Trend Following has had an exceptional sales rank at Amazon.com for the last 2 weeks. Everyone involved with the Trend Following book project appreciates the strong interest.

Trend Following books should be available at Amazon.com and other online retailers any day. They should be available in bookstores the first week in May. The publisher Financial Times Prentice Hall started the second printing today.

It seems everyone wants the results, but not the risk. However, we all know it doesn’t really work that way (even if we refuse to admit it). David Harding, Managing Director of Winton Capital Management, put it in perspective in a January 2004 interview:

“…hedge fund management in general, is not a traditional asset management business

“You’re into derivatives whether you like it or not. Your adjustable rate mortgage is a derivative. You got a deal on a loan that was cheaper at any time than a fixed-rate mortgage. In return you’re taking a risk. Your risk is that the amount of interest you’ll pay in the future will be decided from a formula involving the prime rate, T-bills, and the chairman of Chase Manhattan’s boxer shorts waistband size. In this case, the underlying commodity is banker fat.”
P. J. O’Rourke

2004 performance update.

Where do trends come from? Isn’t the market efficient? Trends often spring from inconsistent government actions. Whether the United States Federal Reserve or regulated beer sales in Norway — governments never get it right.

We have all heard the term “100-year flood” applied to the markets. The Long Term Capital Managements of the world predicated their trading on the flood happening only once every 100 years. Reality is quite different as Hunt Taylor reminds:

“I’m wondering when statisticians are going to figure out that the statistical probability of improbable losses are absolutely the worst predictors of the regularity with which they’ll occur. I mean, the single worst descriptor of negative events is the hundred-year flood. Am I wrong? How many hundred-year floods have we lived through in this room? Statistically maybe we should have lived through one and we lived through seven now at this point.”
Hunt Taylor
Director of Investments, Stern Investment Holdings

Today April 24, 2004 is the publish/release date for Trend Following. Keep in mind, there will be some discrepancies in distribution. Online retailers will typically have the book in stock first, followed by regular stores. I recommend Amazon as probably the easiest way to obtain the book, but others may have it sooner or later.

High resolution Trend Following book cover.

George Crapple, long time trend follower at Millburn Ridgefield Corporation, paints a clear picture:

“What is a system? A system is really an idea. It’s a trading idea for making buy and sell decisions in interest rate futures or currencies or commodities or stock indexes. What a systematic manager will do is take an idea, turn it into a mathematical formula and back test it against historical data and see if it would have made money with good characteristics…A long term system may hold a position for months and months. For example, when the Euro was introduced and went from 118 to 82, that was actually a perfect example…of [a trend following] move. Who would have thought that was going to happen? Nobody thought that was going to happen, but that was a great move for systematic trade followers. So you test your system against historical data and you look at the P&L; you look at the reliability. There’s no watching the S&P 500 go down 50% over three years. I mean, you hit a stop-out point; you’re gone.”

Read: here.

James Simons reminds us all that complication in trading can cause problems:

“Years ago, a colleague came up with an extremely complicated model. Initially, it worked well, but then it began to falter. I said, “Can we understand more about this model? It’s so complicated.” He said, “Oh no, you can’t understand it. I’ve added this and that and put it all together and I’ve maximized here and there and…who knows what it is?” I said, “That is not satisfactory. I know it