Jerry Parker – 100% Trend Following + Nothing
In this episode, we talk with Jerry Parker from Chesapeake Capital
Chesapeake has always been a classic trend following CTA. “Trend Following + Nothing” is their firm motto.
Over the years Jerry has focused on adding markets to their portfolio. They were one of the few CTAs to trade single stock futures. They started trading single stocks in the ’90s and continue to do so today. They do not trade any stock indices.
About 50% of their portfolio is commodities with FX, FI and single stocks making up the balance. They do trade BTC futures. They have added quite a few of the more exotic/less liquid commodities in the past few years: milk, lumber, sunflower seeds, maze, rough rice, palm oil, iron ore, rubber and look forward to trading the commodity markets in China.
Jerry’s philosophy is to trade any and all markets that are liquid and add to their portfolio diversification.
Jerry and I talk about his start as a Turtle Trader. What is CTA, Managed Futures and Trend Following. We talk about what he has learned over 4+ decades in the market. Why he hates vol targeting. Why discipline and sticking to your plan is the key to life.
I hope you enjoy this conversation with Jerry as much as I did…
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Have comments about the show, or ideas for things you’d like Taylor and Jason to discuss in future episodes? We’d love to hear from you at info@mutinyfund.com.
Transcript for Episode 26:
Taylor Pearson:
Hello and welcome. This is the Mutiny Investing Podcast. This podcast features long form conversations on topics related to investing, markets, risk, volatility and complex systems.
Disclaimer:
This podcast is provided for information purposes only and should not be relied upon as legal, business, investment or tax advice. All opinions expressed by podcast participants are solely their own opinions and do not necessarily reflect the opinions of Mutiny Fund, their affiliates or companies featured. Due to industry regulations, participants of this podcast are instructed to not make specific recommendations, nor reference past or potential profits. Listeners are reminded that managed futures, commodity trading, 4X trading and other alternative investments are complex and carry a risk of substantial losses.
Disclaimer:
As such, they’re not suitable for all investors and you should not rely on any of the information as a substitute for the exercise of your own skill and judgment in making a decision on the appropriateness of such investments. Visit MutinyFund.com/disclaimer for more information.
Jason Buck:
So it’s my pleasure today talking with Jerry Parker of Chesapeake Capital, a man who has over four decades of experience trading the markets. To me, success is always defined by survivorship, so Jerry has that in spades. At Chesapeake Capital, they have a motto that they’re 100% trend following plus nothing. I think that’s a fantastic motto, but it begs the question what is trend following.
Jerry Parker:
Oh, that’s a very good question. What is trend following. I always debate this, what is trend following, what is classic trend following. It recently got called caveman trend following. Yeah, sticking to the basics, one entry, one exit and a stop loss. That I think is a pretty good way of looking at it, which obviously most CTAs trade lots of markets, longs and shorts, currencies, commodities, stocks, bonds. Probably most systematic, but it’s rare to find that sort of pure trend following, because most CTAs over the years have added futures or I would say maybe negative futures to the classic trend following. Not just some short term or things that are complimentary trend following, but they’ve kind of watered down the trend following some for some heavy handed risk management overlay or volatility targeting, things like that, which I have tended not to do over the past 37 years.
Jason Buck:
That’s amazing. So it’s called trend following, it’s called CTA, it’s called managed futures. There’s a lot of names, which means it’s still, to me, searching for a name that really catches on with the outside audience. But in general, if we start with basics, trend following is trading a diverse basket of asset classes, whether it’s FX currencies, bonds, equities, commodities, and trying to diversity across as many asset classes as possible. The idea from trend following comes, you either buy a breakout or a moving average.
Jason Buck:
So a lot of times you’re buying on a high and selling even higher, or you’re selling on a low and buying back even lower. That goes against a lot of people’s natural tendencies or what they’ve learned as far as mean reversion. Part of that is you have tight stops when you open the trade, and then you might have open or trailing stops when you have a trade on. So what that does is that strategy in general allows for right tail skew of your PNL. So you may make a lot of small bets where you’re getting stopped out, but you’re just trying to capture those big returns. Did I do a fair assessment of that in general, or how do you think about it?
Jerry Parker:
That’s as good as I’ve ever heard it, especially recently, so you’re hired. I think another thing too, take small losses and let your profits run. I think people are pretty good at taking small losses. You don’t want the loss to be too small, optimal. An optimal small loss, let’s say. We don’t want to get whip sawed in and out. I think 40% winning trades is a good goal. If your stop is too tight, it might be 20% winning trades. So I like to sort of optimize that number and get it in that sort of low 40 range. But I think the other part we have more trouble with is a group, and that is letting our profits run. I think that is pretty scary and rare these days, in a purist sense.
Jerry Parker:
I think people say that they do it, but I don’t think they really do it very much. I was just looking at the markets and I’ve been in this lumber trade. We’ve made a lot of money in lumber and in Bitcoin, Tesla. There’s a lot of good trend in soybeans. Now lumber is limit down for the second day in a row. So whoa, it’s really difficult to sit there with that lumber trade and not peel it back for different reasons. Volatility got high or just you got a profit objective or something like that. But I think it’s really difficult to say, you know what, I’m going to be very conservative and very cowardly with my losing trades, but I’m going to be bold and let those profits go and wait for my trailing stop, which could be, like you said, a breakout or a moving average.
Jerry Parker:
I think that’s where the difference really is, is how bold and brave can you be and let those profits run. I think another thing that’s happened in my time in the industry has been to turn your back on that philosophy and introduce sharp and volatility, and other kind of risk metrics that pretty much just serve as a way to take profits and make yourself feel better because I’m managing my risk. Whereas we’re already managing risk with the first part of that cliché, which is take small losses. We’re, as you said, so diversified with shorts. How can you get more diversified than their typical CTA?
Jerry Parker:
Like I said, it’s letting those profits run come hell or high water, without any excuse. That trend following plus nothing, it’s so hard to do because we don’t like to give back profits, and the world keeps telling us that volatility equals risk.
Jason Buck:
I love the world tells us volatility equals risk, and we’ll come back to vol targeting and where maybe CTA or managed futures has gone a little astray in the last few years. But you did bring up something with the lumber trade that I want to maybe point out really quick if somebody’s not used to trading futures. You said they were limit down. But also how many days in a row has lumber been limit up? Maybe you can describe what limit up and limit down means in futures markets.
Jerry Parker: Yeah, that’s sort of a preset amount that the exchange will allow the market to move in any day. As something like lumber continues to go up over the past months like it has, I think they kept expanding that maximum amount that they would allow it to go up or down. So I talked to my trader a few minutes ago, and he said, by his count, 18 or the past 21 days, July lumber has either been limit up or limit down. So it’s just one of those things you have to live with. But come on, we can live with it because I trade 100 markets. It’s a small position, relatively speaking.
