022 Andreas Clenow Building Long Term Wealth Through Trading

TITLE: 022 - Andreas Clenow - A Most Private Discussion on Building Long Term Wealth through Trading CHANNEL: The Algorithmic Advantage DATE: 2024-08-02 ---TRANSCRIPT--- [Music] what I realized over the years is how much noise there is in this business on the retail side people are bombarded with cool sounding terminology and stressful things that do not help you in any way I mean the everything from tick charge news flashes the the uh the spreads the Pips the ships whatever the whatever the terminology of the day is is just thrown in your face like a stress factor like you got to do something because some terminology something something constant updates and yeah if you do this as a hobby and you think this is a fun thing and you you know you enjoy doing it then fine for the vast majority none of this will help you it’s just noise so we are trying to turn off that noise therefore the the name hush is going to be very quiet very calm type of of app welcome to the algorithmic advantage we’re here to expand the toolkit of the Quant trading community and introduce investors to the many advantages of systematic trading our goal is to educate and Inspire as we embark on a captivating journey into the vast knowledge and experience of leading portfolio managers and other experts in the field we hope you enjoy the show and if you do please subscribe leave us a review or even buy us a coffee via the link on the algorithmic advantage.com we really appreciate it rich uh we are very lucky to be joined by Andreas Clen today we’ve been looking forward to this show good day Andreas how you going hi good morning yeah doing all well thanks hi Andreas great to have you on board good to see you thanks for getting up early for us and uh beautiful summers’s morning in Zurich you were saying you cycled in it’s excellent over here yeah nice and warm a little bit too hot but you know you got to complain about something yeah yeah beautiful part of the world I do like Switzerland um look we’ll we’ll jump straight into it and as we always do and um I guess I’ll start by introducing you a little and and just uh saying that obviously you’re someone who needs a little of an introduction I think a lot of our listeners will will know you or have read your books um obviously you’ve been in the industry for quite some time and uh for those who don’t know Andreas I suggest perhaps starting with his websites then of course his books um and he has had many other podcast appearances so you can get a feel for his history on those um we won’t go into his into his a lengthy background on him but suffice to say he’s had a long career in in systematic trading funds management um programming starting in computers which uh which is a major uh Advantage given the uh the systematic and quantitative path that he’s taken he’s also quite an entrepreneur has a very commercial uh view of trading which I I find is very interesting um we can talk a bit about that I’ve always loved listening to his very real and honest uh uh takes on on trading and and certainly I remember hearing him talk about setting expectations and um just bringing the expectations down a bit I think from when we first start and think we’re going to shoot the lights out um and that’s always good to hear you need to you need to hear that from the the professionals um and especially from Andreas with his dry sense of humor it’s always always a good listen um and uh he’s written three great titles in the trading um field three textbooks if you like so the First on uh following the trend the there it is Rich the um the Futures Trend following manual and then of course he had to say something about stocks stocks on the Move uh momentum Trend following in stocks and his latest uh addition is is it trading evolved Andreas it is yes it’s let me see we got a I got a copy here there we go that one where I go into a little bit more detail on the on the Practical side on how to actually uh how to set up your own back testing Quant environment locally and and learn a little bit of python and you know get it done yourself and verifying it and not just you know trusting people like me but rather just how you do it how you verify yourself really Keen to chat a little bit about that as well actually and then um we’ll mention the the other book in a moment uh there is one more that’s just come out but obviously now uh you’re working at a Swiss Family office you’ve been there for many years now partner there um and uh being an entrepreneur your latest entrepreneurial Endeavor is also something that I’m Keen to chat about that’s something that’s uh very interesting so so hang out for that um so to sum up continuing our theme I guess of the last couple of guests we’ve had on the show where we’ve talked about both Futures and equities Andreas is a great next guest because he also has that experience in both those worlds um and uh so I’m looking forward to continuing that chat uh the wisdom that is gained by having had a foot in both those camps what we can learn from them um and uh of course about Trend following but as much about any other kinds of um ways to generate Alpha out of the markets then for sure I’m Keen to hear about that as well um so I think for the theme of the show Andreas if we could you know talk about the the models that you would employ if you were trading today in those um you know how how perhaps things might have moved on from the from the publishing of the books or just given your experience over many many years um what are some of the standout sort of principles and lessons uh lessons in in model development in in avoiding overfitting uh these kinds of these kinds of principles both in the equities and the Futures World perhaps uh Rich can can start off by talking to you about the Futures and the trend following and then I might follow up by talking about equities um so the fourth book Let’s just let’s just go left field and start there you’ve uh you’ve written a novel mate and um what what happened there what inspired you to to go down that path tell us about that well I mean for one thing I wanted to see if I could do it I’m a non-native speaker I’m very interested in in English English language literature in general uh I wanted to write a novel for for a long time but I didn’t know what to write about and I figured I got a lot of lot of stories over the over the years I work in a very absurd part of the business in a very special Town things happen in this business in this town and a lot of things happen that you can’t really say outright for all kinds of of you know health reasons and otherwise so I figured I can tell a lot of things I can teach a lot about how things actually work and I can do it in my way in a you know in a way that that fits me and my my weird sense of humor and I can I can fictionalize it so I fictionalized it where some parts are real more real than and I think a lot of people would be surprised over how much in the book is actually real clearly I have condensed people and events time frames the entire book takes place over a course of of one week seven days in the city of of surich so clearly everything is lot lot condensed not everything is real but I will not tell you what is real and what is not but uh in my view you can learn a lot about a lot more about actual High Finance from a book like that I think a lot of people might read it and still not believe me on that but it probably teaches you more than reading a book about I don’t know back testing Futures models so that’s that’s what I want to do it sounds like it it already sounds like a movie um with Jason Bourne it it’s got vibe to it it’s sort of got the uh it it it’s got the sort of um the covert cover which looks a bit sort of Humphrey Bogart type style you know CD undercover stuff happening in Switzerland you’re you’re actually spot on because I I’m a big fan of a a genre of novels which was popularized in like 19 1930s I believe it’s it kind of started with deel hamt uh what was the guy who kind of launched the the the shaer of heart boiled yeah uh close to Noir Sher most people are more familiar with with Noir it’s kind of close but hard boil is is a category by itself and that’s what I’m going for so yes and I I also realized that the the cover artists seem to think I should hire Matthew mccu so if you’re listening to this then um yeah Matthew give me a call I get I’ll make it happen I can see there’s a couple of nice Dames in there the f f fatal of course yes excellent look forward to reading it Andreas a very private bank that’s what it’s called correct a most a most Private Bank a a most Private Bank okay good all right well um Rich do you want to kick