Top Turtle's Trading Tips (w/ Jerry Parker) | Skin In the Game

Can't. Be a marine by reading the book you can't really be a turtle trader as. Good a turtle trader as you would if you unless you work for Richard Dennis and Bill Eckhart, systemic. Trend-following has attended to make money when we see things that have never happened before. I heard Paul Jones speak in. 1988. At UVA and, he talked about being short Japan and, making a lot of money in that stocks trade and his, response, was you know what people don't want to hear is that, I was short five times before that and took small losses each time we don't vol target, we're kind of traditional, classic trend followers where we risk the small amount but if the volatility gets. Higher and higher as the trade becomes very very profitable we. Don't have a tendency, to get. Out of any of it we just sort of let it go and so, you got to be a little different. Richard. Dennis is one of the world's most famous traders. From Chicago, pits of the 1980s. He, knew his proven trading strategy, could be taught to others he, gathered group of eleven traders in Chicago, to teach them this system, these, people, became known as the turtles Jerry. Parker is arguably, one of the most successful, of these Turtles taking. His newly learned trading, strategy, he founded his own CTA. Chesapeake. Capital, I had, the pleasure of sitting down with Jerry recently, to discuss his background, as a turtle, and his, trend-following trading. Strategy, please, enjoy this episode of, skin in the game so, here we are on skin in the game with Jerry Parker CEO and founder of Chesapeake, Capital and one of Richard Dennis's, original. Turtles, want. To play game yes, I do all right Steve I'll call you in a bit mmm. Cold of course cold all right you, want to go first, no. You go first all right. Let's. See. I'm. Gonna pretend that this is. Virginia. In last year's playoffs, when. They went out the first round, oh my, thanks. For those memories I, like me you're gonna do the same thing so Jerry. Let's, start the beginning take us back to 1983. Tell us your background what. Were you doing then before. You, saw the ad from. Richard, Dennis to become a turtle living. In Richmond Virginia working. In public accounting. Destined. For lots of boredom and no, fun so, it. Was pretty easy for me to figure out that I wanted to do something different, and the markets and trading and. Stocks. Or bonds or currencies of commodities, I had a very open mind about. Where, and. What I wanted to do so you had an open mind and you, saw this ad in the newspaper yeah I was looking at the ads in the Wall Street Journal, the, summer, fall. Of 83, and. Richard. Dennis wanted to hire people, and teach them how to trade, futures. Give. Them a stake money and pay him a percentage of the profits. Probably. The most important thing is I had heard of Richard Dennis so I knew it was totally legit and I thought futures well that could be okay you know currencies, commodities stocks, bonds, long, and short it sounds good. More, diversification, but. Of course I was mostly learning. And reading and wondering. About the stock market but totally open, to leverage. And shorts and diversification, so. Gerry tell me this where, did the name Turtles, come from good, question you, know we're twelve people in the room trading, and there's. A big apparatus. Around us with the clearing and the, sandy, commodity, people and the brokers and they. Want to start nicknaming. This group and of course we wanted nickname, so. It was you, know the 12 apostles. Now, that's, no good but. Evidently rich was traveling in Singapore and they. Come across a turtle farm our, place where they're raising Turtles and someone. Said hey rich that's just like you raising trade traders, and that's kaga, so. Uh that's. The truth and there's so many different explanations, of turtles was there a bet I'd say there was no bet if. Trading, could be taught rich do not bet, bill. But you, can take my word for it that's how the turtles came about okay. Now we know now we know the Lord's a great name great nickname, III. Do get embarrassed, in the middle of meeting my brand-new people and my wife goes he's, a turtle oh.

