Trend Follower John Henry Assets Drop 80% In Year!!!

Quote from Rodney King:

.. Let's go back 20 years in time, to when Schwager was preparing his book. It's pre-web, and long, long pre-hedgefund craze. There's no elitetrader, no chatboards. No one among the public cares much about traders or funds. There are no looky-lou rankings of top-paid fund managers in the NY Post. And Schwager is just one of many financial journos looking to hustle up an interesting book/article/column. Exactly why Schwager's book became so popular -- I'm not really sure. Had it disappeared quietly into history, as did hundreds of other financial books written in that era, no one would give a hoot about what firms were profiled in the book. My best guess is -- he made a good decision by focusing on personalities ("So, how did you first get started in trading") rather than on strategies. Smart guys will buy books that help them trade, but dumb guys will also buy "People Magazine" type books. And at the end of the day, there are more dumb guys than smart. [/B]
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i'm a dumb guy. i've struggled through the more technical works only to need a tylenol and a nap after....maybe a nip of the sour mash. when i first got into this business i had no idea what was going on. at the time, the schwager books were very inspiring. i haven't looked at them in a couple of years and still don't know what is going on but i certainly enjoyed them. the books might not offer any important insight into how to run a trading business but they are not without value.
 
Quote from Thunderdog:

please advise what you think the smart guys are reading? I'm not being facetious.

.. Fair enough. A current example that pops to mind: a smart colleague (not me; I'm not smart) recently worked his way through Gatheral's new book http://snipurl.com/1mufu and found a number of nuggets that are of practical utility to him in his own derivatives trading. And he tried to summarize these bits for my benefit (not so easy, I'm afraid.) But the merits of the book don't depend on where Gatheral went to grade school, or whether his uncle was a cab driver, or what color ties he wears (or doesn't wear)..
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Thanks for the reference. I don't trade options, but have been meaning for the longest while to get a bit better acquainted with them, if only to impress people at cocktail parties. And I suppose it won't harm my trading, either. And so, I will place it on my Amazon to do list. Much obliged.
 
Quote from Thunderdog:

Thanks for the reference. I don't trade options, but have been meaning for the longest while to get a bit better acquainted with them, if only to impress people at cocktail parties. And I suppose it won't harm my trading, either.

.. Well, it's a "technical" book, to use another correspondent's term, and not clearly of use unless you're in the business of managing an aritrage'y options book. But my broader point is, so many trading books are: 1 part human-interest color, 1 part general platitudes ('cut your losses'), 1 part tony robbins self-help/you-can-do-it. None of these are bad lines of thought, but if you've seen one such book, you've seen them all. And then it's time to move on to better fare for the main course. Anyway, if I have time and brainpower to spare, I'll send a list of "X books currently worth reading."
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Quote from Pa(b)st Prime:

Most of the trader's Schwager interviewed in the first 2 books fell into two camps. Trend followers (Dennis, Seykota, Eckhardt, Hite) or quasi swing/scalpers (Jones, McKay, Gelber, Baldwin). Only CRT (Ritchie) resemble the modern "trader."

There were really no "rules" for the trend traders to discuss, eh? Load up on the right side of a trend and get rich, load up on the top of a trading range and get chopped. Simple.

Today's fund manager is much shadier. He's a leveraged premium seller ala' vic. Or a leveraged carry-trade artist. Or a leveraged yield curve monkey. Or a race the tape on not yet quite public news SAC. Or a load up the order book derivatives bot.

The guy's doing those trades ain't talking. And in all honesty what could they really say that would be insightful, entertaining or reproducible for the general public.

Here's our interview with Sergio, "Serge when did you first program your auto-spreader to buy the cheapest to deliver 2 year when the green eurodollar strip goes bid?" Exciting stuff, lol.

There's no more secrets to speculation than there are secrets to poker. After a while there's rules that are based on nothing more than rough probabilities. Sometimes your gut may tell you to fade those rules. Position sizing, discipline, diversification, blah, blah. We should all know what it takes. The application is another story.

Many in Schwager's books fell on hard times later.

It happens. Randomness giveth and taketh.

Actually that should be the PRIMARY nugget gained......
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Good post, Pabst. As for your reference to randomness being the primary nugget gained, that may or may not be. Equally possible is that the traders who fell by the wayside have simply run their course. The skills they had, and the criteria they used which worked for them at the time, may no longer quite apply and they did not remain sufficiently flexible to keep up. While there is no denying the random component, it need not be the only variable in the equation.
 
