WEBVTT - Chesapeake’s Parker on Pure Trend Following 0:00:14.000 --> 0:00:17.040 Welcome to Inside Active, a podcast about active managers that 0:00:17.079 --> 0:00:20.040 goes beyond sound bites and headlines and looks deeper into 0:00:20.079 --> 0:00:24.720 the processes, challenges, and philosophies and security selection. I'm David Cohne, 0:00:24.720 --> 0:00:28.280 I lead mutual fund and active research for Bloomberg Intelligence. Today. 0:00:28.400 --> 0:00:31.680 My co host is Christopher Kane, us quantitative strategist at 0:00:31.680 --> 0:00:34.400 Bloomberg Intelligence. Chris, thanks for joining me today. 0:00:34.479 --> 0:00:35.199 Thank you for having me. 0:00:35.280 --> 0:00:36.640 David. So, you put out. 0:00:36.800 --> 0:00:40.640 An interesting note on third quarter earnings yesterday where you mentioned, 0:00:40.960 --> 0:00:42.839 you know, this season's really turned into one of the 0:00:42.880 --> 0:00:46.360 more surprising and paradoxical in years. Can you kind of 0:00:46.400 --> 0:00:50.199 give our audience just a brief overview of what's happening 0:00:50.320 --> 0:00:50.920 and what you mean? 0:00:51.280 --> 0:00:54.000 Sure, Yeah, I mean that was kind of a wrap 0:00:54.080 --> 0:00:56.800 of earning season. It's almost done now. I mean generally 0:00:56.800 --> 0:00:59.120 I always say earning season was very, very strong. You 0:00:59.160 --> 0:01:01.720 know what we do is we look at pre season 0:01:01.800 --> 0:01:05.039 analysts forecast for sales and earnings growth, and we looked 0:01:05.080 --> 0:01:10.479 at what actually happened. Basically, earnings grew a double expectations preseason. 0:01:10.600 --> 0:01:12.760 Even if you strip out the MAC seven, it's also 0:01:12.840 --> 0:01:16.480 about double sales has similar beats you know, we're paying 0:01:16.600 --> 0:01:19.959 very close attention to margins with tariffs and everything like that, 0:01:20.360 --> 0:01:23.600 but the margins are holding in very well. We also 0:01:23.640 --> 0:01:25.520 look at the price reactions of these stocks, you know, 0:01:25.560 --> 0:01:29.240 I would say generally they're a bit more volatile than average, 0:01:29.240 --> 0:01:33.080 meaning that they're been moving more. The misses have been 0:01:33.160 --> 0:01:36.040 punished more than the beats when you look at historical 0:01:36.160 --> 0:01:38.280 so it they skew to the downside a little bit 0:01:38.319 --> 0:01:41.720 as far as the excess returns after the earnings. But 0:01:41.840 --> 0:01:44.760 generally earnings continue to be very strong and seem to 0:01:44.760 --> 0:01:48.200 be continuing to you know, charge this bullmarket forward. 0:01:48.320 --> 0:01:50.200 Great, great, well, I think it's time to bring our 0:01:50.200 --> 0:01:54.360 guests on. I'd like to welcome Jerry Parker. Jerry is founder, chairman, 0:01:54.440 --> 0:01:58.720 and executive officer of Chesapeake Capital Corporation and a portfolio 0:01:58.760 --> 0:02:02.280 manager on a number of funds, including the Blueprint Chesapeake 0:02:02.440 --> 0:02:05.840 Multi Asset Trend ETF, which has a ticker of TFPN, 0:02:06.240 --> 0:02:11.800 and the ax S Chesapeake Strategy Fund ticker equ c HX. Jerry, 0:02:11.840 --> 0:02:12.800 thank you for joining us. 0:02:12.680 --> 0:02:14.160 Today, thanks for having me. 0:02:14.360 --> 0:02:19.120 So let's start with TFPN. The term trend following plus 0:02:19.280 --> 0:02:22.600 nothing is used for that fund. What does plus nothing 0:02:22.680 --> 0:02:25.120 mean for you. In practice, it means. 