So. How did it go how did you get to become one of his Turtles, well. Like I said most important thing was seeing the ad, I. Had. Been reading a lot of books and, sort, of was, interested. In Marty's. Why who's, the sort of a famous guy who was you, know some trend based and, sentiment. Based, which. Ended up being very similar to Richard Dennis so I was pretty, knowledgeable. On. Paper about, how to trade and what worked I mean I thought trend-following was wonderful, the more I heard about it the more I liked it and so I just took, a guess. Well hopefully if. I get an interview you, know Richard Dennis is it, would be a trend follower as well so that was I didn't really know for sure but, that ended, up being a free, fortuitous. Hit. So, you went out to Chicago and. You. Learned from her to Dennis while you were there yeah, well we went for an interview and so. Maybe a thousand, people applied for this job and, you. Know the end of 83, they did it again in 84 and so. I went to Chicago and for, the interview I think they may be interviewed 40 people they had sent out a test when you sent your resume and you got a test 100. True/false, questions, about. Trading, and psychology, and how to think about the, world and markets, and. So. I took this test sent, it back in and they when I went up there they said well how do you think he did on this test and I said I think, I did pretty well and they. Said yeah you had the highest score out of a thousand, people. That. Story, has been miss. Miss. Stated, many times that somehow I had a perfect score not true just, the highest out of a thousand. But they wanted to hire people who had done well on the test and people who did poorly but had other things. Going for them like, back gamblers, backgammon, players actors. A, lot, of normal people but. Yeah. That was my claim to fame doing well in that test think thankfully, I had was, sort of prepared and, then they asked me another, question they asked I think most people was how much do you think you already know about the markets and. So my answer was like you, know like 95% which. Is kind of laughable of course didn't, take me long to, realize that was wrong I think one other person said, 99%, and. Then low really yeah, and then lish of all the, only woman.

They Hired of, course she said like, 0% you know so. Kind. Of a good lesson there and but. Yeah they were they, took pity on us and they did they hired me anyways and then we had like a two or three week course and, then, January. The second or so 1984. We, started. Trading. That. Was a nice one but I have. Little kids so I know that move I. Feel. Like I should close my eyes. She. Started trading after, the course there and then, how, long were, you there trading, for him that. Program lasted four years and, I lived in Chicago for, two. And a half years so, the program, was preset. Already that would be a four-year program I think it was initially, originally. A five-year program but, I think at the end I kind of got tired, of it or decided. You know the, experiment, had ended which, was can you teach trading, I think. That was one of the ideas they had if they would like to know if you just get sort of random people or maybe people who are a little, bit smarter. Than random can, you teach them trading, and since. It, was rules based it was basically that you, know can you teach these rules and of course you can, so. I think the most important, thing that was decided was, how many when you teach twenty people the rules how many of them are going to continue to follow it or, even follow it from the beginning you know there was all sorts of reactions, to, losing. Money and, did, rich tell us all of the rules so they withholding rules we're, having draw downs were losing money they, must have, other rules they haven't told us about a lot, of silly stuff but it. Was really fun, you know being there with, in, a room you, know all the turtles were in one room a lot. Of a lot of ping pong playing. And. A lot of a, lot, of fun times did. You talk about your trades with each other well. I think another. Thing that happened was is I think they wanted people to be. Different and maybe take the rules and expand. Upon them a little bit add some Flair that, was a word, they threw around a lot Flair add your, own kind of style, not too far don't. Drift too far away from what we were taught but I think with everyone being in the same room people. With people perceived more risk in being, different right so almost when. A certain, soybeans. Became, a trade 20, people picked the phone up at one time that's. Not too far off, although. I when. We get together we tell stories about some. Of the things that happened and, some. People were like that never happened so maybe, my memory is not that good. Tell. Us more about when you left. Richard dances program what did you do next oh, we. Have to raise money you know we had no experience doing that we. Had a the greatest clown of all time who, loved everything we did because it was his we were just there to carry, it out and we loved doing that but we were, back into the real world, we had a great track record we had. So. We could show people too and a percent years frequently. People greedy they want to give you money do, this for me, once. I was walking around Wall Street this is before you know I cell phones I'm, going up to the pay phone and, I, called the head of Merrill Lynch manage features and I, say Gerry, partner can, I come up and, talk, to your boss about, Chesapeake. And she. Goes no you, cannot and. I said. Okay. Well just tell him that I am. A turtle Richard Dennis turtle she. Just hold on she comes back she's laughing yes please come up so. Life, was easy and good because of rich and because of the track record and. You. Know the whole turtle story helped. Us a lot for a long time I carried, you along yeah. All. Right so you were there for four years and then, you, left and you went started your own CTA that's right we. You. Know had a incredible. Asset. When we left we had a good track record we, had a track record which. Is very. Important, sure he had a, good track record but trading was much different back then it was trend diversification. But it was shorter. Term. Massive. Amounts of leverage, I would say that most. The time the.

