Book List 2 – This Book Costs Me $120,000!

220-complete-turtle-trader

What’s a book about trading/trend following doing on a deep value blog?

I read this sometime last year, it’s basically a behind the scenes look at the story and the results of a group of trend following investors.

To cut a long story short, a wealthy and successful fund manager decided to do an experiment to prove that he can create super investors. He recruited people from all walks of life, with different backgrounds, educational status and seemingly completely different attitudes, yet by following his teachings, the bulk of them generated very impressive results.

The book continues to follow these “turtle investors” even after the experiment ended, and showed how some of them went on to set up successful funds in their own right.

Now, back to the title.Why did this book cost me $120,000?

After reading the book, I decided to take out $120k to experiment myself. I followed the principles expounded in the book…….. and promptly lost all $120k of it.

This terrible result, (compounded by Valeant’s troubles last year), both combined to account for the horrifying portfolio results in 2015. At least for Valeant I am grounded by my research and am still feeling confident about it.

No regrets though, as I am a firm believer of having tried everything once. At least when I write here that it doesn’t work, I have credible real life experience and trades to back up my statement. I didn’t just say it doesn’t work because someone else wrote that it doesn’t.

With Valeant, my take home message is to start creating and sticking to stop loss levels. With this, it just proves to me that I’m a way better value investor than a trend following technical investor. It may still work for some, but certainly not for me. I paid $120k to find that out.

After famed hedge fund manager Bill Ackman exited his loss making investments in JC Penny, he was asked what are the lessons that he learnt from the debacle.

At JC Penny, they tried to do away with the discount coupons, and constant discounting of prices, instead going straight to fair prices for the merchandise. The logic is that constant discounting involves a lot of unnecessary work, and the consumers already know that the initial prices are set way too high and will be discounted anyway.

One of the lessons he mentioned was that the interesting thing in retail is that they could’ve experimented their “no coupons” and “no discount” strategy with 1 or a few stores nationwide. Instead, they rolled out the strategy all across the country immediately, and fell flat on their face. It seems that consumers still love receiving discounts, even though they know the initial price was elevated.

Similarly, with this book, I could’ve experimented with a smaller sum, or better yet, do it with a demo account. The experience, and lessons gained, would’ve been the same.

Still, I’d recommend this as a good, entertaining, easy to read book.

Just don’t spend $120k on it at the start.

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7 comments

  1. If I am not wrong, all trend following approach has a cut loss strategy. Just curious. How did you manage to lose $120K? Did you employed leverage or start with a very large amount?

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    1. No leverage.
      I didn’t start with a very large amount, but I started positions on many companies and indices right off the bat.
      And yes, I did stick to the cut loss points stated in the book, but the cut loss points are actually not that close. So by the time you actually cut loss, the losses are not exactly small either.
      Trend following works only when there is a clear uptrend or downtrend. During the period that I tried this, there was huge volatility and it kept swinging between going up and down, hence I kept closing and changing positions.
      What can i say… trend following doesn’t quite work out for me.

      Like

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