off uh chatting to Andreas about his um his first book and what you got out of it and uh let’s let’s dig into some of the models and uh and what andreas’ uh principal lessons of building Futures models Trend following models are we’ll do Simon so just just to give you a bit of a I’m not blowing smoke here Andreas but uh your book um I would regard as the best book I’ve read on investment and finance um that goes back uh many years to When You released uh this book which was uh following the trend this one here um now a lot of people in our trading circles site remin reminisces of a stock operator or Jack schwager’s books as as the key books to read but I would say they’re good for sort of a narrative about the successful people in the field but andreas’ book is fantastic if you want to actually learn the mechanics of Diversified systematic Trend following so that book to me was um a standout an absolute standout and it’s a pleasure so look in the book um give you an idea there there’s an introductory Prelude to it and then Andreas comes in with a couple of very simple systems but highly effective systems uh which are deployed in the Futures markets um under um fairly heavy diversification across asset classes and uh the results uh are very good very good and um then um the book sort of goes into the the psychology of experiencing um the performance returns of trend Following over many many years and each year you sort of he and Andreas forces you to have to read each year in detail because you sense the volatility that you’re experiencing as you go through so even though when you first see that track record you say I want that and um it looks like a fairly smooth ride the experience that Andreas describes is certainly far from that and it’s quite a psychological trauma to get through those sections but it’s fantastic but in the original book which I I’ve actually got his latest updated ition as well which I think was done 2023 but what I have noticed is your dropping of the section of replicating the performance of the different ctas like uh if in your first book it was stunning to me because this is the first time I realized that Andreas had this amazing skill of being able to sculpt Equity curves to his liking and basically using these simple systems his choice of universe basically dictated the outcome and so he was uh he was replicating trans Trend gun malany all of these different ctas that we we know and love about um uh just by changing the specific universe and the asset class uh mix and uh I noticed that that wasn’t in this latest update and I’m wondering given now that we’ve got lots of replicators in the business dbmf and all of these different uh replicators I’m wondering whether you got a bit of flack from industry in being able to so easily sculpt their performance no actually not I was worried about that to be honest I was very worried about that that was one reason why I made sure my first book was published under UK law and not us law because there was one Fund in particular I’m not going to tell you which one I was a little bit concerned that they might have you know they might not appreciate some of the things I was writing in there I was trying to be very diplomatic but in my view in my assessment at the time it very much looked like they dropped the ball a bit bit they changed their strategy at one point because I could correlate the trend following to a point and suddenly it stopped correlating at the worst possible time and then it starts again and it looked very much to me like they it looked very much to me like like they made a big mistake here and I need to be a little bit careful here because I’m still kind of calling out the multi-billion dollar Corporation yeah much to my surprise I I took a lot of steps to make sure I I wasn’t at least legally vulnerable on it yeah and much to my surprise I think about a month after the book came out the CEO of that company called me up and said that you’re absolutely correct that’s exactly what happened I’m coming over to surich let’s go for a drink and I’ll tell you all about it so no problem yeah then again I think most people are understand the concept of I mean he’s a super nice guy don’t get me wrong uh most people understand the concept of being careful picking fights but people who buy ink by the barrel if you if you’re familiar with with the expression uh once the book takes off that’s a bad time to pick a fight it’s going to look bad but anyway there were very good sports about it no I think the reason I found it less interesting I can’t actually remember the decision to remove it if I removed it or the editors removed it in the end but um when I first wrote the book and this was like book came out in 2012 so a year or so before that I spent writing the book there were a lot more pure funds uh the industry changed a lot for all kinds of reasons better and worse but there still some kind of pure Trend following shop but most most have just mutated in a way that they combine all kinds of different things and multi strategy yes and that makes it a lot less interesting to try to correlate them to a single model I would need to see their individual sub models and of course that’s yes they will show it to me under NDA but I can’t write about that so it gets less interesting from that point of view yeah ly been discussed in in Industry uh in that there has been this Evolution post 2000 uh towards multistat uh from a lot of the the big funds and I I can see why that’s happened but there have been a few small um core Representatives who stayed firm to the classic trim following tradition you know jery Parker Etc um and uh and and I can see why they’re doing that so that you know they’re offering this sort of trend this classic Trend form as opposed to um some variation of that inclusion of you know different strategies or whatever but um you know it’s interesting um we’ve seen a a significant Resurgence in classic Trend uh from 2020 on and of course you’d know about malan’s performance um we would regard him as classic Trend he hasn’t changed his models for you know you know decade or so so uh I I’m I’m just surprised the resilience of classic Trend and um how it can really push out the big numbers in the in the appropriate environment yep true but you also keep in mind I mean I know this is the theme I keep coming back to but you always have to look at the two sides here right I mean nobody is I’m I’m careful mentioning individual shops here for all kinds of reasons um we are in a highly regulated space but let’s say you run a pure Trend following really pure Trend following and I have have all respect in the world for that you might also see a lot more draw Downs volatility you might have much more problems raising big money from institutions that’s a different thing of course if if you’re trading for yourself it’s a whole different game than say you’re trading I don’t know reasonable low amount say in the tens or even hundreds of millions of of kind of high net worth money or if you’re running a multi-billion dollar fund and you’re going after the the big tickets from Pension funds institutions and you know you’re negotiating you know 50 million $50 million tickets perhaps now you’re talking to whole different audience and whether or not you can deliver long-term High positive return numbers is not the big factor is volatility control and the game changes completely that that’s the main reason why they change it’s not it’s not that there’s a big problem where you can no longer make money in Trend falling that’s ridiculous but the problem is you’re running a business and you need to look at more factors than just what’s the average annual return over 10 years much more complicated than that well I’ll bring it to Simon’s question which you wanted to ask um if if it was trading your own money would you stick to the classic Trend following style as opposed to uh these multi St bles no I think from a logic perspective look at this way all the stuff that I normally write about the building block type of strategies as such they are not bad it’s the same thing with most hedge funds uh in a hedge fund world if you start start a hedge fund you you’re effectively running a building block not a complete solution now how do you want to elate your money I mean nobody very few people anyway would would say that is a good idea to put all your money in one strategy I mean that goes against the entire portfolio thinking that I mean one of the few really good things coming out of modern portfolio Theory you can say a lot of things about modern portfolio Theory but diversification is is a very valid concept so how would you manage your own money well you wouldn’t put it on one single