This Week…

A few months ago, we covered how understanding the pros and cons of systematic and discretionary strategies will help you determine what type of investor you are.

Today, we’re going deeper by looking at the rules-based strategy known as systematic investing — and how investors can use it to improve their market returns. Our expert for this investor masterclass is Jerry Parker, chairman and CEO of Chesapeake Capital Corporation and a renowned systematic trend-following trader.

Before going out on his own at Chesapeake, Jerry was one of Richard Dennis’s famous “Turtle traders” — and the systematic lessons he learned then have stuck with him for nearly 40 years. 

In this issue, we’ll cover 3 things:

• The legend of the “Turtle Traders.”
• The “Turtle Trader” basics that you can apply to any rules-based system.
• The key takeaways of a systematic investing strategy.

Let’s get started.

Welcome to the Game

Welcome to The Game of Investing, a bi-weekly newsletter bringing you “aha” moments and actionable lessons from Real Vision experts. No matter your level of expertise, markets are tough — which is why we all have to put in the work. Ultimately, the game of investing is a competition with yourself. Our mission is to help you navigate the path to success. Prepare to level up.

LEVEL 1  — The Turtle Traders

In 1983, legendary commodities trader Richard Dennis set out to show that anyone could trade profitably if they were given a set of rules to follow and stuck to it.

Alongside his trading partner, William Eckhardt, Dennis sponsored an experiment to settle whether trading was innate or a teachable skill.

He placed an ad in The Wall Street Journal and chose 23 amateur traders from thousands of applicants who applied to participate.  

Jerry Parker, a 25-year-old public accountant in Virginia, responded to the advertisement that changed his life forever.

“From the very beginning, I struggled with following my own rules,” says Jerry. “But with the Turtles, there was no other option. It didn’t matter how much money you made, you were only judged on whether you followed the rules — if you did the right thing.”

Exits and Entries

Jerry and the other Turtles learned a precise trend-following strategy focusing on buying upside breakouts and selling downside breakdowns.

They used various technical indicators, including moving averages, to identify trends and determine entry and exit points.

In the example above, Turtles would buy a weekly close above the 50-day moving average and hold the position until a weekly bar closed below that same 50-day moving average.

The 1% Risk Rule

In addition to entry and exit rules, the Turtles employed a strict risk management rule in which traders could risk no more than 1% of their account balance on any given trade.

The Results

After five years, the traders that completed the program reportedly made more than $175 million in markets. Parker proved to be the most successful graduate of the program, and he still manages Chesapeake’s nearly $200 million assets under management.

Intermission — You’re Invited to SuperAI

On June 5-6, 2024, join Edward Snowden, Benedict Evans, Balaji Srinivasan, and over 150 other speakers at SuperAI — Asia’s largest AI gathering of 2024 — at the iconic Marina Bay Sands in Singapore.

Connect with 5,000+ attendees including industry leaders, heads of state, entrepreneurs, and researchers to explore the next wave of transformative AI technologies.

To secure your place at the forefront of AI innovation — use the code REALVISION at checkout now to get 20% off tickets. 

Learn more about SuperAI right here.

LEVEL 2 — Key Takeaways

Investors can practice the basic rules of Turtle trading in their own day-to-day framework.

• The Turtles focused entirely on price action rather than letting narratives influence their decisions.
• Buying trend breakouts and quickly closing a trade when prices start to reverse is a tactic applicable to any market or asset class.
• Likewise, maintaining strict risk management rules is asset agnostic.

Like other trend-following systematic traders, the Turtles use quantitative analysis to set rules and technical indicators — like moving averages, VWAPs, or stochastic oscillators — to identify opportunities.

But trend-following is not without bumps in the road.

• Many breakouts turn out to be false moves, and followers of the Turtle trading strategy say that traders should expect to be correct only 40-50% of the time.
• Because of this, systematic traders must regularly refine their strategies to keep up with trends and behavior of these constantly evolving markets.

A 40% hit rate may not sound like much, but if you can stick to the plan, limit your risk, and allow your winning trades to run, the gains should far outweigh the losses.

Welcome to the RV Marketplace

This week, we officially launched the RV Marketplace, the natural next step to help you build your own personalized financial world.

The RV Marketplace is your hub to connect with some of the industry’s best financial analysts to find the products and services that match your specialized needs and interests.

In other words, it’s the place to browse for a la carte add-ons from your favorite Real Vision contributors. In the Marketplace, you’ll find services from Beth Kindig, Andreas Steno Larsen, Brent Donnelly, Mish Schneider, and more.

Stop by the RV Marketplace and have a look around. We’ll continue building out the offerings, so please let us know what you think.

Welcome to the RV Marketplace.

Next Time

Thanks for reading. In our next issue, we’ll cover tips for how you can manage your portfolio in a market crisis.

See you then.

Have feedback on The Game of Investing? We’d love to hear it. Just email us at essential@realvision.com to share your thoughts.