Kevin Bruce: Trend Following Trader

Years ago I interviewed for a trading job at Salomon Brothers in New York City. That was in 1994 and the firm was still very powerful. I still can recall seeing their massive football field size trading floor at the top of World Trade Center Seven, which was lost on 9/11. At the time, long before I ever knew about trend following, that seemed to be the only way you could get rich trading.

Kevin Bruce is living proof that there is no need to be in New York, London, or Chicago flaunting a sharp business suit and trading in a sky rise. Bruce is a small-town guy from Georgia with no ancestral connection to Wall Street, who has not only made it on Wall Street but conquered it. Heed his path.

Bruce spends his time far away tucked in quiet spots in Richmond, Virginia. He works out six times a week at his local YMCA, and still drives his 1996 Ford pickup. With a net worth of nearly $100 million, he prefers to live life just as he always did before making that fortune. He is low profile. Most people have no idea of his wealth. He says, “I guess that means I’ve done a pretty good job of just being me.”

He follows a trading strategy first developed while he was a graduate student in finance at the University of Georgia. His strategy tells him when to buy and sell and how much to buy or sell, based on the odds of that trade being a winner or a loser. He trades in all markets across the board. You name the market and he trades it. Does he have expertise in all of these markets? No. To be a trend following trader, your trading approach must work equally on all markets. You do not want to say, “I’m going to trade this system in the yen and this system in corn and this system in some other market.” If your system is not good enough to work on all markets, then it should not be used.

However, waking up with that principle in your head would probably not occur naturally. Nor did it for Bruce. He went to the University of Georgia in the late 1970’s and took a course in agricultural economics. It was mostly oriented towards hedgers (think farmers trying to protect their crop values six months before the harvest season), but in order to keep students interested in the class the teacher had to get creative. He let the students practice trying to make real money by keeping track of hypothetical trades (called paper trading). It was all I will buy here and sell there rules.

Bruce’s work to develop a mechanical trading system germinated completely from the desire to win the trading game. He ended up beating his classmates in the contest. How did he do? At the beginning of the year he had $10,000, and three months later it was $30,000. Of course, it was only paper money and trading is easy when there is no real money on the line, but the trend following methodology he had developed was sound.

What would you do? What would you take from that experience? From his hypothetical trading experience in college Bruce decided, “Why not try it for real?” He was 22 years old and opened up a small account at his local brokerage, just like many of us have done at one time or the other. No more practice trading! It was real dollars and cents time.

At the end of the year the $5,000 that Bruce had saved from odd jobs had mushroomed into $14,000, all from trend trading. He figured he had made it big. Bruce went and bought a Barcalounger, a 19-inch RCA color TV, and the biggest set of stereo speakers he could find. Why not, right? Splurging on a big win is something we all like to do. However, don’t judge that spending binge just yet, freedom was the real goal.

While Bruce was crafty in his early trading, almost tripling his initial seed money, he was really crafty in the way he built up his $5,000 nest egg. When he was about 15, he started the practice of packing a lunch and taking it to school. The cafeteria food wasn’t great, but he could buy a lunch for just 35 cents. Bruce would meet other kids in the bathroom daily and auction off his home-style lunch. He would then eat the cafeteria lunch and would usually net about $2. Nice trade!

In the late 1970s, $5,000 was a pretty good sum of money, but that money was there for him to pay for his college. It was an enormous risk to be trading that money. If he lost the $5,000, that was it. However, Bruce was so confident in his trading research that he was willing to risk it all without blinking. In fact, there was no doubt that if he lost the $5,000, he would have tried it again, because he had absolute conviction. The great trend followers do not quit. They practice. They learn. They stick with it.