I bet trend followers wish October ended now…cause they are making bloody fortunes during October 2008 (See John W. Henry article). While the rest of the world sinks like a stone, trend followers with their “boring ole” stratgies are kicking major ass. Sure, whenever trend trading performance is high, a drawdown usually follows, but this time might be different. Why? With many of the “fast-money-long-only-leveraged-like-morons” hedge fund managers headed back to graduate school (or going back to live with their parents), we might just see an extended revival of trend following performance. Volatility is gold to trend followers and we have a lot of it now.
Note: In the John Henry article above it states:
“John W. Henry & Co. also has a lot more work to do before it recoups the nearly $2.7 billion in assets it lost this decade. Its total assets now stand at about $330 million.”
That doesn’t mean Henry lost $2.4 billion. It means clients left his strategy of trend following for the safety of real estate and long only the Dow.
As with all trend trading systems, the reversal, the next drawdown, always arrives. July was a bad month for trend following traders. Oil going down either forced exits and or the taking of new short positions (either of which meant a give back in profit). Guess what? This is normal. Many might hear this bit of news and say, “that’s bad news, I will do something else with my money instead.” That would be a mistake. If you approach trading not expecting to have losses, if you approach trading not being able to take a loss…you will lose. That is guaranteed.
These days many people cringe when the Dow is down hard as they are only “long only” and are stuck with no knowledge of what other steps they can take. The nightly news programs then reinforce the end of the financial world offering solutions like “stay the course and hang in there” (while some of these people go broke). But some people are making money. For example, David Harding’s Winton Capital is up +18% so far in 2008. Bill Dunn’s Dunn Capital is up +37% so far in 2008. Christian Baha’s Superfund is up +31% so far in 2008. Salem Abraham’s Abraham Trading is up +14% so far in 2008. Those are but a few examples of traders doing well. And by and large those traders are all trading trend following strategies.
“For the time being it’s what we call corrective. … It’s a profit-taking pullback that could still be followed by fresh highs down the road,” said Jim Ritterbusch, president of energy consultancy Ritterbusch and Associates. Ritterbusch said Tuesday’s decline may have gained added momentum when computer models used by large investment funds automatically sold oil contracts once prices fell to a pre-set threshold. “A significant part of it’s technical,” he said of the day’s trading. “A lot of these funds don’t watch supply and demand fundamentals.”
I posted this recently on author Alexander Elder. A response to that came in from a reader
The Turtles, if I read your book correctly, were winnowed down out of about 1000 applicants, and given a two week or whatever intensive tutoring, and watched over like hawks. Most traders, investors, or weekend punters, do not have the advantage of intensive training by the turtle trainers, or by a Warren Buffett , for that matter. Possibly Dr. Elder’s advice is more in tune to the “working man”.
The working man. What a term. What a silly term! If you make too much (whatever that number is exactly) you are no longer working? As for the Turtle view presented above clearly this reader only made it through certain parts of my book “The Complete TurtleTrader”. He only absorbed the parts that buttress the view he wants to have. How can anyone read Chapter 11, 12 and 13 and come to his view?
I received an email from Turtle Tom Shanks today that adds more “color” to the story:
This is mainly a clarification of the fourth paragraph on page 33, beginning “Shanks and Svoboda . . .”. This is a fuller account, to the best of my recollection, that you may use any way you see fit:
I first met George [Svoboda] in San Francisco, through Blair Hull. George had a brilliant way of getting right to the core principles of any subject he approached, and he was investigating trading at the time. He quickly learned of Blair’s prominence in the field and flew to San Francisco to meet with him. I was working for Blair (had met him through Blackjack), and Blair knew that George had an extensive blackjack background as well. Since we all had that in common, Blair invited me to join them for lunch. I don’t remember much about that meeting, but a couple of months later Blair sent me to Chicago to research sources of commodity price data that he could add to his Options Research service. During that trip, I ran into a friend of mine named Ron Cohn, whom I had known in San Francisco. I had no idea Ron was working in Chicago; he walked into an office I was in to drop off some keys at the end of a project he was doing for the company, we recognized each other and decided to have dinner that night. I knew George was in Chicago doing more research and I didn’t think he knew anyone socially there so I called George and invited him to join us. We went to a Greek restaurant, I remember, and during the catch-up conversation, I learned that Ron had applied to the first C&D ad that had run the year before, which is the first time either George or I had heard of that opportunity. I returned to San Francisco, looked up the ad in the file of old WSJs we kept, procrastinated for a while and finally applied. After I got the application package, I phoned George to discuss it. In his inimitable way he had cut right to the heart of the matter and told me that he had gone to the library to research RJD to get an idea of how Richard might like to have the questions and essays in the application answered. I thought that was a great idea and did the same in SF. There were 20 interviews granted that year, two a day for two weeks. George and I were scheduled on the same day, he in the morning and I in the afternoon. The rest, as they say…Hope you are well. Best, Tom
PS: In the next paragraph, there is a reference to Dingo boots. There never were any Dingo boots. The boots we used were all made by hand by a Mexican shoemaker in San Francisco. The essence is correct, however: I was tired of boots
Mark Walsh, a second generation Turtle I mention in my book, has an annualized return of 23.72% since September 1985. Those are nice numbers for a style of trading that doesn’t work!
