Trend Following: Not Just for Black Swans

The “Most Hated Bull Market” of all time is also proving to be one of the most resilient. It just keeps rubbing salt in the wounds of the bears, and every time the exuberance starts looking irrational, the market puts in another run up. Josh Brown has a great piece summing up just how much sheer wonder is wrapped up in this moment, but we were a bit puzzled by the inclusion of the following statement:

The Black Swans we’d been guessing at have had their necks broken one by one, their heads bashed in. Blood and feathers, a smear on the wall.”

Right off the bat – things that we’re guessing are going to happen aren’t really Black Swans, per Nassim Taleb’s description. A true Black Swan is something that is such an outlier that it can only be rationalized in hindsight… in other words, if cable news personalities chatter about an issue on a daily basis, it’s not a Black Swan (take the Eurozone, for example).

But that quibble aside, what he’s really highlighting is the futility of top-guessing. No one in their right mind, no matter how bullish, is expecting a perfectly smooth upward curve to Dow 30,000 and then on into infinity. The bears are not wrong in saying that a pullback is coming, they are wrong in the conceit that they know exactly when it will strike. Jon Boorman gets it right:

There’s a big difference between expecting a pullback, and predicting or looking for one. I’m not going to change a single thing. I will still let my winners run, and cut my losers. I will continue to ride every uptrend until it’s over, but I am getting to the point where I am expecting to have that definition of when a trend is invalidated put to the test.

This is why a good trend following component is so valuable for investors. It’s not going to be the shining star of your portfolio when times are good. That’s not what it’s there for. But managed futures can still prosper when stocks are on fire (the Newedge CTA Index is up 4.68% so far this year, compared to 16.31% for the S&P 500. Disclaimer: past performance is not necessarily indicative of future results). And when the next market decline hits – whether it’s a Black Swan or a run of the mill pull back – we’re guessing you’ll be glad you diversified.

Write a Comment

Disclaimer
The performance data displayed herein is compiled from various sources, including BarclayHedge, and reports directly from the advisors. These performance figures should not be relied on independent of the individual advisor's disclosure document, which has important information regarding the method of calculation used, whether or not the performance includes proprietary results, and other important footnotes on the advisor's track record.

Benchmark index performance is for the constituents of that index only, and does not represent the entire universe of possible investments within that asset class. And further, that there can be limitations and biases to indices such as survivorship, self reporting, and instant history.

Managed futures accounts can subject to substantial charges for management and advisory fees. The numbers within this website include all such fees, but it may be necessary for those accounts that are subject to these charges to make substantial trading profits in the future to avoid depletion or exhaustion of their assets.

Investors interested in investing with a managed futures program (excepting those programs which are offered exclusively to qualified eligible persons as that term is defined by CFTC regulation 4.7) will be required to receive and sign off on a disclosure document in compliance with certain CFT rules The disclosure documents contains a complete description of the principal risk factors and each fee to be charged to your account by the CTA, as well as the composite performance of accounts under the CTA's management over at least the most recent five years. Investor interested in investing in any of the programs on this website are urged to carefully read these disclosure documents, including, but not limited to the performance information, before investing in any such programs.

Those investors who are qualified eligible persons as that term is defined by CFTC regulation 4.7 and interested in investing in a program exempt from having to provide a disclosure document and considered by the regulations to be sophisticated enough to understand the risks and be able to interpret the accuracy and completeness of any performance information on their own.

RCM receives a portion of the commodity brokerage commissions you pay in connection with your futures trading and/or a portion of the interest income (if any) earned on an account's assets. The listed manager may also pay RCM a portion of the fees they receive from accounts introduced to them by RCM.

See the full terms of use and risk disclaimer here.

Disclaimer
The performance data displayed herein is compiled from various sources, including BarclayHedge, and reports directly from the advisors. These performance figures should not be relied on independent of the individual advisor's disclosure document, which has important information regarding the method of calculation used, whether or not the performance includes proprietary results, and other important footnotes on the advisor's track record.

Benchmark index performance is for the constituents of that index only, and does not represent the entire universe of possible investments within that asset class. And further, that there can be limitations and biases to indices such as survivorship, self reporting, and instant history.

Managed futures accounts can subject to substantial charges for management and advisory fees. The numbers within this website include all such fees, but it may be necessary for those accounts that are subject to these charges to make substantial trading profits in the future to avoid depletion or exhaustion of their assets.

Investors interested in investing with a managed futures program (excepting those programs which are offered exclusively to qualified eligible persons as that term is defined by CFTC regulation 4.7) will be required to receive and sign off on a disclosure document in compliance with certain CFT rules The disclosure documents contains a complete description of the principal risk factors and each fee to be charged to your account by the CTA, as well as the composite performance of accounts under the CTA's management over at least the most recent five years. Investor interested in investing in any of the programs on this website are urged to carefully read these disclosure documents, including, but not limited to the performance information, before investing in any such programs.

Those investors who are qualified eligible persons as that term is defined by CFTC regulation 4.7 and interested in investing in a program exempt from having to provide a disclosure document and considered by the regulations to be sophisticated enough to understand the risks and be able to interpret the accuracy and completeness of any performance information on their own.

RCM receives a portion of the commodity brokerage commissions you pay in connection with your futures trading and/or a portion of the interest income (if any) earned on an account's assets. The listed manager may also pay RCM a portion of the fees they receive from accounts introduced to them by RCM.

See the full terms of use and risk disclaimer here.