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Ewan Kirk of Cantab on Trend Following


Our philosophy rests upon two main pillars. The first pillar is: macro, not micro. So we trade macro variables, not stocks and shares and credit default swaps and things like that. We trade across currencies, commodities, interest rates, bonds and equity indices. The second pillar is: a systematic approach, not a discretionary approach. So we describe our style as systematic global macro. Systematic trading involves coming up with a statistical model of the markets. Assuming that model has worked in the past, and that you have developed and researched and tested your model correctly, then your hypothesis is that it’s likely to keep working in the future. So the actual execution of trades is just continuing to follow what the model says. Now that sounds quite mechanical. In fact, it’s no different than the way any good investor works. Why would you invest with Warren Buffett? Because, over the past 30 years, Warren Buffett has made money, and you’re assuming that’s going to continue in the future. Conceptually, that’s no different than what we do.

When I use the term “scientist” to describe myself and my colleagues at Cantab, what I’m really talking about is a mindset. It’s a mindset of evidence based investing and using the scientific method to think about investing. The scientific method has worked pretty well for the human race for the last 2,000 years—it’s worked out better than superstition, anyway. And we believe in applying the same rigorous principles as in medicine or air traffic control. Everyone is quite happy with evidence-based medicine and air traffic control—would you fly in a plane controlled by someone who just had a gut feeling about where they wanted to go?

When people ask: What do you think is going to happen in the future? We always say: We don’t know. I can’t really project whether next year will be a good year for Cantab or a bad year.

Ignore at your peril.

Trend Following Machines Cash in—Again

All these years later, all these stories later, and CNBC still has a difficult time explaining trend following to the masses. One good excerpt:

Funds managed by ISAM, Cantab, AHL, Systematica and others produced double-digit gains over the first three months of 2015, according to private performance figures obtained by CNBC. “Trend followers and other macro investors clearly outperformed,” said Robert Christian, head of research at K2 Advisors and Franklin Templeton Solutions. “What’s carried people is just classic, good old trend following.”

Note: ISAM is Larry Hite’s shop. One of my favorite no-nonsense trend following pros.

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