Turtle Talk Podcast – Episode 009: Outliers, Crises, and the Geometry of Trend

[Music] Welcome to Turtle Talk. Dive into the fascinating world of timeless trend following strategies and the pursuit of the elusive outliers made legendary by the Turtle Traders. [Music] Join your hosts Adam and Rich alongside our esteemed co-host Jerry Parker as we uncover the powerful principles of classic trend following. From counterintuitive practices to the mechanics behind capturing market outliers, each episode offers a masterclass in navigating the financial markets. Expect in-depth discussions, expert insights, and actionable advice to help you master the art and science of diversified systematic trend following Turtle Style. Tune in every month as we explore the dynamic and ever evolving world of trend following, equipping traders and enthusiasts with the tools to succeed. And now without further ado, let's hand it over to your hosts Adam, Rich, and Jerry. Welcome back to Turtle Talk. It's Sunday the 30th of November 2025. This is episode 9 and it's great to have you all with us. I'm joined as always by my partner in crime Adam Havriliv and of course the one and only Jerry Parker. So Adam, where are you today? Beautiful koala lumpur where the weather is mild, surprisingly mild for KL. And what is that line's about? No, no, it's all pretty good. There has been a little bit of wind and a little bit of rain, but it's very, very comfortable here at the moment. Very nice. And Jerry, so you've recently come back from a hedge Nordic event in Sweden and you've also recently had just Thanksgiving where there's obviously a lot less turkeys now in the US than there was before. So how are you going? Going great. We love Thanksgiving holiday here and a lot of food and turkey, football games and relax. It's nice to end the week kind of on Wednesday and of course Thursday's a holiday and no one's really doing too much on Friday. So it's nice to have a short week and long weekend. It's kind of chilly here and tap with this morning in the 40s, 50s Fahrenheit. So I'm not used to that. I was all bundled up this morning walking the dogs. But you know, Sweden is a very cold place. I stayed in the ice hotel is that the night in a hotel in a hotel room made of ice and obviously very cold and the bed was made of ice. I mean, made of ice? Yes. Looking up on the internet, ice hotel, a very wonderful place. How they recommended it. A lot of fun. We saw the Northern Lights. We fed the moose. We fed the reindeer and we ate the reindeer. Oh my goodness. Not the same ones. That's the same ones. No, not rid off. And also my first time having moose. So all good. It was really fun. Nice people. Sweden's a great place. Stockholm's wonderful. Great place to visit. Great place to live. I'm sure it's just marvelous. I like everything about it. And it was nice to get away from the warm weather of Florida and see some cold weather for a while. And we saw some snow. Nice snow. The wife loves the snow. Oh my gosh. So I don't know if this is a silly question, but how do they keep you warm if everything's made out of ice? You sleep in a very warm sleeping bag. And you're sleeping on top of some animal skins. And so you don't feel the ice bed. And we're never at cold. We thought about doing it two nights in a row, but one night was funny. And then we went back to the normal heated rooms and normal accommodations. But got to a fun place. And it's it's a if you look it up, you'll see each room is has lots of carvings and statues and furniture. And it's like artworks like a museum almost of of sculptures and fascinating. Next year we were thinking about going to a place called the tree house where all the rooms are up in the trees. Goodness, mate. Well, that would be amazing. That sounds amazing. And I think you really exemplify savoring the trend. I think you're really maximizing this trend following a lot of stuff. Always, always. All right, James. Well, today we've got a full show lined up. We all start with the Battle of the Trend indexes where we discuss the state of trend following as at the end of October 2025. Then we'll move into what's moved the needle and there we look at the big charts that are playing out at the moment. And then we are running an extended tip bit session this month with a number of deep dives into some very important topics. And after that, we'll answer your questions in shell mail. So there's no spotlight segment this week. But let's jump in. So over to you, Adam, for the Battle of the Trend following indexes. Okay, so I'm over at classictrendindex.com. And I'm looking at the October numbers 1.63%. And we're back in the black for calendar year 2025. So hooray for that. We're up 30 basis points for the year. And that's actually quite a lot of work, isn't it? Just to get 30 basis points out of the calendar year. And but it's good to be back in the black, I think, after the wobble in, I guess that started in February. And we had a few red months, February, March April and May. And then we've had a pretty good recovery. And back in the black, I was looking at some seasonality statistics. And November, December, January, do look pretty good for trend following. I was struggling to get a p-value under.05. But I think one of those months actually did have a.05. So almost statistically significant seasonality. I was actually doing that on our own back test. So I'm not really sure exactly how we are. Potentially we could run that over some indices going further back in time and have a look at that. But I digress slightly. If we go to the more, I guess longer term performance here, I'm seeing that we're looking pretty good over the last 12 months and two years. And that's trend following more broadly, but in particular the classic trend index. So I see, you know, month to month returns and volatility. I don't think something that we should get to hung up on. But it's nice to see our index outperforming over the last quarter, the last 12 months and the last two years. And then obviously since January 2020. So, you know, over to AussieTurtles.com website, you can track us under the classic trend index.com tab. And you can compare the performance of our three managers, Chesapeake, Takahe and East Coast couple management, aggregated in this index, certainly outperforming our peers. Richard and Jerry, do you have any thoughts or comments? It's interesting that one of the topics that I'll be bringing up today will give an explanation for why there is just divergence between this classic trend index, which I'm referring to as outline hunter index versus the rest of the trend following indexes that have probably higher sharp, less, you know, exploit less convexity. And in that we'll see why in particular regimes, we accelerate away from the rest of the group that have a higher sharp in those particular regimes. So, give an explanation for this divergence that we've seen since 2020 to 2025, which I'm thinking is being a very positive regime in general for our particular class of models, the outlaw hunting models. But JP, anything to talk about here? It's interesting that our index only contains three traders, three funds. And so that's interesting. And I think from what I understand is that we're the three of three different managers are fairly different. We all have the same philosophy of leading profits run and having loose pants, classic trend, but probably the increasing exits are more different. And we trade a lot of stocks and a lot of markets and Takahe trades some spread trading and their version of long term trend. So I think it's, I think we're getting a lot of diversification and how to approach the markets similar philosophy or almost the same philosophy, but getting some diversification, even though it's only three different managers. It definitely is a benefit of combining a few of these products together when it comes to, I guess they will have to be well performing and underlying programs, which in this case, they certainly are. But you do still get a benefit in terms of improving the sharp ratio, sort in a ratio and the mark. Because as you say, Jerry, even though the philosophy is simple, the similar, the implementation is certainly different in terms of online portfolio and the exact trading strategies that are implemented. And the markets, the markets are different. Absolutely. Well, you know, hopefully, hopefully Santa brings a nice Christmas present for all the investors in these funds and trend followers more broadly. So I know that we had a, we had an okay, an okay November and so, hopefully, hopefully December closes strongly and we can end up in the black. It's been a tough year. The first half was tragic, but it's been sort of a slow crawl back from that April. Well, key to those investors that have stuck with it, you know, I think if you put the correction into historical context, you know, it was material. It was, you know, it was a material drawdown. I think when we were talking about it, it was, you know, some of those managers had the biggest drawdowns that they had in, you know, 20 years or something like that. But this index certainly road that out quite well. I mean, I'm not sure exactly what the drawdown here was, but. Well, that a pretty quick recovery. That's a good, the good snap. It wasn't, it wasn't bigger than the gains made in 2024. So, I mean, 2024 was an excellent year and I'm just sort of eyeballing that drawdown and there's certainly no way that we gave up more than the gains that investors had in 2024. So, I think sometimes you've just got to put these things in perspective and obviously it's not nice to see red ink on the portfolio and balance sheet, but sometimes you just