When systems die: The Rise and Fall Richard Dennis

We have been cleaning files and came across the remarkable story of Richard Dennis and his turtles.

For those who don't know it, here is a good recap:

Richard Dennis

Salient notes:

When his experiment ended five years later, his Turtles reportedly had earned an aggregate profit of $175 million.^[6] The exact system taught to the Turtles by Dennis has been published in at least two books and can be back-tested to check its performance in recent years. The result of such back-test shows a drastic drop in performance after 1986, and even a flat performance from 1996 to 2009.^[7] However, a number of turtles (e.g., Jerry Parker of Chesapeake Capital, Liz Cheval of EMC, Paul Rabar of Rabar Market Research, Tom Shanks of Hawksbill Capital Management, Howard Seidler of Saxon Investment Corporation, Jim DiMaria of JPD Enterprises, Inc.) began and continued careers as successful commodity trading managers, using techniques similar, but not identical, to the Turtle System.

Dennis managed pools of capital for others in the markets for a while, but withdrew from such management in the spring of 1988 after his clients suffered heavy losses. In the Black Monday stock market crash of 1987, he reportedly lost $10 million,^[8] with a total of $50 million reportedly lost in 1987–1988.^[2] In 1990 his firm settled investor complaints of his failure to follow his own rules, for over $2.5 million, without admitting or denying any wrongdoing.^[9] He also managed funds for some time in the mid and late 1990s, closing these operations after losses in the summer of 2000.

The trader conundrum:  your system can go stone cold dead, and/or you can stop following your own system, for a number of reasons.

VIX Follow Up

 VIX trended down to close the day before Thanksgiving at 21.25.

Here’s Where VIX is Going - Option Pit

Here’s Where VIX is Going - Option Pit

I think we could see a 18-19 VIX by Thanksgiving.

There is potential,  that if things calm down and we get more clarity in covid we could have a sub 15 VIX before December expiration.

This is the most bearish volatility the VIX has been in 9 months

Why Gold $3000 Is Next: Bank Of America's Full 'Must Read' Client Call Transcript | Zero Hedge

Why Gold $3000 Is Next: Bank Of America's Full 'Must Read' Client Call Transcript | Zero Hedge

Is Robinhood Safe / Legit?

Is Robinhood Safe / Legit?

8 Reasons Why You Should Not Trade, especially if you're a doctor - The Wall Street Physician

8 Reasons Why You Should Not Trade - The Wall Street Physician

Trading and Persistence: the lethal combination

The Way of the World:  People with enormous persistence are usually rewarded:  they do hard things, go to medical or law school, build sterling careers, build businesses, become sports stars, etc.

However.

Traders with enormous persistence -- get crushed.  The art of trading is to keep losses small.  This is exceedingly difficult for one with drive and ego, for one who doesn't like to admit they were wrong, and then worse, capitulate, take a loss.

Doctors usually have big egos, and are especially prone to failure as traders.  Ironically, doctors are attracted to market speculation like children to hot dogs on the Fourth of July.......it may be that there is a part of the brain that continually puts out the message:  "you know more than anyone else about everything....because you are a doctor."

Why these notes?  We heard the story of a doctor who made a killing shorting Wayfair.  The doctor projected it would go to 0, so kept shorting it at 80, then 40.  You know what happened next: rebound, 100, 130....now 200.  Last update was that the doctor was committed to a long-term short on the stock.

We told the storyteller there was no such thing as a "long term" short, stocks tend to rise over the long term.

We also relayed that a short position in a volatile stock should be covered with long calls.  That was about 100 points ago.  The trader, being a doctor, of course knew better.  "Nothing done," as they say in markets.

It's a sad story, and didn't have to be.