Performance. In the room was around 200 percent plus for, everybody you know everybody was, in that range. Once again but he had the same rules the same. Opportunities. And so there was no really no reason for for, me not to do well I was just you know momentarily, not. Doing, what I should do and. So yeah we had a good track record lots, of experience, it was a pretend, environment, it was you. Know I've often said it's kind of like it's a bad analogy but sort of like you know you can't be a marine by reading the book and so, you. Can't really be a turtle trader as. Good a turtle trader as you would if you unless you work for Richard Dennis and Bill Eckhart because you. Know is just like do the right thing do the right trade but I'm losing money doesn't matter if, you do the right trades and you lose money you'll be fine, but if you don't. Follow the rules and you don't. Do the right trades but even if you're making money you may be in trouble so it was just a constant, encouragement, to. Don't worry about it you're doing the right things you're doing the right trades the, type of feedback that you never get from real clients you, know it's. Like I don't care how you do it just make me money you know so rich. Design, the system she designed the program we. Had tremendous training, from my literally, to genius, people these were geniuses, every. Opportunity to do well and being, encouraged, if. We lost money sometimes, it would give us more money to manage. But. I think that's the untold, story, is, how. Smart these guys were and how, they prepared, us for a, career not just here's how you trade today follow. These specific, rules now. You've got to evolve you've got to change you got to stay. Alive and, there. Are some 10, commandments, of trading or trend trading but then everything, else needs to stay. Up with the times it, was rules based and, you. Took it back, to Virginia, hoping, your CTA, and was. It always. Market. Trending. Or to, just kind of turn in to be market. Trending because of the way you used, it well I think it. Was initially. Trend. And. But. I don't think that that was what, they minute, to be I think many years later I came, to the conclusion that as. Much as I would. Not don't have any interest in doing anything except trend and momentum. Their. Ideas, were no this is your trend works now this timeframe works now but. It's really about doing the, proper research in. Back-testing, and, evolving. And so if that shorter term or counter trend so be it. But I sort of took, it to, you. Know trend was the only thing I was really interested in so, at the time it was, short term however since then you've kind of evolved until more, longer-term trends. That's right I think that's one of the major. Changes. And, needed. Evolutions. Was, to realize and probably, in the late nineties, the. Shorter, trend timeframes, were not profitable. And. I've just often said that it was you know a lot. Of computers a lot of trend-following a lot of back testing, a shorter. Term is, desirable, you know the draw downs are smaller let's say if its profitable, system, but. It just in. Order to maintain profitability the.

Look. By periods had to be extended, quite a bit because. Of the choppiness and, looking. For people stops or, yeah, all the shenanigans that, goes, on you, know so we've, definitely become, more. Of a. You. Know six month to a year holding period. How. Do you manage or how do you manage to stay away, from some, of these big spikes where people get, stopped out of the market and some people, even go under because of it well, I think. The. Most the two most important things I was told and I firmly still believe that our follow. Your system and then. Trade small and I think that's is the root of a lot of trader problems can't. Follow my system probably, trading too large big. Swings I'm losing clients probably, trading too large can't sleep at night can't, you know and so that should not be discounted, about how those two kind of go hand in hand you. Must follow, the system but also risk. An amount that, is normal and reasonable for you and for your clients so, does that come where your position sizing comes into play position. Sizing comes, into play for sure that was part of the turtle program. It was entries. And exits are important, building. A portfolio, sizing. The trades properly. A lot. Of details. It's like building a home you know. So. Many details go into, crafting. A trading, program so. When you're building your portfolio how. Do you diversify, among. The different instruments that you trade, diversification. Is very, important, and powerful and. So we. Do. Analysis of the markets, back-testing. And other ways to, try. To get a handle, on which. Markets we, should have in a portfolio, and how they're all correlated and. Understanding. That these things change oh gosh, they changed, so once you get it all squared away and you, get all the decimal, to the fourth decimal place it. Changes, if. He runs most, the time if you run an analysis, so I'm heating oil and crude and. Gasoline. They're, 90 percent correlated, but. The first big turtle trade of all time was, Feb heating oil it, doubled and. January. Heating oil didn't go out very much March, heating oil didn't go up very much there was a freeze. In New York Harbor that, couldn't get the heating oil in that. One month so. Trend-following. Makes, money. Systemic, trend following hesitancy, make money, when. We see things that have never happened before, so. You want to build your portfolio safely. And realize. You know crude. Heating oil and unleaded is pretty much the same trade oops. Not, all the time right at, 1990. December. I made. 30%. In December, I made, 30% of the year and I made 30%, in that heating oil trade. So. This is a dilemma what are you going to do you, can't ignore it but then you have to be prepared for a 1987. Silver, doubled. Correlated. With gold 90%, let's say but gold. Kind of sat there so, these things happen the markets are weird, I think, as much as we look back on history to, see you know where is a pretty good place to buy where's a pretty good place to sell I don't.

