1 00:00:09,800 --> 00:00:13,360 Speaker 1: Hello, and welcome to another episode of the Odd Thoughts Podcast. 2 00:00:13,400 --> 00:00:17,000 Speaker 1: I'm Tracy Alloway and I'm Joe. Joe, what is the 3 00:00:17,040 --> 00:00:22,800 Speaker 1: best financial movie of all time? Uh? The best financial 4 00:00:22,840 --> 00:00:26,680 Speaker 1: movie also happens to be the best movie period, which 5 00:00:26,720 --> 00:00:29,760 Speaker 1: is Trading Places. Of course, there's no question. I am 6 00:00:29,800 --> 00:00:32,199 Speaker 1: so glad you said that. I was worried you were 7 00:00:32,240 --> 00:00:35,040 Speaker 1: going to go with something else. The best movie, the 8 00:00:35,080 --> 00:00:38,279 Speaker 1: best financial movie, and the best Christmas movie are all 9 00:00:38,320 --> 00:00:42,199 Speaker 1: the same thing. It's all Trading Places, and anyone who 10 00:00:42,280 --> 00:00:45,120 Speaker 1: hasn't seen it needs to press pause right now and 11 00:00:45,200 --> 00:00:49,080 Speaker 1: watch it and then come back to this. Alright, So, Joe, 12 00:00:49,159 --> 00:00:52,080 Speaker 1: you're clearly a fan of this movie. Um, you remember 13 00:00:52,720 --> 00:00:56,280 Speaker 1: the basic premise of it. Right, There's two really wealthy 14 00:00:56,400 --> 00:01:00,560 Speaker 1: commodities traders, and they make a bet about whether or 15 00:01:00,680 --> 00:01:05,120 Speaker 1: not trading is something that you're born with or something 16 00:01:05,160 --> 00:01:08,520 Speaker 1: that you know your upbringing kind of gives you, or 17 00:01:08,600 --> 00:01:11,800 Speaker 1: whether anyone, any man on the street can be taught 18 00:01:11,800 --> 00:01:14,200 Speaker 1: how to trade. We're lucky to have you managing our 19 00:01:14,240 --> 00:01:18,759 Speaker 1: firm for us. Hot Wash Exeter Harvard. He's the product 20 00:01:18,800 --> 00:01:22,680 Speaker 1: of good environments. It's got nothing to do with environment. 21 00:01:23,400 --> 00:01:25,280 Speaker 1: With his genes, you can put Winthorpe anywhere, and he's 22 00:01:25,280 --> 00:01:28,920 Speaker 1: gonna come out on top, breeding Randolph, same as in racehorses. 23 00:01:28,959 --> 00:01:32,800 Speaker 1: It's in the blood, right. It's sort of a classic story. 24 00:01:32,959 --> 00:01:39,200 Speaker 1: There's two very patrician heads of this commodity brokerage in Philadelphia, 25 00:01:40,160 --> 00:01:44,319 Speaker 1: the Duke brothers, and they have this star trader who's 26 00:01:44,800 --> 00:01:50,160 Speaker 1: played by what's his name, that actor d uh dan Ackroyd. 27 00:01:50,320 --> 00:01:52,840 Speaker 1: And then one of them says it's a result of 28 00:01:52,880 --> 00:01:55,160 Speaker 1: his genetics, that he's really, you know, just sort of 29 00:01:55,240 --> 00:01:58,160 Speaker 1: naturally gifted, and the other one says, not nonsense, it's 30 00:01:58,200 --> 00:02:01,000 Speaker 1: pure upbringing and anyone could be trained to do what 31 00:02:01,080 --> 00:02:04,520 Speaker 1: he does. And so they of course find Eddie Murphy, 32 00:02:04,600 --> 00:02:07,960 Speaker 1: who they find on the street basically, and they trained 33 00:02:08,080 --> 00:02:12,360 Speaker 1: him to be a great trader given the right surroundings 34 00:02:12,400 --> 00:02:16,840 Speaker 1: on encouragement, I'll bet that that man could run our 35 00:02:16,840 --> 00:02:20,720 Speaker 1: company as well as your young Winthorpe. Are we talking 36 00:02:20,760 --> 00:02:25,320 Speaker 1: about a wager Randolph? Okay, So that movie came out 37 00:02:25,400 --> 00:02:29,079 Speaker 1: in nineteen three. What if I told you that around 38 00:02:29,160 --> 00:02:33,560 Speaker 1: that same time there was a real life trading places 39 00:02:33,560 --> 00:02:38,040 Speaker 1: experiment going on, I would be completely fascinated, and I 40 00:02:38,080 --> 00:02:40,320 Speaker 1: would love to know what the results of that experiment 41 00:02:40,360 --> 00:02:43,760 Speaker 1: was okay, okay, well there was. And I'm so excited 42 00:02:43,800 --> 00:02:46,560 Speaker 1: because we've been trying to do this podcast for about 43 00:02:46,639 --> 00:02:48,760 Speaker 1: a year now and I'm really really happy that it's 44 00:02:48,800 --> 00:02:51,720 Speaker 1: finally happening. Now. When I say there was a real 45 00:02:51,760 --> 00:02:55,680 Speaker 1: life trading places, I am not kidding. There were two 46 00:02:55,720 --> 00:02:59,480 Speaker 1: commodities traders that essentially made the same bet as in 47 00:02:59,520 --> 00:03:02,960 Speaker 1: trading places. One of them was Richard Dennis. He thought 48 00:03:03,000 --> 00:03:06,840 Speaker 1: that trading skills could be taught. Another one was Bill Eckhart. 49 00:03:07,280 --> 00:03:10,480 Speaker 1: He thought that people were just bored with these sort 50 00:03:10,520 --> 00:03:15,680 Speaker 1: of innate intrinsic skills. And they ended up finding a 51 00:03:15,760 --> 00:03:18,920 Speaker 1: group of want to be investors, want to be traders, 52 00:03:19,360 --> 00:03:23,400 Speaker 1: and seeing whether or not they could successfully trade. And 53 00:03:23,480 --> 00:03:27,079 Speaker 1: we are going to today not just talk to one 54 00:03:27,120 --> 00:03:30,360 Speaker 1: of those former traders, were also going to talk to 55 00:03:30,600 --> 00:03:33,400 Speaker 1: the author of a book, a very good book on 56 00:03:33,480 --> 00:03:38,000 Speaker 1: this complete saga. He is Michael Covell. He is the 57 00:03:38,080 --> 00:03:42,160 Speaker 1: author of The Complete Turtle Trader How twenty three novice 58 00:03:42,240 --> 00:03:47,600 Speaker 1: investors became overnight millionaires. Joe, you can sense my excitement, right, 59 00:03:47,960 --> 00:04:00,920 Speaker 1: I am just as excited as you. Michael. Thanks so 60 00:04:01,000 --> 00:04:05,600 Speaker 1: much for joining us, Hey, thank you for having me, so, Michael, um, 61 00:04:05,640 --> 00:04:08,360 Speaker 1: shall we start with that intro? Did we get the 62 00:04:08,440 --> 00:04:12,120 Speaker 1: gist of that bet right? And is the trading places 63 00:04:12,120 --> 00:04:15,400 Speaker 1: analogy the right way to think of it? There is 64 00:04:16,520 --> 00:04:20,520 Speaker 1: conflicting stories, but the best of my research over the 65 00:04:20,600 --> 00:04:23,880 Speaker 1: last twenty years is that Rich Dennis and Bill Eckhart 66 00:04:24,400 --> 00:04:28,120 Speaker 1: went to that movie and essentially Rich said to Bill, 67 00:04:28,760 --> 00:04:30,960 Speaker 1: I can do that. I can take him off the street. 68 00:04:31,240 --> 00:04:36,080 Speaker 1: I can train them. And you know, Bill Eckhart said, no, impossible, 69 00:04:36,520 --> 00:04:38,839 Speaker 1: And I don't think there was a monetary bet like 70 00:04:38,880 --> 00:04:41,719 Speaker 1: in the movie. But they placed ads in the Baron's 71 00:04:41,760 --> 00:04:45,320 Speaker 1: Wall Street Journal. Thousands of people responded, I mean at 72 00:04:45,320 --> 00:04:48,480 Speaker 1: this time the biggest trading names on Wall Street where 73 00:04:48,480 --> 00:04:52,159 Speaker 1: George Soros and Rich Dennis. So even though Rich Dennis 74 00:04:52,200 --> 00:04:54,719 Speaker 1: has not been in the public eye for a long time, 75 00:04:54,800 --> 00:04:57,839 Speaker 1: he was huge at this point in time, having made 76 00:04:58,320 --> 00:05:02,440 Speaker 1: several hundred million dollars by the you have have thirty seven 77 00:05:02,720 --> 00:05:06,960 Speaker 1: eighty three, so essentially, you know, really really successful. They 78 00:05:07,000 --> 00:05:12,800 Speaker 1: took thousands of resumes, they hired about twenty people, gave 79 00:05:12,880 --> 00:05:15,920 Speaker 1: him a couple of weeks training spread out over two years, 80 00:05:17,000 --> 00:05:20,840 Speaker 1: and really pretty much out of the gate using what 81 00:05:20,880 --> 00:05:25,720 Speaker 1: they would call a trend following system. These students, ranging 82 00:05:25,760 --> 00:05:30,120 Speaker 1: from like nineteen to late thirties, all started to make money, 83 00:05:30,440 --> 00:05:33,359 Speaker 1: huge money, a lot of money, in fact, millions of dollars. 