An old trading story rehashed in my latest at Yahoo: The Legend of the Turtles
In 1983, Richard Dennis wanted to settle an argument with William Eckhardt. Dennis, a famous commodities trader, said that trading could be taught as a set of mechanical rules; Eckhardt, a mathematician who had built and traded exactly such mechanical systems, disagreed - he believed there was that little something in a trader that made them successful, something genetic or involving aptitude that made traders great.
In a setting reminiscent of the movie Trading Places (*), they decided to conduct an experiment. They placed an advertisement in the business dailies requesting applications for traders, mentioning that "Prior experience in trading will be considered but is not necessary." According to Market Wizards (Jack Schwager), more than 1000 people applied, and after a recruitment process involving an exam and interviews, 13 people were selected. Dennis and Eckhardt taught the select traders a "system" - rules that mentioned when to buy, how much to buy and then when to sell. In a trip to Singapore, Dennis had seen a huge vat of squirming turtles being bred in a farm, and decided he would "grow traders just like they grow turtles in Singapore," which led to the group being named the "Turtles".
After a two-week training program, each Turtle was given money to trade. The rules were simple. Enter when commodities broke out of a range, and keep adding more positions as they stayed above. Get out when either a well defined stop loss is hit, or when the commodity hits the other end of a narrower range. Size your positions according to the volatility of the commodity - the higher the volatility, the lesser number of contracts you will take on. The Turtles were to risk no more than 2% of their corpus on any single trade.
The result? The turtles ended up making more than $175 million for Dennis in a span of five years, according to former Turtle Russell Sands. The Turtle program was also so incredibly successful that in a year, Echardt and Dennis trained more Turtles, taking the total Turtle count to 23. In 1990, when Schwager wrote The New Market Wizards, he collated the results of a 100 Commodity Trading Advisors (people who manage other people's accounts), and of his shortlisted top 18, eight turned out to be Turtles.
Comments highly appreciated!
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- The Lack of Nifty Earnings Growth (Comments)
- Too Few Investors (Comments)
- Survivorship Bias (Comments)
- The Problem with Multi-Level Marketing (Comments)
- Planning for the Grim Reaper (Comments)
- Of Options and Choices (Comments)
- Credit Default Swaps (Comments)
- Four Investing Myths Busted (Comments)
- (The Whole Lot)
This post is written by Deepak Shenoy,
at Capital Mind.