need to put this in perspective and keep executing strategy. And, and now we're getting the fruits of that labor. All right, gentlemen. So now let's move on to our next segment. What's moved the needle? So, this is a quick reminder to listeners. This is our look at the standout charts of the month and Jerry and Adam have shared their charts in advance to us. So, we'll start with Jerry. Jerry, what's caught your eye in the charts this month? Well, I think the two things I wanted to, the one thing, the one big thing I wanted to mention was just how violent some of the selloffs can be and we've seen it in gold and silver and then one of my charts was platinum. And there's been a couple of times since platinum broke out in the summer that it had $200 retracements and it it. Well, it made new highs the first time and it's almost up to new highs now. So, and then also it really it really was even more violent and in the cattle and the hogs. I'm sorry, the two cattle, feeder cattle and live cattle were the we're in the midst of a big drawdown, big violent drawdown and those two markets and that but I think that trend is still intact. Because, hey, you know, we run our we run these systems that parameters through the back test and it says have loose pants, be long term and it's painful as some of these givebacks are silver was a prime example as well, you know, violent selloffs lots of news, people getting nervous. So, I'm just sort of saying I'm hanging in there with my cattle, even though it's sold off tremendously, it hasn't hit my exit yet in my back test parameters are loose enough to still have my full position in those two markets, even though they may crap out and that into making too much, but we have had a material giveback, but I've not found anything in the research that improves this strategy other than. Being as long term as you possibly can stand that makes sense and that the numbers makes sense and so that's that's one of the things we just have to always remind ourselves that no matter how bad it gets as long as we're following the system or following our. Strategy as a positive expectation and. For just in a high likelihood of winning in the end. Well, Jerry, you've got pretty you've got really loose pants and I guess that's why you're you're staying at the ice hotel and savoring savoring the trend. Yes. I could praise shorter term if I could trade one day shorter term and it work better I would do it in a heartbeat. It just doesn't rot at her and we you know we looked at our systems recently and did a big update on the most recent data and it's and it's saying okay. You maybe want to get rid of your shortest term system and go a little bit longer term. So we would just love to not have to do that, but it seems that the markets are getting. Maybe they're changing a bit to where we're going to have to keep looking at this over time is and the markets are kind of getting in my I think somewhat worse you know kind of worse from a pure trend point of view. You would like to not have to have such loose pants because they just mean your drawdowns. They're going to be worse and you know you have to and you're going to give back more profit when the drawdown is real and it's going to. You know get you flat to possibly short so. If anything else worked I would be really happy to do it but it's it's a lonely game sitting with these really choppy markets and really choppy trends. Yeah it's funny we spend all this time looking at these price charts but really we should be looking at backtests and parameter stability and. The boring and esoteric topics like that but the charts the charts are fun and the charts do drive the daily P and L. I've got a chart of silver here which I think as at the time of printing this was an all time high on Friday night so that's really really exciting and. You should all you should all have that in your portfolio if you're trend following correctly as as we do with it eccm and. Interesting here this other two charts I have the S and P 500 obviously inequity index and then the as x 200. And we see here a big divergence with the as x 200 actually coming down and testing the 200 day moving average. And then sort of rallying above it. You know so that could be a pivot point for some people would be out of that trend that that be out of that long trend now for well they may or may not I mean they might be using moving averages. To get long above and you know potentially short below that moving average but if you're using a breakout system you might still be long. Because the price is not moved down enough for you to exit the trade or get short so it all depends on how you're doing this. I have the moving averages there because it's easier to generate it on on trading economics I know that Jerry supplies his charts with with the breakout channels which is probably more. Reflective of our style of of trading but I think they're both you know pretty good proxies for for what's going on. And it's a good thing it's dependent on the system you're using they define trends differently so let's say we were using a 200 sma to exit these trends you'd be out of as x 200 and you'd still be in the S&P 500 and it really each each system you use defines trends differently. There is no one prescriptive definitions that I see that works. No that's exactly right. And I think I was just you know trying to draw the attention to the divergence between some markets you know the Australian market has been underperforming of late and interest rates do seem to be going up here. And also the other than other places around the world and then one other really interesting chart here is the yield on the 10 year JGB now Jerry provided the chart of the bond price which obviously moves inverse with the yield. I don't have the bond price chart but I've got the yield chart the yields have gone to you know cycle highs here at a whopping 1.8%. So Jerry Jerry is doing well on that that bond short and and I think we've mentioned it earlier and he said well I'm still short and I said of course you're still short because you're you're trend following this market and. You know I'll throw a trick question to Jerry I'll say what's your prediction on how high Japanese interest rates can get Jerry. Well we really have a prediction I don't really study the markets like that and where's the trend following strategy doesn't predict. But once one point of time is pretty low doesn't it so what would a trade it would be if they got it up to three or four would be pretty nice that's another chart to the back in April. That chart is so violent I'm pretty sure I set through that amazing rally I mean it was one of the biggest rallies of all time. But yeah that was just pretty brutal I think we sat through it and we were rewarded because it started the downtrend right after that going right back down but that's brutal and I think that's the point I'm trying to make with the other two charts the catals. It's just not an easy to sit through some of these trends you really. We really have to you know one of the things to is don't think about this has the trend ended I hear people talk about things like that well I should probably get out of this trade because it looks like the trend has ended I don't think that's helpful. To talk about that you know you should pay attention to the numbers and sometimes the numbers in the parameters and the breakouts and the moving averages are going to look pretty silly because it certainly looks like the trend has ended and I'm still in this trade how how is this I have a problem with my system I don't think you do. I think anytime you stray away from the numbers which we have to do sometimes to have a podcast or talk to clients and explain what we're doing and use and trend following is a darn good explanation for what we're doing but sometimes it looks like we're still long or short and the trend has reversed and it's because we're following. The rules drive from the back test and I think that's what you want to really concentrate on that whether the trend has looks like it's ended I'm still and I'm it looks like my position is incorrect I need to fix that I don't think you need to fix it stick to the numbers stick to your. Create a find entry and exit levels yep. And enjoy the ride I guess to the extent that it is possible. I don't think you're sorry sorry I pay you get. I don't usually enjoy the ride because I don't like that statement that silly but I endure it and I have no emotion about the ride not enjoying it I'm not not enjoying it I'm just has nothing to do with anything other than I'm just following these rules and. The more market you trade the less anyone trade matters you know you can see you can sit there with a big sell off and it might be 50 basis points if you trading 400 markets it's really a material unless you get the big trade. Yeah that our method is a very hard method and you certainly don't enjoy the ride but that's why the edge is so good because that's exactly the ride that the flouts the sort of fun the behavioral cognitive disposition of the human brain and they can't handle it and that's exactly why we do handle it and it certainly works for our process. So not all enjoy the ride I want to be pain and suffering and I want it to be hard to do and because knowing me if I get into this mode I'm a Jerry you enjoying the ride I am not enjoying the ride well then fix it overrides in system create a system alter your system in your parameter so you enjoy it more and that's the road to ruin. Is that why is that why is that what trend followers are always so cranky. They just wake up angry they wake up angry every day. I don't think I don't wake up angry. Not