Think History is a great guide in a sense that what's, going to happen in the future will. Be much different these techniques. And tools and, parameters, they. May continue to work in a similar way. But they're capturing, different. Trends, and when you know when crude goes. Up a lot or Qin crude goes down a lot it's, usually gonna never, these markets have big moves it's usually a surprise no one really sees it coming yeah it's, interesting because if you know you you, talk about this and from a traders perspective, you, know you look at things and I'm always like am i in a trade right now is this the beginning of a trend right now and then, you get in it and you're. In the trend and you're like when's it gonna end and, you're, like is this the top is this the top of the trend how do you figure out if it's the beginning of a trend or the end of a trend in. Hindsight that's, yeah of course right, exactly, I heard. Paul Jones speak in. 1988. At UVA, we. All got in a car drove from Richmond to Charlottesville to hear him give a talk at the Business School and. He talked about being short Japan and making. A lot of money in that short, Japan, stocks. Trade and his, response, was you know what people don't want to hear is that, I was short five times before that and took small losses each time and, the same with our crew trade and 14, where the CTA's got short at 90 and it. Went down to 20 something's you know we had been. Chopped up in that crude market you. Know for months and months and then when we sold it the last time we. Were as surprised as anyone that. It went had, such a big move so I think that's another thing about systemic. Or trend or the way that I look, at the markets is that. How. Can you make money if you're gonna be surprised, you know how you can making money if you're if you're losing on most of your trades, you. Get bailed out by these mega winners. So. That's the key I think and a lot of for a lot of traders is small. Losses, be. Bold with your profits hang on and get, yourself in a situation where you. Can be tough and strong, and not. Get out too quickly I think more money is lost. Anticipating. A trend reversal. Even. As painful, as a trend, give back will will be you. Know it's mostly just embarrassing, though or it's just kind of like emotional. It's not usually a fatal. Amount of money because you've made so much and the trend to begin with well you have to have some discipline, to be able to stand like you were just describing you. Know it's. The major, requirement, maybe, that's what we really add to portfolios. And to, the whole process is just that we're dumb enough to keep doing all these trades we. Don't care. We. Don't care if if. It's been five losers in a row in the same market I mean we kind of care but, we're sort of committed to doing it, the. Back test when you do the back test or you look at historical performance oh man I would have done that trade every single great not, a problem we know you, just do it and then when you get on the firing line you. Know it's a different it's a different situation sure, yeah. Man, you're going first seems, like. When. You go second they're always playing catch-up. So. I saw you speak last. Year I believe it was and. You. Said that you, divided your portfolio, up to, be diversified, basically. 25%. Fixed income 25%. Commodities 25%. Equities and, 25%, currencies. Does. That mean Lee how you do it to stay so extremely. Diversified, so. That you, won't take a big hit that's, that's a good that's, a good approximation I, think that's how you want to look at it putting together diverse. Asset, classes. Like maybe. A little bit more commitment, to the commodities, or the single stocks because there's a little bit more diversification, there, then, the currencies or the, interest rates but that's pretty much what you want to do we. Have a big edge by. Having. All this markets into portfolio a really. Big edge by having, shorts on most these markets. Are positively, correlated so. Things are up a lot or whole portfolios down a lot, so having logs. In shorts, is very. Important, one of the things that I do is I don't go. Back and look at prior. Performance historical. Performance so the yen may be the best performer crude. May be a great performer but, I would never over wait those it's just purely, based upon the.