Jerry Parker:
It’s kind of where you want to be in the world and in trading and managing money, is you kind of don’t want the ability to make money in a market unless it really goes a long way. Then likewise, you can’t get hurt too bad in a market unless it really goes against you. So by now we’re getting back to this idea of I could pretty much insure every single time that, when I put that lumber trade on, I had a predetermined stock. I was going to risk 50 basis points of my assets. Now that it’s been a huge process for so long, months and months, when it has these negative days, I’m not really counting that as a loss. The trade is more than likely going to be hugely profitable.
Jerry Parker:
So I’m just trying to take that benefit that trend following gives me and says, hey just loosen up. Lighten up, relax a little bit. It’s a profit. There’s no reason to get too uptight. In order to maximize that profit, you will have to allow the market to have a lot of volatility and/or possibly give back some of that open profit.
Jason Buck:
I think about a lot of times is people, when they’re learning about markets, I have a general theory that they either learn from Warren Buffet or they learn from market wizards. If you learn from market wizards, you’re primarily dealing with a lot of trend followers. To me, for lack of a better term, there’s a philosophy to trend following. Like you said, it’s that discipline to be able to let your profits run is very difficult for people. But more importantly, part of that philosophy is not knowing where your next profitability is going to come from.
Jason Buck:
Could you have predicted that lumber was going to spike out of control? During COVID, everybody thought the world was going to shut down. We were never going to build houses again. But that’s the beauty of trend following is could you envision oil going negative? You don’t have to because you’re riding the trend. Can you envision lumber being locked limit up for days and days on? You don’t have to because you’re following the trend. It’s a deeply philosophical practice at the end of the day.
Jerry Parker:
It really is. I think obviously we’re banking on that. The CTAs are expected to make money when things don’t make sense, and crazy things happen. Interest rates going to zero or close to zero, or going negative in Europe and Asia. The CTAs are the only ones dumb enough to stay on that trend. The stock market continued to go up as valuations explode. I’ve been hearing about valuations, I don’t know, since 2015, but it keeps getting worse and worse and worse. So yeah, that’s our job, and a lot of the money that we’ve made over the years has been in things we’ve never seen before, things that are rare events that you just can blindly follow with the trend.
Jerry Parker:
Sometimes that’s the only way you’re going to make money is just blindly following them with the trends.
Jason Buck:
I was thinking about, this morning. I was thinking about Paul [inaudible 00:10:32] Jones’ trades, or some of these global macro discretionary hedge fund managers. I was thinking, I wonder if you just didn’t describe yourself as a systematic trend follower. If you described yourself as a global macro discretionary trader, then people would think you were George [inaudible 00:10:47] or Paul Teeter Jones, that you called all these trends when they happened. Is that fair?
Jerry Parker:
I love that. Yeah, I’ve thought about that over the years especially. Paul Jones kind of called this stock market last year. He has gotten more straightforward about using trend and the 200 day moving average, but he kind of called this thing. We’re saying, if Biden wins, then we could have a really big stock market rally. He said, “If Georgia goes to the democrats,” he goes, “It’s like even.” I was going, “No way.” He says, “Oh no, it’s like even right now and, if Georgia goes to the democrats, nothing would be standing in the way of stimulus and stuff.” So I think he has his rules and takes his small losses and tries to diversify and uses the 200 day moving average.
Jerry Parker:
It kind of frees up traders who look at the world this way to have these crazy opinions, this cocktail party talk. Sometimes it kind of works out. He’s a really smart guy, so I was just thinking about that the other day. Wow, he just totally called it. But I’m pretty much stuck with following the trends and have really been doing it for so long, I just can’t even … If I had a really good idea, I don’t think I could even implement it if it wasn’t a trend following trade.
Jason Buck:
So how do you handle that? What do you tell people at cocktail parties when they ask you for a market opinion?
Jerry Parker:
Well, it’s like you said earlier. It would probably be better off over the years if I had an actual really good story and some good analysis. People kind of prefer that. We’re humans. We like stories, we like to watch movies and TV. So I need to have a story for some of these trades, but usually I just tell them the truth. I go with the trend, take small losses. This is my opinion, the secret Wall Street formula. I don’t think it’s very secret, but diversification and taking small losses. That’s really the secret for surviving. Then the secret for marketing is to keep all of that secret and just talk about some story.
Jerry Parker:
Another thing CTAs have done over the years is combine PhDs with the trend following. That’s really helped people to create large businesses and raise lots of money is to make sure the clients knew that it just wasn’t these silly breakouts that we were looking at. We have really smart people also giving us information about the right trades to do.
Jason Buck:
Yeah, the [inaudible 00:13:29] can make it, it’s probably a better marketing plan. Speaking of a great story, you’re part of one of the greatest stories ever with the Turtle Traders. I know you’ve talked about it a million times before, but maybe this is a new audience for you. So the idea goes back to the 1980s where both Richard Dennis and Bill Eckhart were having a conversation. I believe Richard felt he could train anybody to be a trend follower and Bill wasn’t so certain. So they decided to put an ad, this is crazy to me, an ad in the Wall Street Journal, looking for traders that then they could then hire which, to me if I saw an ad today saying, we’re looking for traders, I would think it was a scam. But that’s the way it works.
Jason Buck:
But first a background on Richard Dennis. In the 1970s, he allegedly borrowed $1600 that he turned into $350 million in the markets. So they had this idea that was eventually memorialized called the Turtle Traders, with Michael Kovel, where they were going to train people to trade Richard’s systems and give them money to trade. So you graduate as an accounting major, you’re interested in trading markets and everything. You see this ad in the Wall Street Journal. Was this mana from heaven, or were you concerned it was a scam?
Jerry Parker:
No, I thought it was fantastic. I had randomly just read about trend following and was understanding the basics, and I thought this is the greatest thing ever. Then I would hear about futures and short trades and I’m like, oh yeah, sure, leverage. I can see that. Shorts, of course. Things go down in price, commodities, more diversification. I just bought the trend following thing hook on and sinker, without listening or talking to anyone. So then, when I applied for the job, I was reading the Wall Street Journal. Who even looks at the Wall Street Journal want ads? I don’t even know if they still exist now, but they fully existed in 1983.
Jerry Parker:
So I think 1000 people applied and they sent out a test. Everyone got a test, true false test. 100 questions, true false. So I took this test and sent it in, and I got an interview and went to Chicago. Finally, I ended up getting that job. It was quite an amazing situation, primarily because Rich and Bill were just genius people. I had never met people like this before. I had never heard about people like this or listened to people like this before who were so smart. We thought we were smart. Some of the people there were Harvard Business School and Black Jack players, really smart people. Boy, you would just leave meetings with those two and you’re just shaking your head like, yeah, I’m not that smart.
