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“How we use mathematics to bring order to financial markets…”

Trend following insights:

Once you realised you are forecasting probability distribution conditional upon knowing something, then you can leave the technical analysis behind. You can then research conditional probability distribution on anything.

It is very advantageous to understand the level of uncertainty in the inferences you are making, and this is a fundamental mistake that human investors make.

Obviously, you can try and reduce that uncertainty by knowing more and more about the situation, like Warren Buffett. He reduces the uncertainty as much as he can by knowing as much as it is possible to know. That is a very different style to ours.

We have a much higher level of uncertainty than Warren Buffett when he makes an investment. But we have a much bigger and more dynamic portfolio. There are lots of ways to skin a cat, or lots of roads to Rome. My view is the success of our approach does not invalidate anybody else’s.

That is maybe not the only thing, but that is what I was: sufficiently desperate and needing to prove a point. Having these various motivations is what it takes to make you start a company–it does not just happen over a year and a half.

If you don’t know about this, dive in.

Source: Lawrence Gosling, Winton Capital’s Harding: How we use mathematics to bring order to financial markets. Investment Week, February 24, 2016. See

David Harding: “We Must Either Be Cheats, Charlatans or Crooks”

While going through some of my old Trend Following Radio monologues I came across this excerpt from a David Harding interview:

Interviewer: Okay, one final question. When you look back at your long and successful career, was courage rewarded in your investment decisions?

Harding: The main place I would say that courage had entered into my career, and I’m not sure whether this is virtuous courage or not, [Name] this morning differentiated between good courage and bad courage and I’m not sure whether mine is good courage or bad courage. But I can tell you that everybody, most of my career, all of the intellectual orthodoxy and all the professors and the businessmen and all the forces of respectability said that what we did was impossible. Completely theoretically impossible and therefore we must either be cheats, charlatans or crooks. To go on running your business when everyone says that what you’re doing is theoretically impossible clearly means you’re in a very lonely position. I think part of the reason I’ve been very well rewarded is out of sheer perversity. I went on doing what I was doing because I trusted the evidence of my scientific research and the evidence of my senses over received wisdom of the powers that be and the authorities in the world. So if I had any lesson, Mark Twain said, “How come when physical courage is so common, moral courage is so rare.” That saying has always had a special meaning for me because I’m particularly cowardly physically as well.


The Winton Papers Revisited

Feedback in:

“Hi Michael, as you know I love your work and keep buying copies of your books for friends, family and clients. I know you say that persistence pays off and I am working hard on implementing trend following in my business and also in my investing life. I have been trying to hunt down those Winton Papers that Mr. Harding gifted to you. In Australia [name] has a Managed Account with Winton that they allow retail investors to invest in, so we have started placing client monies with Winton. I have had a number of clients call in happy that Winton and Aspect made 10% last year when Aussie equities dropped 10%. I have asked all the [name] associated with Winton if they have seen [The Winton Papers]. No such luck. This morning I attended a presentation where Winton was one of the managers. As usual Winton was last so I had to listen to two other fund managers explain how great they were even though their 5-year returns were negative (both fundamentalists). Winton was represented directly by staff. One was [name], who is a wonderful lady who had just started. I have spoken to her previously…and had inquired if she had seen the papers. She came back questioning if the “The Winton Papers” were a figment of my imagination. More importantly, employee number [blank] at Winton (that was used in his intro) was [name]. He managed to confirm that yes they existed (which I already knew; see your blog 2010/11/06), however, he did not have a copy. So I guess what I am asking is there any chance you have a soft copy of the papers? Or would you like to sell your copy? Or maybe I could rent them for a period of time? Anyways hope business and family are going well. Thanks in advance. Kind regards, [name]”

Yes, I have a copy of The Winton Papers, but I have not been granted permission to distribute.

Note: David Harding of Winton Capital is profiled in my book The Little Book of Trading. He also appears in my film Broke. He has made $1 billion USD from trend following.

Could You Be on a Desert Island and Make Money Trading?

There are people (read: intellectual twits) who don’t understand the value in this article because the date is “2005”. They think, “It’s 2010, no good now!” The people who think like that are the same people who trust their money to the buy and hold insanity of Fidelity. Everyone gets what they want, right? Off my soapbox and onto a a great excerpt from that article:

“I [Harding] went to Sabre [first firm] because I didn’t want to sit in an investment bank and make money. I wanted to know if you could do it from outside the markets looking in. “Could you be on a desert island and make money trading?” was the question I was asking myself.” Partly this was Harding the scientist exerting an influence, as the efficient market hypothesis was a hot topic amongst academics that studied markets…”With the EMH under consideration I was very interested to know whether the very antithesis of that, technical analysis, had any truth in it. So I went to Sabre very much in the spirit of intellectual curiosity.” According to Harding the prevailing thinking at places like Wood Mackenzie was that there was no intellectual respect for technical analysis. There were a hundred analysts there, consisting of various types of serious people, and the technical analyst was isolated at the end of a row in an out-of-the-way part of the office. His craft was considered intellectually light-weight by his peers and the press. ” I remember being visited by the FT’s Barry Riley in 1988. Within a week there was a side-swipe in print along the lines of “that’s more than the whizzkids with computers can manage,” ” recalls a somewhat wearisome Harding. “But the thing is he and all the other serious investment professionals nodding sagely in agreement were wrong. No amount of looking knowledgeable and smug will make you right if you are wrong in the first place.” This attitude was something that Harding was to get used to over his career. “For eighteen of my 25 years in markets I have received intellectual scorn and derision from everyone – business school professors, senior investment professionals to experienced journalists. But thankfully now it’s different: the battle is won. The enemy is routed. All we are doing now is mopping up the stragglers.” David Harding spent two years at Sabre Fund Management, each day drawing hundreds of charts by hand, like a true craftsman. Every chart was bound into big leather folders, and in turn each chart pattern was copied into other folders. He likens it to an old-fashioned publishing house. Harding noted without irony that the company was run by accountants, and that “there certainly was method in what was done there.” He continues “I certainly regard my time there as the foundation stone of my credentials as an empiricist. There is nothing like drawing thousands of charts by hand to fix them in your mind. In fact I regard this phase of exhausting taxonomy of technical analysis as being like the relationship used to be between biology and taxonomy in the life sciences. Until something like 1830 you had gentlemen scientists collecting leaves and putting them into folders, and it wasn’t until Darwin that he and others started putting some order on it. Only by arranging data and putting it in order can you get any pattern out of it. What AHL and others have done is go beyond the taxonomy and turn trading into a real science.”


“Our sort of approach to markets is a science. It is an unpublished science, but it is a real one. You could get the thick leather bound volumes of papers on it if there was a willingness to “open the kimono”, as the horrible modern expression has it.” “The process of trading our system is like repeatedly drawing different coloured balls from the statisticians apocryphal bag. As we draw out a ball it becomes part of the track record, and we put it back in the bag, but there is no guarantee that the balls will come out in the same order in future.”

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