every day maybe sometimes not every that's like I don't get angry I don't wake up angry every day just Monday Tuesday Wednesday. Alright well thanks for the trad students so now let's move to the big segment for today our turtle tidbits so Adam over to you. Yes yes turtle tidbits let me lead off this segment Richard you have got topic number one and may we ask you why outlier hunters excel across the full cycle. Okay Adam so this particular topic looks at why outlier hunters tend to win across full cycles now what I'm talking about is is long periods of time decades of both smooth regimes rough regimes that's what I'm terming the full cycle and the idea came from a discussion actually Jerry was having on ex where someone we want to name the person argued that a higher sharp system. Could outperform long term trend followers simply by adding more leverage so I've heard that many times before and I need to discuss it now because the nuance is important so I put together a post on the ATS website this week which I'll show the the figures on the screen so listeners can read the full piece if they want to get into details. But if you look at the first chart in that piece this refers to the chart arising from what I call the calm world you can see in this instance in a calm environment calm regime why the claim that many people make feels convincing so in calm regimes the higher sharp model performs beautifully it's smooth stable and efficient. And the metrics line up with that impression so in the chart when you look at the chart reflecting this this calm regime the chart shows a hypothetical smooth market cycle with very few outliers and it reflects a type of regime that dominated for instance after the GFC and carried through up to 2020. People refer to that as the decade winter of CVA's so I need to now explain the chart so when you look at the chart you'll notice that there are four equity curves presented on it and the first the lowest two curves represent the outlaw hunting technique and you'll notice that the green curve represents the an outlaw hunters program and the curve above that is that outliers hunters program. Which is had two times leverage applied to it now the higher to equity curves represent the the sharp model the high sharp model where the lower equity curve represents a sharp model that has fairly low positive skew but it's certainly it's dynamic position sizing volatility targeting all of these things that we don't like to produce the smooth ride the higher sharp model. Now when you leverage that up in this smooth regime it appears very good you get a very good result out of that so now let's look at the metrics associated with that chart so the sharp model has lower positive skew than the outlaw model and it has a much higher sharp and but when we look at the K. K. is the important thing here because the K. got reflects the geometry of the path and this is the clear sky sharp doesn't tell us about the path of returns K. So with this high sharp model when we apply leverage the penalty to the compound annual growth rate or K. In calm conditions is small the compounding drag that occurs with increased leverage exists but it's not large enough to erase the benefit of that smooth profile. So in these steady environments you can absolutely outperform an outlaw hunter by scaling up a higher sharp system in calm conditions that approach works. Now here's the rub the problem is the calm conditions never last eventually the world shifts and when it does the entire logic that I've just explained flips and this is where the geometry of the path takes over and K. K. becomes the dominant force so let's now move into a hypothetical scenario called rough world. So in this regime this is an example of a regime that we've been experiencing for instance from 2020 up to 2025. It's a regime that we are looking at the battle of the trend following indexes. This is what I'm calling rough world not smooth world because the decade before this is rough world. So when we look at the chart I bring up the charts here once again we've got four equity curves but the lowest to equity curves are the higher sharp models. Now what is important here in rough world is that the lowest equity curve is actually the leveraged sharp solution, higher sharp solution. The second lowest chart is the unleaved reached solution. The two higher charts represent the outlier hunters equity curve in rough world where we get a very good positive geometry in the compounded path of a high K. K. with the green line and when we leverage that up like going towards Mulvaney stakes in rough world we get a massive explosion in K. That's how the charts should be read. So this is where the whole idea breaks down. So leverage, applying leverage is completely agnostic to direction. It amplifies the good and the bad equally. But compounding does not treat gains and losses equally. A large loss reduces future wealth far more than an equal size gain can rebuild it. And that is the geometry underlying every return path in terms of its geometric profile. So once volatility snaps correlations collapse and losses begin to cluster in rough world the high sharp model gets punished and the leverage version gets more punished even harder. So there is no positive convexity in the smooth model to offset that damage. The system reduces exposure at the wrong times. They're for instance reducing position size in the cocoa trade when they should be stay keeping constant with their position size. So they're getting no positive convexity in the smooth model to offset that damage from the volatility drag with higher leverage. The system reduces exposure at the wrong times and the right tail winners that are needed to repair the profile they never arrive with enough size because they're always tampering with those beneficial trends. The downside therefore overwhelms the upside because the upside is capped by design in those smooth high sharp models. Now therefore let's look at the metrics. So when we look at the metrics we see that the sharp model now in this particular rough world regime has negative skew. Losses dominate the geometry and the rare gains in rough world because they're not exploiting those gains they're not large enough to repair the damage. This is the effect of suppressing upside in order to preserve smoothness. So in the rough regime sharp actually turns negative for the smooth model and the keg are is a real kicker because without leverage it's already strongly negative because of unfavorable compounding geometry but add leverage and the result becomes more crippling. But now compare that with our outlaw hunting model in that same rough regime the difference is clear on the chart the convex model benefits from volatility the upside expands faster than the downside decays and leverage improves keg are instead of destroying it. And this happens because the lower sharp model of our outlaw hunting models has strongly positive skew it produces outsized winners that more than accommodate compensate for those losses and the smooth model simply does not have that property and this is convexity and action. So the metrics reinforce the point because when we let profits run without constraint we capture every opportunity from beneficial volatility this more in rough world this more than compensates for the volatility drag that comes from cutting loss as short. As you become strongly positive much higher than the smooth model even our sharp is higher in this regime or those sharp is not the story here the story is the geometry of the keg are and in the rough regime it dominates when we leave this model up keg are increases sharply because the large winners carry the entire path forward. So the system survives adapts and hunts outliers that extend the right tail while strictly containing the left tail. So now let's look at the full regime over the where we we stitch both smooth and rough world together who wins the battle of keg are. Once we stitch the calm and rough periods together into a full cycle chart the story becomes obvious smooth systems might win the calm decade but when we look at the chart now over this full hypothetical market cycle of both smooth and rough we see that the city a that the outlaw hunting model significantly outperforms a smooth model outlaw hunters win the turbulent decade but they might lose the smooth decade but. Only the outlaw hunter wins the full cycle because compounding is not determined by average behavior it's shaped by a handful of giant winners and by the avoidance of catastrophic losses sharp measures this smoothness keg are measures wealth and the world rewards wealth not smoothness so when we look at the full cycle metrics the outlaw model wins the keg are race because the benefits of the rough regime. More than compensate for the reduced return during calm periods so the moral of the story is simple you cannot fix the missing outliers of a smooth system by adding leverage leverage does not create large winners it only magnifies a structure that already exists if a system does not contain convexity leverage will not give it convexity in rough regimes it simply magnifies compounding drag and breaks the path of geometry outlaw hunter succeed not because they predict the future but because we prepare for futures that cannot be predicted they endure the quiet years they thrive in volatile years and they stay exposed long enough for rare events to rewrite the entire equity curve and this is why convexity matters this is why we predict the future. This is why keg are matters and this is why outlaw hunters win across full cycles so there you go any comments gentleman. Well it was a pretty good run