Jerry Parker:
These guys were out of sight, so they really equipped us, not just to manage that money and trade for them, but to sort of understand how markets work and how to create an approach that was going to survive. You could evolve with their rules. From day one, they were pretty much adamant that, look you’re going to have to evolve. The philosophies are good, but you’re going to have to figure out a way, as the markets change, to stay alive.
Jason Buck: Correct me if I’m wrong, it was like a two or three week training period, and then they give you guys a million dollar account to trade with?
Jerry Parker:
Yes. I can’t remember if it was two or three weeks. Yeah, so one of the funny things is Rich and Bill, they didn’t like to wear a coat or a tie. So I think their secretary set up this course in a hotel, the Union Lee Club in Chicago was the only hotel that required you to wear a coat and tie. So that was kind of a funny situation. I don’t know if that made it into Covell’s books. Then after this two or three week course, Rich had his Christmas party and they went around asking us the final exam question, verbal question, and that was if you hear that Rich is short soybeans, but your signals and your rules that we gave you says you should be long soybeans, what do you do?
Jerry Parker:
Of course, the answer was you stick with your rules. Another huge advantage of that program was not just the rules, but it was the experience with those guys because we started out trading and we lost money almost immediately, and their bottom line was do the right thing. If you lose money, but you’re doing the right trades, don’t worry about it. But if you’re making money, and you’re cheating and you’re not following our rules, you could be in trouble. So this is like a total pretend environment that no client will ever tell you that. Just do your trend following. As long as you’re doing your method that you’ve told me about and there’s no style drift, then I don’t care if you lose money. Oh God, no.
Jerry Parker:
You’re client is like, I don’t care what you do, just make money. If you have to cheat a little bit, that’s fine. So it was just this pretend or this amazing environment where we were just being encouraged to be strong and to follow our rules. It really gave us a good four years of being prepared, I think, to have a backbone and stand up to the markets and the clients who are often encouraging you just to do the wrong things.
Jason Buck:
Yeah, it’s amazing. The blessing you got out of that is not only the strategy, but more importantly the discipline and that permanent capital to start with so you can really learn the discipline over time. Correct me if I’m wrong, but there was two primary signals you guys were trading, more of a short medium term signal and then a longer term signal, and that you would get half into the trade on the shorter term and then you’d put on the other half if you got into the longer term signal as well?
Jerry Parker:
That’s right. I think it’s a pretty good idea to have a couple of different entries and exits, two different systems. One was longer term than the other, but they were both very short term compared to strategies that work today. Well, trend following strategies that I use that I think works today. Yeah, and the leverage was huge. I lost about 30% in one day once, but I was up 200% to start the day. It was like February 1986. We were just a huge leverage and we had made so much money so quickly, and that was kind of a bad day in the markets.
Jerry Parker: I went home that previous Friday and I calculated my bonus to be like a million dollars. I was like, this is really, really fun. Then Monday comes and I gave back quite a bit of that. But this is what Rich wanted us to do. For most of the Turtles, it was just pleasing Rich. How can we do … We don’t want to screw this opportunity up. Here’s this guy who gave us the rules, the training, the encouragement, the money to manage, and the nicest people on the planet. It’s just a ridiculous situation that we were all thrown in.
Jerry Parker:
I remember walking up and down the halls to get a Coke or something from the vending machine, and I would pass my colleagues in the hallway and I would say, “You know we’ve got the greatest job in the world. It’s not ever going to be better than this.” They’re like, “Yeah, yeah. We know.” I’m like, “Yeah, do not forget this.” Chicago was wonderful. Loved living in Chicago. I got there about the same time the Bulls drafted Michael Jordan. It was a total magical time in so many different ways.
Jason Buck:
That’s amazing though that you could recognize at such a young age that that was the greatest job in the world. Most people would be just thinking when they get out of there or whatever, but you were able to savor the moment, which is pretty amazing.
Jerry Parker:
It was-
Jason Buck:
Go ahead, sorry.
Jerry Parker:
Yeah, it wasn’t that difficult.
Jason Buck:
You guys were playing ping pong and going to baseball games in the middle of the day too, weren’t’ you?
Jerry Parker:
That’s right. So I went to Chicago. I was a big sports fan, and I was finally moving to a city with professional sports. The Cubs played the games at 1:20, day baseball. I had no idea what that was about, but they had a few games at 3:00 or so called Business Man Specials. So I went up to Rich one day and I was like, “Okay, so crude closes at 2:10, S&P closes at 3:00. What do you think about us going to some of these Cubs games at 3:00?” His response was, “We’ll go to the ones at 1:20.” So this was the atmosphere. It was so far from hardcore Wall Street. It was just having fun and putting your trades on.
Jerry Parker:
We’d be back there in the back of the room playing ping pong, and then someone would say we have a trade, we have a trade. So we’d all run to the front, run to our desk and do the trade and put the trade in. Then we’d all come back to the ping pong tables. So computer baseball, I got introduced to Bill James computer baseball. Yeah, stories could go on and on about how much fun we had, but you had to make money. You had to follow the rules. Not everyone was successful, but I knew it was totally legit when I cashed that first really big check.
Jason Buck:
We’re going to keep coming back to it may not be a strenuous physical labor job, but the discipline of sticking to your rules is incredibly difficult. I’m sure we’ll keep revisiting that idea. Actually, part of the reason we named our fund Mutiny Fund, there’s a lot of reasons, but one of which was an homage to those blue collar pit traders of the 60s and 70s that were running high vol strategies and eat what you kill. It’s an homage to those days and how those things work. But you referenced it earlier. You may have days, huge up and down swings, and you guys were producing triple digit returns.
Jason Buck:
But after kind of the book came out or you guys went out on your own, was that one of the things you focused on first was position sizing and maybe you were taking on too much risk?
Jerry Parker:
Oh definitely, from day one. The program ended at the end of ’87, the first quarter of ’88, so that’s when I started Chesapeake first quarter of ’88. I kind of knew I had institutional clients. I had a client, so I knew that 200% and trying to make 200% and those accompanying, volatility and draw downs, was not going to make it. So I knew I felt pretty guilty, like Rich is not watching me now. I’m now trading a tenth the size trying to make 20%. I put that first trade in and it wasn’t doing sort of his strategy. A lot of his strategy was trade pretty large.
Jerry Parker:
But yeah, you sort of gravitate into that, but I didn’t go immediately to the correct leverage. I think my initial risk was a little too high to start off with, so it just took me a while to sort of get the feeling for what sort of business I wanted to run.
