Charting My Interruption (CMI): “Mind Over Markets—the Importance of Proper Mindset”

At the CMT Association’s 2023 Annual Symposium in New York last week, I had the incredible opportunity to interview legendary trend follower Jerry Parker for Episode #29 of the Fill the Gap podcast. Jerry is arguably the most successful trader to have emerged from the infamous “Turtle” trading experiment of the early 1980s, underwritten by Richard Dennis and Bill Eckhardt in an effort to resolve a debate about whether successful trend following was an innate ability or if anyone could learn to do it. After being taught the critical tenets of trend following, Jerry went on to start Chesapeake Capital, becoming one of the most successful trend followers in modern times. Apparently, it was settled. It can be taught, no natural talent necessary. Or was it?

To me, the most interesting observation about the turtle experiment is that Jerry was one of 20 original turtles, all smart, driven individuals who were taught directly by the two “Masters of the Trend Following Universe”. Each turtle was taught the same exact entry and exit rules, the same exact risk management scheme, and all twenty traded from the same exact office. With such a level playing field presented to all twenty turtles, why is it that Jerry Parker is the only one to have emerged from that experiment as a truly successful trend follower? Clearly, it’s not just the trading rules or risk management scheme. If it were, all twenty turtles would be successful today.

Our conversation was therefore focused on proper mindset, which I believe is the most overlooked ingredient in successful investment outcomes. While mindset management is critical to the portfolio manager’s ability to execute a strategy through both good times and bad, Jerry and I finished our discussion about mindset with a focus on the manager’s clients, and the importance of making sure their mindset was just as fine-tuned as the manager’s. We all know the unfortunate but true story about how Peter Lynch delivered returns in excess of 20% during his tenure on the Fidelity Magellan Fund, but due to performance chasing and panic selling, the average investor’s return in the very same fund was closer to 10%. Why? Improper expectations, which led to a clouded mindset and poor buy and sell decisions during periods of outperformance and underperformance, respectively.