Fill The Gap Episode Twenty-Three, Live at APAC Summit

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Atul Suri and David Lundgren, CMT, CFA hosted by Tyler Wood, CMT | Fill The Gap Live: Investment Management Trends at an Inflection Point

Interview recorded Live at CMT APAC Summit 2022 in Mumbai India on Nov 5, 2022

In this live installment of Fill the Gap, the official podcast of the CMT Association, global money management veterans share how they use technical analysis in their trend following investment process for market outperformance over the long run.

With front row seats to the evolution of equity markets for more than three decades, these gentlemen have learned many lessons managing returns over multiple market cycles. They will discuss the strategies used in their respective funds and unpack the objectives of trend following including how to identify, engage, and stay in trending securities by utilizing the tools of technical analysis.

As an investment style, trend following has existed for a very long time. Some 200 years ago, the classical economist David Ricardo’s imperative to “cut short your losses” and “let your profits run on” suggested an attention to trends. Early in the last century, the legendary American trader Jesse Livermore stated explicitly that the “big money was not in the individual fluctuations but in … sizing up the entire market and its trend.”

Understanding that the market is efficient, but also trends, confirms how technical analysis can help investors uncover attractive investment opportunities. Leading, coincident, and lagging indicators of trend change as well as Relative Strength will give the audience a clear perspective on how they might incorporate technical analysis into their own investment process.

Fill the Gap, hosted by David Lundgren, CMT, CFA and Tyler Wood, CMT brings veteran market analysts and money managers onto a monthly podcast.

Join us in conversation with the men and women of Wall St. who discovered, engineered, and refined the discipline of technical market analysis to improve your own investment decision making and approach to markets.

For complete show notes of every episode, visit:


Past Presentations:

Atul Suri – Live at India Summit 2019 | Technical Analysis for the Long-Term Investor |

Dave & Atul – APAC Summit Virtual 2020 | Trend Following and Money Management |


Tyler Wood, CMT 0:13
Welcome to Fill the Gap, the official podcast series of the CMT Association hosted by David Lundgren and Tyler Wood. This monthly podcast will bring veteran market analysts and money managers into conversations that will explore the interviewees investment philosophy, their process and decision making tools. By learning more about their key mentors early influences and their long careers in financial services, Fill the Gap will highlight lessons our guests have learned over many decades and multiple market cycles. Join us in conversation with the men and women of Wall Street, who discovered, engineered, and refined the discipline of technical market analysis.

Unknown Speaker 1:09
Fill the Gap is brought to you with support from Optuma, a professional charting and data analytics platform. Whether you’re a professional analyst, portfolio manager, or trader, Optuma provides advanced technical and quantitative software to help you discover financial opportunities. Candidates in the CMT Program gain free access to these powerful tools during the course of their study. Learn more at

Tyler Wood, CMT 1:43
Hello, David Lundgren and welcome to Episode #23 of Fill the Gap here in November 2022. How are you feeling my friend?

David Lundgren, CMT, CFA 1:52
I’m feeling excellent, Tyler. It’s good to see you back on stateside.

Tyler Wood, CMT 1:56
Absolutely. What an incredible week in Mumbai, India. I can’t thank you enough. And for the fellow board members and special guests that we brought over to India last week. Dave, first and foremost, what did you think of the CMT Asia Pacific Summit?

David Lundgren, CMT, CFA 2:10
It was incredible. I mean, I’ve attended most summits and symposiums over the past decade, and it was by far the best one. And that’s a high bar because they are incredible each and every one of them. But what I really liked about this one was the effort to bring in conversations from outside of technicals, you know, those fundamental managers and strategists and whatnot, who use fundamentals, but also use technicals. And just to see that whole conversation come alive on the stage as they demonstrate how they incorporate both the the tools of whatever their discipline is their primary discipline alongside the the technicals to help bring clarity – to the you know, refining their decisions, and their risk management, etcetera. I mean, that’s what it’s all about. That’s what this podcast is about. So it was really great to see that whole conversation come alive on the stage.

Tyler Wood, CMT 2:54
What happened on Saturday is not to be missed. And so for all of our listeners of Fill the Gap, make sure you check out the archive recordings of the 2022, CMT Asia Pacific Summit. Those are going to be available at… A lot of learning for us over there meeting with not just the folks at the conference sessions that Akshay Chinchalkar ran with Sorabh Bhatia and others, Shiv Sehgal and Sunil Garg, Madhvi Aurora, I mean, really expert analysts and money managers in their field. But even before we got to the summit, Dave, we had a full week of meeting with the ministers at the National Stock Exchange, the Bombay Stock Exchange, dinner roundtables with chief investment officers… Any takeaways that really stood out for you, from money managers in India?

David Lundgren, CMT, CFA 3:43
You know, I think technical analysis is a is a big input in India. And I just always, you know, go back to, you know, why did technical analysis begin from the very start, you know, going all the way back to the early 1900s. I mean, prior to the SEC being, you know, a government agency and insider trading being illegal. And prior to having access to reliable fundamental information, there was no way to really protect yourself as an investor. And so that was the genesis of trend following and technical analysis, it was just developing these tools in inputs to help you make decisions in a market where there was no information and most most of what was being said, was deceptive, if not an outright lie. And so that was the genesis of technical analysis. And so, you know, we see technical analysis thriving and adding value today in modern markets, just as it did back then. But, you know, the more you get into markets where the information is less widely available, and the companies are less familiar, and, and oftentimes that growth trajectories are so strong, that it’s hard to really have a fundamental view on them, particularly valuation. That’s when technicals really shine. And so in markets, like China, in India, in Brazil and these other emerging markets, this is where we’re seeing a huge appetite for technicals and we’re fortunate to have a large presence there in India. Yeah,

Tyler Wood, CMT 5:01
absolutely. You know, nowhere is the entrepreneurial spirit more alive than on the streets of Mumbai, I think we saw firsthand not just through our culinary tour and musical tour and tour of the financial markets, but just the incredible appetite for learning and education. But also the need to solve problems in real time. I think the spirit of the Indian economy is really evident in the little microcosm that you see, in a heavy traffic jam, people are solving, solving problems in real time. And that’s, that’s really incredible to see. Dave, I know you had a chance to meet with a tool a couple of years ago, we ran a session at the Asia Pacific summit that was completely virtual in October of 2020. And so we took the opportunity this last week to, you know, sit down, dive a little deeper in preparation for our session on Saturday afternoon. But any takeaways from Otto Suri CEO and chief investment officer of Marathon trends advisory,

David Lundgren, CMT, CFA 5:58
but you know, just first and foremost, he’s a wonderful individual. I mean, I could tell that in our initial discussion back in 2020, when we did that online interview at the APEC summit during COVID, and you could just tell that he’s just a real, genuine, wonderful person. So it was really just from that perspective alone, it was really great to be able to get together with him in person and spend a couple of hours just talking about markets and process and things like that. And of course, then to be interviewed alongside him by you on the stage for this episode was was just a real pleasure as well. But he’s a very technically oriented investor trend following he does, he does overlay his process with fundamentals, which is interesting to see. And obviously, again, that’s what we’re really that’s the message we’re trying to bring home here. But you know, as always, it’s nice to have conversations with anybody who’s using utilizing technical analysis, but I especially like the ones where the technically minded individual is also managing money, because that also brings in entirely different elements that can be brought to light, you know, in a conversation about how technicals can help you be a better investor, if your primary perspective is fundamentally oriented?

