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Find Your Way to Trend Following Diversity

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Hi Michael,

I’ve read your books and am now onto the podcasts and really like the stuff. Very helpful. The podcasts are especially great because they can be digested easily while on the treadmill (as Jerry Parker says in your interviews).

So one of the realities of trend following is admitting you don’t know what comes next and to counter this inability to predict the future all markets will be traded to “diversify” hoping that one or two big winners pay for all the losers. In theory this is great. In practice, it can be rather difficult to get enough capital together to actually run a diverse portfolio of futures contracts…I suppose ETFs could work…Thoughts?


The best way to find diversity as a trend following trader, and trading a diversified tracking portfolio, is via one of three instruments:

1. futures
2. leaps
3. etfs (leveraged)

Those give coverage on all market types.

The Truth: A Two-Edged Sword

The truth is, almost everything about superior investing is a two-edged sword:

-If you invest, you will lose money if the market declines.
-If you don’t invest, you will miss out on gains if the market rises.

-Market timing will add value if it can be done right.
-Buy-and-hold will produce better results if timing can’t be done right.

-Aggressiveness will help when the market rises but hurt when it falls.
-Defensiveness will help when the market falls but hurt when it rises.

-If you concentrate your portfolio, your mistakes will kill you.
-If you diversify, the payoff from your successes will be diminished.

-If you employ leverage, your successes will be magnified.
-If you employ leverage, your mistakes will be magnified.

HT Howard Marks.

More on stretching the truth.

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