ReSolve Riffs with Tom Basso on The Making of a Trading Legend

this podcast is brought to you by the resolve longhorizon investing masterclass a 10-part evergreen podcast series where adam butler mike philbrick and rodrigo gordio of resolve asset management global explore an advanced investment framework specifically designed to steward quasi-permanent capital with humility and balance from the science of decision making to all weather portfolio construction to the value of diversified alpha entail protection this series provides a comprehensive capital management roadmap to improve outcomes for wealthy individuals advisors family offices and institutions managing less than 10 billion dollars to listen to the series or read the transcripts on demand please visit investresolve.com forward slash masterclass alternatively you can find it on your favorite podcast player by searching for resolve dash master class [Music] all right all right friday everybody another week has gone by and i'm just retweeting this out for everybody to go live sorry go for it cheers cheers to everybody i'm doing sober september so i'm not drinking today which is uh difficult to understand but cheers i don't like it a little moscow mule on my end oh nice i love the mule action vodka don't forget the zinc you got it yeah you got to put a little capsule of zinc in there you get a little extra immunity protection i mean alcohol number one quinine number two and a little bit of zinc a little zinc capsule i'm not sure it's a good stealth it makes all three sure how they line out there in the priority but they're all in the mixture so i love it i love it and and just a reminder that that the four scoundrels on this call are neither doctors uh nor providing any kind of investment advice of any kind or medical advice yeah or medical advice is purely for entertainment purposes only you shouldn't be listening to four guys drinking on a friday afternoon if you're looking for investment advice having said that i think we got a pretty good guess today guys yeah we do extra accomplished individual yeah um so where do we want to start uh tom you want to just dive in and sort of start with your arc the brief version maybe i mean how i got from uh being born to where i am now yeah something like that going forward i was born okay well my investment world started uh when i was 12 years old delivering papers and i made 10 a week so i bought a mutual fund it was a fidelity mutual fund actually front end loaded high cost terrible investment i learned a lot about markets going up and down went through uh 7374 bear market as the junior and senior years of college so i got close up a view of a market going down nearly 50 on the s p i think and uh so i got out in the real world as a chemical engineer some guys at the table for lunch said hey um you know let's talk stocks it's kind of fun you know you could invest on the side and all so i started doing that and started a stock account that was successful i eventually said you know if the stock market goes down like it did in 73 74 this is not going to be pretty how about if i learn how to trade commodities so i started doing that it took four years for that to get to break even fifth year was profitable uh that required a lot of patience and engineering background how did you get through that pace well just four years one thing was is learning what what what they were it was small accounts so small losses you know almost by definition because i didn't have a large account in those days but what you ended up doing for me is i logged everything being the good little engineer that i am uh log in where you got in where you got out your thoughts at the time what indicators you used try to learn from it and i always called it you know i just got through paying like eighteen thousand dollars to get a chemical engineering degree the college of trading has tuition too and i figured i was just paying some of it and every year i got closer to break even so that was also a positive trend i was losing less so that was good and that kind of bought me the patience to just keep pursuing and keep figuring it out and i always felt like i learned something and tried to improve and tried to improve and i could see that it was helping and it gave me the patience and then from there i i started managing money on the side i actually was staying as a chemical engineer and i was actually there was friends that were asking me to manage their money and you could do that back in the old days i'm not sure it would ever happen today but you know just the the the start in your basement story and it gets to be big and i finally do the math and i said hey you know my two partners at the time i said you know if i if i calculate this out i'm making this with benefits if i look at what our fee schedule is and all that we could pay me the same amount that i'm making now i'll just go full time and i'll raise enough money for you guys to join me and that's what we did and then back it up a little bit because i'm actually dying to know so you've got a paper route you're earning 10 bucks a week what triggered you to take that money and put it in into a mutual i mean that would have been a very early that would have been right around the time when mutual funds were just becoming you know known right so how did that happen a salesman came by to try to sell my father the postman this load fund as his spiel of sales or whatever my father listened i decided since i had some savings that i would listen to my father did not buy the mutual fund i did amazing and that would have been i mean from 66 to 73 was a reasonably you know good period in the market right so that would have been a a time when everyone was feeling relatively optimistic about investing in stocks and um and then you had the opportunity with you know a very small amount very early on to learn this valuable lesson that markets don't always go up which of course anyone who's invested in markets in the last 10 years has yet to discover right these are gray hairs over here what little what little there are of the ones that are left um the ones that are left uh yeah i've been through 73 74 i've been through the um of course the 87 crash that was a fun day and then we did the um i did the uh 2008 real estate debacle the tech bursting bubble uh went through covid last year um so i've had a lot of pretty major bear markets that i've had to live through and still trading as a manager of of other people's money in your experience how valuable or how how critically important is it to demonstrate an ability to successfully navigate those really acute types of crises like the 1987 crash for example if you're successful in that to what extent would that have defined a career and really accelerated the trajectory do you think it accelerates it uh but strangely uh i would argue that if you want to raise a lot of money quickly the hot track record always seems to draw all the flies you know they're out of out of the woodwork at you and you'll lose it just as quick as you go into your next bear market and or next draw down on your equity curve if you want a business like mine that lasted 28 years you have to be interesting enough to be interesting but don't go beyond that because you want to be as stable as you can possibly be you sort of want to allow your clients to a comfort level that they're comfortable with and as long as you're doing a positive return a lot of times you tend to hold on to the assets but you start you know i don't care what clients tell you they'll say oh i can i can take a 20 drawdown hell no they can't take a 20 truck at 7 8 they're on the phone to you calling already and all nervous about what goes on i sure don't miss that now in retirement i don't miss it at all uh for those i get a lot of new traders coming to me and say i'm i've had a great two three year track record i'm thinking going in the money management business and i immediately try to talk them out of it yeah opm and other people's money yeah other people's money it is the interesting thing about it that i've noticed over the years and my first book was kind of an attempt to do something about that it miserably failed i think but panic-proof investing was a was a go the goal of that book was to try to give it to a retail client in the effort that they could somehow learn more about being a good investor because in my opinion the money manager is just an extension of what the investor i mean the investor is giving you the cash to manage or putting in an account so you with your power of attorney to manage it so you're in charge of that money but the ultimate power lies with the client they can always pull it from you at the worst of times right at a drawdown they'll miss the next run up i mean you look at all these great money managers including trentstad i mean i've made equity highs many many many times why would clients if clients had just stayed with that they would have enjoyed that whole curve but they never do they come and go and you sit there and you calculate what's called a dollar weighted return which is the total dollars in versus the total dollars out and these clients on average are losing money and yet i'm by law presenting a time-weighted return which is required in my disclosure documents and all that and i'm making new equity highs and doing just fine and i'm one of my biggest clients at you know at the end when i shut it down and and yet clients are coming and going and and i'm making new equity highs and they're losing money and it's just because they give you money at the top of your equity curve and they take it out at the bottom which is really ridiculous what's the magellan fund story again in terms of money weighted rate of return was it the magellan fund it was i think mike you've talked about this before or maybe adam house there's a few examples oh that's exactly what magellan did exactly they did a study of their investors and that the actual investors had lost money but magellan was was one of the top performing mutual funds over a 10-year period and that was just in spades what i'm talking about it's it's just kind of sad so how do you get investors you know to do to do a better job of giving their money to money managers that's what i attempted to do with panic proof investing i don't know if people really read it and took it to heart maybe it would help but i think conrad has taught us that even if you do know