0:02:24.919 --> 0:02:27.920 A couple of things. It means the fund is going 0:02:27.960 --> 0:02:29.880 to be it's going to use a strategy that's just 0:02:30.680 --> 0:02:35.120 trend following and no other strategy mixed in there to 0:02:35.360 --> 0:02:37.520 smooth out return. It's you know, trend following is sort 0:02:37.520 --> 0:02:40.639 of known as being a bumpy not a smooth ride, 0:02:41.000 --> 0:02:44.560 letting profits run thicky small losses. But some of those 0:02:44.600 --> 0:02:49.800 profits can get kind of large and coming outside impact 0:02:50.240 --> 0:02:53.520 on the daily performance and the drawdowns and the crashes 0:02:53.560 --> 0:02:59.000 can occur as well. So some CTAs will introduce other strategies, 0:02:59.080 --> 0:03:03.680 mean reversion and recognition, carry trade other strategies along with 0:03:03.720 --> 0:03:06.720 the trend following in order to smooth things out. And 0:03:06.760 --> 0:03:10.320 we just don't add any of those ideas and just 0:03:10.840 --> 0:03:14.519 do the do the trend following only. And then another 0:03:14.600 --> 0:03:18.480 way to look at it would also be it's sort 0:03:18.480 --> 0:03:23.680 of real trend following. There is no way some CTA 0:03:23.840 --> 0:03:27.640 is trend following CTAs. They may have algorithms that in 0:03:27.760 --> 0:03:29.960 order to smooth it out. Once again, they'll alter the 0:03:30.000 --> 0:03:32.239 trend following a bit like don't let the profits run. 0:03:32.320 --> 0:03:34.320 Get out of something if it has a big profit, 0:03:34.440 --> 0:03:36.480 just get out at the very highs, which is one 0:03:36.480 --> 0:03:38.840 of the opposite of the way that I was raised 0:03:38.840 --> 0:03:45.400 to do trend following. So trend following plus nothing is 0:03:46.160 --> 0:03:50.520 very unique. There's not many CTAs or certainly in the 0:03:50.560 --> 0:03:54.040 ETF world that do both of those things. 0:03:54.280 --> 0:03:57.200 Interesting, Well, let's dig a little deeper. If if we 0:03:57.280 --> 0:03:59.760 stay on the TFPN, can you kind of walk us 0:03:59.760 --> 0:04:02.640 through your investment process for building the portfolio. 0:04:03.040 --> 0:04:05.720 Well, for building the portfolio, it is going to be 0:04:05.880 --> 0:04:11.840 maximum diversification. TFPN trades over four hundred markets, over two 0:04:11.920 --> 0:04:16.919 hundred stocks, single stocks, very different than most CTAs. With 0:04:17.000 --> 0:04:21.719 the single stocks. Most CTA's trade indexes only, so it's 0:04:22.080 --> 0:04:28.800 trying to find as many different markets as possible. Currencies, commodities, stocks, 0:04:28.839 --> 0:04:32.640 and interest rates, and crypto. So we think that crypto 0:04:32.800 --> 0:04:35.799 is slowly going to start being more of a material 0:04:35.839 --> 0:04:37.960 impact of the portfolio in a sort of the new 0:04:38.040 --> 0:04:41.720 fifth sector after those other four. So we build the 0:04:41.760 --> 0:04:45.080 portfolio trying to maximize diversification. We're going to have longs 0:04:45.080 --> 0:04:52.560 and shorts, and then we're going to not base any 0:04:52.560 --> 0:04:54.880 of these struct the addition the markets that are in 0:04:54.920 --> 0:04:57.160 the portfolio. None of that's going to be based upon 0:04:57.279 --> 0:05:00.000 historical returns. It's just you know, some of the market 0:05:00.120 --> 0:05:02.520 have performed great in history, so maybe not so well. 0:05:03.320 --> 0:05:05.479 And that's sort of a trend following philosophy. If you 0:05:05.480 --> 0:05:08.839 can't predict these markets the past, you shouldn't pay too 0:05:08.880 --> 0:05:12.320 much attention to the past except trying to uncover good 0:05:12.320 --> 0:05:14.640 places to buy and good places to sell using your 0:05:14.680 --> 0:05:17.799 back test, but don't rely too much on the historical 0:05:18.560 --> 0:05:22.160 performance to build the portfolio. So we you know, like 0:05:22.160 --> 0:05:24.159 like in the past few years when Coco was this 0:05:24.200 --> 0:05:27.560 big mover, everybody wants to use Coco right as an 0:05:27.560 --> 0:05:30.240 example for almost everything to do with trend following, So 0:05:30.320 --> 0:05:33.520 I'll do it as well. Coco hadn't made money in 0:05:33.520 --> 0:05:36.080 ten or fifteen years, but the good trend followers are 0:05:36.120 --> 0:05:38.600 going to have it in the portfolio and office diversification. 