Trend Following. Ritholtz Barry

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СКАЧАТЬ style="font-size:15px;">      If there was one factor that motivated me to work in this manner, it was childlike curiosity – where you rip the toy open to the find the motor and locate the essence. For example, one of my earliest curiosities was about who profited when a famed British bank collapsed, making the front cover of Time magazine. My research alone unearthed a connection between this bank and a wildly successful trend follower now worth billions. This trader’s trend-trading track record had me wondering, “How did he discover trend following in the first place?”

      I also wanted to know who won when a two-billion-dollar hedge fund collapsed and almost sank the entire global economy. Why did the biggest banks on Wall Street, the so-called smart guys in charge of your retirement, invest $100 billion in this fund when there was so much obvious risk? Further, when I contrasted typical Wall Street losses during October 2008 to what trend following made during the same time in the great zero-sum game, it was hard to grasp why few market players were aware of the strategy. Other questions appeared:

      ● How does trend following win in the zero-sum game of trading?

      ● Why has it been the most profitable style of trading?

      ● What is the philosophical framework of trend following success?

      ● What are the timeless principles?

      ● What is the trend following view of human behavior?

      ● Why is it enduring?

      Many trend followers are still reclusive and extremely low key. One who has beaten the markets for over 40 years works out of a quiet office in a Florida coastal town. For Wall Street this approach is tantamount to sacrilege. It goes against all the customs, rituals, trappings, and myths embedded in so-called success. It is my hope my narratives, backed by data, will correct misconceptions of winning as a harried, intense workaholic posted 24/7 in front of 12 monitors while downing Red Bull.

      One of my sources who helped break apart this puzzle was Charles Faulkner. He observed elite traders are almost “floating above the world, seeing it from a different perspective than the rest of other market participants.” His insights go straight to the core:

      ● It doesn’t matter what you think; it’s what the market does that matters.

      ● What matters can be measured, so keep refining your measurements.

      ● You don’t need to know when something will happen to know that it will happen.

      ● Successful trading is a probabilistic business, so plan accordingly.

      ● There is an edge to be gained in every aspect of your trading system.

      ● Everyone is fallible, even you, so your system must take this into account.

      ● Trading means losing as well as winning, something you must live with for success.

      To adequately explain the genesis of this new edition, I need time travel. You see, my public trend following persona started in October 1996 with the launch of a simple four-page website. Armed with a political science degree from George Mason University, no connection to Wall Street or any fund and with zero academic respect or PhD credentials, it seemed perfectly appropriate to create the first trend following website.

      And I did.

      Loaded with original content, that rudimentary-looking site, turtletrader.com, generated millions of views, millions of dollars, and – unbeknownst to me at the time – respect among legions of beginner and professional traders alike.

      Six years into that website, I decided it was time for a book – or maybe the book decided it was time for me. Larry Harris, the finance chair at the University of Southern California, randomly e-mailed me. He wanted me to review his new book because I was driving more interest in his whitepaper, The Winners and Losers of the Zero-Sum Game, than anyone else.

      Without skipping a beat I said sure to a review of his book, but asked for an introduction to his publisher, since I was writing a book, too. He obliged and connected me even though my book at that moment was conceptual.

      After two years of starts and stops, Trend Following was finally ready. And when the first edition hit the streets in April 2004, I had no idea whether it would sell 10 or 10,000 copies. But immediately the book made an under-the-radar splash, landing in Amazon’s top 100 – of all books. In fact, that first edition was so expected to fail by my first publisher you could only get it online – initially no bookstore.

      It went on to sell over 100,000 copies with translations into German, Korean, Japanese, Chinese, Arabic, French, Portuguese, Russian, Thai, and Turkish. Its success led to four more books and the opportunity to direct a documentary film over the course of 2007 to 2009.

      I never expected an obscure trading book first written 13 years ago would lead me to conversations with five Nobel Prize winners or face-to-face learning from trading legends Boone Pickens, David Harding, Ed Seykota, and literally hundreds more. This journey also led me to the world’s top behavioral economists and psychologists from Daniel Kahneman and Robert Cialdini to Steven Pinker. And it opened the door to my podcast, which has run since 2012 and now has over five millions listens. My podcast has further featured guests ranging from Tim Ferriss to paleontologist Jack Horner of Jurassic Park fame – all connected philosophically to trend following thinking (at least in my mind).

      Yet this wild ride has been far more than one-on-one conversations. The serendipity of Trend Following has led me around the world before live audiences in Chicago, New York City, Beijing, Hong Kong, Kuala Lumpur, Macau, Shanghai, Singapore, Tokyo, Paris, Vienna, and São Paulo. A speaking gig in front of 1,500 native German speakers at the Hofburg Palace, the former imperial palace in Vienna, Austria – that happened.

      And it kept going. Audiences with China Asset Management to Singapore’s Sovereign Wealth Fund GIC to regular investor audiences with well over a thousand people – everyone from new investor to pro who wanted to learn more about trend following, all allowed me to come into their world.

      But I recall my first public presentation in support of Trend Following– fall 2004 at Legg Mason’s headquarters in Baltimore, where their chief market strategist had invited me to lunch. Afterward, I was escorted up a flight of stairs to a nondescript door. Upon entering the room, I found it filled with young bankers listening to a speaker. Michael Mauboussin, then Legg Mason’s chief investment strategist, motioned for me to sit. I instantly recognized the speaker as Bill Miller, then the fund manager of Legg Mason Value Trust. At the time Miller had beaten the S&P 500 index for 14 straight years – and was easily one of Wall Street’s most successful and famed players.

      Miller then introduced me to the audience. Until that moment I had no idea I was up next. For the next hour, Miller from one side of the room, and Mauboussin from the other side, alternately peppered me with questions about trend following, risk management, and the TurtleTraders.

      After the presentation I thanked Miller for the opportunity to make my case, but wanted to know how he learned about Trend Following. He said, “I surf Amazon for all types of books. I came across yours, bought it, liked it, and told all my people at Legg Mason they should read it.”

      At that moment I knew Trend Following might be catching on a little – at least in some very rarified circles. Forget sales – which were very good – I knew that if Trend Following’s message had struck a chord with Miller, who was not trading as a trend follower, I might be on to something life СКАЧАТЬ