you're still going to make the human mistakes right but i have an interesting observation when i look at trend followers traders and their track records all the way back to the 70s to now and the the observation is that back then the volatility of the underlying strategies is running at 30 ball and today we're running at an eight ball and i wonder if that is a learning from managing your own money trying to get those high returns high volatility and over time realizing that people can't handle the volatility and start targeting lower lower volatility strategies because you're managing other people's money do you find like did you transition from taking more risk to less risk when managing people's money absolutely uh i never really was super high but some of the early programs and futures for instance had plenty of sizzle when they wanted to sizzle they were never going to be up there in the number one in the industry or anything in a good market but there was times where i was pretty near the top in down markets where there was drawdowns going on in the industry and i'm posting a positive return and there's other guys down 20. yeah that i would attract a lot of attention then but people didn't tend to pull the trigger still because i'm on a drawdown or i'm not i've got a boring return i mean one of the reasons i almost didn't make it into new market wizards back in the day is jack looked at my track record and said you know i've looked at his track record it's kind of boring you know he wanted the sizzle to get the book yeah uh you know have a lot of flashy stories about traders that made gazillions of dollars and my story at from the outside looking in wasn't that compelling but once he started talking to me then he he's oh wow tom's a little different from a lot of these other guys i've talked to so it worked out in the end and it got in the book but um yeah it's an age-old challenge um as you say like you attract your attention when you're putting up massive numbers when you're at the top of the boards in you know absurdly short time frames right you had the best returns this quarter or you know the best returns this month there's something absolutely ludicrous in terms of any sort of signal to noise on whether you've got skill so you've got this phenomenon where you need to stand out the way that you typically stand out is by being at the top of the boards but in order to be at the top of the board you've got to run hot and by running hot that also means that unless you've got an absurdly high sharp ratio like a you know three or four sharp ratio then you're also going to be at the bottom of the boards on occasion and you're going to be in drawdown territory which as you say is going to send many investors running for the hills at precisely the wrong time exactly in in your 28 years of running opm did you come close to converging on a solution to that that was the book i tried uh the the last solution that i did was an interesting story in itself there was this gentleman that was running a mutual fund timing program out in california and he wanted to retire so he had heard by way of one of his portfolio managers of this guy tom bosso over in scottsdale that did timing did it well and was also doing futures and a lot of other things and he was at a stage in his life where he might like to have a ready-made fund to put in all of his different investment strategies and so you know he and i talked and it's called market meth i bought the firm and took all the clients over and we went through the agony of getting all the paperwork you know as you know from or maybe we don't know you guys are in the cayman so you may not have that burden oh we're pain aware yeah it's really really just unbelievable so we got all that done and off we go so you know i'm running market math with about 60 million dollars or so and i've i'm the largest investor in the fund uh and so off we go we've got a fee schedule that is one in ten i think it was where everybody else was two and twenty so i was like dirt cheap no excuse there to not buy the fund i went in over the subsequent year and we were running god let's see if i can remember them all two different currency programs two different strategies and futures that were oriented towards me another one that was for wizard trading that we had taken over and that we were just integrating keeping their track record alive for them and that was for louis lucac back in the days and then i was doing some commodity options strategy and i was doing mutual funds sector timing all within one fund and as you can imagine all those strategies are going to balance each other out you're going to get a little bit more of a an all-weather type of thing where you know i don't care where the stock market's going up mutual fund timing is doing well you know if corn is doing well maybe i've got a corn option on in the option strategy you know it just doesn't make any difference so i we had about an average of a 15 14 13 type of return in the teens fairly tame drawdowns of any kind i went out and i tried to start talking to pool operators because i knew a lot of those from my futures days and their answer was well you got this mutual fund timing in here that's securities we don't do that i don't know i don't want to get involved with having to deal with the sec and all that stuff so then i said all right well let's see how about if i do fun to funds i'll i'll go to new york city there's a lot of those folks there i would go from scottsdale on a sunday night and i would come back to scottsdale on a friday afternoon and i would do appointments from the time breakfast hit all the way through dinner and lunches and appointments in between i counted a hundred and fifty appointments i did many of which i would take their own track record and market maths track record and i would blend it in at five percent or something and i say here's your return to risk before you add this in here's your return to risk after it's improved and they'd look at me and yeah i hear you and i understand the math but i just we don't know what to do with you you know we don't know which box to put you in and all that's sitting close to home so yeah this is way too close to home can we stop this right now it's actually so depressing i know is it painful you can have a sip of your drink um what ended up happening was after the 150 appointments i raised are you ready oh no i must be a terrible salesman i don't know i got nothing and i i said okay i'm spending a hundred thousand a year to comply with accounting and legal rules i don't really need the money why am i still a money manager and so i became a retired money manager and i've smiled ever since and uh it's just you know you just kind of you look and these are institutional guys you think they would understand the logic of it but they don't and so the reason point though right like like being in a box that allows institutions to slide you into a preconceived category is so important and yet being confined to a box necessarily reduces the amount of diversity of strategies and instruments and markets that you can bring to bear in the in the fund or or in the you know whatever vehicle you're using exactly so you're having and i was a partnership substantially i had a market math was a partnership limited partnership people had a rough time with that and you had to have a little bit of the partnership you have a the problem of transparency people can you know get get it sort of broken down inside the partnership when you get the accounting and all that actually i don't know are you guys familiar with the standpoint story yeah yeah all right i'm chairman i'm chairman of standpoint funds and uh eric came to me i don't know gosh it had to be uh two and a half years ago or i'd lose track of time and we have this lunch that lasts four hours and he lays this all out of how about if we i'm thinking of doing something where i take stocks on the one side and i'll just get that exposure using etfs or something and then i'll do the other side using global markets in everything from currencies to metals to energy to all this stuff and i'll design something that's very tax efficient and very diversified it'd be one of the most diversified funds you could imagine but we're going to make it a mutual fund so it's a security and that makes it easy for everybody to use it without having to deal with all of these moving parts and i said eric i tried to look at that back when i was still doing market math but that that was going to cost me a half a million dollars to put the investment company of act 40 act together and i mean the lawyers that you use for that type of stuff is like they're the 500 an hour guys and he said that's what i'm going to do and i said when he outlined it all and told me the investment strategy was going to use i said you just invented trendstat my old farm 2.0 that's what you just did and i want to know what you're doing i'm interested in this so i'm now an investor in it and i raised uh about 98 of the capital to start the firm i did it i did it and i did it in five days with some phone calls and i had all the money raised that we needed just for them okay tommy you're officially an advisor for our firm stay tuned to did i tell you i'm retired i know that's definitely had a lot of conversations with eric about it from from longboard to standpoint and the whole philosophy changed and trying to provide a an integrated solution so yeah but he's got to feel his journey get two things going for him we i guess you could argue because i'm the the chairman but we have two things going for us i think versus market math and my beating my head against the wall back in those days one is that it's a security so we spent the upfront money to get all the the extensive difficult legal work done i mean it's massive and the second thing is the the whole tracking industry back in the days of of trendstat my firm were just trying to get into computerization and there was a lot of you know people faxing in their track records to these central depositories and trying to put out uh handwritten i mean or i mean printed newsletters that would go out in the mail once a month to various people there was it wasn't this uh you know go on to the internet and and slice and dice the industry you know 500 different ways so one of the advantages that i think standpoint has these days is you can look at other sort of ult you know