0:05:39.520 --> 0:05:42.520 So we do care about smoothness if we can get 0:05:42.560 --> 0:05:46.760 it from the portfolio and trying to diversify it as 0:05:46.839 --> 0:05:49.479 much as possible. And when you're trying to find these 0:05:49.520 --> 0:05:52.400 outlier trades and just maybe five or ten percent of 0:05:52.400 --> 0:05:55.200 the trades are going to be responsible for all the profits, 0:05:55.800 --> 0:05:59.640 it's really helpful to trade hundreds of markets because it's 0:05:59.640 --> 0:06:03.520 sort of is the bad luck factor. If you trade 0:06:03.560 --> 0:06:05.440 twenty or thirty markets, you know, you could go if 0:06:05.480 --> 0:06:07.120 you have a great year because a couple of those 0:06:07.160 --> 0:06:10.159 had really big moves, or a zero year because you 0:06:10.200 --> 0:06:13.000 didn't have coco in your portfolio or coffee and gold 0:06:13.080 --> 0:06:17.159 or silver. That would be unlikely. But that's sort of 0:06:17.200 --> 0:06:18.640 the reason that we build it the way we do. 0:06:18.920 --> 0:06:22.200 So if we think about the traditional sixty forty portfolio, 0:06:22.560 --> 0:06:25.040 where do you see these types of trend following funds 0:06:25.040 --> 0:06:28.360 fitting in. Is it, you know, a compliment you know, 0:06:28.400 --> 0:06:30.839 do you see it replacing, you know, another part of 0:06:30.839 --> 0:06:31.599 the portfolio. 0:06:31.800 --> 0:06:33.920 I think it fits in pretty well with the stocks 0:06:33.920 --> 0:06:37.360 and bonds. Especially take a year like twenty twenty two 0:06:38.360 --> 0:06:40.000 when they were both down. That was one of the 0:06:40.000 --> 0:06:44.040 best years in CTA history. Trend following history short the 0:06:44.080 --> 0:06:48.640 stocks and short interest rates and so that short the bonds. 0:06:48.680 --> 0:06:51.000 So that was a really good period. And it sort 0:06:51.040 --> 0:06:54.920 of shows very clearly how when you have the two 0:06:55.000 --> 0:06:57.960 main asset classes who are that are not doing very well, 0:06:58.600 --> 0:07:01.760 and maybe the trend following little ad some performance and 0:07:01.839 --> 0:07:04.119 smooth fakes out a bit. And I think it's also 0:07:04.160 --> 0:07:07.839 important for clients to realize that this type of strategy 0:07:07.880 --> 0:07:11.040 can underperform. When stocks are doing really well, bounds are 0:07:11.080 --> 0:07:14.280 doing okay, the trend following, especially like this year, has 0:07:14.320 --> 0:07:17.040 not really helped very much. It's kind of caused issues, 0:07:17.120 --> 0:07:20.360 especially in a time like April where there was a 0:07:20.360 --> 0:07:23.520 lot of whip saws and getting out of the lungs, 0:07:23.560 --> 0:07:26.160 going short and getting back into the lungs, and the 0:07:26.400 --> 0:07:29.160 long only indexing just stayed long all the time. So 0:07:29.200 --> 0:07:32.240 that was kind of the worst case scenario for trend 0:07:33.600 --> 0:07:36.200 But it's just always important not to get rid of 0:07:36.240 --> 0:07:38.720 your diversifiers because once again, it can't predict when you're 0:07:38.720 --> 0:07:40.240 going to need them and when they're going to do well. 0:07:40.760 --> 0:07:43.120 Sure, yeah, I feel like and correct me if I'm wrong, 0:07:43.200 --> 0:07:46.400 like a big differentiator of TFPN. I mean well, first 0:07:46.440 --> 0:07:48.760 of all, the trend following of the plus nothing part 0:07:48.840 --> 0:07:53.320 is awesome and a huge differentiator in itself. Another differentiator 0:07:53.360 --> 0:07:57.119 is individual stocks. I feel like that's maybe a break 0:07:57.120 --> 0:07:59.480 of CTA tradition tad individual. 0:07:59.080 --> 0:07:59.720 Stocks in there. 0:08:00.240 --> 0:08:03.400 Feel free to disagree with that obviously, So I would 0:08:03.440 --> 0:08:05.440 love to know, like your your thought process that went 0:08:05.440 --> 0:08:08.760 into that decision, Maybe some testing you did or maybe 0:08:08.800 --> 0:08:12.680 even didn't do when you added the individual stocks into 0:08:12.680 --> 0:08:13.840 the trend following program. 