84 00:05:33,839 --> 00:05:36,800 Speaker 1: And one of those students was Jerry Parker, an accountant 85 00:05:36,839 --> 00:05:39,680 Speaker 1: at a cp A firm. I answered an ad in 86 00:05:39,720 --> 00:05:43,320 Speaker 1: the Wall Street Journal in the fall of nineteen eighty three. M. 87 00:05:44,240 --> 00:05:47,000 Speaker 1: Richard Dennis, the famous commodities trader in Chicago, wanted to 88 00:05:48,200 --> 00:05:52,320 Speaker 1: hire people, trained them, give them money, and teach them 89 00:05:52,360 --> 00:05:54,760 Speaker 1: how to trade, and put them on their own. And 90 00:05:55,960 --> 00:05:58,480 Speaker 1: I sort of knew that that would sounded like really 91 00:05:58,520 --> 00:06:00,480 Speaker 1: good since I was an account it and a c 92 00:06:00,640 --> 00:06:03,480 Speaker 1: p A firm, not having fun, wanting to get out 93 00:06:03,520 --> 00:06:07,040 Speaker 1: of that as quickly as possible, leaving a small town 94 00:06:07,040 --> 00:06:09,400 Speaker 1: in Virginia going to Chicago. I mean, it couldn't be 95 00:06:09,440 --> 00:06:12,279 Speaker 1: any better. Um. I had heard of Richard Dennis through 96 00:06:12,279 --> 00:06:15,479 Speaker 1: a Business Week article. I believe it was called the 97 00:06:15,520 --> 00:06:18,719 Speaker 1: Barefoot Trader. Rich like to trade with no shoes on, 98 00:06:18,760 --> 00:06:21,359 Speaker 1: I guess, so I knew it was legitimate and that 99 00:06:21,480 --> 00:06:24,120 Speaker 1: this was a great idea and something that I would 100 00:06:24,200 --> 00:06:28,720 Speaker 1: learn things that I would would only learn, uh by 101 00:06:28,760 --> 00:06:32,000 Speaker 1: having a great mentor and a real famous smart person 102 00:06:32,040 --> 00:06:34,040 Speaker 1: teach me and not something I'm gonna like learn in 103 00:06:34,520 --> 00:06:37,240 Speaker 1: school or anything like that. So I I knew I 104 00:06:37,279 --> 00:06:39,320 Speaker 1: was on the right track. And then it just became, 105 00:06:39,400 --> 00:06:41,560 Speaker 1: you know, how do we get this job? Before we 106 00:06:41,560 --> 00:06:44,440 Speaker 1: get to the training aspect of recruiting part, you said, 107 00:06:44,480 --> 00:06:49,120 Speaker 1: they put ads in barrens, just asking people who if 108 00:06:49,160 --> 00:06:51,560 Speaker 1: they wanted to become a trader. What were they looking for? 109 00:06:51,600 --> 00:06:54,800 Speaker 1: Any qualities in those people? Were there any sort of 110 00:06:54,800 --> 00:06:58,599 Speaker 1: initial screens that sort of helped them, you know, find 111 00:06:58,640 --> 00:07:05,440 Speaker 1: people more predisposed to success. They did give a test, 112 00:07:05,800 --> 00:07:09,720 Speaker 1: so to speak. They had true false questions and essay questions. 113 00:07:10,440 --> 00:07:13,840 Speaker 1: The true false questions were essentially the types of questions 114 00:07:13,880 --> 00:07:19,200 Speaker 1: that you might ask a quantitative systematic trader, because that's 115 00:07:19,200 --> 00:07:21,360 Speaker 1: what they were doing. So they wanted to get people 116 00:07:21,960 --> 00:07:25,960 Speaker 1: that could think in terms of odds, you know, chances, 117 00:07:26,000 --> 00:07:28,800 Speaker 1: and people that could think in terms of risk. Perhaps 118 00:07:28,880 --> 00:07:31,120 Speaker 1: that was in their background. There was some you know, 119 00:07:31,240 --> 00:07:35,880 Speaker 1: a Dungeons and Dragons author, there were some blackjack players, 120 00:07:36,440 --> 00:07:38,680 Speaker 1: there was a c p A. So they did go 121 00:07:38,880 --> 00:07:42,800 Speaker 1: for people that were fairly grounded in numbers, because at 122 00:07:42,800 --> 00:07:44,720 Speaker 1: the end of the day, what they taught and what 123 00:07:44,760 --> 00:07:47,440 Speaker 1: they learned, what they applied, and to this day you 124 00:07:47,480 --> 00:07:51,680 Speaker 1: can still see was all grounded in something that frankly, 125 00:07:52,200 --> 00:07:55,200 Speaker 1: again to this day, Wall Street doesn't really pay attention to, 126 00:07:55,280 --> 00:08:00,520 Speaker 1: which is this quantitative systematic trend following trading this, you know, 127 00:08:00,560 --> 00:08:03,960 Speaker 1: forget the earnings reports, forget the crop reports. Who cares 128 00:08:03,960 --> 00:08:07,280 Speaker 1: about the fundamentals? Were literally just trading the price of 129 00:08:07,320 --> 00:08:11,240 Speaker 1: the instrument at hand. Everyone who applied, I think a 130 00:08:11,280 --> 00:08:15,320 Speaker 1: thousand people in Nree, every everyone was sent a test 131 00:08:15,480 --> 00:08:18,720 Speaker 1: true false test. The second part of the test was 132 00:08:18,760 --> 00:08:21,080 Speaker 1: maybe five discussion questions that you had to answer in 133 00:08:21,160 --> 00:08:24,200 Speaker 1: one sentence. That was a recurring theme whenever we were 134 00:08:24,200 --> 00:08:27,040 Speaker 1: asked certain questions it had to be responses in one sentence. 135 00:08:27,120 --> 00:08:33,240 Speaker 1: But so a hundred true false psychological type questions, trading questions, um, 136 00:08:33,280 --> 00:08:34,760 Speaker 1: you know, sort of getting at the route. How do 137 00:08:34,800 --> 00:08:36,800 Speaker 1: you think about life? What do you think about the markets? 138 00:08:38,120 --> 00:08:40,560 Speaker 1: So I carried this trip, this test around with me 139 00:08:40,679 --> 00:08:43,600 Speaker 1: for a few weeks to the audits, and you know, 140 00:08:43,679 --> 00:08:46,600 Speaker 1: I was trying to delay as as much as possible 141 00:08:46,640 --> 00:08:48,560 Speaker 1: sending this back in. And then I finally sent it 142 00:08:48,600 --> 00:08:51,160 Speaker 1: in and I got a call to come to Chicago 143 00:08:51,200 --> 00:08:55,400 Speaker 1: for an interview, walk us through what the training was like. So, 144 00:08:55,520 --> 00:08:59,960 Speaker 1: two weeks of this trend following training, as you point out, 145 00:09:00,160 --> 00:09:02,760 Speaker 1: it must have been pretty numbers based. It must have 146 00:09:02,800 --> 00:09:05,800 Speaker 1: been pretty rigid. It can't have been that complicated if 147 00:09:05,880 --> 00:09:09,439 Speaker 1: it took place within fourteen days or so. Yeah, you're 148 00:09:09,520 --> 00:09:12,760 Speaker 1: you're looking to give people basic rules that would tell 149 00:09:12,840 --> 00:09:17,520 Speaker 1: them when to enter a market, for example, a moving average, crossover, 150 00:09:17,880 --> 00:09:20,280 Speaker 1: a breakout. You were looking to give people that that 151 00:09:20,440 --> 00:09:23,240 Speaker 1: same rule could be used for your exit. Then let 152 00:09:23,320 --> 00:09:25,959 Speaker 1: me get a little more complicated on position sizing. So 153 00:09:26,040 --> 00:09:29,680 Speaker 1: for example, if these students and they did have limited capital, 154 00:09:30,040 --> 00:09:34,199 Speaker 1: how much should they bet of their limited capital? Now 155 00:09:34,200 --> 00:09:36,080 Speaker 1: at the time, at the time they were trading the 156 00:09:36,120 --> 00:09:39,680 Speaker 1: most liquid futures markets. Um, that was probably, you know, 157 00:09:39,760 --> 00:09:43,040 Speaker 1: less than twenty or so. Today that universe is much wider. 