globally diversified funds i think milburn's got one and you know there's there's a few others out there uh and i knew milburn back in the days when we were just you know currency and commodity traders and they've gone on into you know adding a lot of security stuff too but i think there's a lot more ability to pick benchmarks that match up with what you're doing better so that you can actually look good at least when compared to other folks that are doing similar things you don't have to compare yourself to the you know the the high-tech stock jockey that you know has found the penny stock that's just did two thousand you know percent return or something and try to compete with that so i think it's a little easier in that regard but um still uh starting from zero you know running up to 85 million now uh yesterday i guess it was um you know they're they're rolling i'm very proud of eric and those guys i mean they've been doing a great job board meeting this next week should be a fun board meeting he's learned a lot of lessons from his previous gig that um you know it's it's at his age i was like at that level of his career at his age to do to realize what went wrong what what the audience wants and then do a complete shift and start from zero i mean i i was thinking about him yesterday i'm like how did he like convince his wife that he was doing this again he was incredible oh he's not married that's why okay that's [Laughter] kudos to him for for giving you know putting something together that the audience wants and and i think he also approached him he and i have also had a lot of uh you know sort of in-depth conversations about life not just money management and uh we we love our lunches they usually go on for two three hours because we uh he's like a maybe the son i never had or something uh or a younger brother or something you know and we get going and there's not too many people he can start throwing statistical terms like he can with multi-syllable words that could understand what he's talking about but i can and so we have we both can speak at a very high level of math and investment technique and understand what each other is saying but yeah he has learned a lot of lessons and i've also thrown in my two cents on life and trying to structure what he does over a very strategic plan and i think he's taking a lot of that to heart and he's nailing it yeah well tom you should uh we just wrote a piece called stacking returns that deals exactly in that idea of multi-asset securities and like layering cta and gold macaron top and i'll give it away uh product four is the uh standpoint blendex fund so you should you should take a look i actually sent it to eric to give us before publishing to give us his opinions but it's exactly addressing how do you give the world what they need which is that 60 40 and how do you force them to stack some non-correlated alpha on top yeah and now you can do that as you mentioned there's a series of 40 act funds that provide that level of capital efficiency that didn't exist two years ago now we can do that so and they have an nav it's just in the paper or on the quote screen and people don't have to know that behind it is this multitude of like 75 different markets over here and something like uh you know three or four different etfs that are covering the equity exposure and all these different strategies going on with both and rebalancing periodically and all that is taken care of internally and you get one number at the end and so your taxes are just you know you bought if you sold it you got a capital gain if you you know if there's a dividend you get a 1099 it's easy and i think that's finally where you know the successes come in standpoints uh you know business because of the fact that they packaged it right and the i think also i was on the bleeding edge when i was doing my multi-uh multi-strategy single manager fund there was maybe one other firm that was struggling and they didn't get anywhere either and nowadays it's a lot more common so now people kind of know what to do it there is a box now for those folks so i think uh i might have paved the way a little bit way back when after they started hearing it for a decade maybe they started thinking man maybe we ought to look at this finally but i was long gone at that point smiling away into retirement so um so i i volunteered i mean i said uh you know if you want me down the board or uh they said hey you raised most of the money you know all the investors in the firm we want you to be the chairman so you can run the board meetings and all that and so it's fun so it's a great way to be in a money management industry without having to get up in the morning it's like being a grandparent it is exactly we call them you know another guy on the board myself we call the whole management team at standpoint the kids that's what we call them that's their collective name i wonder how the kids are dealing with this yeah like they're about they wanted to ask right yeah well some of them some of them could be our grandchildren actually yeah yeah they're that young so as you think i think we'll get into the sort of the more do-it-yourself stuff i want to say that to the end because you've got enjoy the ride and the programs you do there and we can get into that some of the nuts and bolts of investing but on the on the side of delegating some of the investment decisions whether you're an allocator an individual investor or a registered investment advisor what are some of the what are some of the tips that you would provide or some some of the guidance that you would provide for those out there who are looking at a 60 40 portfolio or 40 percent of the portfolio is earning less than one percent and the other sixty percent is you know equities which are going to have you know have certain you know or discounted cash flow assets could be highly valued they probably are will face you know some some volatility over over time what do you look for in a manager what kind of style do you look for what what are your what are your thoughts there well right now with the with a long run up the m and the stock market um could it keep going sure i mean in a market as my wife reminds me of saying all the time the market would do what the market will do uh and so all of these markets can can do strange things they can do it for years but if you look at bonds in particular which is the a critical part of the 60 40 mix that was so traditional with financial advisors over the years that 40 percent now is yielding low single digits at best and if it's a short maturity maybe less than a half a percent or something and yet if you have interest rates go up at all those bonds are going to get killed so the return potential is like single digit really low and the risk of bonds i you could lose 10 20 30 on a long-term bond before it you know recovers back if you hold it to maturity and the company stays alive and everything blah blah blah yeah you still might make your interest rate all the way through in a maturity but if inflation were to fire up and it seems to be trying to you don't want a one percent return locked in because that's going to be losing money to inflation so bonds are a sucker's bet for the next decade or so in my mind and i know eric agrees me on that one on things like real estate i mean we're just building a huge bubble again just like almost we did in 2008 and nobody seems to be noticing it some of the insanity i've seen around here i've liquidated i didn't liquidate it my wife was the real estate expert liquidated all of our rental properties that we owned this last year so we're trading everything in the liquid markets now not in the real estate uh now whether or not that proves to be good timing or not uh you know who knows but you don't want it with real estate being such an illiquid asset it's kind of hard to deal with rental properties and and then they have moratoriums due to covid and all that garbage it's it really gets tough so you look at other assets um i mean stocks are going to go through their ups and downs and we've seen in my lifetime um geez if you if you take 20 something percent as your benchmark and worse uh gosh must be five six seven times now i've seen them and some of them tech stocks in the tech bubble went down 80 percent that's a pretty big hit to take and i don't think a lot of people who have lived through it or they just turn off the brain and don't study history realize that this that's kind of the risk you're taking on if you just buy and hold a strategy like that and so for the advisors out there that are trying to give give their clients something to think about i have no problems with having a portion of a person's investment in in stocks i think i shy away from bonds these days i just don't think it's going to add value over the long run it might stabilize your money but i'd rather be in money markets if that were the case just to stabilize but you're not going to get much of return beyond that i think you got to attack risk you know over the years people have like my father the postman he had but he thought i can't do the stock market he didn't buy the mutual fund remember the story right i bought the mutual fund as the paper boy he's a postman and a conservative father who's trying to provide for his family and paid off his house early and all those good things he looked at stocks he goes up and down all over the place i can't take that i need a conservative investment so he put all of his life savings in cds at a savings and loan guess what happened no savings alone went all bankrupt he got bailed out with along with millions of other folks who had cds and savings and loans when uh reagan ran the reagan era the federal reserve ran it all up to about 20 on short-term rates the savings and loan had a upside down yield curve and just put them all out of business so what my father did if you think about it is he tried to avoid risk of market movement and he took on without thinking it through the institutional risk of a savings and loan he didn't think it through there's risks with everything you have out there i was quoted once in the la times in an interview saying there's risk with u.s treasury bills which is considered the risk-free rate when you do calculations in the math and sharp ratios and all the different things that you use risk-free rate for but there is no reason why congress or the treasury or something could one day