down there Rich and you certainly do have a lot of content over it eight years trading solutions I was browsing through that article as you spoke I think this whole issue of volatility and the optimal you know quite an optimal optimal volatility I'm not sure exactly what the answer to that to that is. But yeah I think we just have to accept that this strategy does not necessarily have the highest sharp ratio but it's got it's got an underlying robustness that even the most volatile events that you can throw at it won't destroy it. So it certainly it's certainly where I allocate my capital and I think it sort of makes your make sure portfolio you know more robust and less dependent on on that calm that calm outcome that you describe. J.P. Anything to add well I think I'm looking forward to watching this play out over the number of years in the future and so that our index continues to outperform and do well and maybe we'll get some recognition from people who prefer higher sharp ratios. Yeah the problem I've got is when we use the term optimization which a lot of the industry does it optimizing for things now the problem with that is that optimization refers to a static past refers to a static past how do you optimize based on what history is presented and this is where the problem lies we don't optimize for anything what we're doing is we've created a structure that allows convexities to do with thing. So what we're saying is we're not predicting anything but we've simply got a structure that is asymmetric truncates the left tail allows right tail opportunity to explode that's it that's our simple robust methodology that we can put into any environment yeah we might be we might have a difficult time over a smooth regimes where sharp models and optimized models that are beautifully targeted for that smooth regime do well. But we don't care about that because we know that the future could be significantly different to what's happened in the past we've simply got a process and a model that adapts and exploits convexity that's what we're doing and that that's why we're going to win in the long term it's not about predicting. It's funny you mentioned smooth regimes and I don't know what just came to me but all this talk of volatility laundering you know I think which has been popularized by Clipet Asnes and you know it's the ultimate sort of calm regime con job really let's take these risky assets let's lock them up for 10 years and you know mark them with no volatility for the peasant. We're going to take a little bit of volatility for the period and what's interesting at the moment is we're seeing this realization that they're either going to be worth what was written on the tin or potentially written down by some material amount and all of a sudden that that calm that calm regime is actually not so not so calm after all because you're not getting back you're not getting the dollar back that you that you were promised. Whereas we accept the volatility on a daily or weekly or monthly basis depending on how you mark mark the strategy but you know you really are seeing the risk in the strategy without it being tucked away in hidden which may well cause some big problems for some investors over the coming over the coming quarters. I'd like to move on to this next topic now because someone might say oh but how do you know we're not going to get extended smooth regimes in the future where we don't we don't and yet that means that our models might not perform as well as some of the other models but history long data sets tells a different story it says that we ain't seen nothing yet. So I just want to go into this next topic to explain what history tells us about how smooth or rough these regimes are so what this this topic is is the title is 125 years of crisis what markets really do so this next one is a journey through 125 years of US equity market history and when you look at that much data in a continuous sweep you start to see patterns that are invisible inside a normal trading career so those big shocks that feel very rare to us are not actually rare at all they are part of the rhythm of the system. So whilst we use the term outliers perhaps that's an anomaly they are they're not outliers or anomalies they are part of the structure and this goes into it so most traders think of crisis events as rare interruptions in an otherwise stable world the language even reinforce this belief we speak of crashes panic shocks as if they sit outside the normal behavior of markets. A trading career say 20 or 30 years strengthens this impression because only a few dramatic events appear within those short horizons but when looking at more history we find that markets drift quietly for long periods of time smooth world and then something shifts erasing turns liquidity things pressure builds in the structure and what looks chaotic in the moment with the panics and the crashes actually becomes incredibly patterned when you zoom out far enough and is going to blow your socks off I've got some charts and figures to look at here so the system look when looking over large data sets behaves like something alive rather than something mechanical so to uncover that pattern. We've examined two expressions of the market stress across this 125 years of history we've looked at daily returns which capture the short term form of stress and we looked at draw downs which capture the long form of stress daily returns show how the system reacts when when it's hit suddenly liquidity slips order flow becomes one sided and the crowd reacts in hours these are the sharp pulses of reflexive behavior they tell us how violent the system can be over the short window draw downs however reveal the slow mechanics of stress and strain they show how tension accumulates across days weeks months they show volatility clusters they show correlation shift they show leverage on winds and we they show waves of liquidation moving through the let network draw downs tell us how the system absorbs pressure then releases it all once when something snaps so you need both lenses the daily lens and the drawdown lens daily returns show the pulses of these shocks draw downs show the deeper geometry only when you combine them can you understand how crisis form and how they spread and why they repeat across generations so before we look at the visuals here is a simple methodology behind the behavior so we stitch together a continuous daily record from 1907 to today the early decades come from the Dow the later decades from the S&P 500 to compare events like 1929 1987 2008 and 2020 so we express every move in sigma turns using a 1% daily volatility baseline it gives us a common language across a century of different structures and different rules so then we measure two things for each major event how likely it should have been under a Gaussian model and how often it actually occurred so let's start with a put table one up on the screen so with this table here are the most violent one day declines over the past 125 years the panic of 1907 black Monday multiple waves of the Great Depression the GFC and the covert shock now look at the sigma column in that table so in a Gaussian world these events should not happen at all but in the real world they show up again and again now what feels shocking in a short career that's why we think these are rare events looks entirely normal across 125 years of history tile events are not anomalies they're part of the market structure now to see that and this is very impressive this is a graph of these events plotted onto a log log chart so this is a log scale plot comparing the Gaussian tail with the empirical tail of daily returns from our table so the dashed Gaussian curve collapses almost immediately according to that curve everything beyond six or seven sigma events belongs in fantasy land it assumes the world is gentle and predictable but look at the actual empirical curve it drops slowly so it stretches across the entire range of crisis events and every event from table one sits right on that heavy tailed line it's almost a straight line it's not a curve this is a signature of a complex adaptive system not a neat probabilistic model markets behave like a living organism under pressure they store tension quietly then release it suddenly the system does not forget and it does not soften with time it produces large events because that is part of the design so now let's shift to the long term form of stress represented by drawdowns and bring up table two daily shocks show the sharp edges but drawdowns however show the full path of strain and here are the major picture trough collapses over that 125 year period we've got a minus 48% drawdown in 1907 a minus 86% in the Great Depression a minus 57% in a GFC a minus 34% in COVID now also remember Nasdaq in I think it was 2000 I think I had a 90% decline but anyway now look at the Gaussian expected drawdown it sits at 5% for all of them so what I've done is I plot a graphically a Gaussian drawdown versus the empirical drawdowns and according to Gaussian theory these collapses should be shallow and rare but the table or the graph and it shows the reality prolonged deep prolonged drawdowns driven by liquidity ways for selling leverage unwind the reflexive dynamics of build on themselves these are not statistical accidents this is rough world this is rough world where we exploit opportunity with our models these are the system expressing its internal tension its structural it's not the normally so the Gaussian line is flat at 5% it barely moves the empirical drawdowns sit far higher above it and across the full range the pack and climbs cleanly decade after decade this chart