Consider this excerpt from my book The Complete TurtleTrader:
“Tom Willis had learned long ago from Dennis why price, the philosophical underpinning of Donchian’s rule, was the only true metric to trust. He said, “Everything known is reflected in the price. I could never hope to compete with Cargill [today the world’s largest private corporation, with $107 billion in revenues for 2010], who has soybean agents scouring the globe knowing everything there is to know about soybeans and funneling the information up to their trading headquarters.” Willis added [when talking about trend followers], “They don’t know anything about bonds. They don’t know anything about the currencies. I don’t either, but I’ve made a lot of money trading them. They’re just numbers. Corn is a little different than bonds, but not different enough that I’d have to trade them differently. Some of these guys I read about have a different system for each [market]. That’s absurd. We’re trading mob psychology. We’re not trading corn, soybeans, or S&P’s. We’re trading numbers.”
Consider another trend following story about numbers. Back in the mid-nineties I met Mark Rosenberg in his office in Stamford, CT. Rosenberg was/is a trend following trader. When I first met him he shared a great trading/entrepreneurial ‘way’ that always stuck with me. Sitting in his private office, and I still remember the book Future Shock prominently displayed, Rosenberg talked about the ups and downs of trading along with the mental outlook needed to excel. He told me that when the down times came, those losing money times, he would always come home and tell his wife that it was back to ‘franks and beans’. Meaning, he adjusted. He was pragmatic. He always cut back until trends came back. Recently, after not thinking about that experience for many years, I caught a line from him describing trend following pioneer, and Red Sox owner, John W. Henry:
“In 1980, Henry told me, ‘I’m going buy the St. Louis Cardinals.’ I told him, ‘You don’t have any money,’ but he always believed he would.”
Henry did not end up with the Cardinals, but the Boston Red Sox were a nice consolation prize for trading numbers.
The Thought Process
Author Seth Godin doesn’t know about trend following, but his wisdom is spot on relevant:
“The realization is now. New polling shows that Americans are frustrated with the world and pessimistic about the future. They’re losing patience with the economy, with their prospects, with their leaders (of both parties). What’s actually happening is this: we’re realizing that the industrial revolution is fading. The 80-year long run that brought ever-increasing productivity (and along with it, well-paying jobs for an ever-expanding middle class) is ending. It’s one thing to read about the changes the internet brought, it’s another to experience them. People who thought they had a valuable skill or degree have discovered that being an anonymous middleman doesn’t guarantee job security. Individuals who were trained to comply and follow instructions have discovered that the deal is over…and it isn’t their fault, because they’ve always done what they were told. This isn’t fair of course. It’s not fair to train for years, to pay your dues, to invest in a house or a career and then suddenly see it fade. For a while, politicians and organizations promised that things would get back to normal. Those promises aren’t enough though, and it’s clear to many that this might be the new normal. In fact, it is the new normal. I regularly hear from people who say, ‘enough with this conceptual stuff, tell me how to get my factory moving, my day job replaced, my consistent paycheck restored…’ There’s an idea that somehow, if we just do things with more effort or skill, we can go back to the Brady Bunch and mass markets and mediocre products that pay off for years. It’s not an idea though, it’s a myth. Some people insist that if we focus on ‘business fundamentals’ and get ‘back to basics,’ all will return. Not so. The promise that you can get paid really well to do precisely what your boss instructs you to do is now a dream, no longer a reality. It takes a long time for a generation to come around to significant revolutionary change. The newspaper business, the steel business, law firms, the car business, the record business, even computers…one by one, our industries are being turned upside down, and so quickly that it requires us to change faster than we’d like. It’s unpleasant, it’s not fair, but it’s all we’ve got. The sooner we realize that the world has changed, the sooner we can accept it and make something of what we’ve got. Whining isn’t a scalable solution.”
Original Facebook investor Peter Thiel expands the thought:
“Were in a bubble and it’s Not the Internet. It’s higher education. A true bubble is when something is overvalued and intensely believed. Education may be the only thing people still believe in in the United States. To question education is really dangerous. It is the absolute taboo. It’s like telling the world there’s no Santa Claus. Like the housing bubble, the education bubble is about security and insurance against the future. Both whisper a seductive promise into the ears of worried Americans: Do this and you will be safe. The excesses of both were always excused by a core national belief that no matter what happens in the world, these were the best investments you could make. Housing prices would always go up, and you will always make more money if you are college educated. Similarly, the idea that attending Harvard is all about learning? Yeah. No one pays a quarter of a million dollars just to read Chaucer. The implicit promise is that you work hard to get there, and then you are set for life. It can lead to an unhealthy sense of entitlement. It’s what you’ve been told all your life, and its how schools rationalize a quarter of a million dollars in debt. It used to be a given that a college education was always worth the investment — even if you had to take out student loans to get one. But over the last year, as unemployment hovers around double digits, the cost of universities soars and kids graduate and move back home with their parents, the once-heretical question of whether education is worth the exorbitant price has started to be re-examined even by the most hard-core members of American intelligensia.”
Try and find a trend following class at a university. Doesn’t exist.
The very bright trailblazers who molded my thinking can be seen across these pearls:
- Bring joyful, imaginative, and impassioned energy every day. Don’t fake it.
- You don’t need to be big to be good, you need to be smart.
- When there is no one there, insert yourself. Take over.
- Engage the world as if your life depends on it.
- Nothing is more important than transforming someone.
- Have a vision grounded in your uniqueness.
- The race winner is often curious and slightly mad.
- Dry obligation in life will figuratively kill you.
- No one will give you permission. Seize the mantle.
- If you can’t solve a problem, you are playing by the collective’s rules.
- Hard work, sustained concentration, and drive are the so-called secrets.
- Winners understand sunk costs and opportunity costs.
- Plan to win, prepare to win, and have every right to expect to win.
- It’s in your power to change your belief systems. No one is stuck. Be unstuck.