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Do You Need a PhD for Success in Trend Following?

Bertrand Russell Nails It
Bertrand Russell Nails It

Do you need a PhD to be a trend following trader? You don’t need a PhD, masters degree, or even a bachelors degree to trade. Consider great examples that touch on the subject. First, an excerpt from Trend Commandments:

“Today, John W. Henry is the owner of the Boston Red Sox baseball team. He also now owns the famed Liverpool Football Club in Britain. Red Sox price: $700 million. Liverpool: $476 million. He is not broke. How did he make that fortune? Trading in a very rigid, rules-defined, way. In 1995, Henry, a former farmer from Arkansas who began his trading career humbly hedging his crops, made speculative trading history. His trading strategies essentially won the money lost by rogue trader Nick Leeson of Barings Bank (often referred to as the ‘Queen’s bank’). Leeson bet wildly and lost $1.3 billion. The Queen’s bank collapsed. Leeson was the Time cover boy. Media ate up the bank’s implosion and coverage was nonstop. Leeson was the known loser. Henry was the then-unknown winner. Henry won practicing a form of trading called systematic trend following. His big win was never revealed (see my first book, Trend Following). Some tight insiders knew, but with detective-like probing, I outed Henry’s win.”

He was a high school graduate.

Next, a great line from Art Garfunkel:

“I was preparing for a PhD in Mathematics. All of that seems like so much nonsense now. I guess it doesn’t do too well to envision these projected scenarios of the future. What happens in just about every case is you fall into whatever you fall into. The next thing you know, you’re looking back in retrospect at what it is you’ve now been doing for the last how many years.”

More feedback expands on Garfunkel’s thought:

“I am currently studying at University, doing a double degree in Economics and Finance. With high hopes, I am anticipating graduating from university within two years and am already looking for job opportunities in fields such as those Leda Braga offers. Given the fact that her fund is purportedly a ‘trend following’ fund, I thought I would be well positioned to be employed at her firm. However, a check of the employment opportunities at Blue-trend, confirms that her research staff is comprised of PhD level quants. Not only that, but they are required to be in the top 15% of their respective academic peer performance. Needless to say, a PhD in that category is EXTREMELY difficult to achieve. It makes me wonder how we, as mere mortals, can hope to match the ‘trend following’ performance of blue trend, without cutting edge quant analysis on par with bluetrend?”

A few perspectives:

1. Many public money managers use marketing. That means straightforward strategies are dressed up with ‘PhDs’ and ‘changing markets’ talk, but they are still trend followers. Additionally, some trader may change a nuance here or nuance there, or a trader may indeed have a better edge, but its still trend following. Everyone will not be Michael Jordan, but who cares. There is more than enough opportunity to go around.

2. Many don’t look at the performance data. The data is the story, with many lessons to be learned.

3. My books offer ways around academic dead ends.

Some feedback from a student:

“I talked to one of my professors today. She is a very smart lady. Has a PhD in finance and used to work for a hedge fund here in New York. She used to be a professor at Baruch College. She [started] telling me that she is planning on moving away from trading options because they are too ‘risky’ and she had lost a lot of money trading them. I went ahead and asked her, ‘Do you know anything about trend following?’ She literary blew me away. She said to me and I’m quoting, ‘Don’t waist your time money and energy, I don’t believe in that, it doesn’t work nor do my colleagues believe it either.’ She did not give me a minute to talk about it. I then asked her what she though about Long Term Capital Management. She said, ‘They are very smart people. You can’t blame them for what happened.’ I said, ‘Who is it to blame?’ She said, ‘It is the market. It was volatile.'”

An excerpt from James Montier adds to the point:

“The sheer hubris of many in the economics profession never ceases to amaze me. Take for instance a recent paper by Kartik Athreya of the Federal Reserve Bank of Richmond entitled ‘Economics is Hard. Don’t let Bloggers Tell You Otherwise’. In a move that is eerily reminiscent of the controversial talking Barbie of the early 1990s who fatefully uttered ‘Math class is tough’, Athreya’s short paper essentially lays out a quite staggering claim — that economics should be left to those with a PhD in the subject! The idea that what we need is more ‘worker bees’ gaining their PhD’s from conducting ‘angels on a pin head’ like work based on minor alterations to previous research makes me want to cry. Where were the warnings from the orthodox economics establishment ahead of the global financial crisis? Oh, that’s right there weren’t any.”

I know very few people who work for the “man” who become the “man”. Assuming that working for the big guy will one day allow you to become the big guy is just that–an assumption. Keep that in mind as you think about any life endeavor and as you think about any reason someone takes a “job” – PhD or not is irrelevant. Not all PhDs (and you only have to take a look at the academic world) are motivated entrepreneurial competitors capable of killing it in the real world. That’s not a knock against PhD degree winners, but it is also a proper reminder that a PhD doesn’t mean or guarantee success.

Back in the day, in my MBA program (not a great use of my time), there was the one guy who everyone (except me) worshiped. He got the best grades. He was awesome. To this day I still can’t figure out how all of my other classmates figured this guy’s grades would translate into success. It was crystal clear he had the social skills of a mud pie.

Fire in his belly?


And where did he end up?

On a campus (with his PhD now) teaching.

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