How the Turtles would Trade Today | with Richard Dennis, Jerry Parker, and Brian Proctor

imagine spending an hour the world's greatest traders imagine learning from their experiences their successes and their failures imagine no more welcome to top traders unplugged the place where you can learn from the best hedge fund managers in the world so you can take your manager due diligence or investment career to the next level before we begin today's conversation remember to keep two things in mind all the discussion will have about investment performance is about the past and past performance does not guarantee or even infer anything about future performance also understand that there's a significant risk of financial loss with all investment strategies and you need to request and understand the specific risks from the investment manager about their product before you make investment decisions here's your host veteran hedge fund manager niels castro Larson [Music] come back to Tom's Raiders roundtable a podcast series on manners futures brought to you by CME Group where I continue my conversation with Richard Dennis who really don't need any introduction but for those of you who don't know rich is the creator of the turtle program and also the original mentor to buy all the two guests on today's show namely Brian Proctor a turtle and managing director of EMC Capital Advisors and last but not least one of my own mentors when I got started in the men's futures industry many years ago namely Jerry Parker another turtle founder and president of Chesapeake Capital that's something this week that said only inflows and hedge funds will with CTAs last year so now I think it's another question of how large is your firm this reform made me comfortable do you how many PhDs do you have it's less about the markets and performance it's more about the there are lots of assets coming to CPAs but only four or five hmm yeah I mean to that point I would I would agree I mean my previous conversation for helped create this roundtable was indeed with three of the largest consultants in the world and and they certainly discussed those topics as to what drives their locations today and there's some surprising answers actually so for the listener please do go in and check those hyper episodes out I want to stay with one of the things that I think you Brian mentioned about the volatility and you know one of the changes that I've seen occur since the days of the turtle program is that nowadays many of the highly successful CTAs in terms of size have adopted sort of a constant targeting of a specific level of volatility some people go for 10% rolls 15% of all products all if you really want bang for your buck you can get a 20% ball target products so to speak I wanted to ask you rich maybe first what do you think about this development and and should volatility be target in your opinion well I'm far from managing any money for people so I might be not so relevant but I've never quite understood the problem with volatility maybe there's some problems associated with that but people can modify the volatility themselves it's put less money and if that's what what they're worried about I don't know anything about the specifics of how managers are targeting things now though sure but but back then I guess and maybe this is a question for you Jerry and Brian so back then when when you started sort of your own businesses after finishing the turtle program did you even think about volatility targeting or were you just basically taking whatever volatility that the design of the strategy gave you so I'm pretty intense on this subject and I think that in some ways I have changed the least amongst the Turtles but in another lady being longer-term is is maybe a very material change so I think that our approach has maintained the overall philosophy except it's just longer term and so I have no interest in the targeting and I just don't understand it it's not it is something I think that clients kind of want and I know better than going down that route do things the clients want and I think it's just sort of a more sophisticated way of taking profits before the trend verses so I do think that if your daily return is 5% plus or minus on average that's too much volatility sure but yeah I'll for instance risk 50 basis points if enough trade if I if gold goes down I'll get out with 50 basis points loss on my capital but if goal if I buy a gold and 800 and it goes to 1,900 I'll probably let it draw down 500 basis points until my trailing stop gets hit so I think that's just two entirely different situations and no interest in ball targeting or just it's just another way of taking profits mr. Churchill Brian do you have any strong thoughts about this all otherwise I'm happy to continue with another question well I will say back in the late 1980s when the turtle program ended and we all went off on our own the risk-free rate was much higher than and the investors we were talking to wanted us to make three four five times the risk-free rate so initially they were more accepting of volatility and drawdown back then and as those rates have come down over the years so has the appetite for a lot of a lot of investors out there they want lower vial products just because it fits in with their mandates better but and as far as reducing the volatility in in our program in our flagship program we have reduced it a little bit but not much but we have come up and developed newer programs that have different vial targets that we can market to investors who have those kind of targets in mind okay I want to stay I think with you Gerry for a little bit but also put something into context that that rich mentioned about you know the market so I guess back in the day again from from my own experience in recollection there seem to have been you know some really extreme trends at times and in recent years we probably had fewer of those as rich pointed out and also a contraction of volatility for sure so performance as we've discussed has been on a little bit of pressure for many managers and in my conversations or episodes of podcast more than a hundred so far with some of the most successful systemic