Jason Buck:
That’s a good example. There’s the business of managing money and then there’s trading. So figuring out the business you want to run. I think the best part of market wizards is you find out there’s a lot of ways to make money, but you have to do what works for your personality. I think that’s what you’ve figured out over the long term is work with your personality. I think that, if Buffet has a super power, it’s that he stuck with the same strategy or what works for his personality for all these decades, and you have done similarly. That is a super power in itself is sticking with strategy.
Jason Buck:
But part of that, did you think is managing other people’s money. You really had to reduce the position size of volatility because it would be too gut wrenching managing other people’s money for those strings, or how did you think about it?
Jerry Parker:
It would definitely be too gut wrenching for the clients, yeah. The whole trend following strategy of infrequent profits and taking small losses, it’s just the exact opposite of what most people want. They want frequent profits. The smallest of profits will do. Can I just take this small profit. It’s like a drug. We feel so great doing it, but it’s suboptimal for maximizing your wealth. So yeah, nobody believes it like we do, like I do, so you’re never going to find anybody who can hang in there like the person who’s running their system.
Jerry Parker:
But even with me, I lose faith. The best way to lose faith, or to put it the other way, the best way to maintain discipline, is to choose a leverage and a volatility that you yourself can handle so you won’t be tempted to violate your rules. If you do that, you really have a good chance of being disciplined. Because, like you said, that is the most important thing. Even if you don’t have the best systematic approach and the best rules, implementing those suboptimal or less than perfect rules just doggedly, consistently, all the time and never changing, you’re going to come out close to being on top.
Jason Buck:
It’s one thing to have that self discipline, which is incredibly hard for people. But we talked about, with Richard at first, you were getting permanent capital. Now you step out on your own and you’re managing other people’s money. You can have really large fluctuations in AUM over the years, so that’s a whole other gut check of managing the business, of managing money, and having huge fluctuations of AUM. How have you dealt with it throughout the years, because it’s got to be incredibly frustrating from time to time.
Jerry Parker:
I don’t think I’ve dealt with it great. I’m not the world’s best. I’m pretty average. You know it’s a personal thing. It’s even worse than what you said because it’s kind of like, okay, let’s look at the monthly returns for the CTA industry. I’m just dreading this personally because I want to be number one. I want to finish number one. I want to be up there. I’m very subject to my competitive desires, so it’s not just losing money. It’s not being at the top. You just need to put all that stuff behind you and really not focus on that. But it’s rare. It’s so rare.
Jerry Parker:
I think that’s another thing that happens, it creeps in bad rules. Rules that help you take profits and not let your profits run. I think people confuse rules and systematizing and things, well I have rules, that I’m above reproach. You can’t talk to me because I have a rule. What if it’s a crappy rule? What if it’s a non robust rule? It’s what I call systematic discretion. I used to sit in front of the quote machine and get nervous about a coffee trade in 1988, I think. I would just get out of some coffee. We’ll there’s not a person alive who won’t say you shouldn’t do that. That’s not exercising discipline.
Jerry Parker:
Well, CTAs got so much smarter in the 90s, they just started writing rules for such silliness. Well, if something happens in coffee and if it makes too much money or makes a lot of money, or it gets too volatile, I’ll just take some off the table. So I think it’s this sort of human desire and how we just really do not like what happens when you follow a trend following strategy, it just has too much volatility, gives back too much money, although the back test says it makes a lot of money and it’s your best shot at making money. We look at that back test and we’re so committed to it.
Jerry Parker:
Oh my God, I am going to do this all the time. I have no problem being disciplined. When you start having to trade that idea, those systems, oh so hard. Nobody can do it. It’s really, really hard to do.
Jason Buck:
That’s why paper trade never works because, once you have the money on the line and feel like you want to throw up, that’s when the real world kicks in. I’m wondering too about, you referenced kind of two contradictory points there. I want to really manage this tight rope. Richard says you kind of probably need to evolve and adapt over time. Part of maybe trend following is kind of red green principle. You’re kind of running faster and faster trades, staying in the same place. As you have evolved over time, as markets evolve, you want to maybe tweak your system slightly, but then you want the discipline of not tweaking it to the nearest term project.
Jason Buck:
So you’re very vocal about your dubious aback tests. So when you’re running a test, you’re looking maybe for average wins versus average losses and the right skew of letting those winners run, or how do you think about adjusting your system at all over the decades?
Jerry Parker:
Yeah, that’s a tough question. I’ve tried to really look at the systems and make changes to them, and I haven’t been very successful at finding better ideas. The stop loss, we made a little bit larger. I think the Turtle stop loss, the Turtle Trading in general was shorter term than is profitable these days. So that’s basically what has survived all of my tweaks and changes. The only thing that’s really survived is just to be longer term.
Jerry Parker:
What I started to do was to look at the charts, look at markets, and look at the big trends and see what are big trends and how far do these markets go. So I would just put up charts and put breakout channels around these charts to see what sort of timeframe does it look like with my eyes, would keep me in these trades. So I’d write those parameters down and my computer guys would do the research and they’d say, “Yeah, that’s about right. You’re about right.” So I think that’s the first thing is you want to not be too short term where you keep getting whip sawed in and out and the market goes a long way, but you mess up the trend because you want to trade short term and not give back those profits at the end, or too much of those profits.
Jerry Parker:
But your first order of business is to get in that trade and not get out too frequently, and then figure out a way when you do that, how you’re not going to give too much back. So I like to sort of look at the markets and look at a spreadsheet and come up with some ideas of what I think might work, and then when we do the hardcore back test, we’re usually pretty accurate as to what the computer says the best perimeters are. I think using all the data and looking at … Once again, this one entry, one exit and a stop loss, I think it’s just going to stay out of a lot of trouble the fewer optimizations you have, the fewer perimeters. You’re not trying to fine tune things too much, but just have sort of a crude way of staying in these trends.
Jerry Parker:
My gosh, the last six months have just been so amazing. We finally all got reminded as to what really makes trend following. What makes it is these markets. They just take off, they go crazy, and your job is to just not screw it up. First of all, do the trade. The most important thing ever is buy those breakouts and don’t hesitate. I’ve left a lot of money on the table by talking myself out of doing trades.
Jason Buck:
Do you think that part of that too, that over parametrization and trying to be too cute with that, leads you then to the more rules leads to less sample size, so the less confidence you can even have in your win loss ratio on a back test. You want to have the largest sample size of trades as possible. By over parameterizing, you might be reducing that sample size, so therefor those returns are fairly spurious?
