Episode 35 features one of the original Turtle Traders. “What’s a Turtle Trader” you ask?
The story involves Richard Dennis, a great trader from the 1970’s. As the story goes, he made his first million by about age 25. By the early 80’s, he was worth about $200 million. Around this time, the movie “Trading Places” came out (two millionaires make a bet on the outcome of training a bum to be a financial whiz, while taking a financial whiz and, effectively, turning him into a bum). Richard felt he could similarly train a financial no-nothing, turning him into a great trader. Richard’s partner felt it wouldn’t work. So they made a bet. (Though as you’ll hear on today’s podcast, Jerry doesn’t actually believe there was ever a bet.) Regardless, how’d it turn out? Three or four years later, the group Richard trained had made, on aggregate, around $100 million.
The episode starts as Meb asks Jerry how he became involved with Dennis, trend following, and the Turtle Traders. Jerry was hooked on the idea of trend following from the beginning. Meb suggests that many people either “get it” or they don’t – meaning they get hooked, buying into the strategy completely, or not. For many people, the philosophy just doesn’t take.
Eventually the program ended, after which Jerry moved back to Virginia and started Chesapeake, which basically consisted of a telephone, a quote machine, and his trading rules. Jerry tell us how the company grew and how its trading systems developed. They’ve gone from trading around 20 markets to well over 100 now. Meb asks in terms of conditions, what’s been the most challenging market for Jerry in his career at Chesapeake? His answer – the market since 2008.
The conversation eventually steers toward leverage and volatility. Meb says how most people don’t realize how they can tamp down a volatile market through trend following and managed futures. Jerry agrees, and adds that you want to “make the same (volatility) bet” despite different markets, to maintain consistency.
Meb then asks why so many investors, retail and institutional alike, have such small allocations to trend following. Jerry gives us his thoughts, pointing toward the inherent bias people have for equities. He also believes most investors truly don’t realize how powerful diversified trend following can be.
Meb agrees, noting how if you showed an adviser the returns of all sorts of portfolios yet didn’t name the strategies, in almost all circumstances, the portfolios the advisers would choose would have the largest allocation going to trend following. But when you attach the actual strategy names, people shy away from trend following. Meb thinks it really boils down to a branding problem.
Jerry thinks people have it backward—they see trend following as an add-on to some other strategy, when in fact, it’s the core. Start with the CTA strategy and maybe add some long-only equities.
Meb then steers the guys into a discussion about some of Jerry’s most popular tweets. One of which is Jerry’s recent quote: “Beating the market is hard. Even surviving the market is hard. Stamina may be the most underrated quality.” The quote really resonated with Meb, and he asks if Jerry ever wanted to throw in the towel. Jerry thinks discipline is at least 50% of it, and yes, it can be very hard.
The guys then discuss markets, with Jerry noting that there is nothing to be lost from trading more markets than stocks. For instance, he loves currencies. This prompts Meb to bring up a Bitcoin-crash example, where a trend following approach could possibly have saved some major losses.
The conversation then turns toward common investor mistakes, most notably the tendency to hold losses and sell winners short. Simply put, the behavioral side of investing is extremely challenging. This causes Meb to wonder what will happen to the roboadvisors when a bear market finally begins. Specifically, with it so easy to pull your cash out of a roboadvisor (and no live advisor to stop you), how many investors will allow fear to make them liquidate their positions?
There’s tons more in this episode, including how Jerry lost 60% in one day, the differences between technical analysis and trend following, the “turtle program” of the future, and the one market that won’t allow futures trading. Do you know which one it is? Find out in Episode 35.