traders and investors if you like there is a clear consensus that between where you enter a trade and where you exit a trade and how much risk you should allocate the exit is usually mentioned as the most important of three and I guess you could argue that maybe one of the weaknesses of trend-following if it's not done well is that you give back a lot of the open profit when the trend comes to an end and it starts reversing so my question to you Jerry first is that you know back in the day if you were already you know and you're still learning this sort of methodology but if you were long in a market you have substantial profits and perhaps you know some news came out that just made the market go parabolic for a few hours and then suddenly collapse later on the day did you ever consider back then or even discuss with some of the fellow turtles or even perhaps with rich as well whether this was a sign that the trend was coming to an end and it was time to sort of lighten up a bit and and if so I mean could this be made into fixed rules or sometimes did you have to use a bit of discretion so to speak in those in those periods I had lots bad thoughts that I didn't act on I think when I was trading for rich I was really I got to a point where I could follow the rules and I was very intent on following those rules and doing the type of exit interesting exits that we were taught to do now once you get out on your own you maybe don't I remember doing my first sort of trade where I don't know what I did but it was not maybe by the book and I was like oh my this is kind of crazy because I haven't done this before but I think that I didn't really hear about I started hearing about all of these great ideas with a sample size of ten that people were introducing to their systems so I pretty much was able to stay away from that it was just a few things that I just have in my head that I asked for rich or that was a really big the class and sample size was one and discretionary trading was something through the avoided in just stick with your exits yeah well what about you Brian did you find it difficult at times initially to to just be a hundred percent disciplined and and stay with that when you know clearly these emote you know emotions when you see you know things like that happening in the market you know it gets a bit tensile was it also for you sort of very much just follow the system from day one well the great thing about the turtle program was it gave us the opportunity to learn how to trade so maybe I was a little naive but it just took all the psychological pressure away we weren't risking her own money sure all you had to do was follow the rules so I say during the turtle program it was it was very easy to do what you were supposed to do I mean you had some of the brightest guys and pioneers in our business telling us this works just do it and when we did do it we saw that it worked not to say that it wasn't painful watching profitable trades turned into losses and certainly when we went off on her own and started managing money it's it's very hard to be as rich said before consistent you have to consistently do the right thing which when you go through long losing periods is difficult and you're inclined to to think maybe we should make some changes so I don't have to go through this again so definitely harder when you're when we had to go off on our own yeah of course I want to shift gear a bit and discuss maybe some of your reflections when you think back of that on on the turtle program and let me start with you rich again I mean do you have any regrets doing the turtle program now some 30 years later well no I don't have any regrets I'm not happy with some of the people who put some stuff online and make money off and who had nothing to do with it but no I think it worked out pretty well for everyone yeah and what about I mean did you back then have you know a sort of expectations that you kind of I don't know how to phrase it but I maybe I could just ask him indeed did it meet your expectations on on all fronts or were there certain parts of it that sort of surprised you you mentioned a little bit earlier today about you know certain maybe people you thought were gonna do well and and didn't and and vice versa but anything else in terms of your expectations to it that surprised you or weren't met or exceeded significantly well you know it if you make enough trades everything seems like a trade and sort of doing this was just another piece of risk that we chose to take on so you know you make a trade you don't really have great expectations for it or you know great fear it's just one of many things you're gonna do and this was a very large trade if you think of it that way yeah and but but like with my other trades I didn't really have numerical targets or anything like that in mind okay okay and and what about you Brian and Gary you know what what are they really the key takeaways from the whole turtle experience when you think back on those years go ahead Jeff mmm the takeaway as well I think you know we learned a lot and it was just a magical time and it was those were four great years I had no expectation of future of business we I think we all would have been incredibly happy to continue managing money for rich for the rest of our life and that was you know would have been a good idea I think some of the a the other guys that compete against other CTAs in my opinion probably did not have nearly the training and support that we had and yet they have fairly large businesses and a lot of those guys went out together and work together and so I think that was maybe an opportunity that we kind of miss with most of us is going out on our own so not sure I really wish that in some kind of crazy way we had the best training the best experience the best four years that anyone could ever hope for but I don't know that I personally I mean I went to a good business school even though it doesn't really look like it it may be part of my problem was that I sort of suggested a question for rich because I've asked this question many times to myself it maybe it's a little a bad question but maybe you know it's proper trading a real business and