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Friday, May 8, 2020

TTP Workshop 3-Month Report Systematic Trading

Mar 15, 2020

Ed,

I see two other 3-month reports in my in box and keen as I am to read both, I refrain from doing so in case my own report is influenced by their experiences.

At the time of the workshop I stood at a fork in the road. One path was to Columbia Business School for a second sitting of their Value Investing programme, the other was to Texas to your weekend workshop. I had never heard of Ed Seykota until reading Michael Covel’s Trend Following a few weeks prior to the start of your course, and I had always viewed technical analysis as a bit of a waste of time. As you know, I chose Texas.

The result has been a complete transformation in how I view the markets and manage money. I no longer feel any need to be right, but simply react to what the market tells me. Previously, as a value investor, I would buy shares when they were unpopular and hold them until they became popular. Sometimes this would work, but at other times it would result in substantial losses. The losses bore too great an impact and the results were mediocre. I lacked a system. However disciplined I may have been, without a clearly defined process, there was nothing to exercise the discipline on.

All this has changed. I now have a clearly defined process for entering and exiting positions, for stopping losses and for letting profits run. On returning from Texas I continued to learn by reading all the Market Wizard books, books on technical analysis, and additional books referenced by or written by Market Wizards.

I introduced a strict stop-loss discipline on existing portfolio positions and began investing in commodities in addition to equities and government bonds.

The net result of all this is a well-defined process, discipline to stick to the rules, and vastly improved outcomes for my clients. As an example, having cut all losses in December and realised sizable profits in January and February, I am sitting in the current downturn invested 20% in gold, 10% in silver, 20% in government bonds, 40% in cash, and only 10% in stocks. I manage around $350m, so the trip to Texas has been well worth the time and money, having saved my clients many millions of dollars. It has also meant we are well positioned to take advantage of any recovery (I do not take short positions).

I came to Bastrop with a bumper sticker that read ‘Pay off mother’s mortgage’. On the first day of the course I made the decision to do this by selling a flat I own in central London. I began the process of preparing the property for sale on returning home from Texas. As it happens, my investment business has evolved in such a way that it appears possible to pay off the mortgage without selling the London flat, which, given the effect COVID-19 is having on the London property market, may be no bad thing.

I left Bastrop with a new bumper sticker – ‘Systematic Trend Follower by 20th December 2020’. To a certain extent this remains work in progress, as I have yet to build and back-test a system. In other respects this is already happening, for I have clearly defined rules which are written down in an investment process document that I adhere to. Simple rules and an effective process.

In summary, I feel very much a beginner. Having been a fundamental investor for 20 years and a technician for three months, it has been a rapid evolution, which remains ongoing. Life is lived much more in the moment now than ever before. I am very grateful to you and Charles and everyone in the Tribe of December 2019.

Thank you.

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