Trend Following, 5th Edition

4 Big Events, Crashes, and Panics

Of all the beliefs on Wall Street, price momentum makes efficient market 
theorists howl the loudest.

—James O’Shaughnessy

Rare events are always unexpected, otherwise they would not occur.

—Nassim Taleb¹

Remember the Gomer Pyle character from The Andy Griffith show? I can see Gomer saying his classic TV line now:

An investment in Dunn Capital acts as a hedge against unpredictable market crises.

Dunn Capital Management

“Surprise, surprise, surprise.”

To comprehend trend following’s true impact you must look at its performance across the biggest events, bubbles and crashes of the last 50 years where it won huge profits in the zero-sum game of surprises.

While world governments and Wall Street are notorious for country wipeouts, central bank errors, corporate collapses, bank implosions, and fund blow-ups that transfer capital from losers to winners, the winners are almost always missing from after-the-fact analysis. Like clockwork, the press is over-the-top fascinated with the losers when surprises roll in. Following their lead, the public also gets caught up in the losers’ drama, oblivious to: Who were the winners and why did they win?

I’d say that Procter & Gamble did what their name says, they proctored and gambled. And now they’re complaining.

Leo Melamed

Sometimes they get close to the insight: “Each time there’s a derivatives disaster I get the same question: If Barings was the loser, who was the winner? If Orange County was the loser: ...