thing would you I mean you might think Nidia is a great stock would you put all your money in it or whatever stock you’re looking at it’s it’s not how you do things the same thing is same thing with the trend following trend following is a great building block it’s not an entire portfolio Okay so the the 2023 Edition I noticed that uh you’ve updated your models which is fantastic um been a bit there’s been a bit of a a change in some of the models you’re using there and um but um you know I’m yet to I’m certainly going to put it through The Crucible uh in the environment and uh and see how they go but uh um still simple bu models um applied across divers asset class grouping MH so let let me let me tell you why I Chang the rules you probably notice I made the rules even simpler very much on purpose you see the point of my first book actually it’s a point on most of the stuff I’m writing about I never I never tried to say that look this is a super great model you should all put your money in this thing I’m trying to explain a phenomenal I’m trying to teach something here I’m not saying this is the model you should go out and trade because it’s not it’s a it’s a it’s an educational model meant for you to learn from take what you like make it your own understand what it is never take anybody’s model and trade it that that’s yeah you should never ever do that doesn’t matter who built it you don’t trade somebody else’s model without understanding what it is and what it does and so in my first book I just tried to explain to people what trend following really is because I I had I’ve been working in that that field for a while I built a bunch of models traded them I read some books and I guess I I was probably unlucky I picked up the bad books and I realized that these books don’t seem to understand how this is actually done um what they’re writing about does not reflect the reality that I see in the business so I figured I write a book where I explain how it works you need to simplify a little bit of course because the proverbial proverbial devil is always in the details but I wanted to explain where the Bigg turns come from from and why and how that’s what I’m trying to do and then I realized with the first book that some people misunderstood the book even though I I I tried to get that point across some people misunderstood and thought this is like my suggestion of of the the CL super model that you should you should put all your money in and that’s not my point so therefore I wanted to simplify a little bit further to show that I’m just explaining to you how this concept Works how you go about building these things where the Returns come from and what’s important and what’s not the unfortunate thing is Andreas is as you simplify your models are getting better and I’m have have a gut feeling that that might actually be foundational to the the need to have simple robust models uh with Trend following so uh but you you’re very explicit in your books that these were simple models not necessarily models deployed by industry uh industry perhaps had more bells and whistles uh you’re always very explicit about that so and it was always very an educational guide but uh very very good book Andreas and congratulations on that but I I I move now back to Simon where your next big epic was your stocks on the move so over to you Simon all right well not I think uh I think I’ll probably come back to Futures at some point but let’s let’s yeah let’s keep the momentum then so yeah okay so stocks in the move Andreas I’ve been um primarily a stock Trader apart from when I dabbled in trading single Futures contracts on an intraday basis years ago um so um you know obviously it’s very different so I just wanted you to maybe rehash a little bit from from the book but also just your your upto-date thinking if you could guide people through some of those key differences between um trading Futures Trading stocks of course I’m thinking of um leverage and I’m thinking of the um the correlation of stocks when you need at least uh the beta that you are largely trading with stocks um and and so what that means and some of the ways to tackle that and uh and how you would go about tackling that to build a model on stocks um and then if that’s a trend following slum model uh and if there are other models um that you think are worthwhile worthy I know you’re a guy who doesn’t um necessarily like having a label which is a bit like myself like I’m happy to um to go where the research leads where the returns lead um and throwing grenades Into the Bunker because I remember when stocks on the move was about to be released on his website he said here’s here’s a grenade I’m going to throw in Trend following doesn’t work on stocks boom y came out on his website and I thought oh that was tricky and I think it was deliberately tricky but Andreas please explain uh it was yes it’s a it’s a long story but yes uh I somebody claimed that I had said that Trend following doesn’t work on stocks and I couldn’t remember even saying that but I don’t know some somebody somewhere said that this guy says Trend Fallen doesn’t work on stocks and I couldn’t remember saying that but you know I say a lot of things so it’s possible so I figured why not I write a book about about why Trend folling doesn’t work on stocks and why momentum does and yeah I’m splitting hairs here I’m splitting hairs on purpose you can say it’s very similar what why Mak such a big deal about the difference there is a point apart from the you know the grenade grenade throwing which is always fun um the big point is I wanted to make sure people understand the difference because if you take a standard Trend following model the way we do it on on Futures and apply it on stocks you’re going to crash and burn that’s a very bad idea they’re not the same uh the reason for that is I mean two things here I mean as Simon just said there there two main differences a lot of small ones but first in the Futures world we have a lot of assets that do very different things we have Commodities we have stocks we have we have bonds we have money market have currency Futures we have all kinds of things they don’t necessarily have very high correlation some of them have negative correlation or very low very low correlation that means we have all kinds of diversification possibilities that just do not exist in stock world where you know everything moves up and down the the same time some stocks are better than others but in the bull market they all pretty much move up in a bare Market they all turn so we have a whole different possibility there the other thing is of course the leverage so in stocks Leverage is very expensive and dangerous for all kinds of reasons so there a clear limit to how much um how much exposure we can take on in the in the equity World on the future side on the other hand we can do whatever we like we limited by risk considerations not by exposure so that’s a you know in in in the future space you can sometimes take 1 to 100 leverage even more depending on what you’re trading I mean this sounds crazy of course but we’re talking about super low volatility things like I don’t know Fed rate or something that doesn’t move much in terms of percent they’re just different I just want to use different terminology to show how different they are of course with stocks also Andreas there’s just so many to chose from even if they are um more correlated there’s a lot more which necessitates usually some kind of selection ranking criteria right so do you want to talk a bit about whether um you know what your approach has been to to applying these kind of momentum uh models to the stock Universe I mean my first consideration when designing a model is really what kind of outcome I’m looking for and I’m I’m returning again like broken record to the whole business side you never really say I want to build the best possible model with the highest possible return I mean but that’s a little bit on the naive side you’re looking for a product of some sort you need to fill fill a gap in what you have at the moment you need to have something that is a certain return profile or correlation to where something else you’re doing or maybe you have clients who need some sort of solution so you’re designing something for a purpose that’s the first thing uh say if you start out just doing your own money maybe you’re thinking should I do I don’t know intraday trading or weekly or monthly well that’s not where you start out in the business because you already know more more or less what you want to do now you just want to make the best out of the constraints you have at the moment so how would you approach it well first you need a good back tester you need