Turtle Trading

I have been reading the Complete Turtle Trader, trying to get some inspiration. Back in the early 1980s, futures trader Richard Dennis hired a bunch of relative novices (some actually had trading experience) and taught them a trend-following method of trading. He then got them to trade some of his assets using the methods. The idea was to see if trading could be taught. During the next few years, many of them generated extraordinary returns, as documented in the book. Then the experiment ended after Dennis suffered major losses and shut his fund.

Some of the "turtles" went on to run their own investment firms. The star pupil seems to be Jerry Parker who founded Chesapeake Capital. However, subsequent performance has not really been that good.* The fund has underperformed the S&P 500 and has had about twice as much volatility. Taxes would be much higher on Chesapeake's strategy than on buying and holding the index. Why does voltatility matter? Because I could have used leverage to invest in the S&P 500, increasing volatility to the level of the Chesapeake Capital fund, but increasing returns far beyond its returns.

This doesn't encourage me to adopt a long-term trend following strategy. The assumption of this kind of model is that the future is entirely unpredictable... Eckhardt is cited in the book as saying that random entry into a trade is just as good as long as you follow exit rules. That's true about most momentum trading strategies I think.

It's notable that none of these turtle related firms are very big in terms of assets under management.

* The "LV" fund performed better but still underperformed the S&P 500 on a risk adjusted basis. Salem Abraham's – described as a "second-generation turtle" in the book – fund has gone nowhere in the last ten years.