Tyler Wood, CMT 7:03
Absolutely. Well, for all of our listeners, I want you to know that this was truly a delight for me to flip the script, so to speak, and have Dave Lungren as a guest as well on this episode of fill the gap. So we film this live on the stage in the St. Regis Hotel in Mumbai, India. And I think you are all going to find that Dave is just as expert as a guest as he is, as an interviewer. It’s been an incredible honor to learn at your side, Dave, and hopefully our listeners really take a lot out of this episode of fill the gap live from the CMT Asia Pacific summit 2022. Yeah. All right. Good evening, everybody. Congratulations, you’ve made it to the closing keynote session of this entire fabulous day. So give yourselves a big round of applause. I think it goes without saying that I have maybe one of the greatest jobs on the planet. I have enjoyed the last 10 years at the CMT Association more than any job I’ve ever had. Partly because I get to spend time with folks like Atul Suri and Dave Lundgren, these incredible money managers who have synthesized all of the things that we’ve been learning today. So the job of this closing session is really to tie it all together, right? We’ve talked about market views about scenario planning, about understanding inter market relationships, we’ve talked about the tools that you can use to define risk and capture reward. We’ve talked about the behavioral impulse that all of us have that’s typically ruinous to our portfolio unless we learn to control it. So what I want you to do in this session, is grab that notepad, grab that pen, and listen to what these folks who have done this in the real world with real client money for decades, and the lessons that they’re going to share with us, I think are universal. No matter what asset class you’re trading, no matter what timeframe you’re in. There’s a lot to learn from these gentlemen. So thank you very much, Atul, and Dave, for being here. I do have one thing to really get off my chest, which is that this job is not easy. Technical analysis is a universal language. But English is not. So what we’re seeing right here is called a chart, right chart. But in the town of Boston, where one of our illustrious guests comes from Dave, could you read that out for us? Let’s tell. Tell us what that says.

David Lundgren, CMT, CFA 9:33
If we did that, no, it’s it’s packed the car on Harvard Yard

Tyler Wood, CMT 9:37
park the car on Harvard? Yeah.

David Lundgren, CMT, CFA 9:39
Any more questions?

Tyler Wood, CMT 9:40
Yeah. Well, then how would you say that word right there. That’s a chat. We’re going to talk about shots, right? But here we are in Mumbai. And when you’re talking about jots, you’re talking about these. So I want you to know, this is gonna be a delectable hour for all of you because we’re gonna be talking about charts all day long. Okay. All right. nicely done. Thank you very much. That’s that’s the translator in me. You know, I want to help everybody get on the same page. Gentlemen, I want to pick up where we left off. As as Rashmi mentioned, we did a session, virtually nobody was in three dimensions, and it was a lot less fun, let me tell you. But we came to that session in October of 2020. Right, just after historic never seen before, bear market, fastest decline to 30%, and fastest recovery. So what I want to talk about first is the emotions, the experience of going through something like that. And then we’re going to talk about money management. But first, I want to talk about personal management. Atul Ji, let’s start with you. Tell us about your experience during the COVID pandemic.

Atul Suri 10:43
So I’ll go back a few months, March of 2020. That’s when you know, the markets really collapsed. And I’m a trend follower, I am a slave of price. A lot of stories, emotions flow around. But one of the reasons I do trend following is that, as I said, I’m a slave of price. And I would like to be that way. We back test a lot, be back tested all the way to 2020. You know, we’ve got good clean data for 20 years or whatever, blah, blah, blah, we’ve done a lot of work. So in about end of Feb, I started reading about COVID. And I met a money manager from Hong Kong. And our markets were booming, okay, we had a budget, and we were looking at almost all lifetime highs. And he says you guys have no clue what’s going to hit you. So as usual, you know, like, you’re in a roaring bull market. Anyone comes and gives you this Monday carwash and you know, out. But it’s stuck. That thought stuck. And I kept reading in the papers. A lot was happening in China, a lot was not coming out. But then COVID Hit Italy, the first country, I think, outside of China. And things started getting bad. And it struck me that hey, you know, what if this thing spreads, so just out of curiosity, or just about protecting my portfolio, I started reading about it. And I kind of nailed it. Because I remember making a presentation and I said, you know, what is this going to pan out? Like, do we have a template? Has it happened in the past? Because you fall back on earlier patterns? So I said is this like the swine flu? Now doesn’t look like and have multiple reasons? Is it like the Ebola? No. And I went all the way back to the Spanish flu. And it seemed to me that this is going to pan out like the Spanish flu. So going back, I absolutely nailed it. Right. That is not my job, actually, because I’m a slave of price. But it just got to me. I looked at my portfolio. I looked at Italy. I said let me take some lead indicators. The first industry that was shut down were malls and exhibition centers, theaters. I looked at my portfolio my top holding was PVR. I looked at China, the first business shut down with theaters and malls. My second largest holding was a food company, jubilant food works. I was like boss, like I’m jacked. If this happens, I jumped my system. Smart did very well. I exhibited these two holdings, and I created 16% cash. The market tanked. We all know what happened in I think 24th. March 20 was a bottom 7500 nifty. And I fell less than the market. My exit was superb. It was phenomenal because I got rid of the highest beta, the max drawdowns I would have had. And then I just sense that you know what, I can really predict this flu. So I went back and realize that the Spanish Flu lasted two years. In fact, the second dip in the Spanish Flu had more deaths than the first. And I sense that this is going to play out even in COVID. And when I look back, perfect spot on. I went and studied markets. And I realized that the markets are not going up in a hurry. Probably we would have a 2008 kind of situation. Most of you remember the financial crisis, the markets fell pullback. And the second hit was really, really bad. That’s when Maxim money was lost. So markets bought them now they slightly pulled up and I was sure that listen. I need to stay in cash, because there’s a second leg coming down, which is very vicious, because by now I could model everything. I could man I could model the Spanish flu. I was a master of the universe. And when I go back I was telling Tyler I should have got the Nobel laureate I should be a Nobel Laureate for for mapping this the Spanish flu and the COVID But the problem was the market didn’t have a second dip. And by the time I realized that I was wrong, the nifty was back at 10,000. So I had lost 33% of the move. So whatever outperformance I had in the downtick I gave it all back. So, in spite of spending so many years, and, you know, we go through these big emotional turmoils, and when you have client money, you want to protect it. But the truth remains the same price is king, Baba Guan chi, as they say, in the Indian context. And that, for me is a learning. As I said, I don’t know life will go on, there’ll be much more of such events, Black Swans, as you said, someone said, we’re black swans. I mean, nothing is a black swan, if you can predict it, if you can predict it is what’s the next one? I don’t know. So these are things we dwell on. These are things we experience. These are those moments, you know, when you get really tested, so all’s well, that ended well, but it’s bringing home the point, that still price is king. And that’s how I like to see it. You

Tyler Wood, CMT 16:06
know, David, I had a great honor of interviewing Chris Barone, who is a strategist here in the US. And he his famous quote on our episode was, if you got COVID, right, you got the market wrong. Yeah. And there’s a lot of wisdom in the fact that scenario planning, trying to anticipate and you know, now we know because we did in depth research on the Spanish flu, we know what’s, what’s coming. How did you react as the market, wrote back to 10,000? abandoned the Spanish Flu a thesis?

Atul Suri 16:36
No, that second dip, you know, yeah. So as a Spanish law still, right. Yeah. Because the second wave was worse than number one. Yeah, it worked out, right. Yeah. I mean, I was a nominee for the Nobel laureate. But my clients didn’t think so. So at that point, I had to get in. But the fact is that it you know, it becomes a domino effect and then to recover all that takes time. It was painful. Fortunately, as I said, I had outperformance in a way down. So it was not a major hit. But it was a very big learning to me.

Tyler Wood, CMT 17:05
Yeah. But all that historical research.

Atul Suri 17:07
Yeah. For all that effort for whatever it is that stayed with the price stayed with my system, Black Swan event, whatever there is, I would have been better

Tyler Wood, CMT 17:15
off. You’re still here today. You still have clients? Because you follow the chart? Absolutely.

Atul Suri 17:19
You have to jump in the chat.

Tyler Wood, CMT 17:21
Sorry, the chat, the chat, the poverty chat, Dave? Not the same question. But where are you at right now as an investor, given the fact that we’ve had this black swan event? Did it totally Buck your system? Have you rejiggered everything that you built over these last few years?