tells a very simple story market's absorb stress slowly and release suddenly they hold tension in silence in calm world and then everything unwinds together rough world drawdowns reveal a real geometry of stress it clusters it cascades and it repeats now when you combine all the visuals all the visuals that are presented in this topic eight clear insights fall out naturally extremes grow as a sample expands this is contrary to Gaussian assumptions where with a greater sample size we converge towards the average that is not reality extremes are dominating the story here not the average is your worst drawdown is therefore always ahead of you because the sample size increases ahead of you as is the greater us greatest opportunity with our models is always ahead of us as the sample size increases this explains why the worst drawdown is always ahead of you this is the structure of markets it also tells you that volatility behaves like a regime not a number it tells us that feedback creates fact tales it tells us that sequence matters more than averages it tells us that risk comes from inside the system endogenous rather than exogenous in source it tells us the structure over rights probability a handful of extreme events take decades and Gaussian comfort has nothing to do with reality so it leads us with the simple message the market is not a stable machine it's a living system crisis is not an interruption crisis is how the system breathes this is why trend followers survive because the edge sits in the tails not in the middle so that that's a story told by 125 years of data the next big drawdown and the next big opportunity are still ahead of us that's not a prediction is how the site kind of system behaves it also explains why models that have not changed significantly over the last 30 years from our camp the outlaw hunting structural geometrical model is experiencing its best returns now 30 years later without over optimizing without overfitting it's all about the fact that a rough world is part of the structural fabric of these markets and the Gaussian world unfortunately the world so many have drifted to you know the world where they say that diversification runs out after a certain level of number they're saying the marginal benefit of diversification ends according to the square root of sample size well this totally contradicts that says no matter how much sample size you've got maximal diversification is way to go because the structures are always bigger ahead of you there's so many things in these models that it's telling us as just telling us the world and orthodoxy has got it so wrong so over to you guys well it's a great article and it's a great collection of statistics I don't know if you collect statistics like anecdotes but what I love about trend following is is that it's not a guarantee but so often trend followers are on the right side of those big moves exactly because as you describe the feedback mechanisms are rich and clustering of returns it's it is no accident that trend followers thrive and profit quite often in in those in those market scenarios and it's almost like we're looking forward to the next you know big crisis or or boom or bust cycle because that's when we we really do shine so you know notwithstanding that we can't necessarily predict or profit from any one individual day or months of performance as these trends and dislocations evolve these trend following systems do seem to be on the on the right side of those major markets of those major market moves and you would have seen a few of those in your trading lifetime Jerry wouldn't wouldn't you yes enough to make it very very confident that's the way to approach the markets I was telling Mike the other day that you know Mark Mark Melosina yeah on the podcast I mentioned on the podcast it isn't interesting that three three out of five classic trend followers we know about three of us more it's and Mike the three of us are account it Mike's an account it to so not only losing to you I hate losing yeah hate losing and I love the small losses you know and it's almost like if you have those if you have your bank bank roll under under control but the small losses and you're not risking too much and you're not using the open trade equity as part of your sizing then you know you can you can hold on to those winners and deal with the ups and downs and the profit give backs of the winning trade so much better you know from the county from up risk control point of view for people who really are conservative by nature you know we're trading these futures markets letting profits run we're having all this volatility you think we're just big gamblers and people who love risk and don't pay attention to the problems of risking too much and but it's quite the opposite you know this whole strategy is built around those two important facts of letting the profits run and taking small losses and realizing this is something that's popped up in my over the years it's you know it's gotten worse where I always out like to say that from our point of view when platinum retraces and the cattle goes down like we did in the first segment about the charts these are not losses a loss is the small loss these profit give backs much different which different our philosophy handles them much different I'm willing to lose 50 basis points per trade if it's a losing trade and hundreds of basis points if it's a winning trade from the peak so that's the formula it's difficult it doesn't make sense sometimes but that's what's worked out of all these years I'm rich your your analysis it doesn't just have to be a bear markets or crisis crisis events because I follow a website current market valuation that puts the the valuation on the US stock market has basically been one of the most extreme you know in history of of US markets and they they do a composite index and it's coming out at two standard deviations above above the mean for for valuation and they're predicting based on that you know negative returns into the future but how would one actually use this information because presumably at one standard deviation above the mean you already bearish so did you take some long trades off the table did you look at shorting what happened at one and a half times standard deviation and now at two how can you actually use that information and then on the flip side the trend follower actually has been long those markets into those into those you know arguably overvalued markets in a time or till whether the AI revolution delivers or not but the flexibility to basically participate in these unknown and extreme moves whether they bullish or bearish I think is the beauty of the trend following methodology and approach. Yeah the thing is it's not this is why we have such low correlation to the dominant models that exist in the universe of financial markets you know the buy and hold long only model or the 60 40 model or whatever we are have almost no correlation with them over the long term now the way I see these financial work markets work over 125 years I've only looked at the downside here and Adam you're right if I look at the upside events as well we're going to get a similar story from them but what you find is that when everyone starts doing the same thing the market loses diversity and it becomes weak it becomes what I call fragile if everyone's doing the same thing if they're all you know exploiting the AI boom or or whatever you'll actually find that markets become more fragile and so when the tipping point occurs and we get the reflexive shock we get the sharp pullback that always happens it's it's the way markets go from diverse to more and more fragile as everyone starts doing more and more of the same thing now at our hunters are sitting on the other side of that we don't have this correlation property to what most people are doing we've got a structural process here that assures we are working with the market structure we're not responding to its growing fragility so you know this is why you you know when you look at the movies like margin call Jeremy I says these events occur you know every 20 years every 30 years you know with without doubt it's the way humans are geared it's the way people start following the gravy train the markets becoming more fragile then they reset markets become more fragile then they reset markets become more fragile reset Gaussian statistics models don't pick this up but this is a market that remembers this is a market we structure this is a market with geometry this is a market where things cluster memory works what happens to your bank account a hundred days ago matters to what happens today all of these these these path dependent memory based features is what is creating a new world is what is creating this continually again and again well indeed I think trend followers build systems around what markets truly do and not what the theory wishes they would thank you Richard now we've got a topic here provided by Mr Parker Jerry diversification versus outlayer hunting why trend follow is play a different game can you talk to that topic please yes sir I will do that yeah I just think we've said this before and rich was sitting on it earlier but I think it's important to remember that trend follower doesn't look at diversification the same way as a traditional portfolio where in a traditional portfolio maybe you will make the decision would be a good decision that you don't need to keep adding markets if you're you get maximum diversification with 10 or 20 or 30 different positions or or sectors and it incrementally the each market that you add offers less and less diversification and reason for adding so but