come along and say you know we're just going to go ahead we're having a little rough time making all these payments we're just going to forego paying the t bill interest this month until you know we're going to use that money somewhere else there's no reason why well look even the risk it's just so deceiving to say risk-free rate i think that's the biggest it is error made because when you think about it it may be considered a risk-free rate from the perspective of a zero inflation government but even if you have low inflation in your own government if your purchasing power against other currencies goes down and you don't have to go like you don't have to go to the 70s to see the us dollar lose 10 15 against other currencies in the past right it's just you can just show them look you lost 15 percent versus what somebody in europe could purchase right yeah and i've always you know my i've talked about net worth versus net wealth and everybody hears those words and goes wow that's different what do you mean net worth is your balance sheet that's your assets minus liabilities that's your net worth net wealth is what you can buy with that net worth well what you're talking about with the dollar drops by 15 or something you're not wealth if even if you if you made 15 on your net worth your net wealth stayed the same because the value of the dollars that it's all denominated and just declined by the same amount so i would you know what you're talking about is is exactly right and my advice would be don't try to hide from risk try to find risk and attack it do something about it trade some markets that could make a profit like in my own personal retirement account and people would think i'm retired i'm doing this i've got a position in um like a bitcoin future i've got a position in uh nasdaq index futures both long and short so let's say we go through a 50 down in the stock market well that strategy is going to slay it bitcoin i don't even know bitcoin may go down in the down market might go up in the down market but one thing's for darn sure it's two different things so i'm attacking risk by diversifying extensively and i'm putting in place models that will force me as a trader to be involved in that move in if it's a down move in stocks i'll be i'll have hedges on on my longs i'll be in cash on my sector timing i'll be cash on my momentum uh etf investing i'll be short the stock index futures uh what else you know those are the types of things that are going to make me a lot of money on the downside and i'll lose certain things here and there but i'll be making it otherwise but i'm i'm attacking the risk i'm not trying to avoid it i think that's where a lot of people you know how water water finds its level it's insidious how water will somehow get through your roof somehow get through your foundation it's it's a nasty uh little animal that can just find its gravity gets gets through everything risk is kind of the same thing no matter what you do to try to you know push it away a little bit you gotta attack it you gotta like master it so things like buying puts against the stock portfolio to you know make some money on the downside things like uh you know trading global futures markets in both directions trading currency markets both directions those types of things can really help provide return streams to offset what are likely to be some stock market losses in a bear market but what you also want is the stock market to perk up the portfolio when these other guys are not doing well it's the point of diversification you you're spreading the risks and uh that's what that's singing the song of uh stacking returns for sure yeah the paper we just we just uh published but the how do you differentiate between sort of the the similar and same type trades you know when you've got this this array of trades on how do you think about you know the the beta risk that you you might be experiencing in nasdaq and its relationship to maybe even oil or how do you kind of think through those uh similar trades in order to maximize the opportunity for diversification and in the suite of trades you have on yeah some of it is a little easier than others it could be subtle i think if i'm looking at say putting on a trade and let me coin an example here i'm going to buy corn in the u.s on a futures contract and at the same time i'm i've got a trade going over to sell gold in the futures markets so i'm going to go short would those two trades have very much to do with each other logically just thinking it through i mean common sense would tell you probably not you know would crude oil really care what lean hogs were doing today um there might be a little energy usage on the farm to keep the the hog pens warm in the winter or something but no you know and there might be some tractor you might have to buy fuel for your tractor to go out in the yard and go out in the farm and uh you know pull in some feed but logically over the short run there's such different markets you're not going to see a lot of stuff now when you get into say nasdaq versus say russell 2000 right there would be an example where you have two different index indices and today i was noticing that the russell was my worst performing stock indices to the downside and the nasdaq was actually the best performing at the same time so there's little difference there and that flip flops up frequently and so the the thing to do there is to not over load you yourself with just equity if you're going to i mean at least dial in a little bit of the different levels like small cap and large cap could easily be different uh things like nasdaq which is tech oriented versus say a broad index like russell are going to probably give you some amount of diversification but let's face it if if the tech stocks went into a 50 dive chances are the russell index is going to be down 40 60 45 35 you know you're not going to have a good time now they're all going to kind of tie together a little bit so that's why i'm a big fan of seeking out as much diversification as you can possibly do and you can use correlation coefficients if you want and try to find examples of two things that you correlate with them you can do that in an excel spreadsheet and there's there's firms on the web that you can dial in and get free correlation coefficients on some markets you you basically want about zero you don't want plus one because that's highly correlated you don't want minus one because now one of your investments is always going to be losing well the other one is making you'd like them both to be profitable if they choose to be profitable the only way you can do that is to have zero correlation and those are very hard to find but uh that's the i guess the uh the holy grail if you can figure it out who makes it interesting yeah so tom over the years as you've traded these many systems i'm curious i've heard both sides i've heard people like actually eric has said to me that the old-fashioned trades that worked 30 years ago continue to work today why would you do anything differently have you found over the years that there are certain ways of trading that that just got armed out and you can't do anymore and do you evolve your trading uh even not even during retirement uh my trading has evolved in retirement quite a bit for starters i can take more risk than my clients can uh i can live through a 15 or 20 drawdown that doesn't affect me i've been through lots of them and so my average client they'd be firing me so that's one change right there second change is you realize when you're an individual even myself with you know fairly a lot of zeros around you know in the back of the account that i still am nowhere near like a billion multi-billion dollar money manager where you have to move you know four billion dollars in and out of markets so if i want to put one contract into a lumber trade i can actually pull that off that's an advantage that an individual investor like me has and i would agree with eric's statement with respect to institutional money and what he's doing with standpoint is brilliant because it's designed to handle billions of dollars efficiently and what i am doing personally has nothing whatsoever to do with what eric's doing and i and i appreciate the differences and he's right from the institutional standpoint and moving those sizes of assets which you basically come up with is a currency debt instrument stock index account you might be able to throw in some precious metals or something but the volume is all in those markets you could never trade a lumber lumber won't make the top 75 markets on uh on liquidity measurements so basically small investors if they want to get into some diversification have some advantages and some of the old ways of trading that i've been doing since trentset days still do work and i still have made some very nice returns so but i'm doing it with small amounts of money i i'd love to because i i want to go back to what you said a little earlier where you first had the conversation with jack about the new market wizards book and jack remarked that your track record was was kind of uninteresting and then i think his exact start was boring boring sure yeah so and then he got started talking and and he realized that you were actually really doing something different and really interesting maybe would you mind going into that in a little more depth what what how would you characterize the the difference between how you attack the problem and how some of your contemporaries were doing it all right a lot of my contemporaries uh all the way back i came up with the turtles for instance so you had the richard dennis story and training the turtles and a lot of the turtles were my competitors jerry parker and those guys uh susan show i think was one of them too maybe anyway the uh what ended up happening is i was a chemical engineer and i went into the money management business i never was on the floor never worked for a brokerage firm never was with another money manager straight from chemical engineering into running a management firm and process engineering 101 is your first chemical engineering class and i'll sum it up this way chemicals come into the tank you process the chemicals you ship out the fluid on the other side of the tank you ship it by rail by rail car or by pipe whatever so that's process engineering 101. well i look at the money management industry and i'm starting to get involved