David Lundgren, CMT, CFA 17:38
No, but I before I answer you and you’re gonna, you’re gonna have to ask me the question. Yes, of course. Yes, of course. But um, I actually want to say something. I wish Ralph could have joined us route back and forth. The original founder of the Market Technicians Association. Now the CMT Association. I’m sure he’s either watching it live now, or will watch the recording, but I can’t help but believe that, you know, when he when he founded the the association in the 70s, looking back in terms of what his vision was, was to step up the professionalism of the organization and bring some proper recognition to the organization and technicians at large. I, I have to believe that he would be at this event thinking my goodness, we did it. We did it. So I just on behalf of the board, my fellow board members that are here and those who couldn’t make it with us on this trip, I just wanted to say thank you to the team here. On the ground here in India, Joel kizad. And others, a whole team very much.

Seems like nothing happens without you, including the podcast. So I thank

Tyler Wood, CMT 18:42
you for Thank you.

David Lundgren, CMT, CFA 18:43
Thank you to Yeah. And Rashmi. Somebody said earlier that, you know, keep an eye on rash because she’s going to be a rock star in the next 10 years. I think we can all agree. She has already demonstrated she’s a rockstar, right? What a great job. Technically speaking has been a part of the tech the technical CMT Association market, Technicians Association, Association for a long time. And Rashmi brought it back to life. I don’t know if you all have had the opportunity to read her editorial every month, but it’s gold. If you just forget about who wrote it. This whoever wrote it has been in the markets for 3040 years and knows what they’re talking about. It’s an amazing that you’ve only been in the markets for six years. So you’re already Rockstar and thanks for your contributions. You did a great job today.

Tyler Wood, CMT 19:26
And point of clarification in your editorial is worth way more than gold. Look at that chart.

David Lundgren, CMT, CFA 19:30
It’s worth Bitcoin.

Tyler Wood, CMT 19:31
It’s worth Bitcoin.

David Lundgren, CMT, CFA 19:34
Nice job. What was the question?

Tyler Wood, CMT 19:35
The question is, talk to us about your inviolable rules of trend following that have not changed despite this pandemic. Yeah.

David Lundgren, CMT, CFA 19:43
So I mean, that’s, that is the answer to the question. So it’s, i i technical analysis is a wonderful toolkit, right? Lots and lots of tools. And so as you’re just getting used to and getting sort of getting acquainted with the The body of knowledge is available, dive in, and really get to know what’s available within that within that toolkit because it’s chock full of things that can really truly help you not just find ideas, but most importantly, manage risk. And as an analyst, when I first started out, I won’t say how long ago, but you know, it’s basic, I spent my first 10 years as an analyst, I had, you know, looking at the charts that I used to look at him and I had so many indicators on the chart, you couldn’t even see the price chart. But 20 years ago, I became a portfolio manager and actually had to manage money. And so very, very quickly those indicators, not all of them, of course, but I still definitely use some indicators, but that don’t overlap with each other. And they provide provide various distinct input. But what I’ve come to do over the years is just, John Bollinger refers to them as refers to them as first principles, I refer to them as inviolable rules of trend following. So these are things that that must happen. Right? Like, must happen, have to must happen in order for a stock to go from 10. To 100. It has to go past 20. Yep. Right. That’s absolutely true. On all times now, in from a fundamental perspective, a stock can go from 10 to 100, for any number of reasons. Right. And that’s the fundamental analyst job to to figure out what that might be. But the truth is, it can happen for an any number of reasons. But in the technical trend following space, it must go past 21st. Right. So that concept, that first principles concept is pretty much all I do. And I refer to it as my checklist to trend change. And it’s nothing scientific, it’s it’s, you know, breaking swing lows and breaking trend lines and moving average crosses and things very, very simple. But you know, it’s simple, but it’s also, I think any quantitative investor in the room would tell you that the more complex you make this the signals and whatnot, the less likely it’s going to guide you through these black swan events. So, you know, I, I’ve never made a great call in my life. But I’ve also never lost a lot of money. Because I’ve never tried to make a great call. All I’ve tried to do is listen. And, you know, I had no idea what was going to happen in the global financial crisis. But I can tell you that somebody had asked earlier about black swan events, and I think some, most of us maybe characterize that as being one. But the truth is, I think COVID was probably the closest Black Swan that I’ve ever seen, that sort of came out of nowhere. But even then there was like, maybe, maybe not, not at the highs, but certainly off the highs, what was happening in that moment, was as bad as what we’d seen since the crash of 1929. Was that bad. So you knew something was wrong. And if we’re in this job, and we’re in this business, managing other people’s money, our priority as technicians, it’s our one of our greatest skill set is to not lose a lot of money. So I went, I was in cash by the end of February. And I could easily have been wrong because I wasn’t forecasting anything. I was identifying what was taking place within that checklist, the trend change. And if this is gonna go down a lot from here, while it’s checked all four boxes.

Tyler Wood, CMT 22:56
Yep. So for the audience’s benefit, both of you gentlemen, have the ability, your mandate allows you to raise cash. Do you also trade to the short side?

David Lundgren, CMT, CFA 23:05
I do now? Yeah. And I did it Wellington as well, we had we had hedge funds, as well. So

Tyler Wood, CMT 23:10
long, short, and how about for you auto for me

Atul Suri 23:12
too long, because I run a PMS. And the law doesn’t allow me to short sell. So I can move to cash, which I did move, but just reduces the impact. But 100% Cash is a bit rare. Actually, for me,

Tyler Wood, CMT 23:25
we need to get to that. We’re going to talk about expectations here just a minute. But I want to I want to move on from from just the COVID crash, we’re gonna jump through a few of these. The importance of the enviable rules of trend following. And the way that you gentlemen manage money is that trends like this when they come along once every 40 years, and you have a moment of true regime shift. I want to understand how as trend following investors, that impacts your system. And so the first you know, 2020, we’ve got bond yields breaking out of this four year downtrend. My good friend, oxygen choker is in the back. We’ve got a Bloomberg terminal and maybe we can switch over to live charts for a minute right now. And as we as we guide this, if there are things that you guys want to mention, as other signals of regime shift, we can we can pull those up. But the question is that momentum loves everything at the top. Right loves everything, you know, if you’re not careful, can I take that? Yeah, please.

David Lundgren, CMT, CFA 24:27
Yeah. So somebody said that to me once Yeah. Might have been on the podcast was on the podcast. Yeah. And I, I can’t believe you just said that because I corrected him in the podcast too.

Tyler Wood, CMT 24:35
Well, that’s this is the learning environment. We’re gonna hear the correction. That’s why you throw the softballs out but it was with John Lewis That’s correct. Yes, that’s correct. Okay, so can I may I, you made me I defend momentum for a sec, please defend momentum is under attack as soon

David Lundgren, CMT, CFA 24:50
as a security price makes it into the top decile. Momentum loves it right then. So when Tesla first went into the top decile, It loved it in that moment. And it was ready to the trend inflection and everything else. So in momentum, love it all the way up how many 1,000% later. So it’s true that momentum loved it at the very end. But it also loved it at the very beginning. Yes. It just happens at the whole investor community loved it at the very end as well. But when it turned red momentum, loved it. Nobody loved it. Fundamentally. I still don’t love it, but maybe maybe for justifiable reasons. I don’t know. But we’ll say

Tyler Wood, CMT 25:24
well, as Paul Tudor Jones says, it’s that sweet. Last 30% move of the of the bubble, that captures a lot of gains, but it’s particularly dangerous then. Right. Okay. So the question for both of you is, let’s first define, are you completely systematic? Or is there an element of discretion and atonement? Why don’t we start with