0:08:14.000 --> 0:08:15.960 It's a real good softball. I should be able to 0:08:16.040 --> 0:08:18.360 knock this one out of the park. Yeah, because I've 0:08:18.360 --> 0:08:20.080 been very out of it over many, many years. That 0:08:20.200 --> 0:08:23.320 CTAs need to expand into single stocks to pick up 0:08:23.320 --> 0:08:27.480 this diversification and to put the best foot forward for 0:08:27.520 --> 0:08:30.200 the trend following. They're always we're always sort of lagging 0:08:30.240 --> 0:08:34.199 behind when stocks do so well that we really need 0:08:34.240 --> 0:08:36.440 to make stocks and single stocks so a really big 0:08:36.480 --> 0:08:38.439 part of what we do, and it is a break 0:08:38.440 --> 0:08:40.640 in tradition. It's managed futures is what a lot of 0:08:40.679 --> 0:08:44.280 people call it. So these are not futures, but they 0:08:44.320 --> 0:08:46.600 can add a lot of diversification. And once again, the 0:08:46.679 --> 0:08:49.600 indices are going to be it's going to be difficult 0:08:49.640 --> 0:08:52.680 to get a really big outlier trade in an index. 0:08:53.600 --> 0:08:55.120 It was in the S and P right now. You know, 0:08:55.160 --> 0:08:56.560 some of the stocks are in an up trend, some 0:08:56.640 --> 0:08:59.240 are in a down trend, and some are flat. But 0:08:59.280 --> 0:09:01.360 if you look inside I did SMP at the five 0:09:01.400 --> 0:09:04.440 hundred stocks, for instance, you know you can really have 0:09:04.559 --> 0:09:07.079 positions in both. It can be long some and short 0:09:07.160 --> 0:09:11.080 some and playing those trends and not just sort of 0:09:11.400 --> 0:09:16.200 relying upon this index approach. No CTA which trade the 0:09:16.240 --> 0:09:19.640 dollar index only or a commodity index only. No. No, 0:09:19.720 --> 0:09:22.200 they're going to trade the metals and the grains and 0:09:22.200 --> 0:09:24.320 the softs and the energies, and they're going to trade 0:09:24.320 --> 0:09:26.400 all the different currencies because there can be different moves. 0:09:26.440 --> 0:09:30.160 You know, the big move recently in the end, I 0:09:30.160 --> 0:09:32.840 guess short short the end was a big move for 0:09:32.880 --> 0:09:34.880 CTAs over the past few years. And so it's the 0:09:34.880 --> 0:09:38.080 same thing with stocks. There's no justification for not adding 0:09:38.120 --> 0:09:40.200 those stocks in there. And we could be client related 0:09:40.240 --> 0:09:43.760 for clients or discouraging that you're CTA saying your lane 0:09:44.080 --> 0:09:46.439 and we have people trading stocks. But I think a 0:09:46.559 --> 0:09:49.720 CTA trend following stocks brings a new way of looking 0:09:49.760 --> 0:09:51.800 at stocks. It's not going to be the same performance. 0:09:52.559 --> 0:09:54.520 Sometimes it's going to be better, sometimes it's going to 0:09:54.600 --> 0:09:58.520 be worse. Taking small losses and letting the profits run 0:09:58.760 --> 0:10:02.520 and like I said, getting out when there's having to 0:10:02.559 --> 0:10:04.680 get out when there's a big crash or a V 0:10:04.800 --> 0:10:07.400 top and a V bottom and getting whipsawed around. You know, 0:10:07.800 --> 0:10:09.480 it's going to look a lot different for good or 0:10:09.480 --> 0:10:12.640 for worse. But it is much different than just to 0:10:12.720 --> 0:10:13.800 buy and whole strategy. 0:10:14.480 --> 0:10:16.520 That's really interesting. So kind of what you're saying is 0:10:16.559 --> 0:10:19.720 like the internal diversification of let's say a stock index 0:10:20.280 --> 0:10:23.840 is going to limit potentially the outliers that you could 0:10:23.920 --> 0:10:26.720 get from trend following the individual names. 0:10:26.920 --> 0:10:29.240 That's right. The CTA is going to take those individual 0:10:29.320 --> 0:10:31.520 names and all the markets, not just stocks, and they're 0:10:31.559 --> 0:10:36.520 going to size those positions based upon inversely to the volatility. 