SI176: The Origin of Outliers ft. Richard Brennan
Top Traders Unplugged
Niels Kaastrup-Larsen
4.8 • 712 Ratings
🗓️ 23 January 2022
⏱️ 89 minutes
🧾️ Download transcript
Summary
Richard Brennan joins us this week to discuss how to spot potential outlier trades before they occur, the power of simple trading rules over complexity, why endogenous events move markets 90% of the time and news events are behind only 10% of large market moves, how Trend Following models safely reduce risk exposure automatically as drawdowns increase, how to approach correlated markets in your portfolio, how to achieve diversification with limited capital, the Efficient Market Hypothesis versus Adaptive Market Hypothesis, and the differences between Trend Following and ‘Trend Trading’.
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50 YEARS OF TREND FOLLOWING BOOK AND BEHIND-THE-SCENES VIDEO FOR ACCREDITED INVESTORS - CLICK HERE
In this episode, we discuss:
- Spotting patterns among previous outliers
- Simplicity over complexity
- How little the news really moves markets
- Professional Trend Following versus 'Trend Trading'
- The ability of Trend Following models to automatically reduce open risk during drawdowns
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Episode TimeStamps:
00:00 – Intro
01:19 – A big thank you to listeners of the show for leaving your 5-star reviews on iTunes, and feel free to share this link with 3 of your like-minded friends:
https://top-traders-unplugged.captivate.fm/listen
02:41 – Macro recap from Niels
04:13 – Weekly review of performance
11:14 – Q1; Jonathan: What are the parameters that indicate a high chance of an outlier trade?
17:22 – Q2; James: Do you treat correlated markets as individual markets or group them together?
21:24 – Q3; Adam: One system has a better average performance when looking at the backtest, and another system has a worse average performance in its backtest while having a large outlier, making its overall returns higher. Which system is better?
24:14 – Q4; Irving: How can I trade a 100 markets as an individual investor with capital limitations?
29:07 – Q5; James: How do you approach correlation risk management?
32:39 – The differences between Trend Following and the more common term ‘Trend Trading’
38:24 – Expanding on the theme of hunting for outliers, and how Jean Phillipe Bouchard’s research was useful in understanding the nature of outliers
01:01:53 – Efficient market hypothesis versus adaptive market hypothesis
01:22:03 – What importance does it have that we’re changing the narrative around Trend Following?
01:25:32 – Benchmark performance update
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Transcript
Click on a timestamp to play from that location
| 0:00.0 | You're about to join Neil's Kostrup Larson on a raw and honest journey into the world of systematic investing and learn about the most dependable and consistent yet often overlooked investment strategy. |
| 0:13.0 | Welcome to the Systematic Investor Series. |
| 0:26.4 | Welcome and welcome back to this week's edition of the Systematic Investor series with Richard Brennan and I, Nils Castel Larsen, where each week we take the pulse of the |
| 0:30.1 | global market through the lens of a rules-based investor. |
| 0:33.9 | If you're new to the show, I hope that today's episode will trigger your curiosity enough to check out the back catalog and listen to the past episodes that you may have missed, like my conversation with Rob last week, where he shared a very interesting approach to grouping markets into correlation clusters instead of traditional market sectors, which is an area that I think is being analyzed by many firms |
| 0:56.3 | and perhaps even implemented by some. |
| 0:59.1 | And if you miss that conversation in which we also answered a lot of the questions from our |
| 1:04.0 | community, I invite you to check it out. |
| 1:07.1 | Of course, let me also mention the latest volatility episode with Harry that came out on Wednesday this week, |
| 1:13.4 | where he spoke to the chairman of a multi-billion dollar CTA called CFM. |
| 1:19.2 | As you know, the aim of the podcast is to inspire you as an investor. |
| 1:23.9 | We want to be prerogative without being polarizing. |
| 1:27.0 | We want to challenge consensus narratives andative without being polarizing. We want to challenge consensus |
| 1:28.4 | narratives and to advocate how to think critically about investing in an uncertain world and to |
| 1:34.4 | provide you with a framework and a mindset that we believe is truly robust. And if you want to help |
| 1:40.5 | us achieve our goal, what we ask of you is that if you can comment, if you can continue to send us your questions, |
| 1:47.4 | and if you can share these episodes with your friends, and not least if you can rate and |
| 1:50.7 | review them in iTunes, we would greatly appreciate this, as this is the best way for us to |
| 1:56.4 | see that you get some value from our time and dedication each week to create these episodes, |
| 2:01.2 | and as long as that continues, we will, of course, continue to do them. |
| 2:04.9 | With all that said, Rich, it's so great to have you back this week. |
| 2:09.0 | How are you doing how things down under? |
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