An excerpt from my book The Complete TurtleTrader:

Taking very little at face value is my modus operandi. In fact, since childhood I’ve challenged the accepted norms regarding access to the truth. Along the way I’ve challenged a number of people who have wanted to keep the curtains closed. In this small world, one of the more unlikely people to have asked me, “How do you go about unearthing details?” was Mikhail Gorbachev.

The former president had been told in Russian that I write about men who trade big money, so when we were introduced he asked me in Russian, “What is it like to write about these men?” Realizing his time was limited, I kept it short: “Very interesting.” He waited for the translation. “It must be difficult to get behind the scenes; how do you do it?” I smiled, “Oh, I am very good at digging.” He laughed. No translation needed there. He understood my English perfectly.

Walking into the world of Turtles was not planned. It was an unconventional journey. Spring 1994 was the “get your act together, now is the time” year for me. I had just finished an MBA at Florida State, having spent my final semester in London studying international relations.

Back in the States, armed with the so-called prerequisite advanced degree and a deep desire to become rich, Wall Street called. Unfortunately, Virginia, my home state, was not the place to start looking for a mentor or an opportunity that would lead to big money. Most of my friends were products of government workers, not the types looking beyond security or “fitting in.”

So, I tracked down one of the few Florida State alums on Wall Street, recently retired James Massey. He had made millions at Salomon Brothers and was memorably portrayed in Michael Lewis’s classic Liar’s Poker:

[Jim] Massey…was John Gutfreund’s (the then CEO) hatchet man, an American corporate Odd Job. It didn’t require a triple jump of the imagination to picture him decapitating insolent trainees with a razor-edged bowler hat. He had what some people might consider an image problem: he never smiled…Trainees feared Massey. He seemed to prefer it that way.”

At lunch, Massey did not say a word. After a half hour the conversation was speeding downhill. Astute enough to see my sink or swim predicament, I said [bluntly]: “Have I said anything so far that makes you think I am full of shit?”

That got his attention. “Yes, you said you wanted to be the best. You don’t want to be the best; you just want to win.” Massey, like any good coach, was offering the reminder that winners play harder than anyone else.

As fate would have it, I didn’t get hired at Salomon Brothers, but right after meeting Massey, the word ‘Turtle’ crossed my desk for the first time. Shortly thereafter, in 1996, long before YouTube.com, Google, and millions of blogs, I was there at the start of TurtleTrader.com — a controversial website designed to teach trend following and Turtle trading. It ended up becoming one of the most popular financial websites in the world and was ultimately the start of this book.

One of my goals has always been to make people think twice. That attitude has made me a target, but I was a baseball catcher so I am used to taking the shots. I often face intense reactions because I represent the other side that’s never considered. Ten years of digging and reporting have produced my fair share of critics, some legit, some off the wall. I am a messenger and people love to shoot messengers.

At the end of the day, this was not the career direction I’d originally planned as a freshly minted graduate. However, sitting at the nexus of access and insight from some of the best trading minds on the planet has become my singular passion — for now.

Richard Dennis once said:

“Too many traders – too many people in all walks of life – keep asking, ‘What do you think of this?’ ‘What’s going to happen next?’ They have to get away from that herd mentality.”

Dennis thinks courses on the markets should be taught:

“[R]ight in there with the good stuff about mass psychology.”

Fundamentals? Dennis doesn’t think they are essential to profitable trading:

“I guess I agree with the metaphysics of technical analysis that the fundamentals are discounted. You don’t get any profit from fundamental analysis; you get profit from buying and selling. So why stick with the appearance when you can go right to the reality of price…”

Turtle Liz Cheval:

Clearly, if I could alter my model to reduce volatility without sacrificing high performance, I would. But, volatility is what creates the high returns investors want from the market in the first place. The key is to control volatility and not let it control you. Too often people dismiss a high volatility model because it is volatile. A common misconception is that high volatility trading implies more risk. Investors become so frightened by viewing peaks and drawdowns that they overlook the much larger benefit of the ultimate long-term outcome. They have to realize that with a well-planned, disciplined model, big swings in equity are very much anticipated and do not signal a loss of control. The underlying concept that argues for accepting high volatility is that within a winning framework, aggressive trading will maximize returns. In any game, if you know you’ll win, naturally you’d make your bet on the outcome as large as possible. The same is true in trading when you have reasonable expectations of positive returns. The only difference is that the degree of aggressiveness in trading is limited by two factors: the need to preserve capital during losing periods so you can stay in the game until a winning period and the need to preserve psychological fortitude to keep playing.