158 00:09:43,559 --> 00:09:46,280 Speaker 1: And that was essentially what they were really learning. And 159 00:09:46,320 --> 00:09:50,559 Speaker 1: it was frankly, not as much about the rules. They 160 00:09:50,559 --> 00:09:54,400 Speaker 1: were important, but it was that discipline to follow the rules. 161 00:09:54,559 --> 00:09:56,800 Speaker 1: Because here you have Rich Dennis who says, here you 162 00:09:56,840 --> 00:10:00,200 Speaker 1: go two weeks of training. The rules are straightforward. Now 163 00:10:00,200 --> 00:10:02,240 Speaker 1: I'm gonna give you my money. You have to follow 164 00:10:02,280 --> 00:10:05,120 Speaker 1: these rules or you're out. You know, we have a 165 00:10:05,120 --> 00:10:09,520 Speaker 1: two week course, three weeks maybe three week course, um, 166 00:10:09,600 --> 00:10:12,520 Speaker 1: and we're taught everything we need to know about how 167 00:10:12,559 --> 00:10:16,679 Speaker 1: to trade. Um. It's right around Christmas time. So the 168 00:10:16,679 --> 00:10:20,400 Speaker 1: the final exam question was delivered at the Christmas party 169 00:10:20,800 --> 00:10:23,360 Speaker 1: verbally to all of us, and that is something like 170 00:10:24,600 --> 00:10:27,800 Speaker 1: if you get a sell signal and soybeans, but you 171 00:10:27,880 --> 00:10:31,080 Speaker 1: hear through the grapevine that Richard Dennis is long, what 172 00:10:31,160 --> 00:10:33,000 Speaker 1: are you going to do? And of course that obviously 173 00:10:33,000 --> 00:10:35,280 Speaker 1: answer is we're going to follow the rules and sell 174 00:10:35,280 --> 00:10:39,440 Speaker 1: those soybeans. So a lot of people describe the essence 175 00:10:39,800 --> 00:10:41,599 Speaker 1: of what or what rich and Bill were trying to 176 00:10:41,640 --> 00:10:44,880 Speaker 1: get out of this was can trading be taught? Rich 177 00:10:44,920 --> 00:10:47,800 Speaker 1: said maybe yes, Bill said maybe no. UM, But I 178 00:10:47,800 --> 00:10:50,679 Speaker 1: think in the final analysis it wasn't can it be taught? 179 00:10:50,679 --> 00:10:54,040 Speaker 1: Of course, you can teach anyone the rules. These were 180 00:10:54,040 --> 00:10:58,160 Speaker 1: not complicated rules. But really it is how hard is 181 00:10:58,200 --> 00:11:01,040 Speaker 1: it to follow those rules all the time, regardless of 182 00:11:01,040 --> 00:11:03,880 Speaker 1: how bad it gets? So, Michael, when you say they 183 00:11:03,960 --> 00:11:06,560 Speaker 1: learned the exact right amount to bet, are you talking 184 00:11:06,600 --> 00:11:10,040 Speaker 1: about something like the Kelly criterion? They would not have 185 00:11:10,080 --> 00:11:12,000 Speaker 1: got that in depth. It would have it was something 186 00:11:12,040 --> 00:11:16,840 Speaker 1: more robust and more more basic. But yeah, essentially I 187 00:11:16,880 --> 00:11:19,760 Speaker 1: tell people, look, if you have uh, you know, a 188 00:11:19,800 --> 00:11:22,880 Speaker 1: million dollars capital, and you're gonna go place a bet 189 00:11:22,960 --> 00:11:25,200 Speaker 1: or place a trade, how much you're going to bet 190 00:11:25,320 --> 00:11:28,120 Speaker 1: on each trade? You're gonna bet ten percent on each 191 00:11:28,160 --> 00:11:31,480 Speaker 1: trade five. I mean, look, if you get ten losers 192 00:11:31,480 --> 00:11:35,080 Speaker 1: in a row, and you're betting ten percent per your toast, 193 00:11:35,160 --> 00:11:37,640 Speaker 1: because you know you're gonna get a string of ten losers, 194 00:11:37,800 --> 00:11:41,000 Speaker 1: especially with the type of methodology that Rich Dennis and 195 00:11:41,000 --> 00:11:44,160 Speaker 1: Bill Eckhart taught their students. So the idea was to 196 00:11:44,280 --> 00:11:48,439 Speaker 1: bet small and too when you got a breakout or 197 00:11:48,440 --> 00:11:51,800 Speaker 1: an entry, to take it and ride that trend as 198 00:11:51,800 --> 00:11:54,960 Speaker 1: far as it could go, and within their risk management, 199 00:11:55,000 --> 00:11:58,960 Speaker 1: within their position sizing, they would pyramid. So the idea 200 00:11:59,000 --> 00:12:00,480 Speaker 1: would be, at the end of the day, if you 201 00:12:00,520 --> 00:12:03,959 Speaker 1: had a huge moving coffee uh in X, y Z year, 202 00:12:04,520 --> 00:12:06,640 Speaker 1: you would just make a fortune from coffee. Now, your 203 00:12:06,640 --> 00:12:10,760 Speaker 1: other trades might be break evens, small losers, et cetera. 204 00:12:11,080 --> 00:12:13,680 Speaker 1: But the idea was that each year you were going 205 00:12:13,760 --> 00:12:17,480 Speaker 1: to try and capitalize on an unforeseen trend in a 206 00:12:17,520 --> 00:12:21,120 Speaker 1: big liquid market, something that no one could predict and 207 00:12:21,160 --> 00:12:24,000 Speaker 1: to this day, that's what they do. Did you say 208 00:12:24,040 --> 00:12:26,800 Speaker 1: they would pyramid? What does that mean? Well, for example, 209 00:12:26,840 --> 00:12:29,400 Speaker 1: let's say you get an entry signal. I used coffee. 210 00:12:29,440 --> 00:12:31,440 Speaker 1: Let's say you got an entry signal into coffee. You 211 00:12:31,480 --> 00:12:33,920 Speaker 1: take a position and coffee. If it starts to go 212 00:12:34,040 --> 00:12:40,160 Speaker 1: your way, the rigid mathematics behind Eckhart's reasoning was that 213 00:12:40,200 --> 00:12:42,719 Speaker 1: you would put on more, and so you might. You 214 00:12:42,800 --> 00:12:45,840 Speaker 1: might start with an initial small bet, but if that 215 00:12:45,880 --> 00:12:49,280 Speaker 1: trend kept going your way, you would risk more up 216 00:12:49,280 --> 00:12:51,760 Speaker 1: to a limit. So they had they had certain risk 217 00:12:51,800 --> 00:12:55,520 Speaker 1: management limits. Um. But that was that was the idea 218 00:12:55,559 --> 00:12:58,520 Speaker 1: that you would you would pyramid, and you would increase 219 00:12:58,559 --> 00:13:01,880 Speaker 1: your position if the trend that you entered kept going 220 00:13:01,920 --> 00:13:04,880 Speaker 1: your way. Got it. So, talk to us a little 221 00:13:04,880 --> 00:13:07,480 Speaker 1: bit about the just sort of the initial results you 222 00:13:07,559 --> 00:13:10,400 Speaker 1: said they did really well, what do we know specifically 223 00:13:10,440 --> 00:13:15,400 Speaker 1: about how much money was allocated to these amateur traders 224 00:13:15,800 --> 00:13:19,200 Speaker 1: and how quickly and how much returns they started seeing. Well, 225 00:13:19,240 --> 00:13:20,440 Speaker 1: you know, I went back and I was able to 226 00:13:20,480 --> 00:13:25,800 Speaker 1: find their actual track records while they were under Dennis's management. Uh, 227 00:13:25,880 --> 00:13:29,000 Speaker 1: their accounts sized ranged from you know, a few hundred 228 00:13:29,000 --> 00:13:32,480 Speaker 1: thousand dollars to a million to several million, and frankly, 229 00:13:32,880 --> 00:13:35,520 Speaker 1: even to this day, some of them don't understand how 230 00:13:35,559 --> 00:13:38,679 Speaker 1: that money was allocated to them. And there there's not 231 00:13:38,800 --> 00:13:43,320 Speaker 1: necessarily any any rhyme or reason as to how some 232 00:13:43,440 --> 00:13:46,480 Speaker 1: of some of those allocations were made. But in terms 233 00:13:46,480 --> 00:13:49,240 Speaker 1: of