and i'm starting to automate and i'm realizing that here i am bringing down satellite data off the dish i'm processing it with my pcs and i'm shipping out orders and i realized that while everybody in the world seems to think of me thanks to new market wizards and jack swagger and every all the different things that i've interviews i've done and everything as a trader i never thought of myself as a trader i thought of myself as a businessman running a trading operation and what can i do to make it more efficient how can i get better data how can i cross-check the data how can i speed these programs up so we can get our afternoon runs done quicker how can i provide my clients better transparency so they can come in anytime they want on my website and um sign in with their password and get a immediate uh reaction on where their account is that moment even everything real time and my competitors did not have that kind of mentality their attitude was i come in leave me alone i got to trade for these many hours i can't talk to the clients during that period because i got to focus and um so it was a very different animal and and i approached it as a businessman and that's really where the big difference was and just like any businessman would you you would ask yourself what is your what are your clients looking for are they looking for this flashy um you know paul tudor jones type of story which and paul was one of my competitors as well and he's done very well for himself but i'm not paul tudor jones i don't want to wake up in the middle of the night and worry about where cotton is or anything like that i i had competitors that would have quote machines down on their side of the bed so they wouldn't wake up their wife they could wake up in the middle of night when they go in the bathroom and look down at the quilt machine and see where the euro was i i get eight hours a night and i sleep every night i don't ever get up in the middle of the night and worry about anything so i think that's where you know i think jack finally figured out jack's sort of a caffeinated new yorker kind of type mentality you know he's he a couple cups of coffee and he's raring to go and uh that's good for him there's a lot of people like that seems like in new york as i've been there over the years but you know that type of mentality where you want to be hard charging and just keep pushing the envelopes and all that it leads to the other side too it leads to the emotional crash when things don't work out or you have the markets are just doing insane stupid stuff and and you're looking at the red painted all over your screen and wishing you were somewhere else and in my case those red numbers tend to be mixed with green numbers and i'm more worried about the overall and it smooths it out a lot and it keeps you smooth i think jack envied the fact that i could be labeled a trader and yet still have a lifestyle that was uh you know most people would say is pretty good so can i pull out on that a bit yep it sounds very we're quants we we're everything you described about process about working on the business and getting the right data improving putting the process together and focusing on the process were you like were you more of a quant back then like you talked about excel sheets and computers like were you programming as a as an engineer back then i bought it i bought a trash 80 from radio shack and put it together myself and i had the first pc from ibm coming out i had it i bought an ibm at when they came out this was all through the early 80s 1980 was my pc that i bought and yeah i pushed those things as fast as i could and as hard as i could and tried to automate it minimum like moving average type things and simple things that wouldn't overpower a little pc with five uh five megs of total memory or something on their disk drive i mean it was insane how what we have today in my laptop that i take with me everywhere i go and um it dwarfs all of the computers at trentstad all 40 of them put together one machine oh the computers in your in your headset are more powerful than the computers that there you go we're running back in the 80s for sure yeah exactly your phone can do far more than than our mini computer from digital equipment back in the days that took up a whole room had air conditioning and had five meg removable discs that were this big and about that thick and were heavy to lift and we went and spent the money for the optional replacement disk so you could have 10 megs of memory oh wow you couldn't have them in the computer at the same time you had to have one or the other but if you were smart at partitioning your data you could actually have a little bit more but so that is alpha in your squats so that you could rapidly switch your memory your discs when the time came well we always yeah we always ran backups we'd we'd run disaster days that was well known uh some of our clients thought that was humorous that we would do that but we would operate trendstat from basically my house which was the backup facility and certain people would bring computers and other people would go to their houses and we would do everything by phones and try to get our data in and try to send out our orders and meanwhile a skeleton crew would be back at trendstat running the normal operations so the client was protected but we were attempting to do everything on an off-site location just to test ourselves and see if we could do it and after a recovery when it wasn't required by the regulator exactly so so tom how did so i guess the contrast was that the traders that were that that your contemporaries they were more like clicking mouses picking up the phone doing trades looking at charts you know visually making those trades and you were going down to the floor you know how's the floor what's the floor say right so actually like what one envisions as a trader being and you were back then already automating a lot of trading and operations yeah wow okay well that certainly makes a difference right you know in the late years i'd say in the 90s zero decisions were made discretionarily i mean the only discretionary decisions were what went into the strategies and systems and all the computers that took my entire intellectual capability and our research staff would sit there in long meetings brainstorming about do we head this way do we head that way what's the advantages what would be more robust how can we typically determine whether this approach is going to be better than that approach but once it was uh you know went through testing and was approved and we got everything ready to go into production we turned it on and that was it it was we ran it were you using any unusual indicators that were not very common back when um you were running with your full capabilities i i won't be able to explain this at all because it uh it even to people who understand what i'm doing it's it kind of comes out convoluted but i started out so far before computers came in that i was on point and figure charts if you know what those are yeah you know x's and x's isn't very familiar and i've i tried all sorts of different ways of using pointing figures and i had a problem with them because there's the size of the box is one variable so in jack schwager's term degrees of restriction which i'm very proud of him for coming up with that one because i think i've used it a lot the more parameters you put in anything the less robust it is so in a point and figure you got these squares and you got to have the number of reversal squares so you your x's x's x's going up up up making new highs and then how many squares do we need to go down before we'll start our row of zeros and back and forth you go and then oh people have gotten into pattern recognition all sorts of stuff but even if you just use simple breakouts which is the simplest of all things you still have these parameters that are fixed and i always looked at the market and i said you know geez you know like i could certainly go back over the last three years and optimize it and know that it should have been a four box reversal and a box size just by running lots of tests but that won't be the optimal for the next year almost assuredly so you need a way of being able to make this flexible so then i started looking at bar charts started coming in computers started coming in people started putting you know with websites and with even with software you now have fancy graphs with bars on the screen in color green for up red for down and he started looking at that he said wow that's all the information there's nothing preventing you from knowing what's going on and i see those same top of the x's and bottom of the o's and the top of the x's and bottom of the o's i wonder if i could apply sort of point and figure to bar charting and i did i created what i call we called it trenstat pf bar point and figure bar and uh trying to explain all the little nuances of it would be a little bit more than we want to cover in a cocktail hour but um it did work fairly well it was a little more flexible it gave me it always would get me in on every major move always never miss one uh it would whip saw me yes all trend following models do have their whip saws i ran i figure about 33 reliable over my lifetime so three one third of the time i'm i'm running a profit two thirds of the time those trades are losers so you cut your losses short you let your gains run you're running on our shorter term program we are running about a three to one return to risk on the average profit to loss and on the max trend i think which is a lot longer term there was times we were up in the almost sevens uh you know so we were the reliability wasn't 33 there in max trend the reliability would drop down to like 28 or so and we'd have like 7.5 to 1 return to risk ratios when we nailed it we nailed it really really well and one of those gains hell it would pay for the whole year yeah yeah yeah i think it's so behaviorally counter-intuitive right that's why that's probably the largest barrier to entry or edge if you will even for many institutional managers some of which the whole structure doesn't really allow for you to take eight tries to get the one try that actually hits the all the returns so there's a it's interesting because as we were talking you know what's the edge well that's definitely one of them there's a behavioral edge here that you know most people listening this may not