asset rotation by funds of funds from one strategy to another is a function of trend following in itself. isn't any strategy's success really dependent on the current market.. i mean, certain strategies will fall in and out of favor depending on market cycle. i don't know how one could be so naive (not you) to say that what isn't so effective today won't be in 2 years, and vice versa..
mav, trend following methods do not test well for viability. i am sure this is why you are not a trend following trader, but rather an option strategist. there is no edge in trend following. yes, ofcourse, some trend funds will succeed wildly, but many more will quietly die during one of the massive drawdowns that are indicative of this strategy. your continued allusion to the succesful personal finances of the some famous trend following managers is not a good argument for the strategy. take a look at larry connors--- "how markets really work" wherein he lays out substantial backtesting proof that the traditional trend following method of buying new highs/selling new lows is inferior.
i enjoyed the book, and think other traders can learn about some unique tactics funds are presently using. so, yeah, i'll talk positively about it. what's the big deal? surfer
Yes, if you're referring to Buffett and his berskshire hathaway stock it had a monthly all-time high back in June of 1998 that was not surpassed until the month of November 2003. That's a little over 5 years that investors had to wait in order for these "strategies that have stood the test of time" to kick in and start making them money again. Oh, and those investors had to endure a 35% drawdown from that peak back in June98 to the bottom in Jan00. Of course, I'm sure all remember the wallflowers coming out and declaring value investing is dead back in the very late 90's and early 2000. Hell, even hammering Buffett...much like Vishnu and surfer are hammering the current trend-followers. Maybe the best option to end this silly debate is two-fold: 1) Realize things change...some styles go out of favor and others come back in favor. Declaring them dead or over is either a) showing your naivety or b) trying to draw attention (in this case to a book). 2) Let's just quote good ol' Altucher from his book, Trade Like a Hedge Fund, written just 2 years ago: "We can see in the results that the maximum drawdown from peak to low was slightly over 58 percent. Nevertheless, this system greatly out-performed the market from 1998 to 2003 and was able to benefit massively during extreme bull market moves. Again, having a trend-following system in your arsenal is an important weapon in addition to the various countertrend systems we have demonstrated in this book" - in reference to a variation of a Turtle System Altucher created for his "20 Successful Uncorrelated Strategies & Techniques to Winning Profits". "One time I came across a fund that was down 22 percent in its first year of business and only up 3 percent in its second year. I cannot imagine the pain those guys must have gone through. But 18 years later Dunn Capital is one of the biggest CTAs in the database (IASG) with over $1B in assets and an annualized return of almost 20 percent." Finally, Vishnu & surfer do have their points on survivorship bias in the markets...and it is everywhere...http://www.tradingblox.com/forum/viewtopic.php?t=1652. And whether the bias is to the negative or positive...it makes it difficult to judge a strategy, fund manager, or even an author fully. MT
That is truly the best post I have ever read on this board. Well worth sitting thru all the others. Thank You!
Thank you for quoting my book. Fortunately, the system you refer to is one I developed for equities and not one that is used by any of the trend followers out there. nor would the system in the book work if you had a billion dollar fund, like the Henrys of the world. As for my fund, please talk to anyone who was my investor, ANYONE, or in my subsequent fund of funds and fund. You can see track record on about a dozen different databases and even the track record of my specific stock-picking is on realmoney.com. All I've been saying is that I think capacity for the trend following strategy is smaller than the amount of money currently allocated to that strategy, and that this has been the case since 2003-4. I started writing that then and its been borne out in the results of the major trend-following funds. Unlike a strategy which focuses on value stocks, there is no mean reversion in the trendfollowing strategy. Just because one period is down, does not increase the odds that the next period is up.
Referring to the thread's original title: - Trend funds will be with us for much, much longer than 10 years. Because: - Broadly speaking, markets have exhibited trends and cyclical behavior for hundreds of years. Put differently, CTA investing is cyclical. - Loosely speaking, trend following is a long volatility strategy. Pay offs are not dissimilar to that of a long call hockey stick. The cost of the option/drawdown tolerance is purposefully engineered by the fund manager. Dunn in particular is famous for following an aggressive approach. Compare his previous returns and drawdowns with other funds. There is a relationship. www.iasg.com - TF funds trade diversified portfolios and make the bulk of their money in a small subset of the portfolio. These gains pay for the chop encountered over the rest of the portfolio. I reckon portfolio management theory is improving. Which leads me nicely onto... - One point that has surprisingly evaded this discussion so far; trend following methodologies appear to have evolved. Old school TFs, such as Dunn & JWH, seemingly employ different tactics to those who pursue evolution and development. Excuse the European bias (as a result of my ignorance on non European funds) but look at the performance of Winton, Aspect, MAN/AHL, Transtrend. Furthermore, examine the lack of volatility of returns these funds produce relative to the old school. Modern money managers like funds of any strategy with low volatility of returns. The new school have engineered their products to suit this. They are the future of trend following. The success of the one man band, outside of institutional finance, is likely to become an even rarer find. - Lastly, I agree almost 100% with everything Maverick74 has said in this thread. He speaks from a position of knowledge, and with the benefit of years of different managers' performance behind him.
First, please don't fall for the trap that your Slow Turtle system is the only system of its kind out there in the trend following world. There's more variations to the Turtle method than we could shake a stick at. Hell, even you mentioned that you received your version of the Slow Turtle from... "The version presented here is based on one told to me by a manager of a multibillion-dollar trend-following fund." -- Altucher in Trade Like a Hedge Fund And your use of the Slow Turtle for equities only trading is the reason I found these statements hard to take: Now, I do agree with your points that there's an awful lot of money chasing trend following at the moment. And this will possibly result in churn and some burns for trend following funds/managers. But, if you still agree with the statement below then despite the current churn & burn...there's still room from trend-following in your portfolio: "I do think a properly diversified trading strategy should include some trend-following component." -- Altucher in Trade Like a Hedge Fund Good book by the way. MT