Jerry Parker:
There’s nothing more important than that. You said it perfectly. Yeah, there’s nothing, nothing more important than that. I know Neil, on his podcast, he used to ask people when he interviewed people, individual traders, what is the one question that people should ask you about their trading, their system. In my opinion, that one question is what’s your sample size and how did you count it. No one ever asks that question. But no, that’s the most important thing. In order to get a large sample size, you have to have one entry one exit and a stop loss. It’s not going to get much better than that.
Jerry Parker:
I’m not saying that’s the only thing you can use. I think that reducing your position to reducing your leverage during periods of crisis, and to preserve your capital, that’s a great rule. It sounds pretty discretionary, but maybe you can come up with a rule for it. I think you should in order to … when all hell starts breaking loose, like last February, you need a rule, let’s reduce our risk. This is too crazy. Vols is too high. I’m losing money pretty quickly here. So I think introducing something like that is a very good idea. It’s just not math. It’s just not a robust rule.
Jerry Parker:
So introducing non robust rules to survive, that’s fine. This is something that you’re only going to do once every couple or three years. But a steady diet of rules, of trades that have a really small sample size, that’s not going to help very much.
Jason Buck:
Yeah, I think some people were upset at Wren Tech when [inaudible 00:36:11] stepped in and reduced position size because he was worried about the longevity of the firm, and it wasn’t math based, so people got upset with him then. But he’s just trying to survive. But I’m curious though, when you think about that, if you’re just using an ATR and average to range, wouldn’t the volatility show up so then your position sizing? Or are you saying when you’re [inaudible 00:36:28] profits high and volatility comes out of nowhere, that’s when you should reduce the book?
Jerry Parker:
Right. Yeah, so the losing trades are probably not going to be a problem because the vol usually doesn’t increase very much from when you put a trade on to when you get out of a losing trade. That’s pretty easy. But the trend following tends to build up these losing trades and eat away at your capital, 60% losing trades. Then the open trades, they can grow very large and you have this situation where, even if you’re making money, you may be sort of in a capital deficit where you’ve taken a lot of losses. If you gave back all of your open profit, you would be down on the year or have a big draw down. So at some level, you have to understand how all of this works and not be afraid to do whatever it takes to survive.
Jerry Parker:
That’s Turtle rule 101, the first Turtle rule ever was this cutback. Another primary reason for the cutback rules was doing whatever it takes so you can continue to do the trades, to do the system. So if you’re losing money, reduce your positions, reduce your leverage, your future positions for a while so you can keep doing that same systematic approach. There’s no money management rule better than that, but you just need to know that that’s sort of a non system trade. Non system trades are not going to help you make more money.
Jerry Parker:
I saw someone did a research project on that very Turtle idea and came to a conclusion, the Turtles would have made more money if they would have just traded smaller. So yes, exactly. It’s so true. Non system trades, portfolio management, risk management trades, these don’t increase your performance.
Jason Buck:
Yeah, at some point you have a volatility tax to those gains where it’s too much of your own and too high a vol, so you need some form of [inaudible 00:38:44] or betting sizes to make sure your compound wealth more efficiently. I’m curious how you think about it. If you have a right tailed piano, like when you’re trading trend following, but your biggest trade, your largest open profit now paradoxically has a large left tail to it. But you have to look at maybe open trade profit very differently from closed trade profit or your actual AUM or nav point. I’m curious to how you think about that or reconcile it while you’re in a trade.
Jerry Parker:
Yeah. Well, one of the things I learned when I started managing money was that we were taught to look at the trade. So what’s going on with this particular trade. So the outlier was a trade. It wasn’t a return. It was a trade itself. So if I’m up 100% in a trade, a 200% in a trade and now the trade draws down to 100%, that’s an outlier trade. I made 100%. Not I had an outlier give back. So that’s always kind of confused me that a lot of people measure these outliers based upon the daily returns or monthly returns, which once again it’s eating away at your core philosophy of letting those profits run and taking small losses.
Jerry Parker:
If we’re going to define a giveback and a big lumber trade as a loss, then how do we let our profits run? So I’m really confused by this. One of the other things too that I think is very important in managing risk is the trade level. So we were sort of taught and put into practice over the years to not increase that trade level very often. So if we started with a million dollars and we made 100% on that million, we would not increase the trade level as we’re making that money. We’re just going to trade that one million dollar initial constant for maybe the whole year. Well, when those open trades kind of … when we’re done with those open trades.
Jerry Parker:
So I think the proper management of that trade level, not using your current equity value each day to size your trades, I think that gets people into trouble as well, because those open trades are fleeting. The first Bitcoin trade, it wasn’t’ a future so I didn’t take the trade, but I measured it. I think it was 2000 ATRs and the giveback was 1000 ATRs. So that trade, that’s pretty manageable, but do not change your trade level of all your other trades as you’re making all this money at Bitcoin. You’ve got to be very careful what you’re doing with what is your equity, what is your AUM, and what you show in your performance table is usually going to be quite a bit different than how you’re managing that money, if that makes sense.
Jason Buck:
No, that’s great. You actually segwayed and covered my next question. I was like, how do you deal with open trade? Do you man new positions? Do you put them on at that nav point or do you wait for that trade to close? So that was a great answer. I think about it sometimes, do you ever consider traditional prop shops? They ran really tight stop losses, but as soon as guys were running in profit or even closed profit, then they would actually open up maybe their trailing stops a little more, take on a little more risk as they were having a positive year. Is that a fair way of looking at it, or did you ever study that and kind of back test?
Jerry Parker:
Oh no, I wouldn’t want to do that because I have a long list of things that I would never do, regardless of the back test. That idea would certainly be on the list because I want to be constant. My rules can’t change based upon the ups and downs of my equity. So I’m going to risk five ATRs or four ATRs regardless. Now I might have a system that’s three ATRs or five ATRs, or 10 ATRs, but three different systems. But I’m not going to change that perimeter based upon some sort of outside forces. Yeah, I lost my train of thought.
Jerry Parker:
I know I could not trade at a prop shop.
Jason Buck:
I don’t think there’s many of us that could. So thinking about putting on these trades and having a uniform stop loss and uniform position side, uniform from vol from the start of the trade, do you think about percentage max or mins in each individual sector and the correlations of those sectors?
Jerry Parker:
Absolutely. That’s another very important process is to not get too many commodities or too many currencies or stocks or interest rates. For instance, I try not to be too … I’ve done it so many different ways, and most of the things I’m very adamant about these days are things that I have just made so many mistakes on over the years. Getting too intense about corelation and diversification, I trade 100 markets, so I trade about 50% commodities because I think they’re not as correlated in that group. There’s energies, there’s grains, metals, softs, and then there’s some things in a commodity sector that are not correlated to anything.