Turtle Michael Carr on making it to Richard Dennis’ doorstep so to speak:

I grew up in Saint Paul, Minnesota and attended Macalester College there, earning a degree in history in 1973 with plans to teach high school social studies. Unfortunately, those were bleak economic times and there were virtually no openings for teachers. In order to get started on a career of some sort, I went into the management training program for the Ground Round restaurant chain, parlaying my part-time college job into something full time. My training assignment was in Cedar Rapids, Iowa. Working six nights a week and having Tuesdays off got old in a hurry, so I was looking for something different and more promising to do. Fortunately, two acquaintances of mine, Gary Gygax (of Lake Geneva, Wisconsin) and Dave Arneson (of Saint Paul) had just launched a game company (TSR Hobbies, Inc.) in Lake Geneva, Wisconsin and published a new role playing game called DUNGEONS & DRAGONS. They invited me to come work there and I gladly accepted the offer in the spring of 1976. I had a ringside seat for the whole D & D phenomenon, which was rather incredible, as you can imagine. Over a seven year period I worked as a game designer, editor, general manager, production vice president, and children’s book writer. In 1983, TSR fell upon hard times after a remarkable period of growth. I was the eighth employee, and at its peak the company employed over 300 people and had sales in excess of $30 million. Due to some blunders by senior management and a certain amount of hubris that blinded them to their missteps, the company’s fortunes took a turn for the worse. The staff was cut from 300 to 100, putting 200 of us out of work. The good news was that they did manage to save the company with these draconian measures, but that was small consolation to me personally. After a bit of reflection, I decided to try my hand as a freelance writer. In my latter days at TSR I had written several children’s books. One of those titles, ROBBERS & ROBOTS, had sold over a quarter million copies, so I had some confidence that I might have a chance in the world of children’s literature. That was when Divine Providence intervened. What else could you call it, when a guy who hadn’t picked up the WALL STREET JOURNAL in six months happened to choose a particular day — a Tuesday, when the job ads typically run — to purchase a copy and notice an ad for Commodity Futures Trader? Although there was no way of knowing it at the time, buying the JOURNAL on that particular day in the summer of 1983 was a life-changing moment for me.

More:

Since I was outside the trading business, I had a number of questions about their trading activities, which they fielded quite graciously. Richard Dennis was renowned as a technical trader, but I wasn’t aware of that at the time, so I asked, ‘Do you trade technically or fundamentally?’ With a bemused smile, Rich Dennis replied, ‘We trade technically.’ My follow-up question was, ‘Is fundamental trading dead?,’ to which he responded, ‘We hope not.’ One of the subsequent lessons we learned was that, in the zero sum futures trading world, the money is funneled from the many to the few — the few who are able to develop and implement successful trading strategies. From Rich’s reply it’s obvious that he was banking on the superiority of the technical strategy over a fundamental approach. I asked if my lack of trading experience was considered a positive or a negative. Rich replied that it probably was a slight advantage, since I could be trained in their methodologies without having to unlearn any bad habits. The questions about demeanor included queries like ‘How important to you is it to be right about what the market is doing?’ and ‘How important is money to you?’ Obviously, they were interested in assessing the suitability of each candidate for trading, where the psychological aspects can be every bit as important as the trading strategy being used. I also remember Rich asking me, ‘Why Rommel?’ Out of 1100 respondents, I was the only one who cited Field Marshal Erwin Rommel, the famed ‘Desert Fox,’ as the person from history I most admired. I explained that Rommel was a person worthy of respect and emulation. Despite being a German general during the Second World War, he was not a Nazi. In fact, he opposed Hitler and was implicated in the plot to assassinate the Fuhrer in July of 1944, ultimately paying with his life. As a strategist, he was outstanding and was able to achieve great results with minimal resources. When he suffered setbacks, he was undeterred. Most telling of all, he was highly respected by military men on both sides, as a general and as a man. Rommel was extremely successful and embodied many of the traits of a good trader, in my opinion.