0:10:36.600 --> 0:10:39.440 So a low ball stock or market will have a 0:10:39.440 --> 0:10:42.640 bigger position than a market with a higher volatility. So 0:10:43.200 --> 0:10:46.000 you're missing the money management, you're missing the great sizing 0:10:46.040 --> 0:10:50.320 algorithm that we all have. And then I just find 0:10:50.360 --> 0:10:52.920 it difficult to own the S and P because it's 0:10:52.960 --> 0:10:55.120 an up trend, but a lot of the components of 0:10:55.160 --> 0:10:56.560 the S and P could be in a down tread 0:10:57.440 --> 0:11:01.960 and so I yeah, it's really a no brainer, and 0:11:02.640 --> 0:11:04.920 I'm not really sure why it hasn't been adopted more. 0:11:04.960 --> 0:11:07.960 It's really trying to put what t TFPN does is say, 0:11:08.640 --> 0:11:11.079 you know, this is putting trend following in a situation 0:11:11.200 --> 0:11:14.400 where it has the highest likelihood of success. All of 0:11:14.440 --> 0:11:17.400 these different markets, all of this diversification, long and shorts, 0:11:17.440 --> 0:11:20.480 even the stocks fixed income ETFs, and we tride a 0:11:20.520 --> 0:11:28.240 few of those that meuni bonds, mortgage backs, high yield, 0:11:28.360 --> 0:11:31.720 the markets, the interest rate markets that don't exist as futures. 0:11:32.160 --> 0:11:33.559 Of course we're going to go there. We're going to 0:11:33.600 --> 0:11:37.319 go everywhere all around the world, in all the different 0:11:37.360 --> 0:11:41.920 in Europe, Asia, South Africa, all the small commodity markets, 0:11:41.920 --> 0:11:46.200 sunflower seeds, palm oil, everything, and so of course the 0:11:46.240 --> 0:11:48.400 next stop has to be It was just drilled into 0:11:48.400 --> 0:11:50.640 my head and when I learned from Richard Dennis in 0:11:50.679 --> 0:11:53.880 the eighties, you diversification was so important, especially in a 0:11:53.920 --> 0:11:56.920 strategy like this, and so where you're going to go 0:11:56.960 --> 0:11:59.160 if you don't go to the stock market. This is 0:11:59.559 --> 0:12:03.920 a very logical and easy, low hanging fruit as relates 0:12:03.960 --> 0:12:05.360 to building the portfolio. 0:12:05.800 --> 0:12:08.400 So how do you determine what individual names are part 0:12:08.440 --> 0:12:10.760 of the program? Is it like a liquidity thing, is 0:12:10.800 --> 0:12:13.120 it a is it a back testing thing. 0:12:13.760 --> 0:12:17.240 It's definitely liquidity and back testing just but once again 0:12:17.400 --> 0:12:21.200 just in terms of let's build a portfolio of stocks 0:12:21.880 --> 0:12:25.360 that is maximumly diversified, not the stocks that have done 0:12:25.400 --> 0:12:28.880 great in the past, but lots of different stocks, different 0:12:28.880 --> 0:12:34.960 market caps, different industries. Because that's all we're trying to 0:12:35.000 --> 0:12:39.520 do is maximize the diversification, and stocks deserve to have 0:12:39.559 --> 0:12:43.040 a material part of the portfolio. There's so many of them. 0:12:43.040 --> 0:12:46.120 If there was a thousand commodities or five thousand commodities, 0:12:47.120 --> 0:12:49.679 then that would be fifty percent of the portfolio or greater. 0:12:50.320 --> 0:12:53.760 So I think what people, especially CTAs, who don't look 0:12:53.800 --> 0:12:55.640 at stocks, they only look at these indices. They don't 0:12:55.640 --> 0:12:58.680 really realize what's going on in the market. If the 0:12:58.720 --> 0:13:00.959 market is the S and P and then let's close 0:13:00.960 --> 0:13:03.040 our eyes to everything else. No, no, no, the market 0:13:03.120 --> 0:13:05.160 is not just the S and P. Right now, we 0:13:05.520 --> 0:13:08.079 monitor hundreds of different stocks, some that we trade and 0:13:08.160 --> 0:13:11.160 some that we don't, and we apply our systems to 0:13:11.200 --> 0:13:13.280 those stocks just to see, you know, what's going on 0:13:13.800 --> 0:13:16.880 in the in the individual stocks, and I'd say right 0:13:16.920 --> 0:13:19.920 now about sixty percent of them are long and about 0:13:19.920 --> 0:13:23.280 thirty percent or short, and so we have a meaningful 0:13:23.280 --> 0:13:26.480 short position. So when we have a period like April, 0:13:26.559 --> 0:13:29.720 when all health breaks loose very quickly and stocks get crushed, 0:13:30.160 --> 0:13:33.000 you know, we have a chance to come in with shorts. 