The Peter Brandt Interview

Couple of days ago, a friend of mine provided a link to the interview of a trader who despite his humongous returns has never been in the lime light as many others with even lower success have been. In fact, the interview starts off with the line “may be the greatest trader you’ve never heard of.” and damm if that is not true, especially in the Indian context where we are regularly exposed to few proprietary traders who have made it big not by investing but by trading.

The returns (Audited) he has generated is something that is really out of the world so as to say. He has in a sense converted a sum of Rs.100,000.00 (One Lakh) to a astounding Rs.240,34,45,879 (Two hundred & forty Crores and some change) in a span of 29 years.

Below is a chart of the time and years taken by the top fund managers

Peter Brandt is in a league of his own. And the best thing about his return is not the amazingly long period he has been able to achieve but that he has achieved more or less without much of a noise.

Some of the really quotable quotes I liked in the Interview (and my thoughts)

And I felt so strongly, that “this is it…the time to bet the farm.”

A wonderful quote says and I quote “The greatest risk is the one not taken”. A famous quote by by Ed Seykota says – Know when to break the rules. While I myself do not think that breaking the rules is a worthwhile strategy for all, the fact remains that the greatest investors and traders realized the road to success lay in not being in the safe zone all the time.

As much as its important not to over leverage, when a once in a Century opportunity comes along, its also necessary to be nimble and take a risk that may not be what most prudent investors advise you to.

For me, one of the biggest things was realizing I was not going to be right 80% of the time, or even 50% of the time. I would be right about 35% of the time – but that was over an extended period of time

Being a trend follower, does it delight me to see him emphasize on the fact that to be a successful trader, the strike rate is not something that should lie in the high 80’s or 90’s.

And depending on how bold I am, how I feel about the market, I might risk up to 1.5% on the trade. There are times where I have risked 3%. But it’s rare that I do that.

I am amazed when I talk to novices who tell me they risk as much as 10% of their capital on a trade! Well I did that too. Back in the late seventies I did that, and I can tell you it doesn’t work! Risking 10% of capital on a trade is a well traveled road to ruin.

Risk Management is a area which is not given enough thought. While I do see people talk about stop losses a lot more these days, the fact remains that very few are disciplined enough to execute a stop when it hits. Our behavioral biases make sure that letting go of a losing trade is tougher than letting go of a winning trade (opposite the way it should be).

Question: Have your signals or trading decisions changed much over the years?

PETER BRANDT: For me my signaling hasn’t changed much, although I’m moving toward the point where I’m wanting longer term signals – almost to where I can throw my daily charts away and just deal with weekly charts.

Sometime back I remember reading (or hearing in a podcast) a similar question being asked to William A. Dunn, the founder of Dunn Capital who too has a very long run of great returns though his draw-downs are way deeper than what Brandt has ever got hit with.

Most traders love to change strategies / systems as soon as the one they are trading seems to get bogged down. But if the greatest traders have survived without tinkering much (and employing way more capital than most of us can even dream off), I wonder how much of this tinkering actually is destructive to our long term aims and goals.

And so, without much ado, here is the link for the Interview (Interview with a trading Legend).

Personally I would suggest you not to rush off in reading since there are quite a few things that provide a lot of learning’s and in a quick scan, its way easy to miss the meat of the interview itself.

If there is one thing, one learns from episodes such as this, its the fact that the top guys rarely make any noise while they go about doing their business as if time has stood still. They aren’t the first to jump about to tell everyone about how good a call they made in the daily circus that is run on the Idiot Box, most of them don’t have anything to sell (other than a book or two) and finally are humble.