Atul Suri 25:43
you. So I’m completely systematic and kind of back tested. I love back tests. In fact, we’ve so evolved, you know, I remember when we started, my team is here, we need here sort of zero, we were like, started on meta stock, because at that stage, that was the software. And then TradeStation, and I now Python. So essentially, I love back tests. I like by back tests, because what it does is it gives me a sense of, it’s a bit like creative visualization. One doesn’t know the future. The future is very different from the past. But it gives you a sense of how things play out. It gives me emotional comfort, because I believe that for any system to be successfully implemented, it has to be in sync with your personality. What is a perfect system, a perfect system is not one that gives you the best returns. It’s not a Excel spreadsheet, no. The perfect system is one that is in sync with your personality. And when you have a system that’s in sync with your personality, investing, trading, whatever you call, it becomes Zen, because it’s nothing but an extension of yourself. So when I bet test, apart from choosing the parameters, or the system, which has the best payout, it’s very important that it fits my personality. I see a lot of people doing back tests and like this, oh, there are 30 trades a day. 40 trades a day. I just don’t have that capacity. For me, even three trades a week is a lot. So I begin to understand myself having spent so many years. So back testing actually helps me with my strategy. And that’s why as I said, I’m systemized, because I have a sense of where a certain processes heading. So that’s why I tend to be systematic, yep. Because hopefully, I have a system that’s a sync with my personality. And when that happens, there is flow. And when you flow, you excel in life, in anything you do. So I am very, very, as I said, back testing is not about finding that the perfect indicator, or the perfect number. Not really, it’s about finding something where you flow. And when when I when I get that when I back test, I know that I have something I can implement, I can implement that successfully. Because more important than all these tests is the ability to implement and that gap, believe you may tailor for me. I mean, I speak to a lot of people, especially among technical analysts, is a very big gap. And very few successfully transition from creating good systems to actually converting it into wealth. That, for me, is the big challenge and the purpose of what I do.

Tyler Wood, CMT 28:32
Yeah. And for our entire audience here and the 1000s that are online. The end goal for all of us is to take these tools and everything that we’ve learned and become a successful money manager. Absolutely. So you jumped your system, despite the fact that it locks in with your personality, and you were flowing. How do you know when to jump your system?

Atul Suri 28:53
There is so so what happened was this was a black swan, usually referred to in you know, we’ve tested 2008 financial market crisis, a bank went bust, it’s not the first time it happened. It’s happened many times, markets recovered their cycles 2020 The whole it bubble bust. It’s never that sectors are never over valued. And it’s happened. It’s happened in the 100 year history. But when I looked at COVID, I thought this was totally out of the box. Because here not only were we considering a cycle of manmade cycle, excesses, greed, fear, but this was something to do with life. You know, today we are all sitting without mass happy, nothing. But go back and think about March, April, June. You’re really not sure whether your loved ones will survive or not. When you put yourself in that emotional box, you know that this time it’s bloody different. This was not excesses. This is not greed, fear. These are not cycles. This was actually a question of humanity and survival. As I said, Got a vaccine in place, etc, things fell in place. But, you know, we had 6000 deaths. On one day, millions affected. Oxygen was not available beds were not available. So I sense that this was very different. Yeah, I should not have done it. I did it, there was no damage. But there was a learning. We are like a pilot, you know, when you do a system test, you have an autopilot, you put the aircraft on autopilot 99% of the time. But at one point in time, there’ll be turbulence. In fact, the turbulence is so much that the aircraft will crash. That’s when the pilot has to override the system. And that’s where I come to my Guru and psychomotor. Yeah, I mean, he gave a line, which, till today spins my brain. He said, Follow your system. And know when not to follow it. Can you see the contradiction? If I gave you the first line, follow your system, it’s simple, right? mindlessly, just follow your bloody system, but with a comma, and know when not to follow it. And that is a total mind spin, reflect on it. And that’s something that goes with all of us. Because whenever you’re going through your drawdown, you start doubting, is this the time when I should not be following my system? Reflect I think there’s a lot of wisdom and depth in that statement.

Tyler Wood, CMT 31:37
And to your point about back tests, right, the the computer doesn’t have the emotions of no food on the shelves, people dying outside the hospital waiting for oxygen. So that emotional element has moved removed from all the back tests. So when you’re doing as Matthew instructed and testing our signals and model building, it takes that element out so you can have trust in your system. And

Atul Suri 31:58
you know, these systems will In such times as trend followers, we all know that there will be a lot of stop losses getting hit, and lots of new trades, new leadership, massive churn in that whole environment. On a computer in a simulation, super, you come out of it, looking great. But when you actually practically do it, you realize it’s not so simple. In fact, I remember in those days, it was even sometimes difficult to get the deal. On the other side, you didn’t even know whether your trade would sell settled in the evening, because the system, the people were not available. So in a backtest, it will not consider all that it will be seamless. Oh, I sold this. And I bought this. Yes, in the theoretical world. It’s perfect. But in the practical space, it was very, very difficult to do that. So in my life, I’ve seen the Harshad Mehta crisis. I’ve seen 2000 The it crash, I’ve seen 2008. But 2020 was a real fear. Because this is not a cyclical, manmade downturn. This was truly an act of God, where we really didn’t know what the end was. And that’s why I call this a true black swan in my life. Do 2008 The market fall was deeper.

Tyler Wood, CMT 33:11
The market falls deeper, but it was more orderly, perhaps

Atul Suri 33:14
more orderly, and it was man made, you know, systems, Visa pendulums, which is correct. It flings the other way around

Tyler Wood, CMT 33:20
the listeners of the podcast didn’t hear Dave’s look at me just now. Talk to us about oh, eight. Dave, how orderly was that fall? And

David Lundgren, CMT, CFA 33:27
that was I mean, it was not orderly at all. Violent. But it was similar. I mean, it wasn’t I think I really liked the way you you paraphrase or phrased, the COVID says it was an act of nature act of God. Whereas you know, GFC was act of greed, greed and central banks. And it’s happened.

Atul Suri 33:49
It’s happened earlier. Yeah, that’s humanity’s done it. Yeah, it does it every decade.

David Lundgren, CMT, CFA 33:54
Yeah. But your question about systematic versus not it happens to be that I’m actually under normal bull market conditions. I think he can, you know, study markets back in history as well. And, and, you know, the truth is, bull markets aren’t really that different from one bull market to the next. It’s just that it’s just a matter of capturing the right leadership in that moment, and moving back and forth with the transitions as they happen. So, but that all can be relatively easily systematized? Sure, right. Sure.

Tyler Wood, CMT 34:22
So there’s control. Yeah, that’s,

David Lundgren, CMT, CFA 34:24
that’s cruise control. That’s when you should you should literally let the plane fly by itself. And and I believe that part of it should not only can be but should be systematized because you really should, as much as possible, get rid of human bias in those environments. But when the market does roll over into a bear market, I just don’t think you can. I haven’t seen one where you can develop a system that does well in one environment, and doesn’t rip your face off and another. It’s just the nature so because I’m also long, short, when the environment does transition to a bear market. I do put my hands on the control and try to fly through that Flock of Seagulls You know, because a plane doesn’t have to do that. Right? Right. And bear markets are not like bull markets, they are not the same from one bear market to the next. They are very different. And it’s emotionally charged, and it’s very difficult in my job in those environments is to protect capital. If I can make money, that’s probably luck icing, right? Okay. It’s about it’s about, you know, managing through that with, with, with discretion. And the challenge, though is, is what I don’t do is I don’t wake up one day and say, Oh, we’re in a bear market soon and put my hands on the control. The decision to put my hands on the control is a systematic decision. Talk to us about that. So it’s basically taking that that checklist, the trend change those inviolable rules of trend following in monitoring 2200 stocks and aggregating them by four timeframes. And coming up with a range from one to 10, on each of those timeframes in when, when the, the longest term timeframe comes out of what I call risk on which is basically eight nine and 10 is a strong bull market. Once you go into once it once it down ticks, it just simply means it sounds like it’s science or whatever. But it’s not, it just simply means that in that checklist of trend change, too many stocks have broken the long term trend. And to be quite honest, by the time that happens, I probably already consented already by just doing my regular chart reviews. And so it’s not surprising that I’d be you know, shorting to raise cash and put my hands on the control. But the important thing is to make sure that that’s a systematic decision. And it’s also a systematic decision, when to get back in. Because I can assure you when you when it’s time to get back in, you won’t want to

Tyler Wood, CMT 36:31
do everybody hear that? The time comes to buy you won’t want to be Thank you, Walter Dima. Thank you, Walter Deemer, wherever he might be listening to this. Talk to me about those four timeframes. What is a long time frame in your world.