with for from for our point of view since we're hunting the outliers we take a different perspective on that and at the same time that CTAs usually have most more diversification in the other strategy currencies commodity stocks bonds long short crypto even maybe and I would say that the outlier hunter will is doing that problem he's is appreciative of the diversification and that you get from those markets and some robust diversification and smoothness no adding markets is better than adding parameters to your system so it's a risk free way of smoothening things out of it but the the the outlier hunter will also trade London coffee and New York coffee and London LME LME copper and New York copper and crew west Texas and Brit and even these are markets at 90 95% correlated all the time because recognizing that even two markets like that where they're most of them very correlated one of those two can have an outlier move when the other one did not and so that's what we're really we're changing the rules on the diversification. There not so much smoothness although we appreciate the smoothness we get it's more like we're hunting more outliers and knowing that it is possible to to get trends and markets that are highly correlated. Market A might be a big outlier market B may not be the very first big hurdle trade in the total 1984 was February heating oil and it was not January not March it was February only so here you have you you know crude doesn't do anything and let it doesn't do anything but then you have just one specific month of heating oil and it was because the heart of the heart of the heart of New York where they bring the heating oil and was all frozen over they couldn't get it in and so I think that's a really good example of just because it has a similar name or it has historically a high correlation doesn't mean that you won't get an outlier and then trading more more markets you know you'll have your wrist budget and food true you will reduce the size of each individual market to stand and eat that wrist budget so one of the big benefits of trading more more markets from a classic trend point of view is the minimization of bad luck and increasing your chance that you know every year will you have some you'll have some outliers in every year and people who try twenty one markets or sixty five markets or whatever have a higher chance of having longer periods of time where they don't really make money. Yeah that's really interesting you mentioned this is there a more diversified strategy I mean I sort of challenge anybody to really describe a more diversified strategy than systematic trend following if you have one send us send us an email so that we can consider it and not consider it like to trade it I'm talking like just consider it because I just don't even know if there is a more diversified strategy and then you know on this correlation of markets topic Jerry I think right now we're seeing some really interesting things in the energy complex and you know so we're trading a whole lot of energy products and Jerry I'm sure you are too and and Richard appreciate this given your scientific background there are sort of like related in a chemical sense because they're distal it's of you know an underlying commodity being oil and so they should be related and you know as the price of one you know the underlying goes up then you know it's logical to conclude that the distillate moves up in the same direction but actually we're seeing a divergence you know we're seeing crude oil prices go down but we're seeing distillates go up and you're sort of basic economic theory you know it doesn't really explain it but then when you look at some of the things that are happening in energy markets you know with supply coming on and off the market and very tight tight refining capacity it's setting up up potentially for some very interesting dynamics in those markets so you've heard of the butterfly effect you know it's very small a butterfly flipping its wings in Brazil potentially causes a hurricane saying Australia what are you saying a bug has fallen into a that of oil somewhere no what I'm saying here's an example we've got Brent oil we've got Cruder will okay two similar markets which are correlated over their entire cycles now what I'm talking about is the outliers and why they are uncorrelated all we need in one of those examples is a thinning of liquidity of one of them and let's say we had these markets with high average liquidity and we got a hundred thousand traders all impacting in the same way into those markets we get a certain result crude oil goes up a certain price they two percent Brent oil goes up another price let's say 1.5% to 2% similar correlated however let's thin the liquidity of the market now make one less liquid than the other this is just one of the dynamics that affect these feedback loops and the butterfly effect and these things when you thin the liquidity you'll find that the same number of people are involved but one is now pushing up the price 15% while the other with with you know higher liquidity is still around the 2% to 3% this is because the dynamics the structure the the complex adaptive system what the agents are doing and the structure and the geometry is affecting these outliers so when people are talking about correlations they're tend to say well over the entire market data they're correlated however when we look at the outliers alone they are very uncorrelated with each other because each outlier is unique now our models are only being activated when we think our systems tell us that there is a possibility for a material outlier they're not active over the entire history where it says says they're correlated so that's why we don't worry about trading these highly correlated markets it means nothing to us we're worried about the structure we're worried about the things that create these outliers which are unique tsunamis they're not correlated features so it's a no brainer to us yes I think if you're a risk budget go ahead Jerry looking a left out was you know when you trade when you have these big trends like gold and silver for instance you know and you have and you're trading multiple system systems you know what sort of correlation do you want between your different systems you know you want a hundred percent correlation you want to be long gold and silver and all of your systems so I think that in when all the markets are going up like in 2020 when the commodities did real well all the commodities were going up but some of them went up a lot more than the others and so another thing about trading lots of different markets is that you start to realize that it's not so much that the you want to accept the high correlation sometimes because the profit and loss in each individual trade can be so different soybeans went up a lot in 2020 but being oil may have a lot more money and so you can you can convince yourself well soybeans and being oil are going to be have the same basic move yeah true but one may be a tremendous outlier and the other way may not if you're a DPS CTA scaling back your positions all the time the big trends due to correlation and or well a volatility then it's not going to matter as much trading soybeans and being oil because if you get a whole if you have been oil in the in the portfolio you're going to be scaling it back it's going to start looking more like soybeans anyways so once again if you're not doing the classic trend following thing I mean the outliers have been unbounded possibilities in those markets and not taking positions off before the trend turns around and before your trend following exits kick in then maybe you can get away with trading of 20 markets 60 markets but it's going to things are going to get a lot better the more markets you trade we trade a lot of stocks as well so we're not only buying silver and gold we're buying the miners we're not only doing a heating oil at the breakout we're doing oil companies and companies that drill so we're getting some of that we're getting a lot of diversification do sometimes the stocks do much better than the underlying commodity sometimes they do a bit worse so you never really know it's it's a different animal and it's trend following not managed futures we're not subject to trading futures only trend following is too big it's too powerful to be limited to futures well it's a very very interesting approach you are bringing to the table there Jerry and I think that leads us to my final comment here and I have got the topic is and I think it's a very good segue from what we've been talking about is trend following an infinite money glitch and you know you would think that based on this conversation in the previous podcasts yes it is but the question is what the point is what makes this strategy so enduring is it a glitch it's not a glitch it's one of the few investment approaches whose robustness has been proven repeatedly across geographies asset classes and decades of markets environments and it persists not because the markets are broken but because human behavior market structure are remarkably consistent over time and so when people look from the outside and they see the long term results and the huge compounding of returns you know as Jerry has experienced over his career you know they see 40 years of CTAs or trend followers more correctly capturing market dislocations and they assume that something supernatural is happening but if you actually run these models day to day you realize the performance doesn't come from a trick or a hidden hack it actually comes from discipline a rules based approach to absorbing lots of small losses while staying