Top Traders Who Tamed The Rough and Tumble Markets of 1993
Reprinted from Futures March 1994 issue. Copyright 1994 by Oster Communicatons, Inc, 219 Parkade, PO Box 6, Cedar Palls, Iowa 50613
With currencies still gyrating and interest rates booming, 1993 gave many traders a wild and wooly ride. The winners are tried and true: those who tamed the markets in the past.
By Ginger Szak
What a difference a year makes. In 1992, the top fund performer was the Patriot Fund III, traded by A.O. Management and Colorado Commodities, with a 58% gain. In 1993, the fund was down 21.5%
John W. Henry-on the other hand-had a single digit down year in 1992-and this year tops the fund performance with a 69% return in his JWH Global Strategies (H) G fund, which follows his yen-trading model, focusing on the Japanese yen, yen bond and Nikkei stock index.
Furthermore, this year's top 10 trading advisors with more than $10 million under management-compiled by Barclay Trading Group-reads like a fan club list for Richard J. Dennis. Former Turtles Tom Shanks of Hawksbill (up 114%), Liz Cheval of EMC Capital (up 63.9%), R Jerry Parker of Chesapeake Capital Corp. (up 61.6%, his fund was up 67.5%), and Paul Rabar of Rabar Market Research (up 49.3%) dot the list. Mark J. Walsh, not a turtle but a close associate of the group (see "Mark J. Walsh: Long-term view of the markets," below), scored with a 78.1% return, while Dennis' partner in the turtle project, William Eckhardt, of Eckhardt trading Co., had a 56% return this year. Despite this Grade systematized score card, topping the list with a 148.4% return was A. Gary Shilling & Co., an economist, who of all things, bases his trading on his fundamental economic forecast (see "Economics bottom line or Thematic," Trader Profile, January 1994).
Gerrit Rath, head trader of Hasenbichler Commodities in Vienna, Austria, once again was in the tops list with a 70.1% return the fund was up 64.5%). Rath has been hot since launching the group in 1990, garnering a 494.4% total compounded return. A systematized trader, the Austrian follows a fully global diversified market approach-including trading the London Metals Exchange, a tricky arena that fools the best traders.
The year seemed to belong to trend-followers, but those who were long-term and highly diversified. David Druz of Tactical Investment Management (see "Tactical, Druz: Doctor keeps pulse of markets," right), embodies that method. In early February he had on four trades that were more than a year old-and that was fewer than normal.
Tactical, Druz: Doctor keeps pulse of markets
With emergency room medicine on your resume, commodities trading is easy.
Or so it seems for David Druz-part doctor, part trader-all money maker. Druz, president of Tactical Investment Management Corp., based in Haleiwa, Hawaii, had two of the top performing public futures funds in 1993: Tactical Commodity Fund, his first fund opened in 1981 (up 56.5%) and Tactical Futures Fund II, launched in 1984 (up 51.3%). Each started with about $200,000. Today, they have about $2 million each. Almost all that money was made, not raised, Druz notes.
Double digits are nothing new for Druz, whose compounded annual return since starting is roughly 615%. His best year was 1990, when he brought in 96% return. His worst year was 1986, when he was down 31% at year's end. He gives no excuses for volatility-in fact, he thrives on it. After all, he contends, he's in the business to make money. That's his goal.
Druz's interest in futures started while he attended the University of Illinois in Champaign, majoring in electrical engineering and computer science. A fraternity brother made a killing in the markets, and Druz was hooked. His buddy got him a job at Stotler & Co. doing fundamental research. Despite this interest, he continued on to medical school. He attended Johns Hopkins University, but still managed to do research for Stotler, where he got into "weird scattergrams about previous years' crops and did a lot of correlation analysis of supply/demand," aiding the firm in its forecasts.
"The amazing thing to me was this was all baloney," he says. "The fundamental analysis was great, but I never saw a correlation between that and trading...the fact I did all this fundamental analysis was instrumental in pushing me away from it. It just didn't work."
After his residency at Michigan State, Druz joined a colleague in setting up an emergency medical group in Alaska, which he saw as "a business challenge." But he always loved Hawaii-and moved the trading office there in 1984. From 1984 to 1991 he toggled between trading in Hawaii and medicine in Alaska. In mid-l991 he retired from medicine to concentrate on his first love: the markets.
Druz used his computer background to program a trading system, which back then he called "statistical economics. In 1980 he had a diversified portfolio of the 12 markets then available. Today his systemized trading method trades 40-plus global markets: 50% commodities, 25% currencies and 25% interest rates. Druz says it's important to "weight the commodities as heavily as the financials from a robustness standpoint; if I want to survive, I can't be sector-weighted if I'm trading this mutual fund style. My goal was to be around forever making money at this game. The best way I could think to do that was to try to be balanced as well as possible so it would be too hard to knock (me) all the way down."
To "be around forever" holds certain principles, he says. They don't trade indexes and stay in trades long-term. Many of his trades are on for more than a year. And fiddling with a system - optimizing for markets -"is death," he says.
"There are whole families of things that seem to work forever on any market," Druz says. "The down side is they are very volatile because they are never curve-fit. They're never exactly fit to any particular market or market condition. But over the long run, they do extract money from the market."
Key to his trading is money management. "We focused on how we divvied up the risk in our portfolio, how much risk we take in each market, how many contracts we trade in each market, that's the stuff that really counts...if you have money management wired, you can let volatility go because you know it doesn't have any correlation with the risk of ruin. You can use volatility to your advantage."
Reprinted from Futures March 1994 issue. Copyright 1994 by Oster Communications, Inc, 219 Parkade, PO Box 6, Cedar Palls, Iowa 50613