performance, I mean, these were they were blowing the 234 00:13:49,280 --> 00:13:52,560 Speaker 1: doors off. This was This wasn't just twelve percent a year. 235 00:13:52,720 --> 00:13:55,280 Speaker 1: They were trying to make fifty a year, a hundred 236 00:13:55,280 --> 00:13:58,680 Speaker 1: percent a year. This was shooting for make a lot 237 00:13:58,720 --> 00:14:03,960 Speaker 1: of money. Trick Dennis believed so strongly in this experiment 238 00:14:04,120 --> 00:14:07,720 Speaker 1: that he gave them, Um, gave the traders some of 239 00:14:07,800 --> 00:14:10,280 Speaker 1: his own money. Well it's significant, some of his own 240 00:14:10,280 --> 00:14:13,200 Speaker 1: money to trade with, right, Yeah, absolutely, absolutely he was. 241 00:14:13,320 --> 00:14:16,400 Speaker 1: They didn't have money. I mean, the deal was they 242 00:14:16,400 --> 00:14:19,040 Speaker 1: were going to sign a contract, they were going to 243 00:14:19,240 --> 00:14:22,680 Speaker 1: be quiet, non disclosures, and they were going to trade 244 00:14:22,760 --> 00:14:26,000 Speaker 1: his capital with his rules, and they were gonna get 245 00:14:26,000 --> 00:14:29,600 Speaker 1: a percentage of the cut. I think it was something 246 00:14:29,640 --> 00:14:32,280 Speaker 1: in that neighborhood. And so a lot of them made 247 00:14:32,440 --> 00:14:36,400 Speaker 1: several million dollars working for Witch Dennis during this almost 248 00:14:36,480 --> 00:14:38,480 Speaker 1: four year time window, and they all they all went 249 00:14:38,520 --> 00:14:42,640 Speaker 1: out on their own around somewhere in that neighborhood. It 250 00:14:42,720 --> 00:14:47,240 Speaker 1: was the great story, frankly, of of nurture trumping nature. 251 00:14:47,240 --> 00:14:49,880 Speaker 1: We talked about the Trading Places movie. But that's the 252 00:14:50,000 --> 00:14:53,520 Speaker 1: great lesson for everybody here is that this isn't an 253 00:14:53,520 --> 00:14:56,760 Speaker 1: innate talent that you're born with. You can be taught. 254 00:14:56,960 --> 00:14:59,320 Speaker 1: You can be taught to be a great trader. And 255 00:14:59,360 --> 00:15:03,600 Speaker 1: this story is so timeless for that very fact alone, Michael, 256 00:15:03,680 --> 00:15:06,760 Speaker 1: we mentioned this in the intro um. But on that note, 257 00:15:07,800 --> 00:15:12,120 Speaker 1: these traders, these amateur traders, were known as the turtle Traders, right, 258 00:15:12,160 --> 00:15:15,200 Speaker 1: and Richard Dennis came up with that name. How did 259 00:15:15,240 --> 00:15:18,920 Speaker 1: he actually come up with that? You know, there's differing 260 00:15:19,000 --> 00:15:23,760 Speaker 1: stories about that name from differing turtles. Frankly, the one 261 00:15:23,800 --> 00:15:26,320 Speaker 1: that's most popular is that I think this is the 262 00:15:26,320 --> 00:15:28,760 Speaker 1: one that rich Dennis signs off on, is that he 263 00:15:28,800 --> 00:15:33,240 Speaker 1: was in Singapore and was that a turtle breeding farm 264 00:15:33,360 --> 00:15:35,800 Speaker 1: and made the off the cuff comment that I'm going 265 00:15:35,880 --> 00:15:40,720 Speaker 1: to grow traders like they're growing turtles here in Singapore. Now. 266 00:15:40,720 --> 00:15:43,160 Speaker 1: I also heard from one turtle that he was very 267 00:15:43,200 --> 00:15:47,800 Speaker 1: fond of the musical group the Turtles. So there's differing, 268 00:15:47,920 --> 00:15:51,760 Speaker 1: differing thoughts there. Uh so you mentioned it went from 269 00:15:52,680 --> 00:15:57,120 Speaker 1: four to nine four years, how and why did it end? 270 00:15:57,360 --> 00:16:01,240 Speaker 1: And then what did the Turtles do afterwards? You know, 271 00:16:01,320 --> 00:16:05,560 Speaker 1: I don't think in hindsight Rich Dennis and Bill Eckhart 272 00:16:05,600 --> 00:16:08,520 Speaker 1: ever would have ended it. But at the time, it's 273 00:16:08,560 --> 00:16:12,400 Speaker 1: a long time ago, perhaps they didn't see how great 274 00:16:12,400 --> 00:16:14,560 Speaker 1: of a story it was going to be. So what 275 00:16:14,640 --> 00:16:17,440 Speaker 1: happened was it ended and Rich Dennis kind of closed 276 00:16:17,440 --> 00:16:20,680 Speaker 1: down retired. Look, he made a fortune, and most of 277 00:16:20,720 --> 00:16:22,760 Speaker 1: the Turtles when it had to register with the government 278 00:16:22,760 --> 00:16:27,280 Speaker 1: as fund managers. I went to Wall Street, walked around 279 00:16:27,360 --> 00:16:31,240 Speaker 1: and tried to raise money. I remember walking around and 280 00:16:31,280 --> 00:16:33,400 Speaker 1: you know pay phones back then, that's you know, many 281 00:16:33,400 --> 00:16:37,040 Speaker 1: many years ago. And I remember calling up the head 282 00:16:37,040 --> 00:16:40,040 Speaker 1: of managed futures at Merrill Lynch and I said, um, 283 00:16:40,320 --> 00:16:43,880 Speaker 1: got his assistant and she said, who are you. I said, 284 00:16:43,960 --> 00:16:46,240 Speaker 1: Jerry Parker, and I like to meet with the head 285 00:16:46,240 --> 00:16:51,040 Speaker 1: of the managed futures department. And she goes, um, no, no, 286 00:16:51,240 --> 00:16:54,920 Speaker 1: he's very busy, and I'm and I said, well, please 287 00:16:54,960 --> 00:16:57,840 Speaker 1: tell him that it's that um a turtle. And so 288 00:16:57,880 --> 00:16:59,400 Speaker 1: she gets back on the phone and started and she's 289 00:16:59,480 --> 00:17:02,080 Speaker 1: laughing and she's like, yeah, yeah, come on up. So 290 00:17:02,200 --> 00:17:04,840 Speaker 1: one of the great things that we had coming out 291 00:17:04,840 --> 00:17:07,240 Speaker 1: of those four and a half years was a legitimate 292 00:17:07,240 --> 00:17:10,360 Speaker 1: track record that we could Maybe it's kind of crazy 293 00:17:10,400 --> 00:17:14,440 Speaker 1: two a year, but you know, when we started raising money, 294 00:17:14,440 --> 00:17:16,760 Speaker 1: it was helpful to at least have that background and 295 00:17:16,840 --> 00:17:20,360 Speaker 1: that track record. And then you start toning it down 296 00:17:20,480 --> 00:17:24,600 Speaker 1: trying to make fift and then you're out on your 297 00:17:24,600 --> 00:17:28,320 Speaker 1: own in Richmond, Virginia. Rich is not my backstop anymore. 298 00:17:28,359 --> 00:17:31,640 Speaker 1: So I'm maybe exercise a little more discretion, more my style, 299 00:17:32,760 --> 00:17:35,879 Speaker 1: and so you're like, wow, this is very interesting to 300 00:17:36,280 --> 00:17:42,160 Speaker 1: leave that cocoon for the for the scary world. And frankly, 301 00:17:42,160 --> 00:17:45,520 Speaker 1: what's so great about this story is not only was 302 00:17:45,600 --> 00:17:50,080 Speaker 1: it just the turtles, but the turtles inspired fund managers 303 00:17:51,080 --> 00:17:55,480 Speaker 1: that are massive today, that are managing multibillion dollar accounts. 