understand that you will put on more trades that are losers than our winter winners in an absolute sense that doesn't mean your profits not there it just means that you're going to take a lot of these losses they're going to be small exactly in order to find the one where the the trend change is truly uh going to make a big profit a great way to think of it is and i've said this a million times too is every trade the new traders get in they going to do their first trade and they're real excited and you know is it going to be a winner is going to be a loser and all that stuff i like to think of it as i need to i know that at least historically i've been running 33 and 67 percent winners and losers i need to do a thousand trades to make those statistics come out so this trade is just one in the next 999 trades to get to my thousands so that i can get to my 33 of my 67 percent of my three to one or whatever uh return to risks on the average returns to risk it's a statistical game and it's not you don't want to get excited about a trade you don't want to get down on a trade it's just one more data point what's been uh fascinating for me in the last year is we're in this i'm in this crypto group chat and so when crypto went to the moon somebody suggested you gotta listen to these guys you know they always get it right like these are traders they're doing technical analysis whatever so i start listening to them you know on the side as i'm doing work in the mornings and of course you know during the market they're talking about how they were almost poor a couple of the guys i met when they were like down the dumps and they found crypto in march and then they learned to trade and read all the books they probably read your book and now they're like veteran traders and and you got to listen to me because the guy's called the sniper and so it goes like 12 months in a row this guy just can't lose right everything he says turns to gold and when the market started going down i started watching them again and you could just see the desperation these guys faces like week after week loss after everything that they said just did not work out for two or three months they ended up going from publishing every single day on on youtube to once a week and you know they they they didn't even know what was going on they couldn't understand it they completely gave up and of course it's that's the that's like yes you're gonna be a massive trader if you are born in a bull market right everybody gets hooked but you gotta go through that experience right because indeed like especially encrypted you're just losing losing losing losing losing losing and then august you're making all the money again right yeah it's interesting because i want to come back tom to your four years in development yeah and one of the things that i thought was you know were you lucky because you had to work so hard for four years and because it didn't work because you know you differentiating between just as rodrigo said someone has a viewpoint or a set of skills that they're going to convey to the market and the market just happens to be harmonizing with that set of skills and then they're mistaking what is a coincidental uh sine wave of their skill set and the market's personality as skill when it's simply luck and i'm wondering in those four years you know did you did you think about giving up how did you how are you able to come to the conclusion in fact that hey my skill is actually building here and you know because it's really hard not to either give up because the four years of getting you know punched in the face or getting overconfident because you make a foray for several years and you happen to be in a bull market and you have a bullish bias or the other way around you're in a bear market you have a bearish bias i think i was a pretty good student of history so for starters that helped me i think a lot of people confuse bull markets with brains because they are just looking at whatever historical data happens to be on their quote platform you know which is the last six months or last year or whatever and oh yeah i could have done here and here and here and look all the money i would have made but they never go back to 73.74 that doesn't exist on the quote on the quote machine and i think that that's one thing second thing and i'm a data cruncher so i can see all those old bear markets and i see them on the chart i see a drawdown or anything on a chart that's where i'm spending my time doing my research how did that draw down get created which markets contributed to it was it increasing volatility was it decreasing volatility was it sideways action was it any particular one trade maybe the date is flawed you know i've seen that happen you got one big down thing and you go into the data and you go well that's a stupid you know the the low and this uh day here is uh or the open is lower than the uh the low that can't happen the open's got to be inside the high low stuff like that i've seen it all and so that's one thing the second thing is i would log in on my trades back in those days everything was by paper and uh so i'd say okay i think i should buy corn or buy hugs or whatever it is i'm doing and here's why you know the point and figure chart is doing this and this i'm going to buy this break out here and i'm going to put my stop there and of course i'm way over leveraged because i don't have enough capital in my account i'm making every rookie mistake which then i realized when i do the math it would be a lot better if i had more assets in my account so i started working real hard as a chemical engineer and i got lots of promotions and lots of raises and i poured money into my accounts and got them bigger so that i could handle uh better diversification by market better position sizing which i wrote the book on a couple years ago uh on let's let's dig into that too on positions yeah how do you how do you position size what's well to finish to finish what we're doing i'll give that a second the last thing was that i was constantly seems like every year getting less loss so the combination of studying history the combination of learning tricks along the way that made me think this is really important and i can see mathematically where it would be important and finally actually seeing it come out in improving results even though they were still losers i was getting closer to it and with a small account i could afford the loss and by the time i started trading you know the 100 000 plus type accounts i was well down the learning curve and successful now in the position sizing question you bring up i always think of a full trading strategy as three things at least you could probably fine tune it into more if you wanted but in simple terms you need to have a buy sell engine of some sort you got to say if the following x number of things happen i'm going to buy at this point that's the first thing if you don't have that then your i guess paul turner jones discretionary it looks like cotton's going up let's go buy cotton i don't know how i'm sure he has some things that are a little bit more systematized than that but in essence you don't just wake up in the morning with no idea what the world's doing and then all of a sudden look at a quote a quote machine of some sort and say you know i think i'll buy lumber today it looks like you know it was going up the last two days and i'll just jump on that you can do that but it's going to be a very randomized performance and you're going to have a lot of stressors thrown your way it's not going to be a fun ride at all position sizing comes down as the second part of the puzzle so it's where do we buy and sell you know buy and sell engine how much do we buy or sell and in all the studies i've ever done that is more important than where do we buy or sell you could flip a coin do great position sizing trail your stops randomize across 20 different markets for 20 years of data run thousand run monte carlo simulations and you will tend to make money why every time you flip a coin you know and in the afternoon i'm flat flip a coin heads i buy at the open tails i sell at the open you will always get sooner or later every major move that you want to be on on as long as you trail to stop you're going to exploit a lot of that move that's going to pay for a lot of your mistakes and uh you're ahead of the game not i would never trade that strategy it would be stupid you could do better than that but the point you make it with doing that is just by watching your position sizing and making sure larry height and mint back in the day and he was in the first market wizards book brilliant mind i love larry he was the one that that made the statement you know we try to make sure our bet size is the same every time and when you start thinking about that in math terms you know because i have the math background being an engineer i read what he said a little different than a lot of people a lot of people might say well he always does 100 shares of everything no i i thought it different than that i said what he's doing is taking his risk of that trade first so the buy sell engine knowing where he's going to buy where he's going to sell he knows the risk how much do i buy to make my bet size on that trade the same as the next one which has a completely different risk i might buy less of that one more of this one and more in low volatility periods less in high volatility periods by doing that you make every day the same and you you create serenity that's that's where the name comes from probably because every day is sort of i've always got the same bet size on so does larry the third area and the most important of all beats the other two is what we talked about throughout a lot of this discussion today is the mental side if you don't have your mental side screwed on straight you are going to find a way to completely screw up those first two you'll override it you'll ignore it you'll talk yourself into taking the profit too early you'll get emotional you'll get anxious fearful greedy impetuous whatever i mean and you will mess it up so i've always said if i could be a young trader talking to myself or talking myself now to as i was a young trader i would say you know work on your own mind work on your awareness work on your discipline work on you know understanding the strategic plan that you have uh to have to try to live through with all this day-to-day stuff and