When Dick Stoken purchased a Chicago Mercantile Exchange membership in 1959 for approximately $3,000 after graduating from the University of Chicago Business School, eggs where the commodity to trade; pork bellies had not been listed yet and he was too late for the volatile onion market, which had been banned.
Stoken made a good living trading eggs and pork bellies when they became available in 1961. “In those days I was more of a long-term fundamental trader with a technical overlay,” Stoken says. He partnered with industry pioneer Barry Lind in a brokerage firm in the 1960s to supplement his trading income. “I was the trader, he was the broker.” Stoken held a stake in the firm, which would evolve into Lind Waldock, until the mid 1970s, but by 1966 Stoken grew weary of the floor and began trading from home while writing a couple of investment books.
In the early 1980s when the idea of creating managed futures trading programs first gained interest, Stoken decided to create a commodity trading advisor (CTA). He partnered with Myron Neims to create a technical and fundamental based long-term trend following CTA. The program performed well earning Neims and Stoken a spot on this page in the 1980s. Stoken estimates that the program averaged approximately 25% from 1984 to 1990, including a 120% year in 1985. Despite its success, a bad year in 1988 led to redemptions and the fund was eventually closed in 1990.
Stoken basically tried to codify the successful style of trading he developed in his floor days. “It was systematic without me ever thinking of it that way,” Stoken says. “We would try to confine our trading to the direction of the fundamentals, but not in each commodity the same way because some commodities we had a high level of certainty in the fundamentals and with others it was more murky.”
He would act on the technical signals based on their fundamental opinion of a market. If it was a minor technical signal he would need a lot of confidence in the fundamentals to make a trade; if it was a very strong technical signal he wouldn’t need as much fundamental confirmation.
The program traded currencies, bonds, grains, gold and meats. Stoken says they were somewhat limited in adding markets because they didn’t have the computer power at the time. “It had many of the things that I now have but it wasn’t as refined or sophisticated,” Stoken says.
What he has now is four trading programs using the same logic applied to different markets. He launched his Lincolnshire, Ill.-based CTA, Strategic Investments, in 1992 after reworking the original program. “When I looked back on it I saw that the core parts of the program performed very well.”
He lowered the leverage, beefed up the risk management and traded more of the signals from the original program, which he says may have been over optimized. “I tried to
bring too much to the table. There were a lot of little holes and rather than tighten up the leverage, I tried to fill all the holes.”
Also, when reviewing his old program, Stoken noticed that John W. Henry’s original program had performed worse than his and survived quite well. “One of the reasons he was able to survive is because he had multiple programs. With multiple programs, if one was doing bad the other was doing good,” Stoken says.
So when Stoken decided to get back in the game in 1992, it was going to be with multiple programs. He would use the same technical and fundamental inputs but trade different instruments in various programs.
He has a commodity program, a currency program, a modified strategic program that trades currencies, fixed income, metals and energies, and the hedge program, which includes stock indexes with other financial instruments. “The strategies are quite similar. We do vary it because the historical volatilities [in some markets are different.] I have these multiple programs so that people can put them together in different forms.”
Stoken’s programs have been successful — all with double- digit compound annual returns since the launch, but he never marketed it to a great extent. It was mainly trading proprietary money and a few accounts of friends and family.
He is ramping up marketing efforts though because he sees a greater demand for managed futures. “There is a blossoming in the whole idea of alternative markets. I am making a bet that we can go ahead and find a place there,” Stoken says.
After successfully trading futures for nearly 50 years covering six decades, Stoken’s place is set.