Contribution. Each market, gives, me to. To Doris vacation, that's, I think how you want, to set it up. You're, doing backtest you're looking at the past but. The future is gonna be different so, that was kind of leads. To my next question he said, you don't really look, at the back the historical, data but you do back testing we did back testing to do. An indication of, what. Timeframe of trend-following should we try. To adopt long-term, short-term medium-term what does that even mean what's the look-back period what. Has worked in the markets are choppier now there a lot, of whipsawing so it's probably better it just to be longer-term. But. When it comes to putting together the portfolio, we. Are just looking at the. Markets in terms of the. Fortification. Properties that they offer which. You know which can change and fluctuate over time, so. You, know it's not going to be perfect, you can't predict the future but. If you buy this break yard and then sell that breakout that's probably your best indication, of making money, even. Though we're not really predicting, you know we're wrong, 60%, of the time so we're. Don't follow us if you did the opposite of what we do you'd probably be. Right more often how, about, the. Markets right now, is. There anything you see that stands, out in, terms of each of those asset classes we, just talked about maybe commodities, anything you're looking at right now I think, it's always kind of problematic, for traders and trend traders to talk. A lot about their short trades you know historically the shorts have not been as good as the long so, I'm, really focused, on your where some commodity, longs where, my Long's. So. There's a maybe the base metals are strong ish, seeing. Now we wrote the platinum I mean the palladium that's. Had a big sell-off that we kind of rode that the cattle in the Hogs was kind, of strong it's, nice weird. I know but, lots. Of versification in those two markets but, most of the commodities are still short the, grains the. Precious. Metals made, a run for it but getting hit here.

Recently, Currencies. Mostly. Short versus the dollar starting, to see a little bit of that changing, which is nice and, the. Stock portfolio, is, Long's. And shorts so, that's good I think that's one, of the edges that we think we have is not trading index, is betraying. Single stocks where, I can go in and once again create. A stock portfolio that. I create not what the S&P 500 gives, me and, I can take, a, couple, of stocks from each sector, sub, industry, or whatever and. Put. Myself in a highly likely situation where I will have some logs and shorts it's kind of odd like why don't you just try to find just the long stocks for going up yeah. I agree I should try to find that but I my, primary goal is to seek, diversification, all, these trades in the trend-following world, we're. Gonna make about the same amount of money over. Time we, certainly don't believe that stocks were superior they, should be in the portfolio because, they offer diversification. In 2014. The CTA's did really well and, mainly, because of stock sometimes, it's the only thing going but, certainly the. Last ten years are, much. Different than, the 10 years before where, it, does seem that diversification. Has, been penalized, to some degree but, I'm sure that's gonna change. Hopefully. You're. One of the few CTAs. That will trade single stocks is that correct yeah we. Are I think, just from the very beginning and from, the total program it was just a tremendous emphasis on, diversification. Trading. Single. Names just seemed an obvious thing to do right it's. A pain in the butt, it's much easier just to trade the indices and all, of your markets are in this FCM, account it's just a piece of cake clients kind of prefer it you, know and, but. You need to stand up and make, a you know try, to do something better and different even no-class not asking for it and maybe they complain about it a little bit I've definitely had people, complain. That I. Understand. The trend, following of the currencies and commodities and, the bonds, it's, gonna look too close to. Me for you to say oh just follow these trends in the stocks you know. And I don't really think that's a right, or and. So we're like well sorry, we're gonna do it yeah and that's we've. Had a lot. Of success with it I'd, imagine that that that diversification. Held. Joe out from some of those or. Maybe. Didn't lose as much during. Something's big equity sell-off the that like we had in the fourth quarter last, year you, know you don't lose as much you don't make as much. There's. When, the markets are in a big uptrend, it's hard to beat the S&P, or, the Fang stocks you, know you, don't make it on the upside you don't but, it definitely reduces. The draw downs and, in. The same way that I would not desire to trade the dollar index or, the euro only, or, commodity. Index. I like. Having, Long's and shorts I, complain. When I don't have Long's and shorts in the come on in the currencies. So. Yeah it makes perfect sense, in. The stocks as well so. People are your clients because they like the stability that you offer yeah besides you're making the money yeah yeah, it's, different and you. Know we do things differently than other we don't vault target, what kind of traditional, classic trend followers where. We. Risk, a small amount but if the volatility gets. Higher and higher as the trade becomes very very profitable we.