to understand how back testing Works in my view it is absolutely necessary to understand programming to do these things the good news is that you don’t need to be an expert in programming you need to understand enough you also need to have some understanding of statistics and numerical analysis and you need to be cynical enough not to trust any sort of back testing software whatever comes out there you do your own math I mean this is um all of these software calculat things differently and don’t run out of the box stuff those are the basics of course then you need to you need to consider all the variables I mean how do you handle uh selection buyas for instance what stocks would be reasonable to trade 10 years ago is certainly not the current set of S&P 500 stocks right those stocks are in that index because they did well and got included 10 years ago the index was different so you need to take that into account dynamically um you need to um you need to take dividends into account that’s something that’s way too often missed because it’s difficult so most people their models on price data and that means of course when dividends is paid well that stock is going to gap down right which is not reality there are all kinds of small things that common common mistakes people do when they start out of course if you’ve been doing this for a while you should understand these things um yeah and then of course I mean the usual you don’t take one model and run it 50 times in the same data with different parameters until you get it right because doesn’t say anything about predictive value it just said that you just just managed to curve fit something to the recent past all kind of basic things if you if you you know when you start modeling but understandable mistakes to do especially the last one where you just test a little bit hey you know a 10day moving average didn’t work what if I use 11 days hey now I get results yeah absolutely again Del into that a little bit but um I’ll just give a shout out to speaking of of data and and having dividends and uh you know adjustments for which stocks were in indexes at which time I mean these things are so critical and so important so you know the listeners should jump on our website and check our tools page where we talk about Norgate data uh we talk about um you know back testing platform that integrates that with that that is just such a simple way to to get started if someone wants help coding up your your strategies in that software I’m I’m happy to to get an email about it that’s as long as they’ve book your yeah as long as they’ve got your book Andreas we’ll uh yep we’ll work with them yes so um we can uh we’ve got real test on there that we we um we use as well as well as sqx so some out of the box platforms that are that are good to get people started and then of course um your new book is talking about using Python and building your own stuff so that you can really validate so I’m super Keen to chat about that a bit later but just coming back to to stocks then um so in in your stocks on the Move book uh well firstly you you come up with a methodology for establishing momentum so it’s a bit little little bit excuse me little bit different to um looking for a breakout say in a trend following system uh in Commodities we want to establish um you know is this with the famous Clau indicator that uh you’ve given your name too uh that started as a joke yes but it kind of stuck after a while it it was meant as a sarcastic way of I don’t know I I was I was trying to poke fun out of how everybody wants to name an indicator of themselves and then it kind of stuck you know unlike Andreas to poke fun at anything or any absolutely no yeah yeah of course not um but Andreas so we’re looking at establishing momentum in a stock right and then ultimately um using some kind of rotational mechanism to stay in the stocks that are exhibiting the most momentum um can you just talk a bit about how you how you came up with uh using a linear regression model basically to to look at regress to look at momentum in stocks H I wanted something to fit I wanted the whole thing to fit together so I needed two different things right I need to measure the momentum and the volatility of that measurement or the the error factor of that measurement itself I could do I don’t know something simple with just measuring the say the price difference between two points rate of change I think most most platforms just call that and maybe I add I don’t know divide by ATR or something and see what happens but much of these things are just based on like like a lot of of technical analysis stuff is based on the the the uh the lack of computing power you know if you look at a lot of calcul ations from technical analysis type of of indicators that are still in use today they’re developed on purpose by people who who using pen and paper back in the days mean the math was simplified to be kind of good enough but equations can be solved with a pen and paper why are we still using them because some famous guy in the the 70s came up with it and he did well back then yeah sure but I mean if he had access to the computing power we had he would have done it differently so why are we copying it you mhm it’s not like I don’t know those guys uh somehow hated computers I just didn’t have them so I wanted something that that does a similar job I want the math to to to to be to be nicer to be cleaner to fit together and this method seemed to work fine what so what I do for for reference here is first I calculate a an exponential um exponential regression rather than linear linear regression U of stock prices would tell you in as an as a slope it would tell you how many Dollars currency units something moves up and down per time unit per day if you do an exponential regression it will give you that number in percent instead assuming here that percentages are something we care more about than and the price in in in dollars of of the stock sure uh then of course that means that if I just use that and say we have a stock that just went sideways for a month and then suddenly it doubled that would show pretty strong exponential regression but of course the fit on that line if you understand if if you remember your statistics class from from back in school the fitness of of that line will be very poor yeah so I used a a very related measurement I use the R square the coefficient of determination I’m not going to I’m not going to bore everybody to death with mathematics here but basically it just tells you how well does the data fit to the to to the line we just calculated so I multiply the slope by the R square the coefficient of determination because that number will give you it will always be in the range between zero and one uh so so that’s that’s looking at momentum quality effectively their coefficient of determination um Etc okay yep exactly exactly it’s a quality of the trend so if if each data point was exactly on this upward kind of sloping exponential line exactly on that line we will get a fitness or R square of of one if it’s lower we get a lower R square closer to well it’s going to go all the way down to zero if there’s no fit whatsoever y um so it it it’s a very useful thing I just multiply the two and now I cannot punish the stocks that have very low Fitness of of trend very low quality of trend okay so now we’ve got a factor to rank all of the uh the different Universe of stocks on is there particular universe that you find uh more productive is it the is it the mega Caps or is it the smaller caps that might Trend more I don’t have a preference again it depends on what kind of thing you want to design for me that’s that’s a business decision what do you want to accomplish they they could have different properties or you could have different clients looking for different things or maybe you have one and you need the other one uh but to say that one is better than the other is very dangerous there are periods in time where where small caps are massively outperforming and there are periods in time where where where the blue chips are outperforming so I I don’t see a best it’s it’s a business decision what what you I do really appreciate uh how you always do bring it back to this commercial decision and Commercial decisions that get made in trading Andre I think it’s really relevant you know because as you say if you’re a personal Trader you’ve got a certain objective if you’re working for a firm there are other constraints and other objectives you might just be trying to fill a particular hole with a particular building block um you can’t be all things to all people and um you know it really is important for for any Trader to be really getting a grip