FM: But isn’t that the point of trend-following — that you are not predicting, just defining a trend and taking advantage of it?
BE: That’s right. And if you look at me as a predictor instead of as a trader—as a trader I am way ahead, as a predictor I am scoring about 35%, so I am not very good as a predictor. Those are different skills. But still even with trend followers you will hear people say, “Where do you think the market is going?” It is just human nature to try and approach this in terms of making a prediction.
FM: After watching managers for more than a decade, it seems to me that there is more diversity within what is loosely defined as the medium- to long-term trend-following space than most people give it credit for.
BE: That is right. People look too much at the correlation between traders. The fact of the matter is [that] correlations tend to overstate the relationship. The reason being, whatever kind of a trader you are — let’s say you are a medium- to long-term trader — if you are a fundamentalist, if you are countertrend—you know you try and buy the bottom and sell the top — or if you are a trend follower, at that time frame you are going to make money and everyone makes money in the trends. They do it in different ways, they get in at different places, they have different approaches but they make money in the trends. So when you look at the performance they correlate more than they should. So now if you narrow your scope to just trend followers, they are really going to correlate more than they should. So that gives the impression that they are really all just doing the same thing, which they're not. So there is more diversification among trend followers than one would expect. There really are different varieties of trend-following and they really do have different properties.
FM: There are signs this industry that you have been involved in for more than 30 years is moving into the mainstream. What do you see as the future?
BE: Well, it is well overdue. I don’t have to tell you that they were trading futures in the 19th century and this is the 21st. People talk about futures as derivatives and that might be technically true but the fact is these have been around for a long time. For all that time futures have had the reputation of being really risky. It took people to lose several fortunes over and over again in the stock market to finally figure out that it is the stock market that is really risky. Futures are only as risky as you want [them] to be because you can leverage [them] down so easily. I don’t understand why futures had the bad reputation for all of those years, and if it is coming into the mainstream it is long overdue.
FM: We know you are more of a technician than a fundamentalist but give us your outlook on the investing landscape. Is it a good time to be in managed futures? Is it a good time to be a trend follower?
BE: I can’t predict the direction of the economy, but it’s a safe bet that it’s going to be a roller coaster ride. In the past such periods have been good for the trend follower. This is, however, a flimsy argument – it’s impressionistic and rests on a small sample. The real reason to participate is that futures trading has been beneficial in general, and now is likely to be as good a time as any.