John Henry--The Next Blow Up ??
- Thread starter jay gould
- Start date
^^^^^^^
Trend guy;
sounds like you are right on S&P, so it maybe slightly higher withdividends.
Dont know J Henry, but enjoy reading him, net performance his financials & metals program,1984-2000;
compounded average annual return= 29.33 %
Interesing ,slightly better than Bruce Kovner for same period;
probably some are in cause of J Henry return of 252.40% in 1987
Lois Peltz ,Investment Superstar book[at least thats title]
So would I, but we are not John Henry. He has survived a number of steep drawdowns in the past. People who invest with him should know that they are in a volatile system that can have substantial drawdowns. If they go in not knowing and accepting their downside they are going to jump out and get what they get. Those who have stuck with his systems have been well rewarded. Of course past performace is not a gaurantee of future success yadda yadda yadda, but he has proven himself over time, why bet against him?
Brandon
It depends on the beliefs you have about the markets. If you believe market behavior is purely random, then my discussion below does not apply. If you believe that then you are not alone. For example I had a college professor who stood on a soapbox for the Random Walk Hypothesis regarding the markets. I noticed over the years that while I would listen and discuss it with him, as I traded, I became more wealthy while he did not. Just food for thought.
First, my definition of a system is "any trading methodology." In trading, while you can't predict the short term, as in the next number of trades, the long term is relatively predicable regarding the probabilities over the longer term. Especially as the number of trials or signals grows (the Law Of Large numbers).
Example: Las Vegas, or now any profitable casino. How can corporations justify spending billions on lavish hotels, amenities, shows that lose money, and other items year after year? The answer: these firms know that over many trials (bets/wagers) they will take in at least 4.5% of every dollar wagered. Thats 4.5cents per dollar. Not a lot right? Imaging how many dollars are wagered per day in your average casino. That adds up to millions and billions of dollars per year. Thats after everyone is paid out: the jackpot winners, the average winners, etc etc.
Second, while casinos don't know what will happen on the next roll of the dice or the next hand, they don't need to. Just like in trading, you DO NOT NEED TO KNOW WHAT IS GOING TO HAPPEN NEXT IN ORDER TO MAKE MONEY. All that casinos and any successful trader needs to know is the expectation of his system over time, over many trials. When you are a good trader, you behave like the Casino owners and you pick trading methodologies that put the odds in your favor.
Conversely, if you don't know the expecatation of your trading methodology, then you may not have the confidence to trade your system the same regardless of the outcome of any independent event. This is where so many traders blow up. They freak out after a series of losing trades and change their trading method. When in fact, if the system has been defined and tested, this could be part of a very profitable methodology. YOU TRADERS OUT THERE KNOW WHO YOU ARE. But overall, even the change in trading behavior is still part of that trader's "system", the system is just not a very profitable one.
While the future cannot be predicted in a case by case manner, in the long run statistical probabilities do work. Another example is in the insurance industry. Do you think the insurance companies could stay in business if their risk profiles of customers didn't pan out to be true in the long run? The answer is no. Its true that some do go out of business, but the best tend to stay in business cause they know the probabilities. And when the probabilities change, they change their systems. Again, we see the value of statistical tools in seemingly random(short term) events.
Why do I spend time posting consistently this information, when there are so many who love to refute it. I can tell you, its not not for you guys who want to argue against me. Thats a losing battle that I don't want to pour energy into. Its really for me and perhaps the few who will eventually get it. For me, its a constant reminder that I am playing against people who have either no idea or a vague idea about statistical reliability. I make more money when I get better at it as well. Those who argue against are the ones that I am preparing to take money from.
At the end of the day, I take money from those who don't understand and apply this principle.
Oh yes, and despite statistics, everyone can blow up. How many of you have your plan in case that happens? What drawdown will you take before you stop trading completely? Who are you going to call? Do you have a plan?
When you have that in place, it changes the way you feel about trading in a very positive manner. Or perhaps, you need to change the way you feel about trading in order to have such a contingency in place. I am not sure. Ralph Vince makes note of this concept in his book on Optimal F, and this one page is perhaps the most beneficial in terms of preparing for the worst case scenario.
When you have that in place, it changes the way you feel about trading in a very positive manner. Or perhaps, you need to change the way you feel about trading in order to have such a contingency in place. I am not sure. Ralph Vince makes note of this concept in his book on Optimal F, and this one page is perhaps the most beneficial in terms of preparing for the worst case scenario.