David Lundgren, CMT, CFA 36:43
So as with everything I probably have ever done, I’m stealing. But it’s like all the way back to Charles Dow. Right. And he had three timeframes. I happen to have four. So I had to keep come up with a name for my fourth category, which is really lame, but I had to call it something otherwise it like, look out there like a hanging chad with no name on it. Yeah. But so he had, you know, short term, medium term and long term. And so he referred to them as the ripple, the wave and the tide. Yep. And myself. And as I’m sure everybody in this room looks at daily, weekly, monthly, quarterly. Yep. Right. So to me long term is quarterly, as you can imagine visual on down the line. So when I get to daily, I refer to it don’t laugh. But I refer to it as the spray. I’m willing to change it. If you guys want to convince me I’ll change the spray on the on the ocean. Right? So yeah, but in any case, you know, the reason I do that is not to be super sensitive, or to try to get out early or call the top. It’s literally this idea that like right now, the the the two middle timeframes that are really where you make your money, it’s a swing trade, those are in risk off, right. And those cannot track inviolable rules of trend following they cannot come out of risk off until the daily comes out of risk off. Yep, they can’t. Right, inviolable, it’s inviolable. Alright. So I have the reason I have so much confidence in my processes, because it literally can’t happen. So a good example is in June, all the first three timeframes were in risk off. So one, two, and three, some combination of that. And that long term timeframe was right around five, which means if you’re looking at quarterly charts, and roughly half of the quarterly charts, think about that, roughly half of them are broken into a downtrend, you’re you’re in a cyclical bear market, right? So that quarterly timeframe, as it goes lower and lower low, if that gets into three, which is the top of the risk off. That’s what I call a crisis bear market. So we’re already in a bear market by the fact that the quarterly timeframe came out of those top three. So systematically, based on these very, you know, these first principles, we’re already in a cyclical bear market. And that’s on its way down, and that can’t stop going down until these start going up. Right. So off the June bottom, with those first three timeframes in risk off, and the other one is right around right in the middle of the grid. That first timeframe went all the way up to risk on. Okay, all right, daily, daily, when we went back to the 20 day average, yet went all the way back to risk on the middle two timeframes didn’t budge. So that’s not rocket science. It’s not like this is a deep, deep, you know, machine learning model. It’s literally did they break down trends? Did they go through swing highs are they you know, moving averages crossing and things like that those timeframes didn’t budge, they stayed in risk off. And we’re sitting at the 200 day moving average, we had all the divergences everybody knew about so that was when you layer the shorts back on. So here we are, now we’re back down to the lows again, as we progress back down to the lows, that quarterly timeframe is now literally hovering right above risk off.

Tyler Wood, CMT 39:38
Okay, right. So quarterly is hovering above risk right above risk off

David Lundgren, CMT, CFA 39:41
so we’re now one step closer to crisis bear market, which would be a GFC or something like that. Yep. And but and we have this bounce going on the daily timeframe has come out of risk off. So now I’m, you know, my portfolio covering shorts and you know, some long exposure and now I’ll do that until they reflect back the other way, and I’m not going to forecast anything

Tyler Wood, CMT 40:00
Yeah. So I’m gonna paraphrase you for a second for everybody who’s here in the audience. And for everybody who’s listening online. What a sigh of relief. What I mean, think about this, we can sit down the heavy baggage of trying to figure out if Chairman Powell is going to hike further or if there’s, you know, further risk in the system, we don’t have to anticipate. We, as chartered Market Technicians, and as technical analysts, can simply obey, respond responsibly to what the market is telling us, just by using these tools, and they’re not complex tools. This isn’t deep learning machine AI.

David Lundgren, CMT, CFA 40:37
Well, the challenge is that they can be we can make them complex. As I said earlier, anybody here that’s got that’s got any point background, as the more you go down that road, the more likely you’re gonna get tripped up and things that are not repeatable?

Tyler Wood, CMT 40:48
Absolutely. So ontology, at this point, you’re, you’re back into your system? And is your system. I mean, in this regime shift environment, has the nature of, of how it is operating changed at

Atul Suri 41:03
all? No, not really. Because, you know, as I said, these are corrections, interest rate bond yields going up, etc, these things keep happening, these are cycles. So there’s no real shift, it’s far far away. But what has changed is the length or duration of cycles have reduced. That’s what I’ve observed post COVID. You know, as far as Indian markets go earlier, what we would see what trends that would last a couple of years, we’re talking about three or five year things, what I’ve noticed is post COVID, the length of cycle has changed. So let me give you examples, when COVID hit the best sector to be in as a trend follower was farmer. But you will notice that the farmer rally just lasted about six months. And post that one and a half, two years later, farmer has done nothing. Post farmer, you realize it next sector that moved on to leadership was it. It did well, for six months, one year. But if you look at it today, it’s given back a lot of its gains. When it declined, commodities did well. But if you didn’t get out of the commodity stocks, you will be off 30 40%. And now there’s a different set of stocks, again, banking is coming back after underperforming for two years. So what I notice, post COVID Is that sector because I invest in stocks have the cycles have become smaller. Again, we are not in the game of imposing our timeframes, I would like three or five year multiplier compounding place, but we have to take what the market gives us. So my observation in recent times, and obviously my system is self correcting or has that built in. But that’s an observation that I am seeing. What happens when cycles become smaller is that the churn in the portfolio goes up. Because obviously, if you’re holding stocks for three years, five years, there’s not much to do. You’re on autopilot. But when cycles are just six months, one year, the churn goes up in the portfolio. So these are adjustments. These are observations that I’m seeing happen out in the last two years, two and a half years. Is that a permanent shift? I don’t know. What is the reason? Is it because of technology is it because of speed of information, I don’t know, only time will tell. But the important part is that as a trend follower, I my system, and I have the ability to be flexible. Ultimately, you know, we are like, we are like those surfers in this ocean. We are not trying to control the flow of the ocean, the ocean is too powerful. The markets are too powerful. If we think that we can dictate our timeframes, or our thoughts in the market, we are flawed. We are like those guys who just wait for the surf and go with the flow. So that’s a little bit of a shift that I’ve seen in the markets. Yeah, the system has to have it in it. Yeah, I have to have it in it. And I just go with the flow. It’s that simple.

Tyler Wood, CMT 44:09
Yeah. Now, as your career has blossomed, you’ve been given responsibility to run larger and larger pools of institutional capital. So in this next session section, I’d really want to dig into the differences between running your own account, right? obeying the rules, but then obeying those rules and running that account with client money or institutional money or public money. And I know we’re talking about a cavernous gap. But let’s just let’s pull out a few of those. So you talked about raising cash in the portfolio. Right? Your system tells you we’ve got this immense risk. Why wouldn’t you go to 100% cash.

Atul Suri 44:49
So just take a step back. And, you know, we spoke about the big gap between doing good technical research, testing good systems, maybe managing a little money For yourself versus managing public money, and how big that gap is. We know that in being able to implement your system, the challenge is emotion. The thing is that when you take on clients, you not only take on their money, you also take on their emotional baggage. So I tell clients that you don’t pay me for my so called system or brains, it’s average. What you pay me is to actually carry the emotional baggage on we’ll on my back. Because when you manage public money, the emotional responsibility, the emotional baggage goes up many fold. And that’s where the challenges are. That’s what the difference is between migrating from a good system developer, to actually managing large public money. Because as I said, with that large public money comes that much of emotional baggage. And if you can successfully do it, and which, sad to say very few can do. That’s what creates the tough transition. So we get paid, not for our intellect or not for some fancy system. Like Dave, I know it’s a very simple system. But the fact is, that you pay me for carrying your emotional baggage. Absolutely. And that’s what we are doing.