0:13:33.520 --> 0:13:36.520 We're not just sitting there with one hundred percent long. 0:13:36.520 --> 0:13:41.160 Indices are all very correlated unlike the individual stocks. Sometimes 0:13:41.200 --> 0:13:43.000 you know, sometimes the stocks are very cool and they 0:13:43.040 --> 0:13:45.280 go to one. We know that. But that's why it's 0:13:45.320 --> 0:13:47.679 so important to trade the individual ones, because you're increasing 0:13:47.720 --> 0:13:51.199 your possibility of having some shorts on when the general 0:13:51.240 --> 0:13:54.640 markets in an up trend, which is what happened in April. 0:13:54.720 --> 0:13:56.960 You know, we didn't come in one hundred percent long. 0:13:57.440 --> 0:13:59.280 We actually did have some shorts on because we were 0:13:59.280 --> 0:14:02.480 following those trends. And it's I really get a kick 0:14:02.480 --> 0:14:04.280 out of hearing about how hard it is to short 0:14:04.760 --> 0:14:08.600 and how shorting is not that't profitable, which I agree 0:14:08.640 --> 0:14:10.480 with all of that, but it really is easy to 0:14:10.520 --> 0:14:13.760 short if you're shorting highly lifquid stocks that are easy 0:14:13.800 --> 0:14:16.160 to borrow and are cheap to borrow, and you're just 0:14:16.200 --> 0:14:18.600 selling the breakouts and the down trends, and you're doing 0:14:18.600 --> 0:14:20.720 it from a technical trend filling point of view. You 0:14:20.720 --> 0:14:24.800 can add these stocks to the portfolio and maybe they'll 0:14:24.800 --> 0:14:28.960 help in a period where the logs don't do so well. 0:14:29.240 --> 0:14:33.240 So interesting, you know, in the CTA world, you know, 0:14:33.360 --> 0:14:35.760 and you're an expert, like I feel like there's always 0:14:35.800 --> 0:14:40.480 these these thoughts about, oh, these typees of assets should 0:14:40.600 --> 0:14:43.960 should trend better. They're more trendy, right, like I've heard 0:14:44.320 --> 0:14:46.600 and I haven't done this testing, right. I've heard things 0:14:46.640 --> 0:14:49.920 like the big macro assets like your gold, your treasuries, 0:14:49.920 --> 0:14:54.760 your equity indices trend better than individual stocks that have 0:14:55.360 --> 0:14:58.520 you know, idiosyncratic risks, see a specific risk of them. 0:14:58.760 --> 0:15:02.600 I've even heard things like the argument that let's say, 0:15:02.640 --> 0:15:06.600 non traditional markets or illiquid markets, things like carbon credits 0:15:06.680 --> 0:15:11.440 or even like synthetic spreads between different securities could potentially 0:15:11.520 --> 0:15:14.440 trend better than the more traditional stuff. I feel like 0:15:14.480 --> 0:15:16.200 a lot of that is just a reaction to what 0:15:17.040 --> 0:15:19.360 was recently in the past. I mean, what is your 0:15:19.400 --> 0:15:21.840 thoughts about that stuff? Or are we getting too cute 0:15:21.880 --> 0:15:25.800 and we should just trend follow everything because we don't 0:15:25.840 --> 0:15:26.760 know what's going to be the winner. 0:15:26.960 --> 0:15:29.520 Definitely the latter. You want to trend follow everything. You 0:15:29.560 --> 0:15:33.400 can't predict these markets. I have seen people talk about 0:15:33.960 --> 0:15:38.080 these alternative markets. They call them the smaller markets, the 0:15:38.080 --> 0:15:41.440 ones that are not a lot of speculators and trend 0:15:41.440 --> 0:15:46.040 followers are in as being better performers. But that has 0:15:46.080 --> 0:15:49.040 reversed over the past few years, and I don't think. 