I think to some degree I've tried to trade properly and not pay attention to clients as much as maybe I should have and not fall targeted is not taking profits and that's made it a better experience and I think that to some degree that was one of the turtle characteristics of clients are and other is going to lead you down a bad path so stick with your system stick with what you believe to be true but maybe a little bit more compromise would have made me have a largest business what about you prime I would say the most important concepts and things that always resonated with me were you just have to have really strict risk management don't over trade take a lot too losing trades don't don't get out of your winning trades until the trend has confirmed that it's over so I think risk management was ruled key concept number one if you will and then concept number two was keep looking at new ways or new systems blending different values together different time frames to see if you can come up with something better than you already have so we've invested a lot of money in our research infrastructure and we're always searching for the for the next best great system so I think those were the two concepts that I took away from the turtle program were system development and risk management [Music] now just going back to you rich I mean I can sort of imagine you telling Jerry and Brian and all the other turtles you know trade small follow the system do the hard thing do the right thing and innovate and so on but what if you were to teach a turtle program today would you teach them the same thing or is there anything different to what you would teach them in in 2017 well I wouldn't teach the same thing and to tell you the truth I don't know exactly what I would teach because it's just harder to do objectively now now maybe get easy again but I've thought I've been people have asked me that question I don't have a good answer for it but I don't even know if it would work again to tell you the truth that these exaggerator's variables that kind of truncated trends they're a problem there's no doubt about it sure sure sure and as the you know Jerry mentioned in one of his responses that he and many of the Turtles probably would have loved to to just a you know trading for you I mean did you ever consider it some you know doing that just to keep it going so to speak for forever or was it always in your mind something you would do for a period of time just to prove your point or not well I got to the point when we closed the turtle program that shortly after I retired for the first time I'm kind of like one of those rock people who gives eighteen final chores that was the first time and I just needed to stop and reassess things and I decided to go whole hog into that's that halt and that was the only reason I closed it really yeah yeah Jerian Brian Richmond before that obviously there are things that I made things for trend-following more difficult today and I'm sure you've been asked this question many times by by clients do you have any thoughts about sort of the this low return period that trend following has been through in the last couple of years I mean is this is this just part of off trend following or is there something else going on here that that may be a little bit more sustained as we look into the future well I would say cautiously optimistic that we may have seen the bottoms in zero to negative interest rates although that may not be the case it it certainly has been more difficult recently with central bank intervention and government policies that have kind of dried up the liquidity and a lot of markets and and there I think designed to make it difficult for professional money managers out there but that said there are periods where no matter what the powers the be decide you're still going to see the price of crude oil go from a hundred to thirty dollars a barrel or other commodity markets that they that they can't control so it's it's always a matter of being involved and taking trades and trying to identify when those next trends are coming and if they don't come in the financial sector than having a 40 or 50 percent allocation to commodity markets might provide the opportunities where the other markets aren't working so any any thoughts from you Terry I the markets you know obviously they're not trending and we're so diversified and the only thing trending is stock so that's a that's been a problem I think and I wouldn't necessarily call it system failure it's just a lack of trends but I do think that there are a few things that trouble me with the main one being the fall targeting with that large of CPAs were committed to and I do think that gal gained a thousand in August of 15 is probably related to that CTAs will probably a major part of that and that it does seem that when the markets to reverse a long-term trend reverses and volatility picks up that does we have seen quite a few crashes which once again is probably all of these guys trying to get out at the same time they put a trade in because the ball is increased if it that phil zach Wahls increased because there's no the trade so it's I think that saw a problem when we get the trends are we gonna get the crashes we see those too frequently yeah yeah I want to stay with you Jerry just first second you mentioned earlier about whether you had been too true to the turtle rules and and that had prevented you from baking a bill building a bigger business I wouldn't say not be even building because you did and maybe you say maintaining a bigger business but I want to ask it's like this sort of related question to that because I think a lot of traders out there who are very very good traders my question is more if you want to build a big business around a successful trading strategy is it the strategy so to speak that might prevent you from doing that or is enacted in fact that maybe traders and don't get me wrong here but maybe traders should stay with trading and and and you need to bring in business people so to speak to to run the business because just because you're a great trader doesn't mean necessarily you're you're brilliant business person may be a bit controversial