of just how much it is a business decision in every step in everything that they’re doing it’s it’s commercial and it’s that commercial thinking that helps you design a good strategy too I think the first step of portfolio management is understand your client and in the case of doing it yourself you got to understand yourself and your objectives so really step one sure let me let me give you a stupid example let’s say you built you built a classic Trend model and it does really really well and you think the best thing you can do your your your biggest skill here is this medium-term trend model but then you see that there’s a lot of competition in this space I mean you can’t swing a cat without hitting five people doing that and maybe they they have a lot more they manage a lot more money than you do they have a big budgeting for for budget for for marketing they already they already sold to the guys that you could possibly sell to they order manage money from the you know the companies or the people that you know that you want to sell to you want to enter that crowed space I mean you know maybe you’re slightly better but you’re fighting an uphill battle here then maybe you realize I need to modify it a little bit because they already have this medium-term trend following on everything you know maybe I can do something better maybe I can move to a different time frame I move to different asset class I I do something different with it because then I can actually raise money and build my business without going head-to-head with everybody else who happen to be in this sere I mean Trend falling here is just one example it could be whatever your situation is something is crowded and something is not find out where you fit in the the the ecosystem and find your Niche no it’s an excellent point all right so just pushing on a little bit more with the the equities model tell me about um tell me about the re balancing process then so there’s there’s many more stocks than Futures we’re constrained uh with how many we can buy now I know you’ve got a sort of a risk before the rebalance how many stocks are you dealing with Andre typically like I suppose it’s dependent on your level of capital but is there a a certain number um because they they’re unleveraged um are you’re dealing with 10 stocks 20 is there a sort of some guideline there well I know I I always come back to it depends uh but you would want to have enough stocks to get some real diversification benefits I think 10 stocks is uh it’s gutsy I mean 10 stocks you can get some very interesting returns but you will also get some very interesting volatility with that if that’s what you’re looking for I I would prefer to go a little bit further I mean I build Trend fing models that trade all the stocks in the S&P 500 it just I mean as in holding all of them it just weights them differently I I built those kind of things and I’ve had models where you have 20 25 stocks so the more stocks you have obviously the closer you will get to some sort of bench because we we’re talking with momentum here at least the way I I talk about it with we really have a long only model which is er let me see the old book it’s been 10 years since I wrote that book in that book I had a trend filter so it scales out of the market but it most of the time it’s it’s like 100% investor I also had models that are always is 100% invested they just shift the weights a little bit H it how many stocks you have you should consider quite a lot of stocks as in your investable Universe because you want to have a I mean equi is a target Rich environment why why limit number of stocks that you’re considering I would say for a normal use you probably want to have at least 25 30 stocks in a portfolio more than that the benefits of diversification start slowly going down you might benefit from a little bit more but stocks are stocks so you know they’re going to behave quite differently if you have 30 stocks or 50 stocks you get more or less the same benefit from diversification okay so you do um you do a risk-based position sizing and then you you you rebalance so talk to us about this rebalancing process and how you’re going to stay in the stocks that have the most momentum what some of the rules are around that uh so when you when you have like I wouldn’t say allocation type of models but more investing type of models which this is rather than a shortterm trading type of model that means you you might hold positions for a long period of time maybe you hold the same stock for a year or two years or three years if it goes well you can’t have the same weight all the time because then you end up at a random risk level you always want to have deliberate risk like it’s not a matter of taking little or or much risk but you need to understand how much risk you have and you need to do it deliberately if I just buy I don’t know a 5% position of of a company and I hold it for a year or two I no longer have a 5% position right my position size will depend on the performance of of the stock and the performance of the rest of my portfolio so if I want to make sure that I have a certain risk um I need to maintain that risk also keep in mind here that risk is different from from your exposure so what if the volatility of my stock changes I also have to adapt the size of the stock so if I have a Target risk allocation that’s going to change on a minute to- minute basis so what I would need normally is is like first establish a no trade zone I don’t think I went into that level on that book but basically a range where I don’t care like position should be between here and here inside I don’t care you can bounce around in there then I need the I need a rule for when to change it and how to change it how to reset it that’s called the rebalancing to reset the weights to where they should be normally you do that quite often how often depends on few factors like your trading cost obviously it depends on your Tech situation for you know the you poor guys out there who pay capital gains tax welcome to Switzerland if you don’t like capital gain tax y um yeah yeah that’s it’s a benefit with the nice Alpine climate over here no capital gains tax anyway um you you need to take some of these things into account OB can’t to live there yeah you can’t afford to live there though yeah to buy a beer it’s a it’s a special place that’s that’s for sure um sorry I lost my tra thought yeah so you’re talking about your volatility adjusting um and how that your frequency of rebalancing is dictated by a number of considerations U it might be the the how volatile they are Etc or it might be objectives you’re going through those yeah exactly oh yes I was going to tell say as well that’s that’s where I would left it off on uh your considerations for when and how to rebalance let’s say you’re managing a pool on money for other people like a fund then you have very different considerations as well because well first you don’t trigger no matter where you are in the world you don’t trigger capital gains taxes if you rebalance right it’s inside the vehicle if you have a I don’t know us based fund or EU based fund I’m sure Australia as well uh capital gains taxes will be triggered for the investor when he exits your fund what happens inside the fund doesn’t impact so then of course you don’t have a consideration but if you’re managing a mandate directly for individual you’re triggering capital gains tax if you if you if you trade too often so something you just just got to optimize as well bring this all together and just to continue to you know learn from your approach to equities and Futures uh also want to ask about ETFs now but let’s jump into your latest Endeavor which uh I’m I’m super interested in any uh entrepreneurial activities especially if they are revolving around trading and doing something new and and novel in the space that’s that’s exciting so tell us about this new Venture and then I want to pick apart how you’re trading in there right so I I’m a co-founder of a us-based venture that we are we are launching an app that we call hush uh hu now obvious question why hush well what I realized over the years is how much noise there is in this business on the retail side people are bombarded with cool sounding terminology and stressful things that do not help you in any way I mean the everything from tick charge news flashes the the uh the spreads the Pips the ships whatever the whatever the terminology of the day is is just thrown in your face like a stress factor like you got to do something because some terminology something something constant updates and yeah if you do this as a hobby and you think this is a fun thing and you you know you enjoy doing it then fine