Tyler Wood, CMT 46:23
So I’m a drummer on the side. And occasionally, we get paid to play a gig. I always let the folks know you’re paying me to carry all these drums around, I played them for free. That’s the fun part. Right. So So back to the idea of raising cash. David Keller, who was in Episode 19, I believe, have filled the gap, but also present here this morning, said the market is not driven by fear and greed. It’s driven by fear, fear of losing, but also fear of losing out on the opportunity to catch Bitcoin up to 100,000 Fear of missing the next big run up. So why not 100% Cash, if you’re seeing all the risk? What is it about the client interest in the fund that makes managing public money so difficult to raise just 100% cash?

Atul Suri 47:12
So I learned the importance of benchmarking. You know, when you manage your personal money, and I manage money, as you all know, for very large indeed, investor, we had no benchmark pressures. We were not assessed every month. Okay, the index is up 3%. And why you up only 2% this month? We Okay, we are we are we are oblivious to that when you’re managing your personal money or individual money. But when you start managing money, publicly, you have to report every month, to the regulator to the client. And every month the client sees your statement. And how does he decide whether you’re good or bad? He benchmarks you. So when I spoke about the bounds from COVID, bottoms, right, from 7500 to 10,000, I was sitting on 16% Cash, the pain was not about losing out. The pain was that I was underperforming the benchmark. It was a notional loss, right. I wasn’t losing money. But the pain was the underperforming the benchmark. So when you start managing public money, people start measuring your performance. And they measure you month on month on benchmark. And then you go further into things like Sharpe ratios, Sortino ratios, et cetera ratio. And the beauty is that nobody actually understands that shit. But it just sounds so intellectual, but you get subjected. And that’s a part of your job. So as technical analyst, unfortunately, we are not even big storytellers. If we are going to discuss reliance, because it’s a big stock, I can show you one chart quarterly, I can show you a weekly chart, I can show you a daily chart, way beyond that, what can I talk about reliance, I delete all covers in one page. And there are some guys who write 100 page report and reliance. And the recommendation at the end is hold. But let me tell you, that report gets more appreciated that that one simple chart that tells you buy sell here, and this is your stop loss. Because at the end of the day, what are the three decision points that we have? Unfortunately, as I said, as technical analysts, we can’t be big storytellers. Our story is one page. So the challenge about raising money for technical analyst when they go out is how do you overcome this? As I said, for me, it’s work in progress. I’m learning. There are very few mentors, or very few people, at least in India, who’s got gone out and you know, manage public money in this space. But as I said, it’s work in progress. I’m learning and it’s choice. Absolutely. And yeah,

Tyler Wood, CMT 49:57
thank you, Otto. And now Dave, the The management of expectations harder or easier than managing money?

David Lundgren, CMT, CFA 50:06
I mean, if you asked me that’s you alluded to it, actually, the actual and I don’t want to say managing money is easy, right? But to the because it’s definitely not definitely maybe the concepts are simple, but it’s not easy. And then there’s the degree to which it’s not easy depends, is driven by the extent to which we form these expectations. Right. So think about what’s happening today, we’re all kind of contemplating these questions about what the economy is going to do when the Fed is going to pivot what you know, things that are just, you know, I what I always try to be mindful of is that I don’t ask myself questions that are impossible to answer. The challenge with this business is that it’s a puzzle. It attracts people who like to solve puzzles, right? So you want to come in into the markets and you want to be right, that Davis says, you want to be right, and you want to make money, right? And, you know, the problem is, when you when you look at the this isn’t a this isn’t a slant towards those inactive management who are trying to beat a benchmark, but those that are trying to solve that puzzle, using the tools that haven’t been that the numbers are what they are. So it’s almost 90% of the funds, active man actively managed funds underperforming the benchmark, because they’re trying to solve the puzzle better than the market. Right? And I just believe it’s because they ask themselves questions that are impossible to answer. So if you reduce that to the basics, that means stop asking questions, like the most sure way of guaranteeing that you don’t ask yourself a question that you can’t answer. Don’t ask yourself questions. Right? Like, just listen, just because the market does know everything. You think, you know? Right? And it knows everything that you you know, you don’t know. But it also knows all the things you don’t even know you don’t know. Right? So that’s, that’s the challenge. And when you start asking questions that you can’t answer, you get tripped up on that. Then you form a thesis, you tell people the thesis, and you say, this is what I’m going to do about it. And then the market does something different. And you’ve got too much emotional energy invested in that thesis, that that checklist, the trend change starts changing, and you’ve you can’t, you can’t, it’s hard enough to do it in that moment without emotional baggage, you know, dragging you back. It’s harder to do with a clean mind. It’s very difficult to do. But you’ll never do it if you have if you’re married to a thesis and you have a lot of emotional energy tied into that scene that thesis through. So I’ve just decided to stop asking questions and listen to the market, the markets, the best fundamental analysts on the planet.

Tyler Wood, CMT 52:29
Yeah, I want to get to that in just a second, the difference between your CFA and your CMT and how those impact what you’re doing, but I want to stick on this theme for just one more minute. We had a guest named Andreas clean Oh, yeah, great trend following systematic investor. And one of the quotes that really popped out to me is that chances are, you will lose some client money, right, we should assume that even the best of us are going to be wrong a lot of the time 60% 50% If you’re really good in this business, you’re gonna, you’re gonna have bad trades. And he said, it’s much easier, there are two ways to lose client money. You can lose client money by following your system. Or you can lose client money. By abandoning your system in a crisis, it’s a lot more difficult to explain the second than it is to explain the first, right. So as managers of public money, right, you have to follow the mandate, you have to do what you told your clients you’re going to do. Until How do you explain to clients trend following because there are seasons when trend following is working very well. Seasons when trend following managers are getting awards and brought up on stage and celebrated in the industry. Those seasons come to an end? How do you how do you get an ideal client who really understands your strategy and knows what they’re getting into?

Atul Suri 53:47
You know, somehow I try not to get very, very technical, because most of them, it just kind of flies over. My background was that I actually started my career with Indian broker called Parag PARIKH as a fundamental analyst. So that’s my real background. And what I must say most people will not agree, but I feel that when we talk about trends, trending earnings and trending prices go hand in hand. So very often, you know, we talk about breakouts, you know, we all look at breakouts, whatever the breakout rule is, why do some breakouts work and some don’t. Because ultimately, my aim is to, yes, participate in the breakout, but also participate in something where the breakout delivers what it promises to deliver. And we did some work internally on that. As I said, I do look at fundamentals also. And you realize that whenever it is backed by good fundamentals, again, fundamentals are relative. I understand all that blah, blah, blah, but trending earnings result in trending prices. And I’ve worked on Not on this, contrary to my pure technical mindset, but I think that there is an element of truth. So a lot of people tend to sort of, you know, segment themselves in this space or this space. But I somehow seem to you know, because of my experience having been in both the boats, as I said, I’m still a trend follower. But when I go back and look at reasons that why some breakouts work, why this trend worked out, I do get a sense that trending earnings and trending prices go hand in hand. And that comes to the point of communication. As I said, as a technical analysts as a trend follower, I can just communicate my whole PowerPoint presentation could be one slide. I know it’s going to buy me, right. Yeah. So the fact is that I do, or I do sort of share that relationship with clients, and some other factors. It’s not just our markets, it’s any product. Buying is an emotional decision. And the best way to raise that emotion is through storytelling. That is a reality. That is the truth go around and look, look at insurance products. When we see them on television, how somebody dies, and he had bought a policy and the wife is good, and the kid is good, with all emotion. And very often, if you put those numbers, especially the your lips, etc, which were sold, you realize that that is all one big emotional sell. So I’m telling you the reality, it may not be perfect. It may not be beautiful, it may not be elegant. But shockingly, sadly. But realistically, stories work. And stories work in selling anything at once you come into the business, you have to realize that there’s one thing to develop a good system. And it’s another thing to manage money. And it’s all to another different thing to be in the business of asset management. That is why I said that gap is very wide. And that is why very few people will attempt and be successful at it. But those are realities, which you will learn which will come. And I said you know we say learning with trial and error. I think it’s learning with error. That will be your experience, but it’s a beautiful experience. I really, really urge a lot more technical analysts, you know, to come out and be there and manage money and proof. Like a lot of people say, oh, when this fundamental group blah, blah, blah, blah. But the beauty is that they’ve got someone like a Warren Buffett, poster child. So whatever you say, like they’ll say, Hey, look at that dude out there, man. Look, the amount of money he’s created. And the fact is that a lot of wealth has been demonstrated has been created. We will like it or not like it. But that is the truth. And I think for CMT more the challenge for you, is to actually take technical analysis from just being a newsletter, or just being a recommendation to actually creating that wealth. Ask yourself, how many billionaires have been created using technical analysis?

