Nature or Nurture

Somnath Banerjee, May 01, 2019

It was mid 1983 and legendary commodities trader Richard Dennis was having a debate with his friend Bill Eckhardt. Are great traders “born with natural aptitude” or regular people can be trained to become “great traders” ?

In order to settle their dispute, they put out ads in WSJ, Barron's and NYT to look for apprentice traders. Over next few months there were 1000+ applicants, they interviewed around 80 and finally settled down with 13 traders.

These traders were all given a common training for just around a 2 week period.

Early January 1984, the traders were funded with $500K to $2M and they started trading on commodities futures — 30 year T-Bond, Coffee, Sugar, Deutsche Mark, Gold, Silver etc. The most liquid markets were chosen.

The rules were very simple. They had the following items:

• Markets — What to buy or sell
• Position Sizing — How much to buy or sell
• Entries — When to buy or sell
• Stops — When to get out of a losing position
• Exits — When to get out of a winning position
• Tactics — How to buy or sell

These traders were called the “Turtles”.

Turtle trading principles focus on risk management — The basic approach is to work with a limited portfolio of a futures market. Turtle also is a complete trading system and uses price breakouts for entering / exiting positions in futures markets. Usually it is based on a simple 20 day HIGH or a 20 day LOW. Turtle manages risk using a constant percentage of the underlying market’s volatility.

Over next 5 year period the Turtles generated $175M of profit for their owners!

The most important takeaway were the 3 key principles:

• Determination — e.g. Being able to stick to rules even during odds
• Drive — e.g. Being able to stick to similar markets / policies consistently
• Discipline — e.g. Not deviating from the rules for an extended period

The general takeaway is whether it is wealth or weight-loss, it is the ability to stick to a set of rules is what differentiates a success from a failure. It is not the sophistication of the rules but the discipline of the person which is the key.

Disclaimer: Since most of this happened before my working career, I am basing all this from information available in open internet.