for the the vast majority none of this will help you it’s just noise so we are trying to turn off that noise therefore the the name hush is going to be very quiet very calm type of of app we want to manage money and help the vast majority of people out there is particularly uh particularly young people to start early to save money to invest money and to get healthy financial habits you sign up to this thing and don’t worry I’m not going to pitch the app too much here but you s up to this thing you set your you set how much money you would like to to invest at the moment and how much you want to put in on a weekly basis we want to build healthy habit or put aside something every single week and trust me it makes it an enormous difference we have no economic incentives to make you put money every week we want to help people to get the Habit you know $1 is $50 whatever you can afford a week put it in here we’ll manage it for you uh so that that’s that’s in a nutshell what we are doing we’re trying to offer say institutional grade Asset Management nearly for free even for free for small accounts we’re completely free and we we charge maximum $5 never more than $5 per month management fee that’s it and with let’s say I I’m starting off small you know I’m 10 years old dad’s just giv me $10 I put that into the app are you investing that immediately you’re pulling it and then investing it immediately or does it have to build to a sufficient balance before in we are investing immediately we are not pulling it we’re managing individual accounts with no lower limits so yeah you can put in your 10 bucks and we’ll manage your 10 bucks for you in your individual account amazing now clearly this is based on scalability have tens of thousands of people that we’re managing this for it’s mathematical of course I know you’re going to ask me how how in the world could I possibly build systematic models on 10 bucks I I’ll I’ll yeah happy to answer but yes question indeed tell us right so what we are doing is uh let me tell you the mechanics first rather than the strategy but happen to go into the strategy as well but yeah we are trading fractional shares so we can build highly Diversified uh systematic allocation portfolios for tiny tiny portfolios we can buy 0.01 share of a company that is the main trick therefore we can build build very rational long-term Dynamic portfolios on Tiny accounts very I’d love to say how you’re doing it but I know I’m getting into secret Source area but no no no no we we we we intend to be super transparent I mean I I built my my career as an author on the whole idea of being the most transparent guy around I got to give you the rules I even wrote a book where I gave you all the source code right so I I mean I always said in public that you don’t somebody keeps tooo much Secrets there’s no you shouldn’t trust the person some if if all these models and everything is Black Box and proprietary then you have to wonder if you should trust it uh because as an asset manager you don’t really lose much by giving away those things you still have to do it right I can tell you exactly how how we manage money on the hedge fund side but it doesn’t mean you can just press a button and do it right you’re paying us because we got the infrastructure we we have the people the staff the compliance we have the admin the auditors we’re doing it for you you want to do it yourself there a lot of work but free feel free to do it you’ve gone to a new level there’s an app over here called Roundup uh which is effectively set up for the super annuation fund industry in Australia here um but the the options are limited you you say Okay I want to be a growth investment I want to be whatever and then uh you get these broad parameters you put in there um it it takes your spare train or whatever and and this Roundup function occurs but you’re going to a whole new level now where you’re so can you go into the details of the portfolio management site how specific can a client get not very specific we are not targeting the the hobby trading crowd we’re not targeting the people who has a who wants to deal with every single detail themselves we’re targeting Ro the opposite yeah so I would say the typical Robin Hood customer is not our customer we’re not we’re not letting people do their own trading because we don’t we think other other apps other other companies are doing that there’s nothing for us to add there yeah we want to offer something new here so we have a few different portfolios they adapt to your situation to how much money you invest how much money you have to your your your background your risk profile these kind of things of course then we manage it for you and what we’re doing here is I think I mentioned early on the concept of building blocks versus total Solutions now Trend following model or a momentum model or many other things like this they are building blocks I mean nobody not even not even a hardcore Trend following guy will say to a client that you should put all your money in Trend following it’s a great building block you should have investments in that but not all your money one person Jerry Jerry of course and as as as as I was saying that sentence I’m thinking Jerry will disagree don’t worry I know Jerry is a great guy I have I have nothing bad to say about Jerry he’s a great guy but yes he will disag with that forward for your book by the way yeah yeah yeah definitely definitely definitely no no no I mean I I get his I get his point of view and uh put it this way if if I was at the moment running a large Trend following hedge fund I would probably say the same thing and that that’s you know I get that uh but you know if you have I don’t know let’s say you you have a million dollar investable money would you put it in one single strategy I wouldn’t so okay so just tell us the the nature of this app then it’s so it’s is it hush. apppp uh what’s the uh it is get hush. apppp get hush. app at the moment we are open for for Americans it’s a highly regulated business so we have to go jurisdiction by jurisdiction at the moment we’re open for the us but since you since you gave me since you gave me the the um nice possibility to plug this thing I better uh respond by by telling you what’s you know how how we do things because that’s what your audience is interested in more than sure because that’s exactly what I want to know then so obviously I was going to say it’s a it’s a it’s a simple way for especially young people at two bucks 50 $5 a month to be able to be allocating Capital Andreas what I’d love to know is uh you know how someone such as yourself an established manager uh with the the history the track record the experience that you have comes up with a plan for what is the trading strategy for this kind of scenario where you’re dealing with probably younger people there’s a lifetime ahead of them long-term compounding start that accumulation and compounding process early um probably not miss out on the big uh years but you you probably want to minimize draw Downs you want to beat an index presumably so what what was your thinking and how are you executing what are the strategies what are the instruments I mean the first thing is for me it’s a very new Target group and that means very new considerations if I manage a hedge fund I can only sell that to um uh the qualified or accredited investors depending on what jurisdiction you’re in but uh more or less the rule for alternative stuff like I sell a hedge fund first I can’t talk about it in public I can sell it in public I can get qualified investors in which means that they need to sign a paper they have a minimum of of $2 million in liquid net worth not counting real estate and so on and therefore you know they can afford the risk so I have a very different conversation they want risk now if I build something for people who are just regular retail people regular Savers you know I mean some people if if if wealthy people pay me to gamble with their money in a in a hopefully intelligent way you got to do something very different here we’re dealing with a target audience that do not have that much money they cannot they should not take the risk I know people are selling them risk anyway but there’s always this is the problem with the noise in the industry I’m telling you about that there always is get-rich quick schemes and people claiming to do this and that with zero background or or empirical evidence so what I’ve done here is designed something that fits the average person it’s a total solution rather than building block that I was talking about is a total solution so using the the fractional trading fractional share trading we can we can allocate to many positions with a small