then go into position sizing then worry about your by sol engine everybody does it the opposite way including me knowing everybody they're a little bit different i'll tell you i did i did three webinars just for a test i got webinar i got zoom count and everything and we're in you know there's nothing going on kovid you know my wife loves to be the technician over here on the other computer so i do one webinar it's on it's called buy sell engines we had to increase our zoom account up to 130 from the 100 that i signed up for there was so much demand for it i then did a second one it was called how to size your positions we got about uh 45 people i believe it was the last one was going to be on uh the mental side of trading dealing with investment uh psychology we got 20. wow i guess that tells you everything yeah that that tells you everything right there yeah so all these people that want to buy sell engine secret don't realize that they could almost not quite flip a coin and do just as well in their well that's why bob maxwell rod has his uh psychologist in-house right yeah yeah bobby action about millions come on i don't think that is something that can be taught though either right like i think that's something you need to learn like you can be taught once you realize that the mental game is important you can be taught how to bring a better mental game but i don't think you can be told in advance that that the mental game is of of utmost importance without living through those experiences of being in large lost positions being over leveraged you know being in the trenches with the bullets flying and experiencing the emotion and the pain of that you can't know that the cognitive sort of the emotional game is that important until you lose because of a bad emotional game yeah i suppose uh you could also though learn from mentors or you know read books and market wizards and hear stories like the ones we're talking about and i think you can learn from that and say wow he's really making a big point of this i wonder how i can increase my awareness of what my mind goes through because awareness leads to discipline if you don't know you're deviating from your strategy because you're getting greedy if you're unaware that you're that way you know your caffeinated new yorker just running hard and man the screen does this i do that man just keep going no thought if you're not aware that you're making an impulsive decision then you will have a hard time correcting that back to the strategy you know getting back on plan if if you're trying to diet and lose some weight or something and you see the chocolate cake and you just snarf it down you know because it tastes so good you can't you can't do anything else well you gotta have an awareness wait wait that's not you know i'm keto that's not key yeah wait you know that's not gonna work so you got to have that awareness and there's lots of books on awareness that help you in all sorts of life you know it's not just training awareness it'd be useful to understand how you are dealing with the environment around you uh 24 hours well at least the the waking hours i i don't know that would be very useful while you're sleeping but meditation is one of the key points meditation you're you're helping yourself be aware of what your mindset is but go ahead a lot of people uh in particular you had a guy once from some transcendental meditation place in iowa that he lived in a town that was all tm guys and he asked me whether i'd ever done meditation and i said to him very interesting and he was profoundly floored by it i said i try to be aware of what i'm doing all the time and when i'm doing stuff i have more stimulus to be aware of when i go to try to meditate i'm in a quiet spot there's really i'm blanking my mind out yes stuff bubbles up into my mind but i'm not really hitting myself with potential stressors like you would if you're on a you know you got the quote thing in front of you and your markets are you know red green and all over the place if you can then meditate or be aware of what's going on with your brain then you've got lots and lots of examples to think about and control and think about how can i deal with this how am i aware of this what is the corrective action those types of things if you you go into a closet someplace dark closet and there's no stimulus i have a hard time increasing my awareness so i've been a a lifelong meditator and i think it's a big misconception that meditation is about trying to be as quiet as possible like if somebody comes in and bothers you during meditation you get pissed off you're not meditating you haven't learned a thing right uh in fact open awareness for traders i think would be the best it really is meditation should be it should be taught in open loud places and the goal being to be completely separated from your emotions and your thoughts you're just watching things happen you're watching you're moving anyway right you're watching the movies of your life you're not you're not doing anything you're just watching a movie if you're taught that meditation is not the 10 minutes that you do in the morning but rather a practice that you you need to be aware of all the time like you said you are constantly aware of your surroundings i think we we're doing a disservice with people saying find a quiet spot go to your room you know close your door and do 10 minutes of just silence it's not going to help at all the other thing that i see you do and i know that our traders some of our traders do as well and i've done my whole life is journaling that's a stoic practice right so stoicism i think go hand in hand with awareness and meditation because stoicism is about you know before you go to bed you journal what you did and how well you did and what you could do better and then what you're going to do tomorrow and by doing that it's a natural practice of understanding and improving and watching yourself do the things that you do and as a trader you know if you're not doing those things at the journaling is so important if you're not doing that then you are missing out an opportunity to learn so back to your your statement adam this idea that um people need to live it i've played poker half my life right i know a lot of people that have been in the trenches playing every single day continue to play and just bleed money they've never learned right so they've been under the stressors they continue to get stressed out just being under that is not enough for you to become a good poker player none of them read books watch themselves you know watch the tape after they talk to me about why they did well and what they did poorly it requires both right you need certainly uh a person that has read all the books and done all the meditation but never played poker is not going to be as good as a person that's read all the books and done all the the awareness and played poker you need both but certainly one without the other is unlikely to breed success in my opinion right right well said well that that's we've had you for more than an hour and i think you have a golf game to get to as well yeah we're we're reasonably flexible are you okay great yeah so um do you when when you run your your seminars i think i think are you still running sort of your trading you know what with the seminar uh looking apart kofi's been tough on us there but lawrence benzdorp was a very interesting guy and uh he loves wine he could do a wine one with you he's out of brazil these days and he runs a thing called the trading mastery school and he went through the tharp super trader program he's learned a lot he's come from knowing nothing about trading really and you know didn't even graduate high school and you know went through the typical you know teen years and 20 years doing all sorts of things that were fun but not necessarily career building and uh you know of course he's matured in his older years he and i got together and i said you know your book on multiple systems trading is still what i recommend to people to read it's such an easy to read book on automating your stock portfolio or whatever he called that book and it's available on amazon and i said that's that plus the way you teach at trading mastery school with the profiling of all the different aspects of your life like how much time are you going to spend developing a strategy how much time each day are you going to spend executing your strategy how much money do you have what skills do you have blah blah blah blah blah long list right i said those two things alone are masterful parts of the trading puzzle i bring with it the book on position sizing i can certainly explain buy and sell engines i can get into the mental side as good as anybody because everybody knows of me as mr serenity and he we could both wrap it up with some kind of an action plan so it we can almost do two days of a great seminar and have a lot of fun doing it because he and i are friends we get together we'll have some wine we'll go out to dinner and see each other for a weekend and we always travel to beautiful places we just the last one was in miami at the mandarin oriental which is right on the water gorgeous place looking over downtown miami lights this next one coming up is going to be in scottsdale my hometown and it's going to be at the beautiful phoenician and we have such a beautiful venue on that one dinner is going to be in the sunset room looking out on an arizona sunset it is going to be a lot of fun and so he and i have a lot of fun doing these but we find that by keeping the group to 12 or less we get to know everybody's names they open up they see they sit next to me at lunch and ask me more personal questions so it works that way and we don't see it as everything any anything that we would want to go zoom and you know have a hundred people there or something that would never work the same but uh we don't consider it work for us it's kind of like we get to see each other and we have fun talking about trading for two days and uh it pays for itself covers all the costs and we get a very nice vacation for a couple days nice yeah so you're certainly not doing it for the money i would imagine so i don't need that out of passion and sometimes it's i tell you frankly between lauren's busy schedule and mine we it is sometimes a little difficult to figure out when we're going to have on the next one so they we don't do them every other day or anything