304 00:17:55,520 --> 00:17:58,439 Speaker 1: This story wasn't just something that kind of die. Not 305 00:17:58,560 --> 00:18:01,240 Speaker 1: only did the turtles call the money and make a 306 00:18:01,240 --> 00:18:02,919 Speaker 1: lot of money when they left to go trade for 307 00:18:02,960 --> 00:18:05,960 Speaker 1: their own accounts and trade for other customer accounts, but 308 00:18:06,160 --> 00:18:09,840 Speaker 1: so many other trend following type traders. The strategy that 309 00:18:09,880 --> 00:18:13,800 Speaker 1: they were using they inspired traders all around the world 310 00:18:13,840 --> 00:18:19,560 Speaker 1: that today run multibillion dollar accounts, Michael, was every single 311 00:18:19,720 --> 00:18:23,360 Speaker 1: turtle trader successful? Was there not a single one out 312 00:18:23,359 --> 00:18:27,560 Speaker 1: of the twenty three that didn't make it? So it's 313 00:18:27,560 --> 00:18:31,960 Speaker 1: an interesting question. I believe one or two of them 314 00:18:32,200 --> 00:18:36,800 Speaker 1: lasted for a year, and after after the program ended, 315 00:18:37,359 --> 00:18:41,440 Speaker 1: I would say over ninety of them of them went 316 00:18:41,440 --> 00:18:44,639 Speaker 1: ahead and traded four clients, opened up a fund management firm, 317 00:18:44,920 --> 00:18:49,080 Speaker 1: and frankly, we're successful. I'm able to find having researched 318 00:18:49,080 --> 00:18:51,439 Speaker 1: this subject just about more than anybody and knowing the 319 00:18:51,480 --> 00:18:56,280 Speaker 1: cast of characters, as you might imagine, the human human 320 00:18:56,359 --> 00:18:58,359 Speaker 1: nature is such that you're always gonna end up with 321 00:18:58,400 --> 00:19:00,760 Speaker 1: a few oddballs, and you know there was a few 322 00:19:00,800 --> 00:19:06,760 Speaker 1: personality oddballs inside the experiment, but the results are overwhelming. 323 00:19:07,080 --> 00:19:09,199 Speaker 1: You know you can because you can actually and you know, 324 00:19:09,240 --> 00:19:11,359 Speaker 1: some people might say, hey, you know, these are just 325 00:19:11,400 --> 00:19:14,119 Speaker 1: the lucky survivors, but I would say, hey, look at 326 00:19:14,119 --> 00:19:16,360 Speaker 1: the few that didn't make it and find out what 327 00:19:16,400 --> 00:19:19,080 Speaker 1: they did wrong. And it's pretty easy to look at 328 00:19:19,080 --> 00:19:20,679 Speaker 1: the few that didn't make it and see what they 329 00:19:20,680 --> 00:19:23,680 Speaker 1: did wrong. So there, it's just one of those great stories. 330 00:19:24,920 --> 00:19:29,880 Speaker 1: So often when there's a popular strategy, the fear is 331 00:19:30,000 --> 00:19:33,960 Speaker 1: that more and more people start to do the strategy, 332 00:19:34,119 --> 00:19:37,040 Speaker 1: and then the strategy doesn't work anymore. And this sort 333 00:19:37,040 --> 00:19:42,720 Speaker 1: of a common challenge in markets trades that eventually all 334 00:19:42,760 --> 00:19:45,520 Speaker 1: the money has gone from them. How does that play 335 00:19:45,600 --> 00:19:49,240 Speaker 1: into this story? If these turtles all were following the 336 00:19:49,280 --> 00:19:52,000 Speaker 1: same rules and then they inspired all these managers, and 337 00:19:52,040 --> 00:19:55,320 Speaker 1: then they had their own funds and presumably traders working 338 00:19:55,320 --> 00:19:58,840 Speaker 1: for those funds learned the strategies. Did these strategies have 339 00:19:58,960 --> 00:20:02,440 Speaker 1: to evolve or do they just fundamentally continue to work. 340 00:20:02,480 --> 00:20:06,200 Speaker 1: How did the sort of popularity of them affect the performance? Well, 341 00:20:06,240 --> 00:20:10,119 Speaker 1: trend following has fundamentally continued to work. My guess is 342 00:20:10,160 --> 00:20:15,040 Speaker 1: about one quarter of one percent of all investing assets 343 00:20:15,240 --> 00:20:18,560 Speaker 1: today are in trend following strategies. The vast majority of 344 00:20:18,760 --> 00:20:23,040 Speaker 1: people believe in the efficient market hypothesis, they believe in indexing, 345 00:20:23,640 --> 00:20:26,879 Speaker 1: buy and hold, all of these things that when the 346 00:20:26,880 --> 00:20:30,200 Speaker 1: black Swan swims in like October of two thousand eight, 347 00:20:30,520 --> 00:20:33,000 Speaker 1: you know, the vast majority of people get crushed. So 348 00:20:33,080 --> 00:20:38,320 Speaker 1: this is a very you know, counterintuitive, alternate type strategy, 349 00:20:38,400 --> 00:20:41,199 Speaker 1: and it has not slowed down at all. Now, it 350 00:20:41,280 --> 00:20:43,840 Speaker 1: can be difficult for for people to perhaps stick with 351 00:20:43,920 --> 00:20:46,760 Speaker 1: it because you do, you are taking risk you can 352 00:20:46,800 --> 00:20:50,440 Speaker 1: possibly lose you know, depending on what leverage you're employing, 353 00:20:50,720 --> 00:20:55,600 Speaker 1: you could lose your capital, perhaps even more. But then again, 354 00:20:56,119 --> 00:20:58,840 Speaker 1: you know where Buffets taken his share of fifty draw douts. 355 00:20:58,880 --> 00:21:02,440 Speaker 1: It's just one of these rate under the radar type strategies. 356 00:21:03,320 --> 00:21:05,439 Speaker 1: And I think, what's really cool. I mentioned October of 357 00:21:05,440 --> 00:21:09,240 Speaker 1: two thousand and eight. It's the one strategy that made 358 00:21:09,280 --> 00:21:12,920 Speaker 1: a fortune in that month of October two thousand and eight. 359 00:21:13,000 --> 00:21:16,879 Speaker 1: So you know, when Nessim Talib talks about the black Swans, 360 00:21:16,920 --> 00:21:21,840 Speaker 1: this is truly a great black Swan strategy at its foundation, 361 00:21:21,880 --> 00:21:24,760 Speaker 1: at its core. But if I could play Devil's advocate 362 00:21:24,800 --> 00:21:29,480 Speaker 1: for a second, if the strategy is so simple that 363 00:21:29,560 --> 00:21:33,080 Speaker 1: it can be taught in two weeks to novice traders, 364 00:21:33,640 --> 00:21:38,879 Speaker 1: then why isn't everyone doing this? It's a good question. 365 00:21:38,920 --> 00:21:42,720 Speaker 1: But that's why Daniel Kaneman won the Nobel Prize, right, 366 00:21:42,880 --> 00:21:44,680 Speaker 1: That's why amis diversity. If he would have been alive, 367 00:21:44,680 --> 00:21:48,560 Speaker 1: would have got it as well. That's why behavioral finance exists. Uh, 368 00:21:48,600 --> 00:21:53,920 Speaker 1: you know, people don't want to look outside of the mainstream, 369 00:21:54,000 --> 00:21:57,879 Speaker 1: and the mainstream is the vast majority of investing assets 370 00:21:58,200 --> 00:22:02,600 Speaker 1: are in passive index funds waiting for something bad to happen. 371 00:22:03,040 --> 00:22:06,120 Speaker 1: So it's just a it's a it's an alternate, counterintuitive 372 00:22:06,160 --> 00:22:09,800 Speaker 1: strategy that most people aren't willing to accept. Especially. Look 373 00:22:09,840 --> 00:22:13,920 Speaker 1: if when the stock markets at all time highs, people say, hey, 374 00:22:13,960 --> 00:22:17,119 Speaker 1: this looks great, I don't have to worry about anything. Mainly, 375 00:22:17,240 --> 00:22:21,040 Speaker 1: I believe that the trend following that works longer term 376 00:22:21,119 --> 00:22:26,840 Speaker 1: than it used to be is very unappealing. And um, 377 00:22:28,040 --> 00:22:31,520 Speaker 1: there's some inherent characteristics of trend folding that make it 378 00:22:31,880 --> 00:22:35,159 Speaker 1: something that is not something people really want to do. 379 00:22:35,960 --> 00:22:39,239 Speaker 1: Winning trades. Who in the right mind everyone knows you've 380 00:22:39,240 --> 00:22:42,520 Speaker 1: got at least have a fift win rate. Uh No, 381 00:22:42,880 --> 00:22:46,479 Speaker 1: not really. UM is about as well good as you're 382 00:22:46,480 --> 00:22:49,879 Speaker 1: gonna do. Uh take small losses all the time, so 383 00:22:49,920 --> 00:22:52,679 Speaker 1: you're always getting in and getting out with the small loss, 384 00:22:52,720 --> 00:22:54,119 Speaker 1: and then of course it goes right back to the 385 00:22:54,160 --> 00:22:57,040 Speaker 1: high you have to buy it again. So it's a 386 00:22:57,160 --> 00:23:01,920 Speaker 1: very painful way of trading. UM. Small profits turned into losses. 