Quote from Rodney King:

...Well, it's a "technical" book, to use another correspondent's term, and not clearly of use unless you're in the business of managing an aritrage'y options book. But my broader point is, so many trading books are: 1 part human-interest color, 1 part general platitudes ('cut your losses'), 1 part tony robbins self-help/you-can-do-it. None of these are bad lines of thought, but if you've seen one such book, you've seen them all. And then it's time to move on to better fare for the main course. Anyway, if I have time and brainpower to spare, I'll send a list of "X books currently worth reading."
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Thanks. I'd be interested to know what else you find useful.
 
The reason those books worked is because of ed seykota and the fact that schwager was selling the dream.

If you were already a profitable trader the books lacked substance.

If you had just been to your first IBD seminar or soes office or you just made enough to put in mutual funds or you were long a modem maker or dell and you were saying to yourself I can make more money trading................... those books were like crack to a junkie.

those books caused me to alter my life. Until those books I still believed what my professors had said about no one beating the markets.


I even turned down opportunties to work for financial guys in my hometown, Greenwich, because I thought they were only getting lucky in the short run.

When I read those books, I said- I need an edge- I need to keep my risk small and I need to trade - nothing could stop me.
 
Quote from Thunderdog:

Good post, Pabst. As for your reference to randomness being the primary nugget gained, that may or may not be. Equally possible is that the traders who fell by the wayside have simply run their course. The skills they had, and the criteria they used which worked for them, may no longer quite apply and they did not remain sufficiently flexible to keep up. While there is no denying the random component, it need not be the only variable in the equation.
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Well except for true arbitrage, not risk arb, the whole money making equation is variable. And where there is unknown there is randomness.

Let's keep in mind that today's billionaire manager is not exactly hitting ridiculous outsized returns. Ken Griffith or John Henry have never run $400 dollars into $200 million like Rich Dennis did. A leveraged convertible arb trader who has a few 100% years strung together isn't a wunderkind. Yet those returns can make a hedgie one of the wealthiest guy's in the world.

I'm sure if I sat down with Ken Griffin and picked his brain he'd have very little information or insight that could help me decide whether I should double down or not on my short bonds in front of to-morrows payroll release.

Talking to most hedge fund managers about speculation would be like asking Randy Johnson for tips on baserunning. Not applicable.

Our ability to accurately forecast is ripe with random results.

Sometimes you're hot, sometimes you're not.

Like most CBOT guy's, I am an unabashed admirer of Rich Dennis. Dennis however had an exchange with Schwager where I feel he missed a relevant point.

Schwager asked Dennis if luck play's a roll. Dennis said luck doesn't make or break a trader yet on any given trade luck play's a roll because the outcome is random.

I'd argue that if one's core strategy is built upon a condition than the appearance or prevalence of that condition does in fact make or break you. Hence market conditions enriched a generation of trend followers in the 70's and lack of index volatility has enriched a bunch of premium sellers this decade. Throw Dennis into a decade long commodity chop and he's toast. Throw Vic N. into a 22% down SPX day and he's toast. As atticus predicts, a 3 sigma move in some FX market's will blow currency carry funds into the black hole.


Yes T-Dog adapting to new environments is important but it's still random as to if we're adapting to something that hasn't really changed. In other words if I'm a tend follower and I say, "this isn't working anymore I'm changing stripes" it's STILL random as to whether trendiness reappears or not. I'm still guessing.
 
Quote from Pa(b)st Prime:

I'm sure if I sat down with Ken Griffin and picked his brain he'd have very little information or insight that could help me decide whether I should double down or not on my short bonds in front of to-morrows payroll release.

Talking to most hedge fund managers about speculation would be like asking Randy Johnson for tips on baserunning. Not applicable.
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There is definitely some truth to this, but you're carrying it too far. Just because a guy like Griffin makes his money arbing/spreading/scalping/trading esoterica, doesn't mean he doesn't have to make large-scale market calls. Arbitrage doesn't scale well; to make good returns on a decent pile of capital requires you to make decisions like any other kind of trader--they're just not the same decisions a guy sitting in front of the screen flipping stuff on his own is making.
 
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