account we’re building a systematic portfolio that’s always long always 100% long allocated to stocks bonds and alternative Investments uh using using various ETF Vehicles all selected to be low cost highly liquid uh we are taking first we allocating all over the world exposure to every part of the world every sector on the world we’re talking about approximately 80 8 Z different positions at any given time on a weekly basis it’s updated for momentum for volatility and for correlations that means that we are shifting the risk on a weekly basis based on how risk say volatility changes in the market but also how vola also how how how momentum changes that means that if if we have a strong stock market this model will automatically push more of the money into stocks it will never sell anything completely we’re always in the same about 80 different positions some of these are tiny some of them I don’t expect to make money which is something that a lot of people designing portfolios still struggle with you can enhance the portfolio greatly by including things you don’t expect to perform counterintuitive isn’t it yeah the uncorrelated properties are exactly let’s say you have say you have a a position say a uh maybe a I don’t know long vola position or you you have you have some sort of position that most of the time slowly loses money over a 10-year period you expect to lose money the point in including a small allocation of that is that when the other things take a hit suddenly you get a big spike in this it’s an insurance policy it will it will dampen the blow when the blow comes because the blow always comes this is finance sooner or later when you’re not expecting it something happens it’s like buying an insurance nobody says that I’m not going to buy house insurance because you know my house never burnt down so far uh you pay a little bit of a premium and it pays off when something happens of course those things are tiny so you’ve packed in a universal tail hedge protection mechanism into your your fun yes absolutely absolutely that’s what it is that’s a small part of course uh most of it is uh depending on your risk profile equities bonds and some Alternatives and to be clear Andrea so ultimately it’s all with ETFs there’s no individual stocks yeah correct correct we’re doing all with ETFs makes much more sense for for regular Savers to do that as long as you use efficient ETFs the thing with ETFs are there’s a lot of great ETFs out there and there’s a lot of really dangerous or really stupid ETFs the problem is there is no clear definition or well There are rules for how to set up ETFs but those rules are a little bit too LAX at times many ETFs are essentially very expensive Structured Products being packaged and sold to people who don’t know what Structured Products are pretty big ethical issue there but that’s unfortunately yeah never ever touch these things and that includes the the short bias ETFs the uh The Leverage ETFs just don’t touch them if you don’t understand that you’re you’re you’re trading gamma and from an option point of view then you should not touch them yeah yeah a large part of trading ETFs is just doing that due diligence on which ETFs you want to trade because there is just so much out there and it’s you’re not just dealing with a share in a company anymore uh so but are those ETFs all us listed or do you actually choose from around the world we’re deal US dollar only at the moment so us us listed ETFs traded in the US the ETF universe is very large at this point and even 10 years ago we would have struggled to build this disadvan portfolio with ETFs now we can do it don’t forget a saver here in Australia Andreas I know we’re a small Market but uh one day get hush over here there are us listed uh ETFs for the Australian you know asx200 oh yeah and we trade it index what I love about it is um over here we’ve got the self-managed superannuation um industry over here and in the self-managed hands where it’s up to individual trustees as opposed to funds managing it an app like yours would be uh you know wonderful and that there certainly is a lot of a in the self-managed superannuation industry here so even though we’re a small Market it’s quite a big stake um in dollar terms that uh could really get some use out of your app okay sure help help me set up the the local regulatory setup and with yeah well that’s there’s a there’s a man you know mandated uh 10 12 more per of everyone’s income that must go into those superannuation accounts so you know it’s uh it’s been it’s been a um a destination point for managers for a while for that reason the the regulatory side by the way if I can be the uh the grumpy old man for a moment is always a pet peeve because yeah see as somebody’s been in the business for a long time regulations to me are they’re there for a reason it’s a lot of I mean it’s very expensive it’s it’s very expensive and time consuming and sometimes very limiting especially when you deal with retail there’s a lot of Regulation creates a massive barrier for entry so it protects a lot of big names in the industry and it gives a very big barrier to for people like this us coming in with these Innovative products it it’s a shame because it keeps the indust backward yeah but it okay so my my biggest problem is okay you’re you’re right about that it does cost a bit of money you can just you know we’re spending quite a lot on on the whole legal and compliance structure and all of these things what bothers me quite often is how often people get away with just not caring there are people offering you know we we’re spending significant money to make sure we follow all the rules all the laws and of course in the Internet space you have a lot of people who just hey let’s just do it and they don’t know that they’re stepping into legal mine field and maybe they get away with it long enough to you know to make a few bucks before they’re shut down yeah it’s everywhere it’s everywhere you can’t give this advice on financial services and products in Australia but you certainly find on the web everyone giving advice even though they know they can’t it’s just it’s yeah it’s RI and Y The Regulators here they’ve got the rulings they’ve got the legislation but they don’t have the teeth or the support to regulate if you know what yes and and often of course after after internet 2.0 or the know the whole video influencer wave suddenly everybody in his grandmother is an expert in everything and you know people step into an arena that they don’t know that they’re breaking the law don’t care and so we we have to be very careful with a lot of things I mean you know how it works there are all kinds of things you you cannot yeah there all kinds of things you you you have to do have to say disclaimers and what you can promise what you can express so sometimes you’re competing with people who throw out the most absurd thing somebody throws out yeah I’m making this many percent a year what are you making well I can’t answer that can I that’s super regulated I got to give you a whole big disclaimer first I got to give you a bunch of paperwork to show that I’ve given you this information it’s much more complicated when people throw out too much of these things you should be very skeptic because that probably means they didn’t even car to you know to get regulated or follow the regulations that’s okay that’s just my gry old man sorry about that we’ll we’ll all be very grumpy about regulations I think Europe it sounds pretty bad America is obviously a much better place to launch a finance business Australia I have some serious issues with the the regulatory environment over here and even to the to the point where you know my broker enforces rules that are above and beyond what the regulator requires that drives me insane so you know there’s it’s it’s hard enough um so let’s not moan about that too much because we’ll bore everyone but uh can you can you give us any like one last Insight perhaps into this strategy for hush uh Andreas and that is um if you’re always in what’s the basic principle in um in in that allocation process in what what sort of momentum or lack of momentum are you looking at to decide how to allocate well uh briefly what I do is first I have built an investment structure of a six level hierarchy imagine you have top level hierarchy of stocks bonds and Alternatives then you subdivide each one into level two level three level four and so on like I divide maybe bonds into US bonds and non- US bonds and divide from there you divide into traditional equities and then the or Equity like the insurance style products or you divide traditional equities into developed and EM merging so I built this first pools exactly exactly