to ask you know I've read some articles about some of the larger firms and the first investor they got and there's someone who actually invested in the business to build out this infrastructure create a the proper structure to have a firm that's gonna raise a lot of assets and concentrate on sales alpha as much as trading alpha mmm yeah I want to shift gear again and perhaps focus a little bit on you rich now as we sort of slowly start bringing our conversation to to an end and and I want to ask you back in 1983-84 did you ever imagine and even today do you realize how many people's lives you have impacted in such a positive way through the turtle program well I try in a way not to know those sort of things I guess at the end of the day I know that and I kind of I'm proud of that but I just don't think self-congratulation is pretty so I tend to try to avoid it like the plague right sure and maybe on a slightly different question but if you were twenty years today I mean would you would you go back to trading I mean this is trading the one thing for for you so to speak allure what else would you would like to to do no one will make me president so I guess I would keep trading you know what I mean yes I think we all do and what about you Gary and Brian I mean if you were 20 years today and maybe you know you you hadn't seen an ad in The Wall Street Journal I mean was trading still something you think you would have pursued or were there any other passions that you might have ended up doing instead well I guess you did actually Brian didn't you you took it you did something else didn't you as well well I got a law degree and practiced for a boutique litigation firm in Chicago they were good enough to hire me to work part time so I would come in after the trading day was done probably two o'clock in the afternoon and and work for maybe five days a week three or four hours so I got to see what that was about I I think that's a realistic possibility if I could if if I was and what I'm advising my younger children now is probably to look at engineering or something like that because that seems where the future is going but you know the trading industry obviously has been a great a great opportunity and it's it's interesting and it's always changing so I have no regrets so so now I want to uh say you rich a completely different question this actually comes from one of your other students in the program someone who was curious about this and and the question is back then if you ever considered buying the Chicago cops in the early 80s and have the Turtles apply sabermetrics research to gain an advantage in the game of baseball well that's a great idea whose time ahead and arrived by then you know I've owned a small part of the White Sox baseball team for almost 40 years no I didn't know that okay it's a very small part it's always been a very small part and I'm all for I'm all in on sabermetrics and it it's interesting the whole the computers and statistics it's the speed of computers it's totally changed everything in in that sport for the for the more intelligent really but buying the Cubs I've seen too many people coming out of the park after the game not entirely copy compos mentis I think is the word so no I didn't didn't think about there marrying the - ok Turtles right [Music] as we come to an end of our conversation I wanted to ask all of you if you would like to bring up anything with each other I mean perhaps you Gerry and Brian would have a question for your mentor and vice versa is there anything that that you rich would like to ask Brian and Gerry so I'm not the only one asking all the questions today I would ask rich I had heard that you had developed a number of counter trend trading models maybe 10-15 years ago I just was curious if if you found anything in that realm that has worked and that you continue to use I would say almost nothing if you find you might find something that works but a trade would trade so infrequently that I'm not sure it would it's worth the effort to track it I mean it's a would be something we had I had a thought and it actually was a decent system but it almost never happened and it basically was real simple that if the price of anything got down to 10 and the price you know then you should buy it because that was something that had been was so out of whack that you could take a counter trend position but that might happen two or three times a year not enough and any other on the other end say something is so overvalued that it would be a sell oh you're never going to get away with that I think there was a John Maynard Keynes said the market can stay your rational longer than you can stay solvent that's right yeah what about you chair do you have a question for rich as well totally Khurana blank go through my notes you know you know what about you rich what about a question for for two of your Turtles well just let me make a comment I really don't have a question and this show will be like most of my thoughts simplicity itself probably still believe the trend is your friend but really the rules are your guardian angel and I'm not sure which one I would rank is the first most important principle I think it's it's it's pretty much a dead eat hmm interesting I would say that I wanted to make a comment earlier that it's shocking how much research we've done over the years and maybe some of the nuances for entering trades or exiting trades we we got we were able to code them and actually put a systematic approach but it's shocking how little of the research we've actually implemented and we've obviously implemented some that in hindsight I wish we hadn't have implemented it but another the cost of doing research is just changing and in some regards it's just another derivative of not following your rules and how we've been I've been really bad it's bad over the years you know Ziggy what I should have just stayed the same not even zigging when I should have zagged I should have not changed anything and I think that's a lesson that another reason that the rules are so important they're important and you and there's many different ways of not following them now let's get back to my pet peeve of this ball