0:15:49.080 --> 0:15:52.800 I think from a trend following point of view, there's 0:15:52.840 --> 0:15:55.360 no such thing as a superior market. All the markets 0:15:55.360 --> 0:15:58.680 can trend, they have trended, and probably over a long 0:15:58.720 --> 0:16:00.520 period of time, they're all going to look for similar 0:16:00.520 --> 0:16:03.280 to each other in the stocks and the commodities and 0:16:03.280 --> 0:16:05.360 the currencies and the interest rates will probably all look 0:16:05.360 --> 0:16:08.160 a little bit look very similar the performance of all 0:16:08.200 --> 0:16:10.920 of those who looked similar over time. I don't think 0:16:10.960 --> 0:16:14.800 it's proper trend falling philosophy to sort of think of 0:16:14.840 --> 0:16:17.840 the markets in those terms that some would trend better 0:16:17.880 --> 0:16:20.840 than others, because you know, we've seen a lot of 0:16:20.840 --> 0:16:23.480 great trends in the stocks. I mean, they've trended the 0:16:23.520 --> 0:16:27.040 best recently, right, And some of these moves are just 0:16:27.120 --> 0:16:31.720 gigantic and outstanding, and they will have some crashes sometimes 0:16:31.760 --> 0:16:34.720 and some big sell offs, but they also have some 0:16:35.080 --> 0:16:36.280 really big outlier moves. 0:16:36.720 --> 0:16:39.080 Sure like even mentioned Coco and how that didn't go 0:16:39.080 --> 0:16:40.840 anywhere for ten years and then all of a sudden 0:16:40.920 --> 0:16:44.479 it's you know, twenty twenty two was a huge contributor. 0:16:45.360 --> 0:16:47.360 So yeah, it's very hard to predict. 0:16:47.640 --> 0:16:50.680 I read recently that somebody posted something on Twitter, I think, 0:16:50.720 --> 0:16:53.680 where they were comparing the two best stocks over the 0:16:53.720 --> 0:16:56.520 past five or ten years, and one was in Nvidia 0:16:56.920 --> 0:17:00.080 and one the other one was build a Bear. So 0:17:00.120 --> 0:17:01.720 I was like right there to stop, I'm not going 0:17:01.760 --> 0:17:05.320 to don't put too much emphasis or too much research 0:17:05.400 --> 0:17:10.520 into trying to choose the perfect stocks. All these markets 0:17:10.520 --> 0:17:13.080 have trends over time, and you just need to kind 0:17:13.080 --> 0:17:16.119 of have a good diversified portfolio so you can participate 0:17:16.160 --> 0:17:17.359 when they actually do occur. 0:17:17.920 --> 0:17:20.640 Yeah, I love that. And build a Bear? Who would 0:17:20.640 --> 0:17:20.960 have thought? 0:17:21.119 --> 0:17:21.439 Yeah? 0:17:21.520 --> 0:17:24.040 All right, So let's talk about maybe like trend length 0:17:24.080 --> 0:17:26.399 if you will. You know, I've I've I've heard you 0:17:26.440 --> 0:17:29.720 say another podcast that your trend following, you know, look 0:17:29.760 --> 0:17:33.480 back period, let's call it has lengthened since your total 0:17:33.520 --> 0:17:37.919 trader days. You know, is that still true? Why do 0:17:37.960 --> 0:17:39.920 you think that has been true? Do you think it's 0:17:40.080 --> 0:17:42.520 just like, you know, markets trend in a more longer 0:17:42.600 --> 0:17:46.639 term manner now as opposed to short term you know, 0:17:46.720 --> 0:17:49.840 kind of back in the day. And then furthermore, you know, 0:17:50.080 --> 0:17:52.960 do you revisit your trend length? Do you have different 0:17:52.960 --> 0:17:55.760 trend lengths for different markets? How do you kind of 0:17:56.000 --> 0:17:56.919 approach that question? 0:17:57.200 --> 0:17:59.920 Well, we traded all the markets with the same system, 0:18:00.160 --> 0:18:05.000 the exact same parameters, multi system different entries to each system. 0:18:05.080 --> 0:18:08.000 Maybe you want to at least have two different systems. 0:18:08.040 --> 0:18:11.959 We have more than two. They all have this. They 0:18:12.000 --> 0:18:15.520 all have different parameters, different entry parameters and exit parameters. 