387 00:23:02,560 --> 00:23:05,280 Speaker 1: You're just following that system. You can't say, you know, 388 00:23:05,400 --> 00:23:07,280 Speaker 1: I want to book a profit here. No, you have 389 00:23:07,320 --> 00:23:09,200 Speaker 1: to wait for that moving average or break out to 390 00:23:09,240 --> 00:23:14,159 Speaker 1: be hit big profits turned into small profits. Um, the 391 00:23:14,240 --> 00:23:17,240 Speaker 1: draw downs are horrible. Um, it's usually, I think, for 392 00:23:17,240 --> 00:23:20,720 Speaker 1: a lot of smart people the first place to start 393 00:23:20,720 --> 00:23:23,639 Speaker 1: this trend. Following now, we certainly should be able to 394 00:23:23,680 --> 00:23:27,400 Speaker 1: improve upon it with little bells and whistles here and there. 395 00:23:27,960 --> 00:23:30,560 Speaker 1: And I think that's where people get in trouble because 396 00:23:31,000 --> 00:23:33,119 Speaker 1: I've never tried to really improve upon it. I've just 397 00:23:33,160 --> 00:23:37,359 Speaker 1: accepted my fate that, Yes, if you're going to have 398 00:23:37,400 --> 00:23:40,159 Speaker 1: a systematic approach that continues to work, it's in the 399 00:23:40,200 --> 00:23:44,760 Speaker 1: public domain. They write PhDs, write papers about it about 400 00:23:44,760 --> 00:23:47,280 Speaker 1: how continues to work. Then it seems only fair that 401 00:23:47,359 --> 00:23:50,320 Speaker 1: it should produce a fair amount of of pain and 402 00:23:50,400 --> 00:23:53,720 Speaker 1: suffering and bad periods, and that sort of I think 403 00:23:53,800 --> 00:23:56,159 Speaker 1: keeps too many people away from it. Do you think 404 00:23:56,240 --> 00:24:01,600 Speaker 1: the turtle experiment would work again in today's markets? And 405 00:24:01,880 --> 00:24:04,720 Speaker 1: Joe kind of hinted at this, But in markets that are, 406 00:24:04,760 --> 00:24:08,840 Speaker 1: you know, full of passive investors, full of high frequency traders, 407 00:24:09,040 --> 00:24:13,520 Speaker 1: momentum trading, all of that, will the turtle rules and 408 00:24:13,560 --> 00:24:18,520 Speaker 1: the turtle experiments still uphold well, momentum is that was 409 00:24:18,560 --> 00:24:20,880 Speaker 1: what they were taught. There's two there's two types of momentum. 410 00:24:20,920 --> 00:24:24,280 Speaker 1: There's time serious momentum, there's cross sectional momentum, and they 411 00:24:24,280 --> 00:24:28,440 Speaker 1: were taught time serious momentum strategies I e. Trend following. 412 00:24:29,080 --> 00:24:31,320 Speaker 1: Would it continue to work? I could sit here and 413 00:24:31,440 --> 00:24:32,960 Speaker 1: I won't bore you, but I could rattle off the 414 00:24:33,920 --> 00:24:37,320 Speaker 1: names of the professional fund managers working today. So no, 415 00:24:37,400 --> 00:24:39,960 Speaker 1: trend following is is never going to go away. As 416 00:24:40,000 --> 00:24:43,359 Speaker 1: long as we have human nature does this? Does trend 417 00:24:43,400 --> 00:24:46,760 Speaker 1: following work across all asset classes? So you mentioned that 418 00:24:46,840 --> 00:24:51,960 Speaker 1: they turtles trade liquid futures, but is there the same 419 00:24:52,000 --> 00:24:58,640 Speaker 1: principles applied to equities and currencies and uh fixed income assets? Absolutely? 420 00:24:58,800 --> 00:25:01,320 Speaker 1: Absolutely they Back in the day of the turtles, it 421 00:25:01,400 --> 00:25:04,960 Speaker 1: was it was commodity markets. You know, your your coffee, 422 00:25:04,960 --> 00:25:08,359 Speaker 1: your gold, your currencies. That has not changed today. I 423 00:25:08,400 --> 00:25:11,440 Speaker 1: think the only thing that's changed is perhaps more individual 424 00:25:11,480 --> 00:25:14,879 Speaker 1: equities have been added to trend falling portfolios. But if 425 00:25:14,920 --> 00:25:17,680 Speaker 1: you really think about it, since you're just trading price 426 00:25:17,720 --> 00:25:21,280 Speaker 1: action here, there's no fundamentals involved, it's really hard to 427 00:25:21,320 --> 00:25:24,680 Speaker 1: make the jump that the the action of markets would 428 00:25:24,680 --> 00:25:29,120 Speaker 1: be different when you when you look across instruments, because look, 429 00:25:29,160 --> 00:25:32,720 Speaker 1: these instruments are just representation of people and you know, 430 00:25:32,720 --> 00:25:36,560 Speaker 1: so it's all humans making making these decisions. So really, 431 00:25:36,600 --> 00:25:38,840 Speaker 1: if you just think about it that way, there really 432 00:25:38,840 --> 00:25:42,240 Speaker 1: shouldn't be an expectation that it should behave differently. As 433 00:25:42,280 --> 00:25:44,960 Speaker 1: long as as long as people are involved in markets, 434 00:25:45,400 --> 00:25:47,720 Speaker 1: there's going to be extreme moves, and as long as 435 00:25:47,760 --> 00:25:52,040 Speaker 1: there's extreme moves, strategies like trend following will continue to perform. Well, 436 00:25:52,520 --> 00:25:56,560 Speaker 1: I want to get back to the trading places analogy, 437 00:25:56,680 --> 00:26:01,879 Speaker 1: because the way the turtle trading experiment was structured, you 438 00:26:02,119 --> 00:26:07,080 Speaker 1: put these ads in newspapers and these people responded to them. 439 00:26:07,119 --> 00:26:12,080 Speaker 1: So I'm wondering if in some respect the turtle traders 440 00:26:12,160 --> 00:26:14,720 Speaker 1: kind of self selected themselves. I mean, they were all 441 00:26:14,760 --> 00:26:17,840 Speaker 1: reading Barrens and the Wall Street Journal anyway, so they 442 00:26:17,880 --> 00:26:20,600 Speaker 1: clearly had some sort of interest in markets, and they 443 00:26:20,600 --> 00:26:25,080 Speaker 1: were probably reasonably smart people. So when we look at 444 00:26:25,119 --> 00:26:28,439 Speaker 1: this experiment and the successful outcome, how much can we 445 00:26:28,480 --> 00:26:32,800 Speaker 1: actually read into that outcome? Like, could you apply this 446 00:26:33,080 --> 00:26:36,040 Speaker 1: to anyone just the man off the street in training 447 00:26:36,040 --> 00:26:40,200 Speaker 1: places it was a homeless Eddie Murphy. Would that work? Well? 448 00:26:40,240 --> 00:26:42,360 Speaker 1: I don't think in any endeavor in life you can 449 00:26:42,359 --> 00:26:45,479 Speaker 1: take somebody off the street that has no motivation, no drive, 450 00:26:46,000 --> 00:26:49,760 Speaker 1: no desire for excellence. I don't care whether it's sports 451 00:26:49,880 --> 00:26:52,399 Speaker 1: or whatever the job is. I mean, you've got to 452 00:26:52,440 --> 00:26:55,760 Speaker 1: have some internal combustion going on there otherwise it's going 453 00:26:55,800 --> 00:26:58,360 Speaker 1: to fail. So I think if you just take I'm 454 00:26:58,359 --> 00:27:00,240 Speaker 1: gonna use a not not a bad word. If you 455 00:27:00,240 --> 00:27:02,520 Speaker 1: take some dolt off the street who doesn't really care 456 00:27:02,560 --> 00:27:04,840 Speaker 1: and it's not really interested, they're going to fail and 457 00:27:04,880 --> 00:27:08,120 Speaker 1: they should fail. You mentioned that it's still a very 458 00:27:08,160 --> 00:27:12,600 Speaker 1: tiny amount of assets today are in trend following strategies. 