Jerry Parker:
But the currencies are kind of long, all the currencies now. That’s no fun. We’re kind of short all the interest rate bonds now. Until recently, it was hard to find any short equities, so I try not to get too intense about this. But I do want to use the diversification and be thankful for the diversification, and I’ve changed my mind about this over the past few years because I want to focus mostly on the outlier. Even if things are highly correlated, you can all of the sudden get an outlier, a crazy move in something that you thought, or that really is highly correlated.
Jerry Parker:
In 1990, I made 30% in heating oil, December heating oil, in December of 1990. I made 30% for the year. So it’s all in this one trade. I think crude heating oil went back to being 90% correlated shortly thereafter. So these things can happen. You kind of are happy that you have crude heating oil, traded them both as if they’re not correlated. That’s kind of not totally correct because they’re mostly going to be correlated most of the time. But every now and then, silver doubled in 1987 and gold kind of sat there. So, that’s another thing that the CTAs are doing. We’re gently using this diversification, not trying to look too granularly or too intense about it, but we’re waiting for something that no one’s ever seen before, which can happen, and it can happen in a market that seemingly is correlated to other markets.
Jason Buck:
Like you said, the entire key is just to get into the trade and get on the trend. So even if your metals and you’re trading gold, silver, copper, and let’s say they’re all in a trend, so you jump on all of them. Are you worried about your aggregate position size in metals, or do you not worry about that anymore?
Jerry Parker:
Well, I’m worried about everything, but I’m setting up that portfolio from day one with the waitings and the percentage allocation to each market. Since I’m trading so many markets, over 100, even if I do get caught in a situation where crude heating and unleaded, they all go against me or silver, gold and platinum, they all kind of go against me, I’ve got it set up to where it’s not going to be a fatal blow. My overall leverage is relatively low. It’s three or four correlated markets out of 100 in some, so that’s kind of how you want to look at it.
Jerry Parker:
I think these correlations, too much emphasis is put on correlations. You can’t change. You’re supposed to implement these rules and stick with these rules. The unit size, or what we call unit size, or what people call portfolio waiting, they should be the same as well. These inconsistencies and these things can creep into your trading where you’re like, well I size based on correlation. I think this is another way that sort of an inconsistent way of trading can creep into your systematic approach where you’re not treating all the trades the same way. I think this is something people don’t realize sometimes.
Jason Buck:
The other places where you’ve been on the Vanguard of trend following was you were one of the first people to trade single stock trend following. Obviously it makes perfect sense to me because an index, especially an S&P500 index, is a trading strategy in itself. It’s an aggregate where you want to disentangle the actual individual components and look for trends, both up and downs and single stocks. I’m curious though how you transition to shorting stocks because it’s very different from shorting futures. A lot of that stuff is kind of baked into the futures price, but shorting stocks kind of could be viewed as a left skew trade. You have an unlimited downside with only a defined upside.
Jason Buck:
You need to borrow. There are a lot of different moving parts to shorting stocks, so I’m wondering how you incorporated that moving from futures.
Jerry Parker:
Yeah, that’s a little bit different. We used to trade single stock futures, but they kind of went away.
Jason Buck:
Right.
Jerry Parker:
So now we trade single names. So yeah, for all the short trades, basically the commodities and the stocks especially, they’re not as good as the longs. I think, over the years, and when I was working for Rich, he would say it’s okay to add an inferior strategy to your trend following, let’s say, if it’s going to make money at different times. Now I never did that. We tried to add different strategies to our trend following, but they just had too much of a negative impact on our performance. We just couldn’t stomach it that this would help with our draw downs maybe, this other strategy. We just could not do it.
Jerry Parker:
I think, to some degree, that’s what shorts are. You’re going to make all your money in these longs. At least that’s historically the way that it’s been. I wouldn’t rule out the possibility that shorts could have this renaissance. I think that’s the right way to think about it from a mathematical sample size point of view, but maybe that’s the best I can do for the shorts. They’re kind of a crappy, less than optimal trade, but they’ve bailed us out. Crude went negative in February of last year. There was a lot of good short trades. That was sort of depended upon how fast you got out of those longs and how quickly you got short stocks and commodities and currencies. That’s pretty much how you performed over that COVID period.
Jerry Parker:
I think that shorts are great and we do a lot of short trades. Overall, they don’t make too much money, but they definitely smooth out the performance.
Jason Buck:
Yeah, they’re there when you need them most. We have long periods, the escalator up and then the elevator down. So it’s the punctuated timeframes that you really want your shorts. I’m just curious though, as you know, correlations kind of go to one in those sell ops, like March 2020. Have you ever looked at just being long single names and short like the [inaudible 00:51:08] index?
Jerry Parker:
I looked at that. I had that as a strategy at one point, but these days and for the longest time, it is very difficult to find shorts that are in downtrends or stocks that are in downtrends to short. So there’s not as many as I’d like usually. But as you said, I never understood why … I think it really hurt the CTA industry to not trade single names. Once again, you were saying why don’t we just downplay the idea of trend following so much and talk about other things. Well, I think I agree with that. We could be a bigger industry. Also, if we would have embraced single stocks versus these [inaudible 00:51:58].
Jerry Parker:
So you’re looking for the outlier trade that you may have a chance of getting if you trade individual names. You can create your own diversified basket of stocks. You can size the stocks based upon the ATR, like you do every other trade, versus cap weighted. So many reasons that you want to trade individual names. Outliers is probably the biggest reason. What’s trending better over the past 20 years than stocks? Maybe the bonds were great and stocks just have these crazy moves. Tesla is one of the biggest trades I’ve ever seen. The Tesla trend has just been 400 ATRs. That’s pretty crazy. So never have understood why CTAs would embrace single names.
Jason Buck:
Part of that Tesla trade makes me think about what’s that Pascal quote that all of humanities problems come from not being able to sit alone in a room quietly. It’s like the Tesla trade is like sitting on your hands. Taking that trend is … what I find interesting is the internal dialogue or the internal conflict is like, my trend says that I should be long Tesla, but there are a lot of people that have personal opinions about Elon or Tesla, and you’re just like I have to close out any personal opinions to just be able to ride that trend.
Jerry Parker:
Oh yeah. I had a Tesla and my mom bought a Tesla for me. I was like, man I really don’t like Tesla and I don’t like Elon Musk. He’s just too goofy. People would come up to me in the parking lot at the grocery store and start talking to me about Elon Musk. I’m like, you’ve got to be kidding me. This is crazy. I don’t want to talk about Elon Musk. So then she gets me this car and I’m like oh man. At that time, Tesla was in a big downtrend, and I’m like, [inaudible 00:53:51] I would get a Tesla right when the company is going to go out of business. I think at the time also, it was one of the heaviest shorted stocks out there.