open to the possibility of very large gains and what those people are seeing is the long stretches where the strategy is simply grinding away following the rules through the noise uncertainty and sometimes yes difficult draw downs and that's exactly where the edge lies and being systematically willing to do something that is emotionally very hard for discretionary traders trend following works because a market exhibits persistent behavioral biases and structural features participants are crowding around the same themes they're anchoring to prior information under reacting and then over reacting panicking in groups those behavioral dynamics don't simply change because technology advances or because algorithms are involved if anything the presence of more systematic players reinforces the conditions that create trends in the first place is that why we're not worried about competition Jerry and rich more trend followers actually makes bigger trends it's an interesting question isn't it so it's definitely not an infinite money glitch it's a rational discipline way to navigate uncertainty we're cutting losses to protect capital that's non-negotiable we're letting winners run because we are targeting these large outliers that disproportionately drive long term returns and we're diversifying as widely as possible across markets because as Jerry says we don't know where the next big trend will come from and then of course we're sizing those positions systematically and carefully because risk management is the foundation of everything we do the irony is that the simplicity of the rules makes the strategy look easy from the outside but I think as we've discussed here to execute those rules consistently in real time through all kinds of markets kind of market conditions is the struggle right and that's why the edge persists so no it is not an infinite money glitch the reality is far more grounded trend following is durable because it aligns with how markets actually behave and not how we wish they do so as long as humans continue to make decisions under uncertainty I think the core logic behind trend following will continue to be relevant for a very long time reminds me of a fleet I saw recently where Cliff Asnist said something with a.2 sharp ratio is not really worth going after and arbitant down to zero so I think our sharp ratio is higher than.2 it's probably.4.5 but I still think that is not that high I think not having a high sharp ratio is kind of something to protect us to some degree from and I think when people over the years have said trend following doesn't work that's what they've sort of meant to say is that you think it still works with a.5 sharp you're crazy so I think that's what they kind of are saying not that it doesn't work but it doesn't it doesn't meet their standards of what should happen and what is acceptable to them so that's I think that's a good thing we don't want the sharp to get too high to attract too many other people it's an interesting Jerry Nigel Coolidge and said that high sharp ratios are positively correlated with the count blowups that's right and that's great we're all doing the same thing which is we are running one market in one system through the computer and we're saying oh that's interesting that market made money and then we're saying let's add more markets and let's add more systems and so we we get this results and we say well we can we can leverage this up some and because we have so much diversification and the back tests can justify if we're only trading a couple of markets we couldn't we can't trade as large but if we trade many many markets and many different trend following systems we can leverage out more and more so it becomes critical of what are you leveraging up like you said in your earlier segment what are you leveraging up or you leveraging up something that's that's suited for sharp world or you leveraging up something that's suited for the real world and you're going to get much different results leverage is a two-edged sort of compounding can be beneficial and it can be horrific and you know if ever placed with the choice of I've got additional capital should I either increase position sizes or should I increase my levels of diversification the logical choice is increase your levels of diversification with that additional capital because all that leverage is doing is amplifying the good and amplifying the bad that's all that's doing is not giving you anything about the geometry which you need to maximize wealth that's what diversification that's what our process is about how to survive these markets with the best geometry and when when we place computers to the test and we say I want the most robust system with simple rules I can get across the biggest data sample I can find universally applicable ATR normalized I don't want to put it just over 70 years of one market I want to put it over one or 200 markets of 70 years history so the computer chugs away with that simple riddle how do I get the most robust system that produces the best optimal geometry path over this incredible sample size this is what this 125 years of market data history was telling you you get these massive structures you don't know where they are but they are there and our models come out and say hey these are the best rules to apply when you're in that circumstance that's why we apply these models we don't let our brains interfere with our process we follow what the computer says because it's gone through vast vast histories of sample size to come up with the most robust rules this is real red pill blue pill stuff isn't it Jerry? on one hand you could have the leveraged private credit portfolio and then on the other hand you could have the sensibly leveraged trend following classic trend following portfolio I know which I would be taking all right Jens was trying to move on it's been a long one so far but we'll just finish off with some show mal question well this is a long one right because we're not doing the Christmas we're taking a break over Christmas aren't we? that's a good point I think I've heard up at the end but that's a good point okay it's all right both okay so question one from Jason from Canada he has he's got actually a two point question so I'll answer this in mention this in sections question one in your book this is a Aussie turtles trend following guide you mentioned that you only exit when there is a tech failure or a catastrophic risk can you elaborate and then his second question which we'll discuss later will Jerry collaborate on your second book so let's get to the first question on Jerry did we say that did we actually say that Richard? well I think he's hoping and so we actually but we'll get to that one now I'm talking about the first question the first question we did say Jerry's book question okay so I'll explain what we said in the book so I start with this question one okay and then I'll give you guys a chance to jump in if you want to so when we say we only exit the case of a tech or catastrophic risk what we're really saying is this we exit only when something occurs that sits outside the scope of the system rules in other words an event that compromises the ability of the system to function as we designed it so a tech failure is a clearest example if the data feed breaks if execution fails if the platform freezes or if the plumbing behind the strategy becomes unreliable we step aside so the system cannot interpret the structure if the environment it depends on is not working and catastrophic risk is the second case so these are the rare moments when market landscape functioning itself is impaired think of like exchange closes liquidity of operation geopolitical events like world well I know they're a good example of that is when they suspended the trading and the Russian rubble yeah so by law you just we're not able to continue trading the product I think that's a very good concrete example yeah because we have glitches all the time I know on Friday we had a glitch on CME global X and markets went out for a little while but that shouldn't really affect the trend follower if markets are off for eight hours you know obviously depending on where they open and in this case they open very close to where they to where they closed before the trading was suspended that shouldn't really affect the trend follower but you know if the exchange delists the product obviously that would necessitate the exiting from that trade right Jerry thoughts? Yes I didn't know it exiting that I thought it meant exiting a trade I think he's not applying the system stepping out when you're in the yeah yeah yeah yeah so I think you know that we've seen situations like that where a volatile is really high markets are feel unstable nickel maybe in yeah so it's it's okay to step aside I suppose sometimes and especially if it's a very rare occurrence though I mean Jerry you would admit like could you count those on your one hand like one hand in your lifetime when you would have to intervene like that to do something yeah and then and then when you did intervene do you think it actually was a good intervention or here should you just stick to the system regardless? I don't know it depends on the situation oh you know what happened after 1987 crash no matter what you do there you just always like wondering okay I got to get back in here I can't miss a trade and that's what's on your mind all the time as I can't miss an outlier surely your pants are not loose enough to stay long until the 87 crash no I remember I think it was Harold the bear he was hit with the was it the chain or the nickel debacle with the exchange the London metal exchange well the