund industry. The mutual fund industry spends millions through lobbying in Washington and propaganda (i.e “academic research”) to keep trend following traders from advertising their performance. Why do this? The mutual fund industry has a stranglehold on the average investor that they don’t want to lose. They keep the average guy stuck in ‘long only’ dead-end strategies to spin off their massive fees. Bhardwaj is no prophet. His attack is transparent and ignorant. When the immediate retort back is, “Sharpe Ratio”, you know the dice were loaded.

Amos Hostetter started Commodities Corporation (a trading incubator long before Richard Dennis and the Turtles). Who got their start at Commodities Corporation? Paul Tudor Jones, Louis Bacon and Ed Seykota were three prominent names. Seykota brought Michael Marcus into Commodities Corporation and Marcus brought Bruce Kovner into Commodities Corporation. All of these men in one way or the other made their fortunes via trend trading.

I have long found stories of Louis Bacon of Moore Capital interesting. Google him. Read up.

While Bacon is never classified as a trend following trader, he trades off price action and uses futures markets. That sounds a lot like trend trading to me. About 3 years ago I was talking with a top trend trader (who now manages over $10 billion). We were talking about “mystique” and “image” in general of some top traders (Bacon was not discussed). His point to me? Traders, who have consistently posted the big returns, almost invariably are trend following traders whether they publicly admit it or not.

One of the more under the radar trend followers is Sunrise Capital out of sunny Southern California. They have been at it for 30 years:

Sunrise currently manages over $1.1 billion for clients around the globe. Through November 30, 2008, Sunrise’s domestic fund is up 33.1% YTD and since January 1, 1995, Sunrise’s domestic fund has averaged returns of over 13% annually. By trading in a wide range of diverse global markets and utilizing other innovative risk management techniques, Sunrise has delivered positive results for investors in 87% of the rolling 12 month periods since January 1, 1995.

Those numbers compounded for 30 years would make most people who have been buying and holding very happy.

A few weeks back a few researchers put out a paper that essentially said trend following is bunk. I commented at the time that one of the authors was at AIG investment products and mockingly said, “next!” Turns out the lead author, Geetesh Bhardwaj, must have taken my criticism to heart, for his academic paper now says he works for Vanguard. Quite a switch in span of two weeks!

Old Screenshot.

New Screenshot.