Jerry Parker:
But I put it in my portfolio for two reasons, like CTAs do every single market, diversification and liquidity. You could choose a lot of stocks, but that was definitely one that had a lot of diversification and it was certainly liquid. So behind that breakout it’s just a no brainer. So yeah, same with Bitcoin. I thought Bitcoin, I like Bitcoin a lot. Bitcoin futures, I bought their original breakout, lost money, bought it again, and it took off. I thought, in some sort of crazy way, Bitcoin was the perfect trade because, even in all these other markets, we all have these opinions, but no one understands Bitcoin. No one knows where Bitcoin is going. It makes no sense whatsoever. So we’re forced to follow the breakouts and follow the system.
Jerry Parker:
I thought, yeah, this is the perfect trend following trade, fairly liquid, very diversified. So I was really happy I got on top of that one.
Jason Buck:
What surprised me is that you’re on the Vanguard of that. It’s a controversial trade. It’s like, how could it possibly be controversial. It’s another trading instrument that’s diversified and liquid. You should take it. It doesn’t make any sense not to, but it’s curious people’s personal opinions tend to creep in to their trading strategies. So I want to kind of take a slight deviation here and talk about the state of the trend following space currently or where it’s evolved in the last decade. So part of that I know we touched on it earlier, but your dislike for vol targeting.
Jason Buck:
But let’s talk about vol targeting. I think about vol in maybe three ways. One is when you’re putting on a position. You’re essentially vol targeting that size using your average true range. The other piece is part of that then is you’re going to have a certain amount of, I guess, portfolio vol targeting when you’re putting on positions because of those true range and because of recent volatility. But then what you really argue against is the idea of once the position is on, you want to really let those winners run where the industry is evolved to kind of tie trade up and down that position using vol targeting to try to monetize that position.
Jason Buck:
They are likely monetizing too early and reducing those huge right tails of your big winner trades.
Jerry Parker:
You summed it up. That’s perfect. Also, one thing that people kind of … It’s very elementary, people kind of miss, is that because I’m presented with that argument. Well, if you’re going to use the ATR to size your positions and risk the same number of ATRs per trade, you’re sort of vol targeting. This is not original to me. I don’t really know anything about trading that I didn’t learn from others. It’s obvious who those others were. But what the whole purpose of the stop loss is to normalize the dollar losses, so that’s all we’re trying to do. The minute you calculate the ATR put on the trade, the ATR changes. It gets bigger, it gets smaller, who knows.
Jerry Parker:
So that’s a losing game, to try to keep that … think that vol is going to outlast the next five minutes. So we just want to normalize our dollar loses. We want to give each trade X amount of ATRs for a loss and then we want to have that dollar loss in each trade be the same, 50 basis points or 30 basis points, whatever it is. So then we’re going to hop on our cliché and let those profits run, let those trade profits in that particular trade. We’re home free. It’s like a get out of jail card free. It’s almost like the CTAs, instead of embracing lowering that bar to say, if it’s a profit, you cannot touch me. I don’t care how much vol it has, I don’t care how it impacts negatively my sharp, it is a profit. Oh God, no.
Jerry Parker:
No, we got so smart, we had to introduce this whole idea of volatility on an open trade was so negative. It was a problem that we had to correct. This is the modernizing caveman trend following was to increase the hurdle on our own self that we would make it harder for us. The real dirty secret about vol targeting the way CTAs do it is that they’re taking small profits. They’re taking smaller profits than I will take. Now, the draw downs are much smaller than mine as well, so that’s a good thing. But I’ve sort of shifted that volatility and that risk and those losses from losing trades to the winning trades.
Jerry Parker:
So my winning trades where we’re making tons of money, we’re going to see the most amount of volatility because vol targeting forces you to trade larger because your average profit is going to be smaller. So instead of risking 30 basis points, if I vol target, I might have to risk 50 basis points. If you have 50 basis points, that extra additional 20 basis points is eating away at my capital in a strategy that is 60% losing trades. But the client can hardly see it. It’s totally … all the client can see is, well it certainly looks to me like Jerry is way more risky than all the other traders because he hasn’t gotten out of any of his lumber. So it looks that way of course, but I risked 30 basis points on that lumber trade because I didn’t have to take small profits on all my trades, especially the big huge winning trades that make all the money.
Jerry Parker:
So I don’t know if that’s a little confusing, but you’ve heard that saying risk doesn’t go away, you just move it to somewhere else. I think smarter people then me could probably articulate this better, but taking vol [inaudible 01:00:31] does not eliminate the risk that we have in some of these trades.
Jason Buck:
It makes me think about the beauty of trend following. It’s a right skewed PNL. If you use vol targeting, you may be trying to create a more gaussian curve, which is inherently a more mean reverting curve, and that’s what people are used to. I can’t help but think about decades ago when I used to read market wizards and study up on CTAs. If you have this right skewed divergent trade that can do exceedingly well when you have breakouts, instead of neutering that trade strategy at all, why wouldn’t you combine it with convergent trades, these mean diverting trades that do well when your divergent trades are not doing well?
Jason Buck:
It’s almost rebalancing and scale trading the equity curve between these two divergent strategies, and that would smooth out your PNL overtime because there’s got to be times when you’re thinking it’s been a year or two since I’ve had great divergent trades. I would love to have part of my book maybe be in a meaner verging or convergent style trading strategy, but maybe that’s [inaudible 01:01:32] to the way you go through life.
Jerry Parker:
I think it’s not something that I want to do, but I fully anticipate that clients would have more of a diverse portfolio. Some CTA trend followers, divergent, and then some other strategies like stocks and bonds and things like that, that play well with them. I want to do my part, do it as best I can, and that’s just the classic trend following. That’s why I haven’t really seen the need to add the meaner version carry trade, pattern recognition, short term trading, etc. I’ve sort of stuck to what I like and what I wanted to devote my career towards.
Jerry Parker:
I just sort of totally buy into this idea that taking small losses and being maximumly diversified and letting those profits fluctuate, those big profitable trades, I just take a lot of comfort in that and try not to worry too much about losing periods. I care about losing trades. A client asked me one time, it was like the first quarter of the year and they’re like the biggest. So we’re losing money. They said, “Well, do you know your biggest problem in your portfolio?” I’m like, “No.” They were like, “It’s sugar.” I’m like, “Sugar is a hugely profitable trade.” Well yeah, but it’s gone down in the first quarter. You still have a nice profit. So I’m like, I just can’t go there with my brain and call sugar anything except a really great profitable trade, irrespective of the fact that it was a bigger profitable trade a few months ago.
Jason Buck:
I want to be fair to think about your real estate investments are long GDP or implicitly short volatility, so that’s a nice balance to your portfolio holistically at the overarching philosophical level.