For an assortment of reasons, there was no exact Turtle student number back when Dennis hired his crew. Even among Turtles it is debated today. My paperback version of “The Complete TurtleTrader” comes out in February and the subtitle has been changed to say 23 Turtles on the cover. That is the common number thrown around after all these years, but if I had my way I would have said “20+” instead of “23″. Call me anal or call me picky, but all aspiring writers should know that publishers often take steps that authors are not completely on board with! Oddly, the areas where publishers always get mucked up in are book titles and book cover design. Generally, they steer clear of what’s between the covers. I could definitely write a book on writing and publishing a book.

La Mere Vipere, often called the world’s first punk dance club, opened in Chicago in 1977. It subsequently burned down in 1978. At that bar not yet a Turtle Lucy Wyatt met Richard Dennis’ brother Tom Dennis (also a trader). There is a very good chance the Turtle experiment would never have happened if not for that random chance encounter between Lucy Wyatt and Tom Dennis (more on that to come). And that chance encounter surely included the Sex Pistols’ Johnny Rotten belting out at least once that night “God Save the Queen“.

More for those Sex Pistols fans out there.

I had the opportunity to spend four hours tonight with Turtle Lucy Wyatt Mattinen in Reston, Virginia. While we did not speak for the hard cover edition of my book, Wyatt Mattinen’s interview added great detail for a new Afterword that will appear in the 2009 paperback edition.

In “The Complete TurtleTrader” one of the two female Turtles elected not to be interviewed. Maybe that interview is closer to reality today as I just noticed that Liz Cheval is paying ad dollars to Google for the term “Michael Covel.” That is a nice endorsement of “The Complete TurtleTrader!”

Michael Carr was an original Turtle. Before being hired as a Turtle by Richard Dennis he was a writer and game designer known for writing Fight in the Skies and Don’t Give Up the Ship! (I am not familiar with these, but clearly there is a following!). Carr later joined Dungeons & Dragons and wrote In Search of the Unknown. Today, Carr writes for American Snowmobiler Magazine while residing in Wisconsin. Why post this? It just reinforces the diversity of Turtles selected.

Feedback in tonight:

Hello Michael, I’ve just finished reading The Complete TurtleTrader with great pleasure. I traded on the floor of the Mid-Am from the last few months it was located at the Fisher Building until 1976, when (having made my entire, if modest, living with about $2,000 of capital for a few years) I finally got too worried about possible out-trades (only one of which could have wiped me out) and sold my seat. I was, and remain today, an extremely conservative but fairly consistently profitable trader, by commodities standards. Of course Rich Dennis was something of a legend even back at the old Fisher Building location by the time I’d arrived. It was generally known that he engaged in inter-market spread trading, mostly in grains in those days, since he could then get reduced margins. Then, when Dennis started trading what seemed to be really bizarre inter-market spreads, such as wheat and silver, the old-timers scoffed mightily. But his strategy of buying the stronger of two trending markets had obviously worked – that was clear to anyone who’d been watching his career at that point. Soon after MACE moved to Jackson Blvd,, of course, Dennis moved across the street to the BOT, though he kept his MACE seat for quite some time after that. I well remember the MACE secretary accosting Dennis, who’d come on the floor from the BOT one afternoon after closing, loudly complaining that Dennis never deposited his daily clearing house checks. A few of us gathered around as a slightly chastened Dennis went to his trading desk, pulled open an unlocked drawer, and retrieved something like $50,000 in undeposited checks. He just didn’t seem to pay much attention to his MACE business by that time. At any rate, your book was both informative and entertaining. Thanks! [Name withheld]

Nice piece of insight. Thanks!

One Turtle I was unable to find during my book research process is 2nd from the left:

Today he is an accomplished guitarist specializing in latin, acoustic and Klezmer music (sample). He is the only original Turtle currently with a MySpace.com page. Is he trading still? As I mention in my book I was told by one Turtle, who still manages money publicly for clients, that Svoboda probably has the best returns for any Turtle since 1988. From YouTube:

How many students at San Diego State realized that day the guy playing guitar in the court yard knew more about trading and making money than the entire business faculty at the university?