The Turtles that still publicly trade have returned these performance numbers over the first 3 months of 2008:
Jerry Parker: up 11%
Liz Cheval: up 17%
Tom Shanks: up 37%
Paul Rabar: up 13%
Howard Seidler: up 28%
Bill Eckhardt (Dennis’ former parter): up 14%
Salem Abraham (second generation Turtle): up 13%
No assurance it will continue, as they can be volatile, but the numbers are the numbers. And they are numbers people don’t expect when the nightly news and CNBC are yelling something quite different 24/7.
Mulvaney Capital Management Ltd., a $127 million managed futures fund based in London, rose 57 percent in the first two months of 2008, the most recent data available. The same program was down 33 percent in July and August. “This time the boot is on the other foot,” said Colin Lloyd, head of investor relations at Mulvaney Capital. “For a systematic manager one of the greatest difficulties is to resist the temptation to say the world has changed and start recalibrating the model.” Managed futures suffer their worst performance when markets suddenly reverse, explaining why some funds gave up gains in March when crude oil, wheat and gold fell from highs. David Harding, one of the original partners in AHL, said an “agnostic” approach to investing often has critics ready to pounce. “Most people believe it doesn’t work, or it did it soon won’t work,” said Harding, founder of Winton Capital, which oversees $13.6 billion. “We almost never do anything based on our opinions. If we do, it’s based on opinions about mathematical phenomenon and statistical distribution, not opinions about Fed policy.”
Mulvaney and Winton are both systematic trend traders.
Dunn Capital, featured in my first book “Trend Following”, plays hard. They take on volatility many can’t fathom, but their results are in black and white (PDF). Others tearing up the first two months of 2008? Turtle Jerry Parker up +20% first 60 days of 2008, Turtle Paul Rabar up +15% first 60 days of 2008 and Winton Capital up +12% first 60 days of 2008. Once more returns come in will post them.
Momentum investing in equity markets delivers “striking” and “remarkably persistent” excess returns, according to the most comprehensive study (PDF of article) to date of the phenomenon. Great line from article:
“Every investor we have come across has, explicitly or implicitly, used a momentum or counter-momentum strategy,” said Prof Marsh. “[Consequently] people can look like a genius by accident or they can look a fool when they are quite smart.
I am in Macau, China for the first time right now. Question to readers out there: what markets/firms would be good proxies as trading vehicles for Macau? The construction underway here is wild.
Posted in Trend Following | Comments Off | Monday, October 22nd, 2007
Blackstar funds has long been at the forefront in researching trend trading stocks. The other day I heard from Cole Wilcox of Blackstar Funds about my new book “The Complete TurtleTrader”:
Mike, “The Complete TurtleTrader” is a vastly superior follow-up to your first book. It’s well written and filled with useful insight and entertainment. This book delivers on the key concepts and philosophy that drive long term trading success. Congrats…Cheers, Cole
Also, check out Blackstar’s new interview on Wallstrip.com:
Posted in Trend Following | Comments Off | Tuesday, September 11th, 2007
An email that came in today (edited down some for readability):
“I worked at a large London futures brokerage firm for much of the ’90s…so had first hand insight into enough of the daily business in terms of trading of Bill Eckhardt and Richard Dennis and many of the ever growing army of “system traders” old and new, such as Dunn, to admire and respect the validity of their strategy.