Tyler Wood, CMT 58:13
I see about 275 future billionaires just waiting to prove your point. Absolutely.

Atul Suri 58:18
And that’s, and that’s the that’s the challenge.

Tyler Wood, CMT 58:24
The nature of the CMT Association, has always been this collegial discourse since the late 1960s. When Ralph I can pour and others first put this together to share and share, like what works and what doesn’t, but also to advance the discipline of technical analysis. And I think you said it’s so

Atul Suri 58:41
that’s a challenge for all of us in the room, including me, we have a mission. We are called the heretics of finances a book written by that we are the outliers. Maybe here we are not because we are bonding with a close community, but you go out in the investment world, we are the outliers. And the only way we can prove ourself is not by writing another paper on other whatever. It’s about going out there making money and being the proof. That’s the big challenge for everybody in this room. That’s the challenge for you, Tyler.

Tyler Wood, CMT 59:14
Absolutely. Dave, in terms of not asking questions that are impossible to answer. You shared a metaphor with me that I think you know, to get to this point, if we’re telling the story of trend following why this works. How did you get here today?

David Lundgren, CMT, CFA 59:29
Yeah, so I’m a big analogy user a little much like Charles Dow use the ocean to describe a very complex system of trends that have multiple timeframes oftentimes moving within against each other over time. That’s extremely difficult concept to understand if you if you don’t understand markets and whatnot. So if you realize, once again, relied on, you know, analogies to help. So the analogy I would use is, you know, a week ago, I was in Boston. 24 hours later I was in Mumbai how Did I do that? I got on a plane. Right? What do I know about flying a plane? Absolutely nothing. Right? I don’t I’ve never met the pilot. The management never met him. Right? Don’t know I can couldn’t tell you the first thing about why I remember something in high school about Bernoulli principle. Anyways, just showing up. But, but the idea is I don’t know how to fly a plane. But here I am. Right. So the point is, it wasn’t important for me to know how to fly the plane. Did I look out the window to make sure it had two planes that it did have a pilot? Yeah, of course it did. But did I? Did I ask any questions about how to get get here? No. What did I do? I showed up when the when the airlines told me to show up for checking in for boarding. Right. I didn’t show up a week before. I didn’t show up a month before or a year before. Right? Trying to get there first. And I certainly didn’t try to get on the plane after it took off. Right. That’s also a bad idea. Right? Yeah. But also importantly, on the way here, I didn’t try to get off the plane before it landed. Right. And I and I certainly didn’t stay on the plane after it landed. Right, right. I literally just got off the plane when it landed. And the important thing is if I took a very complex like how, like, if I’m, you know, 500 BC, and I’m thinking about how am I going to get to Mumbai from Boston? That’s an impossible question. It’s as impossible then as it is now for me because I don’t I still don’t know. Like, I don’t I still don’t know what Bitcoin is. Despite Jamie’s best effort, they’re sad to the presentation and get closer, but I’ll still buy it. Right. Absolutely. We’ll get on that plane again. Right. Yep. So that’s, that’s trend following. And the ability to just accept that. I don’t know. I don’t need to know how to fly a plane to get myself to this wonderful country at this wonderful symposium in our summit in really enjoy the benefits of that is the point. You don’t need to know why, in order to know what

Tyler Wood, CMT 1:02:00
right, which is why you can invest in Bitcoin,

David Lundgren, CMT, CFA 1:02:03
which is exactly why

Tyler Wood, CMT 1:02:06
we’ve talked a lot about the back testing. Matthew, give us an interesting anecdote from from the quants, I think there’s a lot of us in this room that really wish the markets were just a mathematical equation to solve, right? Wouldn’t it be easy if we could just come to the right answer. But it’s more complex, complex than that, right? Because we’re involved with human behavior. So I want you to talk a little bit about in this regime shift environment, explaining to clients that they can choose their pain, right, managing expectations, they could be a value investor, or they could be a trend follower. And there are pros and cons to everything.

David Lundgren, CMT, CFA 1:02:44
Yeah, so this is a really important concept. And it kind of touches on something you were talking about earlier, a tool, but I think is, especially if you’re managing other people’s money, but this is even true if you’re managing your own money. And it comes back to expectations, right? It making sure that you don’t, you need to keep your expectations low. Because some amazing things can happen if you just keep your expectations wrong. And if you if you don’t spend enough, if you don’t spend as much time educating your clients as to what the return stream is likely to look like over various points in time throughout the cycle. And under different market environments. It doesn’t matter how good I am at it, or how willing I am to listen to the market, if they don’t know what to expect, they will do the exact wrong thing at the exact wrong time. And it won’t be their fault. It’ll be my fault. Yeah, so that was one of my biggest lessons that I learned when I was when I was managing money in my former job was was not properly educating our investors as to what to expect, and so you end up with bad decisions. And it’s again, not their fault. It’s 100% on me. So, you know, at the end of the day, choose your pain is a reality. I mean, investing is going to be painful no matter what. Right? The point is not avoiding pain, because you can’t you can’t make money if you’re not willing to take pain. Right? Anybody that’s ever done that’s gone to jail. So it’s a it’s a you know, no shortcuts, no free lunch. So you need to you need to accept pain. So that’s not the point. The point is you need to know when should you expect pain. And so if you’re in a moment where you’re experiencing pain and it doesn’t make sense why you would be there’s something wrong, but if like you know when coming off the highs recently I was experiencing pain I but I wasn’t surprised by it because you’re supposed to. And so if you’re a passive investor, you are passive long only buy and hold investor you are whether whether you know it or not, you’re accepting the pain of sitting through a 35% decline. It’s not that that’s a criticism. If that’s the pain you choose to accept, you know, go for it because you do get your seven or 8% compound return. Now, if you came to me and said, I have a great strategy, it does better than any other asset class on the planet. But you know, the Sharpe ratio is kind of terrible. And occasionally you have to sit through a 50% decline and Maybe you’ll have, you know, maybe it’ll be 10 years before you get your your money back. And you get all of you get to do all of that in exchange for 7% compound return. I think anybody would say to that manager No, thank you. Yeah, that’s passive investing. Yep. All right, that but that’s the pain they choose. And I just stopped to think they don’t they choose that because they don’t. A they’re not aware that they’re choosing it like, and in fact that they in that case, they actually sell it right at the Lowe’s anyway. So if they endure the pain and sell, yeah, so the thing that I try to encourage my clients to understand and anybody here that manages money for others and yourself as well, is to be specific about what pain you’re willing to choose, and understand what the trade offs are so that when it happens, you embrace it, as part of the process is what part of what gets you to the point where you can actually do well, when things

Atul Suri 1:05:45
just add to that, please. You know, all slides and presentations you see from fund manager is all about returns return returns. So it’s very important to show them drawdowns. And they choose the strategy based not on returns, but on drawdowns, because that’s where the test happens. And this is something I learned from Ed psychomotor. That a client, while making a pitch to him, may tell you that his threshold of pain is a 20% drawdown number I’m giving you but in reality, his emotional hurdle is half of that. So while talking at an intellectual, I’ll say yeah, if you give me this kind of 25% compounded CAGR, I can handle a 20% drawdown, no problem. But when the pain starts, his threshold of pain is half of that. And that’s when coming to the whole practical experience of managing money. And what Dave was mentioning about being risk averse, being managing the downside is very high. So first and foremost, is make sure that you show drawdown slides, the client has to be comfortable. And in your mind, be aware that actually his threshold pain is half of that. Selling returns it sells. But the real test of a long term relationship with a client retaining your clients making your business grow is those drawdowns. And this principle from Edie is something which I had heard many years ago, but I practically experience on day to day. Because the threshold of pain of flying is much lower than what you think, as I say that when the markets are going up. The client wants small cap returns. Right. But when the market is going down, he wants fixed deposit returns. Yes, yes, that’s the perfect world to be in. But that world doesn’t exist, show it to them. And know that the reality on the drawl downside is actually half that.