459 00:27:13,000 --> 00:27:16,479 Speaker 1: You're obviously sort of deep in the weeds on this 460 00:27:16,520 --> 00:27:20,000 Speaker 1: whole space or what is Do you see a lot 461 00:27:20,040 --> 00:27:23,360 Speaker 1: of people or do you see interest in these strategies 462 00:27:23,400 --> 00:27:26,760 Speaker 1: still growing rapidly today, Like especially as people sort of 463 00:27:27,040 --> 00:27:31,760 Speaker 1: rediscover the story find resources on the internet, has interest 464 00:27:31,800 --> 00:27:35,120 Speaker 1: picked up? Well? Yeah, absolutely, And I wouldn't say there's 465 00:27:35,119 --> 00:27:37,760 Speaker 1: been an explosion of assets, but it's a steady growth 466 00:27:37,800 --> 00:27:41,840 Speaker 1: of assets under management in trend following strategies. The reason 467 00:27:41,960 --> 00:27:47,359 Speaker 1: for that is most pension firms today understand that if 468 00:27:47,400 --> 00:27:51,760 Speaker 1: they're long only stocks, they're exposed. There's a certain risk 469 00:27:51,800 --> 00:27:55,440 Speaker 1: exposure there. So if they can add into their portfolio, 470 00:27:56,359 --> 00:27:57,879 Speaker 1: this is like Harry mark at what's one on one 471 00:27:57,920 --> 00:28:01,359 Speaker 1: If you can add into your portfolio something that's not correlated, 472 00:28:02,359 --> 00:28:05,239 Speaker 1: you know, spending off a different risk return profile, all 473 00:28:05,280 --> 00:28:06,840 Speaker 1: of a sudden you end up with a little bit 474 00:28:06,840 --> 00:28:10,160 Speaker 1: more performance and a little less risk. So it makes 475 00:28:10,160 --> 00:28:13,679 Speaker 1: a lot of sense for everyone for that reason. And 476 00:28:13,720 --> 00:28:16,000 Speaker 1: you can find these days, there's been quite a few 477 00:28:16,040 --> 00:28:18,840 Speaker 1: managers that have gone ahead and put together public mutual 478 00:28:18,840 --> 00:28:22,960 Speaker 1: funds UH public ETFs. So there's different ways for people 479 00:28:23,000 --> 00:28:25,520 Speaker 1: to participate. Of course, they can go do it on 480 00:28:25,560 --> 00:28:29,080 Speaker 1: their own as well too. Did Bill Eckert pay Richard 481 00:28:29,119 --> 00:28:32,720 Speaker 1: Dennis a dollar? I never heard anything like that. I 482 00:28:32,720 --> 00:28:34,520 Speaker 1: don't know if that was their bet. Maybe if you 483 00:28:34,520 --> 00:28:36,359 Speaker 1: get rich Dennis on the phone, he can answer for you. 484 00:28:38,440 --> 00:28:40,440 Speaker 1: I mean, it's it's kind of hard to believe. I can, 485 00:28:40,480 --> 00:28:42,400 Speaker 1: I can. I kind of hear that in both of you, like, 486 00:28:42,840 --> 00:28:45,040 Speaker 1: oh my god, this story. You know it's because you 487 00:28:45,080 --> 00:28:46,640 Speaker 1: know you you got the book in front of you 488 00:28:46,680 --> 00:28:50,600 Speaker 1: know it's factual. But it's still hard to believe, isn't it. Yeah. 489 00:28:50,640 --> 00:28:54,040 Speaker 1: I think the part that's hard to believe is not 490 00:28:54,280 --> 00:28:57,560 Speaker 1: the story of self. Like, I'm not surprised the you know, 491 00:28:57,640 --> 00:29:02,760 Speaker 1: the period from four to nine in eight that I 492 00:29:02,800 --> 00:29:04,720 Speaker 1: don't find hard to believe. And I also don't really 493 00:29:04,760 --> 00:29:07,520 Speaker 1: find it hard to believe that a lot of those 494 00:29:07,760 --> 00:29:11,120 Speaker 1: um that a lot of those traders went on to 495 00:29:11,200 --> 00:29:13,560 Speaker 1: have a lot of success and influence. I think the 496 00:29:13,640 --> 00:29:17,440 Speaker 1: part that feels counterintuitive to me is the idea that 497 00:29:17,480 --> 00:29:21,200 Speaker 1: there's this strategy that exists out there. The way you 498 00:29:21,280 --> 00:29:24,400 Speaker 1: say it kind of sounds like picking up free money. 499 00:29:24,440 --> 00:29:28,280 Speaker 1: That it's more that it works, that it hasn't been 500 00:29:28,280 --> 00:29:31,280 Speaker 1: diminished by the fact that you wrote this book, and 501 00:29:31,280 --> 00:29:34,040 Speaker 1: that all of that, this uh, this incident is the 502 00:29:34,160 --> 00:29:37,280 Speaker 1: stuff of Wall Street legend, that despite all this attention, 503 00:29:37,720 --> 00:29:41,560 Speaker 1: that the strategy still fundamentally works without a whole lot 504 00:29:41,600 --> 00:29:44,680 Speaker 1: of innovation. I think that's the part that to me 505 00:29:45,200 --> 00:29:48,400 Speaker 1: most intensely flies in the face of how we talk 506 00:29:48,440 --> 00:29:51,560 Speaker 1: about finance. That it shouldn't be not that beating the 507 00:29:51,560 --> 00:29:56,480 Speaker 1: market is impossible, but that one strategy or one principle 508 00:29:56,560 --> 00:30:01,240 Speaker 1: can beat the market on an enduring basis for so long. 509 00:30:01,520 --> 00:30:05,760 Speaker 1: Is the is the part that, um, it's still hard 510 00:30:05,800 --> 00:30:07,840 Speaker 1: to believe, but I mean I believe it. I just 511 00:30:08,200 --> 00:30:11,280 Speaker 1: it's just the part that makes me uncomfortable. Does that 512 00:30:11,320 --> 00:30:13,880 Speaker 1: make sense? Well, I think it's it gets it gets 513 00:30:13,920 --> 00:30:17,520 Speaker 1: back to I bring up Daniel Kneman again. It's his work. 514 00:30:17,920 --> 00:30:21,840 Speaker 1: If you were to find a strategy that exemplified prospect 515 00:30:21,920 --> 00:30:24,920 Speaker 1: theory and a lot of his behavioral work, and then 516 00:30:24,920 --> 00:30:28,520 Speaker 1: many other great minds that have come after him diving 517 00:30:28,520 --> 00:30:35,120 Speaker 1: into behavioral finance, that psychological element. Look, you can have 518 00:30:35,200 --> 00:30:37,360 Speaker 1: the rules. Rich Dennis used to say, he could publish 519 00:30:37,360 --> 00:30:39,760 Speaker 1: the rules in a paper. It doesn't make a difference 520 00:30:39,760 --> 00:30:41,840 Speaker 1: if people aren't gonna do it. So we could sit 521 00:30:41,880 --> 00:30:44,560 Speaker 1: here and talk about rules all day long. And yes, 522 00:30:44,720 --> 00:30:51,040 Speaker 1: the rules are clever and they're interesting. But if you, anybody, me, you, 523 00:30:51,400 --> 00:30:56,560 Speaker 1: whoever is listening, if you don't understand those natural biases 524 00:30:56,600 --> 00:30:59,000 Speaker 1: that you have built into you, and you have not 525 00:30:59,480 --> 00:31:01,440 Speaker 1: put it in your mind that you're going to stick 526 00:31:01,440 --> 00:31:05,480 Speaker 1: to these rules no matter what, then it shouldn't really 527 00:31:05,520 --> 00:31:08,160 Speaker 1: be a surprise that, frankly, a lot of people don't 528 00:31:08,160 --> 00:31:09,840 Speaker 1: want to do it. I mean, like that's the whole 529 00:31:09,880 --> 00:31:12,160 Speaker 1: reason why. I mean, Michael Lewis's new book that's out 530 00:31:12,240 --> 00:31:15,760 Speaker 1: right now, it's the it's the foundation. People are just people, 531 00:31:15,840 --> 00:31:18,240 Speaker 1: and you know, we're all a little bit crazy, and 532 00:31:18,240 --> 00:31:20,120 Speaker 1: we really, you know, we want to we want to 533 00:31:20,120 --> 00:31:22,560 Speaker 1: get rich quick, and we want to we want to 534 00:31:22,600 --> 00:31:25,160 Speaker 1: trust people on Wall Street telling us about the latest 535 00:31:25,400 --> 00:31:28,000 Speaker 1: you know, high frequency this, so the latest crop report, 536 00:31:28,480 --> 00:31:31,479 Speaker 1: and so you know, it's a quantitative strategy that perhaps 537 00:31:31,560 --> 00:31:33,840 Speaker 1: doesn't make money for two years and then all of 538 00:31:33,880 --> 00:31:36,160 Speaker 1: a sudden makes a fortune in October of two thousand 539 00:31:36,200 --> 00:31:38,400 Speaker 1: and eight, or has an up and down