nickel and yeah it was nickel just a few years ago but it was just like people were pissed off yeah does he some people exited a trade in nickel and the exchange said those trades are no good and nickel was a lot lower the next day so it was a little unstable and there were lawsuits and there were complaints and I think Clipers rose so I got sick by that that's a good example I think that's an excellent example of confusion you know if the exchange is doing arguably silly things and canceling orders I mean it's very hard to play play that game isn't it oh yeah yeah look part two of Jason's question so we'll Jerry collaborate on the second book so I'll just give you guys a bit of context we're planning another book but for next year but this one is very different from our first book the Aussie Turtles Trend Following Guide that was more about the mindset you need to become an outlaw hunter it laid the foundation this what's happening next year is a new book that's it can do explain it's far more practical it's a detailed blueprint for an outlaw hunter so will Jerry be involved okay Jerry we're putting you on a spot is the huge supporter of Turtles Project from day one and his fingerprints are already over the philosophy behind what we teach and if you know Jerry you know he has a way of distilling complex ideas into very simple truths that hits you right between the eyes that's what I've certainly found so yes we would love to have him involved in some way whether it's a forward a section or a contribution to the framework we put all shape together I'd love it but over to you Jerry are you interested yes always of course well we loved work with you guys and contribute in any way I can so I look forward to it yeah okay we've got it recorded so there we go that's the next year all right yep second question from Luca when will the trend following playbook be available okay so that's a second book I mentioned next year we're making strong progress currently but these projects always take longer than expected especially the editing the editorial the publishing process etc and also we're continually chinkering with it around the edges trying to try to get it to be a definitive guide for an outlaw hunter because I'll be very careful here because I know Jerry is going to read it closely and he's going to be pedantic for the exact details so I've got to make sure it's correct so it's going to be next year probably maybe around November of next year but that's going to be our playbook that'll allow people to actually a strong practical guide to how you become an outlaw hunter the techniques behind it anything to add add on there no just that I agree with the Eritage does take a lot longer than one budgets or expects to produce high quality content like our first book which I recommend you purchase if you did not already have a copy nice plug Adam okay question free good Christmas reading actually that is very good Christmas reading that's very good Christmas present for anybody aspiring to try and follow all right question three from Slav Z we've had Slav put in numerous questions before but here it goes this is for Jerry all right Jerry how does shorting equities one to one fit inside a portfolio built on positive skew what he's asking that you might be out of nowhere he's talking about well I'm going to guess that what he's talking about is the longs are a lot more profitable than the shorts and so we all know this we all know that almost all the money is made by the longs over our career over the whole history but the shorts are pretty good at stabilize the portfolio they can make money sometimes with the logs that I do and well and they offer great diversification and they're not losers so we've had some good shorts on this whole year and one of the things I think is important well it's so important to trade individual stocks and have individual stocks in your portfolio and like a good trend follower go along those stocks go short those stocks just like all the other markets it is by the trades or a trend follower who trades and has different rules you know you know exactly what to do with those stocks it's the same thing you do with everything else but most people struggle with that idea they've been brainwashed as such so much different like yeah everything's different but make it fit into the trend following the world and trend following framework and true the shorts don't go down as much as the longs go up that's true in all the markets but one of the most important things about trading these stocks is you want to come into April short which we did we had shorts on when all hell broke loose in April because we traded individual stocks and there were stocks there's always going to be stocks in a downtrend regardless of what the overall S&P is doing and so now we have about 60% of our stocks along and 30% are short we have a substantial S&P because it's going to hit all time highs next week maybe and we're going to have in this 30% of the stocks are in downtrends embrace it love it it's wonderful no if you trade the indices you're long all of them maybe you're short one but you're probably not maybe you're flat a few but you have you're coming in with a much riskier position because you have no shorts on optimally you want to have longs and shorts in in all each individual sector we don't have much of that in the currencies now we're pretty long maybe we have maybe long short in the interest rates commodities are a little bit better but stocks are usually the best at if you have a broad portfolio of stocks that you're trading you're going to get some different chart patterns and some longs and shorts all the time Adam anything to add no I'm sort of focused on coming into December I know liquidity can thin out as we get closer to the end of the year and the first couple of weeks of January so that always has my antenna up because I don't want to have any problems with with execution I know this sort of can happen once or twice a year where there's a little bit of a gap gap in the market and they go for some stops so I'm just sort of focused on making sure all the auto types and and liquidity issues are being managed over that period I think apart from that I'm just looking for a nice a nice quite close to the end of the year I don't know I don't know if we'll get it nice Chris is a bit going on at the moment Gerritori's already had his Thanksgiving he's already having a fun part so we'll get this sooner or later all right Jens that brings us to the close of episode nine so no other comments gentlemen I think we're done done and dusted for this episode was a big episode because as I'll tell the viewers shortly we're not going to be having a December episode we're going to take a well-own break so this was the mammoth episode today to make up for all of that so I hope our viewers are happy there but nothing more to add guys no I love good information I'm saving it for the next book yeah perfect all right I'm I'm gonna go find a fancy restaurant in Kuala Lumpur and and I might go and do a savoring the trend oh now that sounds good all right so so stay tuned and I know I owe some people some savoring the trends as well so we got we got we got Michael cobble up there on the on the website yeah and that's a great read and because he's always just such a fun guy to catch up with and just give you the unfiltered roar view of the world which which we love yes we love Michael for yes that's right we did eat pork your pine because when in Saigon you do you do what you have to do and I know Richard you did you ate a duck embryo yeah it's crazy it's a crazy place and and um castles worry guys you know we've got we've got our food experience we can talk about so yeah we've got we've got a savoring the trend with nails cast a blossom to publish and then of course Jerry Jerry our savoring the trend from New York I have not forgotten I have the note that's where we snuck it snuck into his flat and destroyed it did a had a big party in the before yeah that's right and then I might I might get one in here while I'm while I'm in KL but apart from that I guess it's it's made a trend be with you yeah it's been a great year guys it's a pleasure sharing it with both of you it's been a great year yes right so looking ahead our next podcast will therefore be at the end of January and so we hope all of our listeners enjoy the festive season and have a great one we wish you all a Merry Christmas and a great New Year and thanks for all your support your messages and your enthusiasm for the work we're doing here but join us at the end of January for episode 10 where we continue our journey we may have a guest joining us for the spotlight sessions next month and so look forward to that so keep an eye out for that but until then stay systematic stay patient and and may the trend be with you thanks for tuning into Turtle Talk if you enjoyed the episode don't forget to rate and review the podcast it really helps us reach more listeners share it with your friends and invite them to join the conversation got a question for us send it to info at Aussie Turtles dot com and we'll do our best to feature it on a future episode please note turtle talk is for informational and educational purposes only the views expressed by the hosts and guests are their own do not necessarily reflect the opinions of the podcast producers or affiliates this podcast does not provide financial investment or professional advice always consult with a qualified professional before making investment decisions that's it for today folks see you next time and as always may the trend be with you thanks for tuning into Turtle Talk if you enjoy the episode