Don't Have a tendency to get. Out of any of it we just sort of let it go and and so we're a good complement, to all of the European CPAs, who are fault targeting, and, you. Know so you got to be a little different right, what would you say is the. Largest. Drawdown, you've ever had. Well. Definitely. Richard Dennis I lost 60% in one day. 1986. We're. Just making so much money and I know we were up 200%, and. I went home on. Friday. At peak equity and. My. Bonus was a million dollars and I was just on top of the world and Monday, was just this day of all the markets going against us yeah we had made so. Much money so quickly and. Just like oh well such, as life rich, approves of it you know he's. Telling us to do we think we're doing the right thing that it must be right. And but, I quickly figured out 1988. When I started Chesapeake that maybe 200% was not what. I should go, for in order to have a stable business but, I do remember being. Jealous and hearing my other turtle friends who had not made that transition quite, yet doing. Really well and that green, the drought in 1988. So but. Yeah it's an evolution. Over time a, lot of positive, from the turtle program, and. A lot of things that you have to get, out of your head when. You trade. Sort. Of client, money. Is. It a lot easier now with computers. As. Compared to like 1980s, where you had to execute, everything by hand and. Pick. The phone up and make a phone call down to the pits now you have these algorithms, and, you. Know you don't necessarily have, to make. The decisions, right there because they. Will do it for you in a sense you program them but in a sense you you. Don't have to actually go and physically do it does that I'll take, a little bit of pressure off of you I think. It makes us more disciplined. And you. Probably. The traditional, CTA firm would have a research. Department that. Creates. The models a committee. That approves the, models and you, run those models, each day on the new, data and then. You have a separate department that execute, the trades so, the guys who are executing, there, are only jobs to get a good right Phil right and everyone. Else's hands are tied you, know they can't walk in there and say hey do. A Gerry trade or through a Joe trade I'm, getting freaked out so. I think this. Division of duties gives, people, more.

Consistency, In a disciplined, there's, still ways to what, I call systematize, discretion. It's. Really easy sitting for the computer, and say, I'm really nervous about this coffee trade that, coffee skyrocketed. In 1988. As. Well or maybe nine and, I remember sitting there going on really want to get out of this coffee it's just going up too much so. Now I think more, than like a lot, of people just program, that in where, as a rule but, so rules were not a panacea, either if you have a bad rule and I think there's a lot of temptations. To have bad rules I've done it before and just think. That you can get away with it because it's computer. Code you can't how. About on, the other side what, was your biggest. Winner, we. Definitely had some trades at lasted a year or two or three. Short. Yen I, think in the 90s or 2000s. You know crew trade in 14 came in a really good time, 90. Down to 20 something. It. Hasn't been a lot of great trades you know the heating oil trade I mentioned earlier both of those are legendary, traits. Natural. Gas has, been some major moves, in natural gas. 87-88. Drought. Oh. The. Base metals in four oh five of six gigantic. Trades. And lasted a year or two, when. You put up a weekly chart I don't, my settin you need to trade weekly I'm just saying put up a weekly chart and scroll go to scroll, through the charts, massive. Trends just pop out and, you, look at the little jig you know in the middle where it goes down a little bit and comes right back like that's piece of cake you, blow it up into a daily yeah it's like oh my god or, you live through it you know living. Through things I, think. Bill that card has a good quote I can't remember what it was but something like you. Know today. Is really a bad day and just really important, but you won't even remember it you know a month or two. Well. Thanks for coming in Jerry it's, been fun Joe so much fun thanks for having me glad we got to talk about your, background a little bit your investment, strategy and where, we are in the markets today. You. You. You.

2019-05-09 17:16

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