The following true/false questions were sent out to the second group of Turtles. These questions were used to help decide who was picked and who was not:

1. One should favor being long or being short whichever one is comfortable with.
2. On initiation one should know precisely at what price to liquidate if a profit occurs.
3. One should trade the same number of contracts in all markets.
4. If one has $100,000 to risk, one ought to risk $25,000 on every trade.
5. On initiation one should know precisely where to liquidate if a loss occurs.
6. You can never go broke taking profits.
7. It helps to have the fundamentals in your favor before you initiate.
8. A gap up is a good place to initiate if an uptrend has started.
9. If you anticipate buy stops in the market, wait until they are finished and buy a little higher than that.
10. Of 3 types of orders (market, stop, and resting), market orders cost the least skid.
11. The more bullish news you hear and the more people are going long the less likely the
uptrend is to continue after a substantial uptrend.
12. The majority of traders are always wrong.
13. Trading bigger is an overall handicap to one’s trading performance.
14. Larger traders can “muscle” markets to their advantage.
15. Vacations are important for traders to keep the proper perspective.
16. Undertrading is almost never a problem.
17. Ideally, average profits should be about 3 or 4 times average losses.
18. A trader should be willing to let profits turn into losses.
19. A very high percentage of trades should be profits.
20. A trader should like to take losses.
21. It is especially relevant when the market is higher than it’s been in 4 and 13 weeks.
22. Needing and wanting money are good motivators to good trading.
23. One’s natural inclinations are good guides to decision making in trading.
24. Luck is an ingredient in successful trading over the long run.
25. When you’re long, “limit up” is a good place to take a profit.
26. It takes money to make money.
27. It’s good to follow hunches in trading.
28. There are players in each market one should not trade against.
29. All speculators die broke
30. The market can be understood better through social psychology than through economics.
31. Taking a loss should be a difficult decision for traders.
32. After a big profit, the next trend-following trade is more likely to be a loss.
33. Trends are not likely to persist.
34. Almost all information about a commodity is at least a little useful in helping make decisions.
35. It’s better to be an expert in 1-2 markets rather than try to trade 10 or more markets.
36. In a winning streak, total risk should rise dramatically.
37. Trading stocks is similar to trading commodities.
38. It’s a good idea to know how much you are ahead or behind during a trading session.
39. A losing month is an indication of doing something wrong.
40. A losing week is an indication of doing something wrong.
41. The big money in trading is made when one can get long at lows after a big downtrend.
42. It’s good to average down when buying.
43. After a long trend, the market requires more consolidation before another trend starts.
44. It’s important to know what to do if trading in commodities doesn’t succeed.
45. It is not helpful to watch every quote in the markets one trades.
46. It is a good idea to put on or take off a position all at once.
47. Diversification in commodities is better than always being in 1 or 2 markets.
48. If a day’s profit or loss makes a significant difference to your net worth, you’re overtrading.
49. A trader learns more from his losses than his profits.
50. Except for commission and brokerage fees, execution “costs” for entering orders are minimal over the course of a year.
51. It’s easier to trade well than to trade poorly.
52. It’s important to know what success in trading will do for you later in life.
53. Uptrends end when everyone gets bearish.
54. The more bullish news you hear the less likely a market is to break out on the upside.
55. For an off-floor trader, a long-term trade ought to last 3 or 4 weeks or less.
56. Other’s opinions of the market are good to follow.
57. Volume and open interest are as important as price action.
58. Daily strength and weakness is a good guide for liquidating long-term positions with big profits.
59. Off-floor traders should spread different markets of different market groups.
60. The more people are going long the less likely an uptrend is to continue in the beginning of a trend.
61. Off-floor traders should not spread different delivery months of the same commodity.
62. Buying dips and selling rallies is a good strategy.
63. It’s important to take a profit most of the time.

Short Answer Questions

On the back of the true/false answer sheet, please answer these questions with one sentence each.

1. What were your standard test results on college entrance exams?
2. Name a book or movie you like and why.
3. Name a historical figure you like and why.
4. Why would you like to succeed at this job?
5. Name a risky thing you have done and why.
6. Explain a decision you have made under pressure and why that was your decision.
7. Hope, fear and greed are said to be enemies of good traders. Explain a decision you may have made under one of these influences and how you view that decision now.
8. What are some good qualities you have that might help in trading?
9. What are some bad qualities you have that might hurt in trading?
10. In trading would you rather be good or lucky? Why?
11. Is there anything else you’d like to add?