Tyler Wood, CMT 1:07:53
So John Lewis, also on a fill the gap podcast episode said there is no investing style, that will be comfortable 100% of the time. And he’s driving at this point that clients are going to come into and out of your fund at potentially the exact wrong time. So it was in a conversation in Washington DC at a CMT Association event. Dave, you’re gonna have to help me out with the numbers, but it was Peter Lynch’s returns, Peter Lynch is a very famous Portfolio Manager at fidelity. What he did in the portfolio is exceptional 30% 2727, which is unheard of. I mean, I always embellish a little bit, so 27%, but the average client in his fun was getting eight to 10% 11%. Okay, and fund

Atul Suri 1:08:40
managers get money when they do very well. Case in point you’re almost Cathy wood. Yeah. It’s the biggest, biggest wealth destroy in recent times. But the fact is that the money flew in after the fund was doing very well. Yeah. And on the downside, everyone’s taking the pain. So Nick, through the whole round tip, you’ve been a well destroy rather than a wealth creator.

Tyler Wood, CMT 1:09:00
Absolutely. Any other comments on that?

David Lundgren, CMT, CFA 1:09:02
I was just gonna say that with Peter Lynch, I think the point you were making was that they that investors see the stream and they get attracted to that stream of returns. But they don’t, they don’t they’re not aware of that pain they need to accept in order to endure it to achieve those returns. And so at the exact right, wrong moment, they sell. So they end up buying the high and selling low all the way through the return stream. And Peter was invested in the Fund and he made 27% a year, which is why he did extremely well, and then the average return for the investor in the fund. The very same fun was about

Tyler Wood, CMT 1:09:33
11% 11% Because he didn’t show him enough for those drawdown chart. Yeah, absolutely.

Atul Suri 1:09:36
It’s Warren Buffett, and everyone wanted to create wealth like him, but he had a 50% drawdown three times in his career. Yeah, how many clients would stand through that?

Tyler Wood, CMT 1:09:47
So ladies and gentlemen, there’s a there’s a clock here at the front of the stage that you can’t see that’s flashing up at us that that our time here is over. The thing that I wanted to end with is just new frontiers in trend following I want to hear both of your gentleman’s perspective on, you know, what changes you see you making in your own system over the next few decades, or perhaps things that, that that maybe this audience might consider as we’re synthesizing all of these tools? After all, why don’t you start?

Atul Suri 1:10:18
So I don’t really look to change things. In fact, I’m very happy to not change things. But sometimes, you know, those black swans, those moments, which I gave an example of may happen will happen. So at the moment, I am testing with my team, those black swan moments. I don’t know what the next Black Swan is. Because if I knew it’s not a black swan, as simple as that, but I know that it’s a stage of extreme volatility, extreme drawdowns. And, you know, through my experience in the last two years, which I shared with you, we are actually working on those areas. As I said, I don’t know what the event is. But I know that it’s going to be extreme pain, extreme volatility, and what could have been a process. So. So in a system, which I would say covers 99.9% of the timeframe, we are just trying to test that point one. It’s sometimes as trend follows, you don’t have much work to do, right. Yeah. So you have that spare time. And at that point in time, you want to also do that point 1%. So our team is actually working on what should be a reaction in those times when the next Black Swan happens, which we don’t know, will happen, when it will happen and what it will be, but that’s the fun bit we’re doing right now. So we enjoy doing that. But

Tyler Wood, CMT 1:11:37
awesome. And Dave, I know, inviolable rules of trend following they only change if human beings stopped participating

David Lundgren, CMT, CFA 1:11:43
in public markets. I feel like you’re asking me a trick question. Like, that was a trick

Tyler Wood, CMT 1:11:47
question for you. But the one that I do want you to answer early on you were talking with Mr. Ananda bromic, about the private equity markets. We’re talking about modeling trend following and that perhaps, our situational awareness might might expose a little mark to market gap as this regime shift really takes takes place? Can you unpack that for us just a little bit? Yeah,

David Lundgren, CMT, CFA 1:12:09
I can. And this is, this is a really good example of scenario analysis and expectations and all those things. And I’m just going to have this conversation with you. But it means nothing. Because if my models because it’s checklist to trend change, inviolable rules or trend following it does not matter what I think. Correct, right. And I’ve often found that in those moments when I think like, I’m doing the wrong thing. So usually when I do the best, right, so the question we get a lot is, and we were having a webinar on it with, with my friend back in the States, in November, actually. And we’re going to going to be discussing this notion that the vix index has been refusing to acknowledge the fact that we’ve been in a bear market like why isn’t it spiking? I’ll tell you right now, I have no idea. Like, that’s one of those. Why isn’t the VIX it’s? I don’t know. Like, I’m not actually getting paid to tell you like a good answer. So I actually don’t know. Okay, great. If you asked me to speculate, it’s because I, you know, where is the next Black Swan, I can tell you this, that I that I do believe to be true, that the catalyst for Black Swan is never known until it happens. So we can all speculate as to what it might be. And it’s fun to do. It’s puzzle solving. And yeah, that’s why I was attracted to the markets that they get to be in, but I just learned to stop doing it. Right, perfect. But I still enjoy solving puzzles and having these discussions. So if I was to speculate what it is, I would, I would suggest that the reason the market is down as much as it is, but the VIX hasn’t moved is because it’s actually something that the markets, the markets focused on something else. And it might well the private equity, you know, give you a perfect example. You know, remember when we work was first being discussed as going public? Does anybody remember what the value approach valuation was back then?

Tyler Wood, CMT 1:13:48
And he guesses valuation of we work, the office space shared, shared 50

David Lundgren, CMT, CFA 1:13:52
billion 70 billion. So it was a lot and right now the, the valuation in the market is less than 2 billion. So that’s what happened translating from private markets to public markets. So that’s an extreme example, I’ll grant you that extreme example. But But scale that across the the, the the asset class, it does not suffer from mark to market, and, you know, maybe with rates doing what they’re doing and the whole system deleveraging maybe that’s the moment where we find who’s been worrying, you know, the tide goes out, as Warren Buffett says, and who’s been eliminated and whatever, but, like, maybe that’s what it is, because it’s a private market. It’s not affecting eviction. I don’t know. We’ll see.

Tyler Wood, CMT 1:14:29
So if pension funds have this allocation to private equity, they think it’s given them 14% returns, and maybe he’s giving them a lot less. And they’re gonna have to liquidate some things in the public markets in order to backstop Yeah, yeah. lots to think about. And as

David Lundgren, CMT, CFA 1:14:45
I just kind of just Yeah, please, if the market changes, the trend Trend changes and it’s back on. Exactly my view, my opinion does not matter.

Tyler Wood, CMT 1:14:55
Isn’t that wonderful? Isn’t that great to know that you don’t have to solve the problem, you can just get on The plane unless it’s Delta, in which case you should probably be up there with the pilot because I don’t know if they know what they’re doing. Ladies and gentlemen, please help me in thanking Mr. Otto Suri and Mr. David longer for sharing.

Originally Posted November 17, 2022 – Fill The Gap Episode Twenty-Three, Live at APAC Summit

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