that's for sure is the one in november sold out or is it is it we got six seats taken and six to go and i just put out a social media post yesterday i and i sent out emails last night so uh i haven't seen anything come in today so far but haven't really been looking lately so so you don't have it listeners yeah there you go you get on that yeah in your uh so you're retired now i'm curious a lot of people would want to do what you do but you know you're a veteran you can probably do a lot more how often are you trading on on the daily um i have fifty three or four positions last i looked um seven different strategies and it takes me exactly uh half an hour roughly to get through it and then i wake up in the morning you do your thing and then you go i do it in the afternoon do it in the afternoon after the markets close right i put the orders in for the evening session and the next day and i'm good for 24 hours so the this is you know for somebody that has the time you can teach people that spend you know enjoy their days and actually make it uh make it profitable for themselves they do it right on them once daily that's interesting yeah once daily is enough i mean i always think of all that price data as noise and information and your job is to get rid of the noise and ignore it and to get the information so from a trend followers view to be simple you know market's going sideways this is noise we don't want to even do anything but if it gets above here we want to buy it and it gets below there we want to sell it you can go to cash go short whatever you want to do each strategy is different you can design them all sorts of different ways and you can do this noise over the the next hour or it could be the next week next month daily lots of different time periods lots of different markets but the same concept holds true so the computer can look at that and apply various maths to it to say okay here's normal range and the normal range could be going this way too up the page or this way on the screen so it's varying but it's varying it on an incline but you still want to ignore all that nonsense or you're just going to be whipsawed a lot so i'm just trying to make it easy on myself and i don't do a lot of trades i'd say on a typical day like today perhaps i think i saw a cotton trade go over earlier might have had an options trade a spread trade go on i might have done three or four trades out of the 50 something positions and a lot of those trades might be just reversing from long to short or short to long it's and that's the 15 strategies that you're running are they all trend based or are you adding other things like mean reversion seasonality uh i would say that i've got um well longer term say 21 days and beyond would be some of my sector timing with etfs and some of my futures trading the bulk of my stuff then i've got about five strategies that would uh to a lot of people well no let's say one two three i've got three strategies that i think would be to a lot of people it might look counter trend but what i'm really doing is trend following on a very short term time frame so i'm nine days or less so i'm picking up some of the noise but i'm getting trends and exploiting those and then there's uh probably two that i think i would consider largely counter trend but even there i'm sort of looking for a condition overbought oversold and then kind of going the other direction out of it so you could argue that that might even be trend falling but it acts a little bit more like counter trend trading so so what happens if you're golfing at four o'clock and you'd rather um [Music] you know not leave to go and and and put the trades in do you have somebody that you can uh call on to excellent marketing markets give me from in this time zone one o'clock in the afternoon all the way to 6 30 the next morning is when a lot of the markets really truly open and start moving and some of the commodities don't even open then uh so stuff like maybe you're trading in the world and then off of uh uh late they're all stops they're all stops it's afternoon i put the stops and they're good till cancel so if i'm out of commission for any time in the next 24 hours i'm still good all the way through to the next close right i've got all everything covered so there's really nothing for me to do i might as well go out and golf yeah or work on the landscaping or cook dinner or go work out or what what is a realistic expectation for you know long-term returns and these types of of ventures or is that you know that's a really hard question answering that's really how much you think about it really depends on how much your position sizing is for instance on risk my future's trading i'm down at this point to a half of one percent of my total equity is what i have in any one position and that's by risk so that's from where i'm getting it to where the stop is and then i measure my volatility by a 21 day average true range so that's the volatility of that market and and there i'm starting my positions at .2 volatility and that still gives me returns where i'm i got days where it swings one percent two percent half percent 0.6 0.7 you know up or down i could lose that much too that's still moving pretty fast for most people but i'm down in very very low risk range uh and and i've got a whole bunch of other mark you know strategies they're fighting so this one's losing that one's making they're they're forcing the uh get get me towards zero uh and all i'm trying to do is to create sort of a straight line up the page you know try to keep things stable and uh so is that is that current sort of risk uh appetite a function of you your personality and stage in life or is this uh you and your view on the markets at the moment um or a combination of the two it's it's a combination of uh a little different than what you said i would say it's my stage in life i don't really need to make a whole lot more money i'm very comfortable secondly so but i'd like to you know cover inflation and increase my net worth i'm not idiotic that way either so i don't want to put it in money markets or something and sit there and lose to inflation long term i'd be in trouble so my goal is to try to make money beat inflation increase my net worth and wealth but at the same time the other side of it is a concept of the geometric nature of drawdowns if you draw down uh ten percent you have to make eleven percent to get back to break even if you're down fifty you gotta get a hundred percent to get back to break even so the closer i can keep it to zero drawdown all the time while still pushing my portfolio with the markets upward the better off i am i get my returns to keep me in touch with inflation but i don't have to compound to get back out of a hole that i've dug myself in if i get too much risk involved in it so keeping the risk low and just keep posting some good numbers day after day is the trick i believe that's the way that i like to look at reaching the choir i think eric would agree with me at standpoint too i think he's uh of the same mentality if you watch the returns of that fund it it's pretty stable yeah yeah all right i love it 90 minutes in we're going to let you go to your nine holes yeah we're going to go and play nine holes in beautiful weather up in the mountains of arizona oh my god i love it well now tom before we go first of all everybody who's out there and you made it to the end hit that like button make sure you're you're uh sharing this uh trading wisdom with the with the rest of the world and tom where can we find you i know you're enjoying it enjoy the ride out world right after my name there is uh is the website uh you can find a lot of different connections there and there's all sorts of free interviews there lists of my recommended reading books that include some of my own books but some other people's books that i really liked over the years on trading my hedging technique is outlined as an example of what you can do to pull together an idea and i just go ahead and show people how to do that as an example so they can maybe start inventing their own uh the seminar is there if you want to sign up i'd love to see you in scottsdale uh so everything tom bosso is on there but i'm also on facebook twitter me we parlor linkedin instagram i hardly ever go on but i'm on there um so you can find me a lot of different places i love it well thank you so much tom really appreciate your the generosity of time and also the generosity and sharing your knowledge and i know you do that all over the place and it's just pretty incredible i have fun doing it i make meet new friends and talk about a topic i dearly love so it's it's all good that's fantastic tom thanks for joining us today all right thanks you the music ani today's podcast is brought to you by horizons resolve adaptive asset allocation etf which trades on the toronto stock exchange under the ticker symbol hraa and is sub-advised by resolve asset management hraa is an alternative fund whose investment objective is to seek long-term capital appreciation by investing directly or indirectly in major global asset classes including but not limited to equity indices fixed income indices interest rates commodities and currencies hraa gains exposure to these asset classes by investing in derivative instruments that may include future contracts and forward agreements and securities hraa will take long or short positions using up to a maximum of three times leverage in asset classes such as equity indices and fixed income asset classes commodities currencies volatility indices and other alternative asset classes to learn more about this please visit www.horizonsetfs.com hraa to read about the etf's investment objectives and important disclaimers about the risks associated with an investment in the etf [Music] you

Channel: ReSolve Asset Management

Views: 267

Rating: 4.6363635 out of 5

Keywords: straddle, adaptive asset allocation, alpha, asset allocation, asset management, diversification, equity momentum, evidence based investing, factor investing, financial plans, global equity, hedge fund, liquid alternative, machine learning, managed futures, momentum, mutual funds, portfolio management, portfolio optimization, quant, quant investing, risk parity, security selection, systematic investing, tactical asset allocation, trend following, wealth management

Id: bAnqyvLmfAo

Length: 92min 24sec (5544 seconds)

Published: Sat Sep 11 2021