Jerry Parker:
You know what I thought about when you started that question was private equity. How great would it be if we were like, private equity and we didn’t have to mark the market. Conversely, can you imagine someone like private equity who doesn’t mark to market, someone coming in and saying, “You know, I’ve sort of calculated. We have this intern. He’s kind of calculated that our open profit in this company that we’re going to take public has sold off recently. So do you think we should get out of some of it?” They’d be shouted out of the room. Are you crazy? You have to maximize this profit.
Jerry Parker:
So it all revolves around who can see the fluctuations. If you can’t see it, it doesn’t exist. If you can see the fluctuations in these profits, you must do something about it. You must reduce these fluctuations. That’s always the case that, when you do the back test and you use this one entry, one exit, one stop loss and all these markets, and you hold onto these trades, and you let them do their thing, and you tweak the perimeters and it comes back, and it says yes you’ll make a ton of money, these are great systems. But you will have some volatility. For human beings, that’s not good enough. We need to have it done our way. That’s why I’ve never been very interested in creating systematic approach that fits my personality, because everything about my personality is wrong when it comes to trading.
Jerry Parker:
I want one percent a month.
Jason Buck:
Exactly.
Jerry Parker:
I want ease, comfort and pleasure. The one part that I do need to pay attention to is my personality for risk tolerance. We’ve talked about that. I need to get into a situation where my leverage choices are creating a portfolio that allows me to maintain my discipline. But apart from that, everything about trading is counterintuitive and is not something that most humans want to do. But I think that is the key. That’s what I was taught in 1983. Do the hard thing, do the thing that you don’t usually want to do. That’s your path to evolving and becoming a good trader overtime.
Jerry Parker:
If everybody wants to vol target or if everybody wants to take small profits, you kind of know the right thing to do.
Jason Buck:
We were talking about the vol targeting. Do you think the other thing the industry has done is they try to go into asset gathering through growing their AUM? So part of that vol targeting is reducing that portfolio volatility because that’s what the client wants? So part of that is moving away from commodities, because they’re capacity constrained. So people have primarily moved into financials and maybe they don’t have those commodities to be a balance to the portfolio if we see another commodity bull cycle or just more volatility into the commodity markets.
Jerry Parker:
Oh, so true. Having too much AUM is a problem. That always should be the answer to maximum AUM, and that would be how much could I manage and still make commodities 40-50% of my portfolio. That’s the real spice that we add to portfolios. People, when they talk about markets to put into a portfolio, almost all the time what they’re saying is what has worked out as a buy and hold. Gold, I could put gold and I could put real estate in because I have this analysis that shows, if you never … you can buy and hold it. I think Bitcoin, of course, crossed that line a while back that now Bitcoin can be included because we can show that Bitcoin has made money buy and hold.
Jerry Parker:
We’ve got to hurry up because maybe Bitcoin won’t be there one of these days. So what the trend following does is it relies so heavily on the commodities and the diversification. But it also allows the commodities to get into the portfolio and the currencies, and the bonds because it doesn’t have to be profitable on a buy and hold basis. Trend following creates this profitable trades for almost any market in any sector miraculously. Lazarus, it raises these dead markets into markets that not only add diversification and safety for clients, but also contributes profit to the portfolio. So it’s so important from a safe point of view.
Jerry Parker:
I look at what we do is just we’re the safest … How the hell can the CTA, the trend followers, the futures traders be the safest portfolio? Not always going to be the best because we’ve reached this period where the stocks have done so well for 10 years, but prior to that, CTAs had a better return and a better return risk profile as well. My guess is we’ll get back to that where we will show our worth once again as far as a portfolio that is very safe and not subject to some of the sell offs we’ve seen in the stocks.
Jason Buck:
It’s kind of ironic to me to have such a divergent trading strategy, but then hoping for the meaner version of multiple decades where it will come back in your profitability at the same time. It’s a great polarity. My final question to you is literally outside the box. Tell me about your passion for fantasy hockey. Where did that come from? Are you trying to Bill James this thing?
Jerry Parker:
Of course. Of course I am. That’s one of the problems that, when you get involved with systematic trading, Richard Dennis, and you start to see the whole world, you try to cram your whole world into it must be a rule. We must come up with some sort of rule. I can’t hardly even enjoy watching baseball anymore because I know these runs created formulas and all the stats and stuff. So a funny story about that is I tried to … So I was in my fantasy hockey league this year and I decided that I was going to be a longterm trend follower. So I refused to get rid of some of these players who are underperforming.
Jerry Parker:
I drafted my players only based upon how they performed last year, so I had a really good team. Inevitably, some of the players performed poorly to start the year. I made some good trades on players who had a bad first month after having a great last year. So I had a really good team. I stuck with it pretty much and I ended up scoring more points than anyone else. So then I got booted out of the playoffs. I got a buy in the first round, and then I lost in the playoffs. The guy who ended up winning it had the exact opposite strategy of mine. He looked at the performance of the last few weeks or the past month of players and he would trade players in and out just based upon the short term performance.
Jerry Parker:
So I was like, okay, I need to do some more analysis of this. I scored the most points, but this guy really came on and I think another lesson of course I learned was we both just stuck to our strategy. When other people all over the board trying to figure out how to do this, we were both just doing our thing and both had really good success. So I think that’s really one of the most important things about trading. I asked Rich one time, what’s the most important things about trading? He said, well, trade small and follow your rules. I can just definitely say that, whenever I’ve underperformed and not done as well as I should have, and I may be the only one who knows some of those periods, some of them are fairly obvious though, it’s definitely been from one of those two reasons, if not both, trading too large and not following my rules.
Jason Buck:
I think that’s a perfect spot to end it. I think about circling back, the idea of wisdom actually comes from sticking with your strategy. As we touched on in the beginning. I think the highest accolade we could all get is just survivorship. You’ve been in the markets for over four decades, which is just phenomenal. It’s something I aspire to, so I really appreciate your time today and thank you for being on our podcast.
Jerry Parker:
Thanks for having me, Jason. It’s been fun.
Taylor Pearson:
Thanks for listening. If you enjoyed today’s show, we’d appreciate you would share this show with friends and leave us a review on iTunes as it helps more listeners find the show and join our amazing community. To those of you who already shared or left a review, thank you very sincerely. It does mean a lot to us. If you’d like more information about Mutiny Fund you can go to MutinyFund.com. For any thoughts on how we can improve this show or questions about anything we’ve talked about here on the podcast today, drop us a message via email. I’m Taylor@MutinyFund.com and Jason is Jason@MutinyFund.com. Or you can reach us on Twitter. I’m @TaylorPearsonME and Jason is @JasonMutiny.
Taylor Pearson:
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