period for 540 00:31:38,400 --> 00:31:42,040 Speaker 1: a stretch. People aren't interested in that, at least the 541 00:31:42,040 --> 00:31:45,160 Speaker 1: the the uninitiated are not interested in that. I was 542 00:31:45,160 --> 00:31:47,200 Speaker 1: going to ask you a question which I thought Tracy 543 00:31:47,280 --> 00:31:49,840 Speaker 1: was gonna ask, but which is, why do we need 544 00:31:49,920 --> 00:31:54,720 Speaker 1: people to do it? If it's just about having the discipline, 545 00:31:55,560 --> 00:31:58,080 Speaker 1: If it's just about having the discipline to follow rules, 546 00:31:58,200 --> 00:32:00,960 Speaker 1: and if it's mainly that the main way you screw 547 00:32:01,080 --> 00:32:05,040 Speaker 1: up is by letting emotion come into it doing something 548 00:32:05,160 --> 00:32:10,640 Speaker 1: intuitive in a market dislocation, why not just feed the 549 00:32:10,720 --> 00:32:17,000 Speaker 1: rules to robots and have them execute the rules without emotion. Absolutely, 550 00:32:17,400 --> 00:32:20,640 Speaker 1: I think that's exactly right. Once the initial set up 551 00:32:21,320 --> 00:32:25,920 Speaker 1: and discretionary minor discretionary decisions have been made, let it go. 552 00:32:26,160 --> 00:32:29,920 Speaker 1: I mean, in my opinion, um, humans are just going 553 00:32:29,960 --> 00:32:34,880 Speaker 1: to introduce bad things, not tinkering, you know, stop the tinkering, 554 00:32:34,960 --> 00:32:38,640 Speaker 1: stop trying to make it better. Uh, enjoy the fact 555 00:32:38,640 --> 00:32:41,640 Speaker 1: that it's not that great and it's very brutal. It's 556 00:32:41,680 --> 00:32:43,760 Speaker 1: not going to make eight percent a year like the 557 00:32:43,760 --> 00:32:47,040 Speaker 1: stock market with a draw down because we just have 558 00:32:47,080 --> 00:32:49,880 Speaker 1: too much diversification, too much risk control. So we'll make 559 00:32:49,920 --> 00:32:54,160 Speaker 1: eight percent with draw down. That's still pretty painful. So 560 00:32:55,040 --> 00:32:58,720 Speaker 1: enjoy that and see that as a positive characteristic to 561 00:32:58,960 --> 00:33:02,920 Speaker 1: suffer what saw losses and big draw downs and you 562 00:33:03,040 --> 00:33:04,800 Speaker 1: made a lot of money, then you gave it all back. 563 00:33:05,720 --> 00:33:09,960 Speaker 1: Find joy and comfort and following those rules and quit tinkering. 564 00:33:10,040 --> 00:33:13,400 Speaker 1: So yeah, I'm not a fan of human humans intervention, 565 00:33:13,480 --> 00:33:27,880 Speaker 1: and yeah, I agree totally so Joe. I don't know 566 00:33:27,880 --> 00:33:30,640 Speaker 1: about you, but I loved that episode and I'm so 567 00:33:30,720 --> 00:33:34,200 Speaker 1: glad that we could finally finally talk about the Turtle Traders. 568 00:33:34,800 --> 00:33:37,520 Speaker 1: I know you've been wanting to do this episode for 569 00:33:37,560 --> 00:33:40,240 Speaker 1: a really long time. I'm glad it came together. I mean, 570 00:33:40,520 --> 00:33:43,120 Speaker 1: I'm such a huge fan of Trading Place, as anyone 571 00:33:43,120 --> 00:33:45,160 Speaker 1: who knows me knows that I watch it every year 572 00:33:45,360 --> 00:33:49,120 Speaker 1: or on Christmas. It's my favorite movie. Um, I had 573 00:33:49,280 --> 00:33:52,160 Speaker 1: no idea that there was anything like that in real 574 00:33:52,240 --> 00:33:56,360 Speaker 1: life had actually happened. So that simple fact alone blows 575 00:33:56,440 --> 00:34:00,480 Speaker 1: my mind. But also just the you know, the fact 576 00:34:00,520 --> 00:34:04,120 Speaker 1: that this strategy persists is still amazing to me. I 577 00:34:04,160 --> 00:34:06,640 Speaker 1: still like, don't you can't totally wrap my head around 578 00:34:07,200 --> 00:34:10,600 Speaker 1: around it that there's people that, uh say that they 579 00:34:10,600 --> 00:34:13,560 Speaker 1: have this strategy that just continues to work year after year. 580 00:34:14,400 --> 00:34:18,480 Speaker 1: But kind of remarkable. So that's the one thing that 581 00:34:18,600 --> 00:34:22,560 Speaker 1: makes me slightly uncomfortable about the story, Like this idea 582 00:34:22,760 --> 00:34:25,560 Speaker 1: that you can get a bunch of people into a 583 00:34:25,680 --> 00:34:28,480 Speaker 1: room and teach them these rules in the space of 584 00:34:28,520 --> 00:34:31,680 Speaker 1: two weeks and the rules always work, and they would 585 00:34:31,680 --> 00:34:35,920 Speaker 1: work for anyone. Again, we we talked about it in 586 00:34:35,960 --> 00:34:38,680 Speaker 1: the show, but I'm just not entirely sure why if 587 00:34:38,719 --> 00:34:42,160 Speaker 1: it's that easy, everyone doesn't do it. And again I 588 00:34:42,239 --> 00:34:46,520 Speaker 1: get the whole behavioral aspect to it, but as you 589 00:34:46,520 --> 00:34:49,319 Speaker 1: were pointing out, why don't we just have all the 590 00:34:49,400 --> 00:34:52,840 Speaker 1: robots doing that same strategy. It really is uncomfortable. I think, like, 591 00:34:53,080 --> 00:34:58,160 Speaker 1: especially as journalists as we are, this concept like we're 592 00:34:58,200 --> 00:35:00,640 Speaker 1: just sort of our minds are trained and to be 593 00:35:00,719 --> 00:35:04,640 Speaker 1: skeptical of anything approaching this and so this idea is 594 00:35:04,680 --> 00:35:09,440 Speaker 1: sort of like pique uncomfortable nous for people like us, 595 00:35:09,520 --> 00:35:11,759 Speaker 1: the fact that maybe it is the simple, Maybe there 596 00:35:11,840 --> 00:35:14,000 Speaker 1: is a set of rules, Maybe there is a an 597 00:35:14,000 --> 00:35:18,440 Speaker 1: investment approach that works decade after decade. I mean, I 598 00:35:18,520 --> 00:35:21,400 Speaker 1: guess it's not impossible. I've you know, it's interesting that 599 00:35:21,440 --> 00:35:25,800 Speaker 1: there's there is academic literature that backs up the case 600 00:35:25,880 --> 00:35:29,840 Speaker 1: for trend following is a consistently outperforming strategy. It's just 601 00:35:30,000 --> 00:35:35,320 Speaker 1: so it just feels so unnatural to us, Isn't there right? Maybe? Yeah, 602 00:35:35,400 --> 00:35:39,040 Speaker 1: I think that's right. Maybe we need to do a 603 00:35:39,080 --> 00:35:42,200 Speaker 1: first person experiment. We need to go out and become 604 00:35:42,239 --> 00:35:45,080 Speaker 1: turtle traders ourselves and see what happens. Oh, I love 605 00:35:45,120 --> 00:35:49,279 Speaker 1: that idea that we like. Maybe, like, maybe we'll start 606 00:35:49,280 --> 00:35:53,759 Speaker 1: a little um odd lodge hedge fund and uh and 607 00:35:53,800 --> 00:35:57,560 Speaker 1: then uh and then start to start trend following with that. Yeah, 608 00:35:57,640 --> 00:36:00,719 Speaker 1: let's do that, all right, that'll be fun. All right. 609 00:36:01,800 --> 00:36:05,719 Speaker 1: Well that was another edition of the Thoughts Podcast. I'm 610 00:36:05,800 --> 00:36:08,080 Speaker 1: Joe Wisn't thal. You can follow me on Twitter at 611 00:36:08,120 --> 00:36:11,440 Speaker 1: the Stalwart, and I'm Tracy Alloway. I'm on Twitter at 612 00:36:11,480 --> 00:36:15,080 Speaker 1: Tracy Alloway. And you can follow Jerry Parker on Twitter 613 00:36:15,160 --> 00:36:19,160 Speaker 1: at r j Parker. J r zero nine. You can 614 00:36:19,280 --> 00:36:22,720 Speaker 1: also follow our guest, Michael Covel. He is on Twitter 615 00:36:22,960 --> 00:36:26,640 Speaker 1: at Covel and you can listen to his podcast. It's 616 00:36:26,680 --> 00:36:29,840 Speaker 1: called trend Following with Michael Covell. Thanks for listening