0:18:15.560 --> 0:18:19.600 But we trade all those systems with you know, over 0:18:19.640 --> 0:18:21.480 all the all the markets, they all trade the same 0:18:21.880 --> 0:18:25.480 same systematic approach. That's been the big change over time 0:18:25.800 --> 0:18:28.760 since the eighties has been the need to linkeen the 0:18:28.800 --> 0:18:31.480 parameters and be longer term and have a look back. 0:18:32.400 --> 0:18:35.720 It used to be twenty days, Now it's hundreds of days, 0:18:36.640 --> 0:18:39.119 and so that's sort of made trend following even more 0:18:39.160 --> 0:18:43.879 bumpy and less of a you know, a worse sharp ratio, 0:18:43.960 --> 0:18:45.920 let's say, because in order to hang into the hang 0:18:45.960 --> 0:18:50.119 on to the trends, you need to have longer parameters 0:18:50.160 --> 0:18:52.639 so you don't get bounced out so quickly. And then 0:18:52.680 --> 0:18:54.399 you have to sort of walk that fine line of 0:18:54.400 --> 0:18:56.720 not having the parameters be too long term so when 0:18:56.760 --> 0:18:59.479 it does reverse, you don't give back all that profit 0:19:00.000 --> 0:19:02.960 two or three years of profitsing Coco. You've got to 0:19:03.000 --> 0:19:04.399 be careful, you don't give it all back in a 0:19:04.440 --> 0:19:07.040 few weeks. So you do the back test, and the 0:19:07.080 --> 0:19:10.040 back test says, yeah, this long term parameters. They seem 0:19:10.119 --> 0:19:12.320 to work pretty well. They've always worked well. Even when 0:19:12.359 --> 0:19:16.359 we were trading shorter term, the longer term stuff worked better. 0:19:17.000 --> 0:19:22.760 But I think that's sort of normal for the industry 0:19:22.800 --> 0:19:26.720 now for all the CTAs and trend followers to have 0:19:26.760 --> 0:19:29.160 systems that are a little bit longer term. Maybe due 0:19:29.200 --> 0:19:33.840 to more people trend following more computers. Hard to say, 0:19:33.880 --> 0:19:35.800 but the trends are there. We see them all the time, 0:19:36.400 --> 0:19:38.680 and you just have to sit back and get ready 0:19:38.680 --> 0:19:40.720 for some that are going to last a year or 0:19:40.720 --> 0:19:44.760 two or three, and much different than the early days 0:19:44.760 --> 0:19:47.840 of my training when we were in and out pretty quickly. 0:19:48.560 --> 0:19:50.320 That's so interesting. So you're saying when you were with 0:19:50.440 --> 0:19:53.240 Richard Dennis and everything, like, the longer term trend did 0:19:53.280 --> 0:19:55.600 actually work better even then, but it was just kind 0:19:55.600 --> 0:19:58.040 of like the culture to do a little bit shorter term. 0:19:58.640 --> 0:20:00.359 Oh yeah, it was Richard Dennis. We had to followed 0:20:00.359 --> 0:20:03.080 his rules right, and he asked us to do use 0:20:03.160 --> 0:20:05.359 tremendous leverage, and we were making two hundred percent a 0:20:05.440 --> 0:20:09.439 year with tremendous draw downs. And then when we started 0:20:09.480 --> 0:20:12.159 on our own and did our own back testing and 0:20:12.200 --> 0:20:14.919 realized that in the late nineties, it looked like the 0:20:14.960 --> 0:20:19.320 shorter term strategies were really suffering. We decided to explore 0:20:19.520 --> 0:20:22.840 longer term, and the longer term not only had performed well, 0:20:22.840 --> 0:20:24.959 but it always performed really well. So it wasn't like 0:20:24.960 --> 0:20:28.840 we were using part of the data, the most recent data. 0:20:28.880 --> 0:20:31.800 That we always use all of the data looking back, 0:20:32.520 --> 0:20:35.119 and that makes it difficult to change, because if you're 0:20:35.200 --> 0:20:37.600 using data that goes back into the sixties and seventies, 0:20:38.200 --> 0:20:40.440 you know, it's hard to change. But we do review 0:20:40.480 --> 0:20:43.880 our systems and we do embrace the idea of more 0:20:43.960 --> 0:20:47.480 data is better, but we look at the systems at 0:20:47.560 --> 0:20:50.840 least annually to make sure that they're behaving the way 0:20:50.880 --> 0:20:51.359 they need to. 0:20:51.760 --> 0:20:54.280 So you you talked a little bit about entry and exit. 0:20:55.320 --> 0:20:58.680 For our listeners that aren't as familiar with trend following, 0:20:59.680 --> 0:21:02.159 you kind of go over what an entry looks like 0:21:02.400 --> 0:21:02.800 for them. 0:21:03.119 --> 0:21:07.080 Well, Number one, it's one hundred percent systematic, and it's 0:21:07.720 --> 0:21:11.640