I haven't listened to your chris clarke interview (who?), but if he says that high drawdown is useful, he must be a moron. How is losing 50%+ of your money ever useful? Perhaps he meant to say it is inevitable when long term trend following!
Buffet and the likes of trend follower Bill Dunn (chart), both over 40 year track records, have tolerated multiple -50% DDs. There is a reason for this. Again, where are the high performance strategies with low DD over decades?
Don't want to be unrespectful but I think that a few decades ago trading was quite amateurish. That explains why at that time much more people made money. You didn't have to be bright or smart, almost everybody made money. But the market got more professional over time. So traders need much more qualifications to make money. The market is making a selection between real traders and occasional winning traders. You can compare it with the evolution in Formula 1. Schumacher was 7 times worldchampion between 1991 and 2006. He retired but came back in 2010. Surprisingly he was never able to compete with the others anymore. The competition was completely changed and he did not have the qualifications to be successful in this competition. I was a fan from John Henry in the 80's. But he closed finally because what he did was not working anymore. There is an evolution in everything: cars, computers, houses, roads..... Or you adapt yourself or you quite. This proces of selections happens everyday everywhere in all businesses. Also in trading. Winners of today can be the losers of tomorrow. Nokia was for decades the biggest cellphone company. Bought by Microsoft and will be closed completely soon. Netscape, Lotus 123, ..... But I must admit that John Henry has a lot more money than me. Read every disclosure document: Past performance..... fill in yourself. I believe in trendfollowing, but the definition of that word has changed over time. A car in 1940 is also completely different from a car in 2015.
About Buffet: watch this graph from the S&p starting 1950. I agree that it is in hindsight. Buffet had the merit to have a vision that saw this (partially) before it happened. He also outperformed the index although to me it was never his intention. I think he only wanted to make smart investments and got a "little" help from a 65 year bull market. If you see the graph a few things are, to me at least, very clear: If you would buy anytime in the past the index, even at the worst possible moment, and never sell you would ALWAYS be in profit today. So with buy and hold (that's what Buffet did) it was impossible to lose money. There were two drawdowns and these two drawdowns hitted Buffet too. Mostly because his positions were too big to sell everything and buy back later. But I am not sure if he did see theses drawdowns coming. Buffet sometimes had a bad timing for buying, he missed many bottoms, but the 65 years bull market helped him to overcome that problem. He was only interested in the long ride. What would have happened if the market would not have gone up for 65 years? Would Buffet have sold anything? And at what price? We will never know. But if he takes drawdowns of 50% it means that if the bullmarket would really stop his losses would be huge. I personally think that the bullmarket will not continue like it did since 1950. Economical growth becomes more difficult. It becomes harder and harder to invent new things. Consumption cannot continue to grow at the rate of the last 20 years. But what Buffet did was exceptional, even with the help of the bull market. You should do the right thing at the right time. And that's what he did.
Very well, I just need one example to prove you wrong: Stanley Druckenmiller, 30%+ pa average returns for 30 years, NO LOSING YEARS. Go Google him.
1. Richard Dennis definitely had issues managing money for clients, but to summarily dismiss him without acknowledging the decades of success of his former partner Bill Eckhardt and other Turtles seems odd. I break apart each of Dennis' blowups in The Complete TurtleTrader. 2. Further, if you know some Turtles have had decades of success and then you know a Turtle, Curtis Faith, bombed and sits in jail represented by a public defender via an "indigent defense voucher" would you then say I picked only Turtle winners and ignored Faith? I maintain its worth finding out why losers lose too. Don't assume all losers took the steps of winners and just lost due to natural variance. 3. Survivorship bias is often raised as the lazy man's retort to say trend following doesn't work. I don't know all issues associated with ML pulling money from JWH, but he clearly had other things going on, i.e. Bosox, London trend following competition, large DD. It is also interesting to note that Graham Capital run by his former President is quite successful today and of course makes significant money from trend following. You raise valid points. My perspective: 1. Pro trend following track records are great proxies for trend following strategy, but one always has to dig deeper. 2. Dealing with client money is an entirely different beast than the strategy itself. I would argue one of Dunn's and Buffett's success secrets--less client intrusion. 3. David Harding and other 1B+ trend following managers of today are dealing with a different set of constraints than past managers. They make a ton of money from classic trend following, but they also are nowhere near the size of years past. They are massive. 4. David Harding started in the late 90s with 5M AUM. 5. Many young and new trend followers managing a few million have appeared on my podcast. They are not massive shops. Their track records for 4-5 years look like an aggressive trend following track record, up and down. They don't look much different than other traders 25 years ago. 6. Trend following is always about 35-45% winners, finding a positive edge, selecting a portfolio (one of the biggest causes for variation), counting on Daniel Kahneman's work to be valid (people are people) and then turn it on. That's it. It hasn't changed much. I don't see that trend following has changed much. The biggest change is the size of some trader's AUM, and perhaps arguably just the markets since LTCM summer 98. We have had one wild odd ride since LTCM went under, but trend following is still trend following. Now of course EVERYONE has something to sell, and everyone has their secret sauce, but as you say its up to everyone to read up.
Further to very long term trend following performance, over 100+ years, AQR (PDF) and CFM (PDF) have added much to the knowledge base. Also, Alex Greyserman of Larry Hite's trend following firm went back 800 years with his work (see my podcast interviews with him). And David Harding also released a TF study going back centuries. Straightforward repeatable strategies.