Copyright 2009 © Opalesque Ltd. All Rights Reserved.
May 5, 2009
FOUNDING FATHER Q&A
Opalesque Futures Intelligence: Has yourstrategy changed over the years?Bill Dunn: Our strategy has not changed sincewe started in 1974. We’ve developed a numberof trading systems and programs, but the basicstrategy of when to buy and sell and how muchto trade has not changed.OFI: But haven’t there been major developmentsin 35 years?BD: There are more markets to trade now. Backthen there were only about a dozen tradablefutures, now there are over 50. In 1974 we didnot have currency, interest rate or stock indexfutures, hard as it is to believe. Those marketscoming into existence is all for the better. Asmarkets were created, we’ve worked on how tostructure the portfolio, so that has changed.OFI: How do you know that the strategy will workin a new market? BD: I never know the future, I can only knowthe past. But I test the past. If the new marketsbehave like past markets, then there’s no reasonto think you can’t trade the same way. We’realways happy to see new markets. The more themerrier.OFI: Please describe your basic strategy.BD: The strategy is long-term trend following.Typically the winning trades last several months.Losing trades are often closed out in a fewweeks.OFI: Do you change the models when marketschange, as they did last year, or when there arenew rules and regulations?BD: Change is a constant in markets. We do nottinker with the model when the environmentchanges. We’re always looking for change, totake advantage of it. There was a lot of change inthe past year, so that meant lots of opportunity.The impact of any rule change will show up in theway prices behave and the models will pick thatup.OFI: What have you learnt from your experience?BD: We’ve got better at risk management. We’vealways tried to control risk but over the yearswe’ve become better at it.OFI: Do you interfere with the models whenunexpected events occur?BD: My opinion or for that matter anyone’sopinion as to what will happen tomorrowdoes not count in our trading programs. Onlythe tested models matter. We can modify themodels, but they’re back tested and have toprove themselves before we’ll implement them.We don’t tell the system what to do; the markettells us what to do every day using only pricedata.OFI: What’s a good environment for yourstrategy?BD: We make money when there is a reasonablenumber of trends – whether prices go up ordown – that last for several months. By contrast,
markets that just bounce around give us difculty
and losses. In 2008 there were large upward
trends in the rst half of the year, for instance oil
and grains, and strong downtrends in the secondhalf of the year. It was the best performance yearin our entire history. I’m sorry we all have to paythe price for those trends, but they were great totrade.OFI: What happens when there are no trends?BD: If there are very few trends long-term trendfollowing does not make money. But we neverknow how long that situation will last and whentrends will develop. None of these situations arepredictable. I can’t predict what will happen and Idon’t think anyone else can either.
OFI: When do your models have difculties?
BD: When markets are volatile but don’t goanywhere in particular, many systems are fooledinto thinking there’s a breakout of a trend whenreally it is just a breakup! Trendless choppymarkets are bad for us. But you’ll have problemswith any system some time or another. There’s noperfect system.OFI: Aren’t trend following returns too volatilefor many investors?BD: What keeps people away from managedfutures is principally ignorance. True, managedfutures returns are volatile, but as we recentlysaw, so are other markets. Our returns have astrong upward trend over the years, but thereare wriggles along the way. People who can’taccept a drawdown should wait for the nexthigh and then take their money out! But most of our clients ride out the long term and get veryattractive returns.
True,managedfuturesreturns arevolatile,but as werecently saw,so are othermarkets.