Wieczorek: Going old school
Purple Valley Capital principal Donald Wieczorek just turned 29. That’s more than 40 years younger than fellow top trader Bill Dreiss, but the two share a common trading philosophy. Wieczorek, an admirer of Salem Abraham, developed a trend-following approach while still in college just as Abraham did.
His age is relevant given his approach, which is old-time trend following.
Purple Valley was launched in August 2008, just in time to catch the second half of that extraordinary year, earning 66.31% in the last five months.
Wieczorek was interested in trading while attending Williams College in Williamstown, Mass., but as an economics major he was pushed toward investment banking so he interned with JPMorgan’s equity capital markets group.
He noticed that many professionals had a hard time predicting market movements, which led to a Eureka moment of sorts. “I stared becoming a profitable trader when I realized you don’t need to predict market movements to make money,” Wieczorek says.
“A lot of my professors, who all had MBAs from Harvard or [the University of] Chicago, kept telling me that what I was trying to do is impossible,” he says. “What drew me to it was more the way of trading: Cutting losers and riding winners. I wanted to be in a lot of markets. I didn’t want to just be in stocks, I wanted to have access to corn, gold, crude oil or currencies. I just loved markets; if there was any big move anywhere in the world I wanted to be able to capture it. By virtue of developing my system, all of a sudden trend following popped out.”
He devoured any material on trading he could in an attempt to develop his style. He read Jack Schwager’s Market Wizards books and dozens more.
He discovered several common themes. “They all cut their losers quickly; they all tend to have winners larger than losers; they are diversified so that they catch a lot of the major trends; and they are very patient and disciplined in their approach,” he says.
That all spelled out long-term trend-following. “I just put that all together and created a system that fits me. It makes it a lot easier to go through a drawdown because when you run a system as aggressive as mine, you are going to have drawdowns. Because it fits me, I can stick to it.”
Wieczorek took a slow and steady approach, working on perfecting his system rather that raising assets. “A lot of new traders avoid trend following because it is overly saturated.
I approach it as the way I could make money best for investors,” he says. “There are still a lot of people out there that don’t know trend following exists--that is where I have been focusing--not so much the huge allocators but smaller investors.”
And they are beginning to take notice despite launching into a difficult environment. While Purple Valley looks like a pretty meat and potatoes long-term trend follower that earned strong returns in the last half of 2008 and in 2014, its returns from 2009 through 2013 — the worst five-year stretch in the history of managed futures — produced a compound annual return of about 3.5%. Not great, but you will take it when couched between 66.31% and 87.49%. That compares favorably to a similar worst five-year stretch for the S&P 500.
Winning positions last from between two and 12 months while losers are usually closed out within a week. “We only get out after a trend is over,” Wieczorek says. “Giving up of unrealized gains is the largest cause for drawdowns. We don’t limit the upside.”
It is an old-school approach but one that has survived profitably through a difficult environment.
“It is like an elevator. The up and down of an elevator is fine, that is the volatility. If you want to end up making a lot of money or compounding at a high rate of return you are going to need to be able to stomach a little bit of the up and down of the elevator to get to a really high level,” he says.
“Trend following does a really great job on the risk side. Unfortunately, the [investment] industry doesn’t quite get the difference between risk and volatility. They just look at something that is volatile and assume it’s risky. I would argue the opposite,” Wieczorek says. “I know every day what my exit point is and where positions are going to be knocked out. It helps me sleep at night.”
One could say Wieczorek is wise beyond his years.
“Some people think I am too young but I want to do this for several decades,” Wieczorek adds. “I am an emerging manager with tons of time on my hands.”