Episode 515 is another “Mega episode.” It is a culmination of interviews comprised of four of the most successful trend following traders alive today: Ewan Kirk, Jean-Philippe Bouchaud, Martin Lueck and Christopher Cruden.
Ewan Kirk is the head of Cantab Capital and has brought his firm from $30M AUM in 2006 to over $5B today. Kirk employs several strategies but clearly uses a trend following foundation.
Jean-Philippe Bouchaud is founder and Chairman of Capital Fund Management (CFM) and professor of physics at École polytechnique.
Martin Lueck holds an M.A. in Physics from Oxford University and currently is the Research Director and President of Aspect Capital. Lueck was originally with Adam, Harding and Lueck Limited (AHL), which he co-founded with Michael Adam and David Harding.
Christopher Cruden has been in the trend following space for over 25 years. In 1988 he became a Director of Adam, Harding and Lueck Asset Management Ltd (AHL). He is currently the head of Insch Capital Management.
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?
Michael Covel interviews Ewan Kirk on today’s podcast. Kirk is the head of Cantab Capital and has brought his firm from $30M AUM in 2006 to over $5B today. Kirk employs several strategies but clearly uses a trend following foundation. Covel and Kirk discuss how consistent and predictable profits are the Holy Grail–you’re never going to get there. Covel and Kirk also explore Kirk’s background, and how someone with a PhD in mathematical physics ends up going to work for Goldman Sachs; why computer programming is “today’s literacy”; standing out from the crowd; trend following in the European scene vs. America; weighting positions based on risk; talking to clients and explaining that losses are statistically inevitable; whether the demand for discretionary traders is waning; how discretionary traders look at a trader like Kirk who is 100% systematic; why discretionary intervention in a systematic trading strategy disqualifies it from being truly systematic; proving a strategy as broken rather than proving that it’s right; why randomness is everything; uncertainty and convictions about technique; capturing the realism of the world in your trading strategy; what actually benefits the economy, society, and the world; seeking client feedback and understanding a client’s drivers; and the importance of consistent marginal improvements.
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