targeting I think it's back when I used to violate the system and get out of a trade a coffee trade too early I remember doing that once I knew it was wrong and I knew I should do it and did not prove to be a good idea but now we're much more sophisticated in programming that bad idea so somehow oh it's okay now because it's been programmed and sort of systematic discretion counter-trend philosophy it's programmed right in so I think I feel very comfortable with an approach that very similar when I used to trade it doesn't you know had these bad some of the bad elements in it yeah I mean it's interesting you mentioned that in a sense I guess what you're saying is that you shouldn't change too much and and in another word for that would be you know adapt too much and and it's interesting because I I saw this quote on on a in a paper on trend following from a one of the very large European CTAs talking about the turtle story actually quite a lot and they they end up by saying and I quote stories can be powerful but the reality is that there has never existed a simple technical trading rule that can be applied year after year consistently generating profits nor a secret rule only known by a few insiders nor a publicly available rule acclaimed by academics and we are convinced that such a rule will never exist the world continuously change markets continuously change and any investment strategy that does not adapt to these changes will experience diminishing performance this is the one of the few rules that has not changed so your experience Gerry is that you shouldn't change to too much so to speak but I guess you would agree that the rules that you were taught back then in the turtle program despite of what these people are saying you know still works and it's still very valid well I mean I think that the short-term trend following it does not work hmm and I think there's a sweet spot that works really well and it's worked for a long long time it's not just her fitted or cherry-pick for the past 5 or 10 years and it's to some degree that could be a description of creme following in general relationships and correlations they change markets change fundamentally and my trend-following entries and exits as the world changes in the environment and economics change fits right in and captures those trends beautifully so that what I would sort of agree with but I think I agree with you probably what they meant is somehow is the markets are changing on that past four or five-year basis ignore your sample size requirements and just optimize to the recent data I have a feeling that that's not a good idea but I do think that's what clients like so I'm not really sure if that how much marketing that is there was a lot of turtle jealousy and envy and het specious I said I might have sent you that piece actually yeah there's a lot of stuff going on and that got us into a smidgeon Brian sure absolutely any final thoughts from you rich and Brian well let me just say I think what you've read it was overstated a lot and when I started trading 40 months years ago the academia was sure that prices were random and I talked to these people and their arguments were quite strange to ignore the obvious now if you lose half the correlation of a trend following system or a trend following an expectation you're trading after costs might get ground down pretty hard but that's not an academic argument about trends and things changing and although I probably believe more than most of the people we train that things are changing the thing you've read there I found to be I'll go with vastly overstated mm-hmm any final thoughts from you Brian before we wrap up I would just say you know every I don't know every five every ten years you're at a hedge fund conference somewhere and the question always comes up is trend-following dad and it's usually right after those conferences that we have good good performance so I we're gonna continue doing what we do because it's it does work and even though it's it's been a difficult number of years here we're still confident that it's gonna perform well going forward I think on that note let's wrap up this historic conversation about the turtle story rich Brian and Jerry I can't thank you enough really for doing this special episode of the podcast with me today I really appreciate your openness during our conversation and to all our listeners around the world let me finish by saying that hope you're able to take a lot from today's conversation with you as you continue your own investment journey and if you did please share these episodes with your friends and colleagues and send us a comment to let us know what topics you want us to bring up in the upcoming conversations with industry leaders in managed futures from me Nils Koster Larson and our exclusive sponsor CME Group thanks for listening and I look forward to being back with you on the next episode of top traders roundtable and in the meantime go check out all the amazing free resources that you can find on CME Group comm as well as top traders roundtable comm thanks for listening to top traders unplugged if you feel you learned something of value from today's episode the best way to stay updated is to go on over to iTunes and subscribe to the show so that you'll be sure to get all the new episodes as they're released we have some amazing guests lined up for you and to ensure our show continues to grow please leave us an honest rating and review in iTunes it only takes a minute and it's the best way to show us you love the podcast we'll see you next time on top traders unplugged [Music] you

Channel: Top Traders Unplugged

Views: 16,728

Rating: 4.9103642 out of 5

Keywords: investing, hedgefund, trading, trend following, risk management, niels kaastrup larsen, top traders unplugged, richard dennis, jerry parker, brian proctor, turtle traders, turtle trading, turtle trading system, turtle trader strategy, turtle trader interview, hedge fund, turtle trader richard dennis, jerry parker trading strategy, jerry parker interview, how to invest, top traders, trading strategies, what is turtle trading

Id: 5hGyY0zCUpQ

Length: 36min 51sec (2211 seconds)

Published: Mon Jul 30 2018