I I see it as a uh as a Sunburst chart if you can imagine you’re starting from the center you subdivide more and more as you move out until you hit the outer rim which is the investable universe first I allocate Target risk across there risk mind you not not exposure uh on a systematic basis based on that I adjust that again on a weekly basis by recent volatility uh using recent standard deviation uh of of of the returns I adapt on long-term momentum long-term momentum as we all know has both empirical and and academic confirmation for quite some time it’s not magical of course nothing is magical you don’t want to pull the big lever all the way I use it to tweak the positions so you get slightly bigger slightly smaller depending on on where the action is you want to move to where things are because usually in a bull market things continue to go up in a bare Market they continue to move down so you want to scale with that H and of course we take the um the dynamic correlations into effect as well um nobody nobody likes statistics it’s uh basically you’re looking at Co variance tables and these kind of things to to build it uh so that’s done on a weekly basis to make sure we always stay in line of course with with um you know threshold for when you trade how how far you allow the drift to go but the point is that you should always have a rational portfolio adapted to current situations that that’s what I mean by total solution rather than a building block is this being monitored on dress like um is there a daily weekly assessment what how how frequently is it being updated this correlation Matrix and all of these weekly weekly weekly um because we we have no trading cost or rather we are absorbing the trading cost as a company rather than pushing it on on the customers so we have a fixed trading cost for the company towards the broker and we’re absorbing that as as our cost not there so therefore trading frequency the only thing that matters is the tax optimization okay and you got this tus protection in there so if we do get a short sh shock the the toist protection kicks in is that our options or or how are you doing that to guarantee the tow isk protection well okay guarantee is is is a is a super dangerous one in this business but ra rather than relying on correlation measures is there is there any way you can yeah so what we do on on that side I mean first you it’s a balanced portfolio to begin with uh so it’s not as as as as simplistic as a 6040 model or something like that even though the principle behind such models or the all weather portfolio in this things the principles are fine we’re doing something I think more a little bit more clever but it’s the same principles we so we’re including in this the alternative sector in there we have some hedge funds as in some hedge funds are actually some hedge fund types strategies are actually available as ETFs at the moment y some some of them are are pretty bad or pretty expensive a few of them are really pretty good so we include those uh we also include long volatility strategies currency strategies in all in form of ETFs no options No I um I I I have um long claimed and I used to be able to I actually memorize the Lettin term once for conference just for the for the hell of it uh the my my view on options is I I I fear the Greeks even when they bring gifts that’s no Trojan horses here okay so I see so you’re you’re investing in uh basically these uncorrelated ETFs that have demonstrated a track record longv or Y or Trend following or um short shortterm momentum uh like uh you know things like um Alpha Quest that type of um shortterm to capture the the fast moves mhm uh I I know actually I know the guy behind Alpha Quest quite well but we didn’t include it here I think is I was going to comment on the product I have nothing bad to say about the product but I am I am very regulated so I I shouldn’t say what I what I like and not but I have nothing against this this product absolutely not so uh it didn’t in my view it doesn’t necessarily fit in this context but I’m sure it fits well in other context okay yep yep all right no great um well just on the ETFs Andre so how important is the liquidity like do you because obviously there are once you get down to sort of 80 plus ETFs I do know that the uh the volume traded starts to dry up a fair bit can you trade a fairly low liquidity ETF without too much trouble or you know do you have to have a fairly High Bar for a liquidity uh I don’t foresee a problem in quite some time on on that side you managing a couple of billion you have a different concern we’re we’re not there yet it’s a it’s a very nice problem to have when you get there I’ll tell you that but there are good problems and bad problems in this world having liquidity constraints because you’re managing too too many billions of dollars is a very good problem uh so at some point things like that become a concern but you have to be quite big for that you got to take it into account of course you need to be careful with your execution I mean you can’t just uh you know send a market order and and hope for the best but but you should have some sort of execution ELO to to deal with these things yeah and also with ETFs there are a number of ETFs that are newer right so it’s not like you necessarily have a 20-year uh track record that you can throw in your back testing engine um do you just take a logical approach to that or how do you deal with that yeah I mean there are different types of them I’m absolutely right but ETFs still have rules so you you can check the rules some ETFs follow an index maybe the index has been around for a lot longer than than the ETF you take the index you apply some reasonable cost estimations or assumptions in there and DEP that line and now you have a pretty good proxy for what would have happened that’s that’s one thing if they track a certain index and the index was available uh other otherwise you look at the rules what do they really do and never trust the name of an ETF by the way the name doesn’t necessarily correlate to what they do there are some really horrible examples of that H so you can check that and from there you can you can make a reasonable assumption about what the pth would have been and how it would have worked sometimes it’s easier than you think if you look at the rules you understand what the product is you you know what would have happened yeah fair fair enough um One technical question answer it if you can but it’ll lead us into your your newer book uh on Python and back testing for yourself and or that kind of thing building out the technology side of the business MH uh is there a significant technology build I’m just curious uh to be able to manage these potentially obviously thousands tens of thousands of hush accounts do you get to trade this uh in a managed account basis where you you put on a single trade and it’s allocated to to these many accounts instantaneously and is that something that you guys have had to build out yourself or you’ve been able to you know leverage uh Brer or third parties to to help with that kind of thing we built a lot of things ourselves so myself I mean I can I have some programming background but I’m not a proper programmer not not a hardcore programmer you know I’ve been programming since 1985 scary thought uh somewhere around there and by the way the I think uh pirate copying uh computer games is uh beyond the statute of limitation these days right hey come on I was 10 years old exactly anyway I I I have some programming background but not not as deep with that my co-founder definitely has and we have very good programmers as well in in the in the the team so we built most of this architecture ourselves so we have the engine to calculate this to manage the trades to be able to to execute rationally in each market but it’s not pulled it’s never pulled Once you pull money uh you you end up in a very different again regulatory regime you your whole different bucket not saying it’s better or worse but it’s very very different you can’t mix it two you I mean you can do both in the company but there are two very different things to be doing pulled money yeah I understood it wasn’t it wasn’t pulled I just meant that you obviously press buy once and it it it it applies to all the No No we don’t press we don’t we don’t press anything there’s nothing to press this this it’s all automated it’s a completely Serv technology this is what you call an investor directed Portfolio Service idps or whatever they call it as to a a a pooled fund uh that separately managed accounts SMA they are separate managed accounts with a a broker custodian with broker dealer with cust at the bank so we are our model our code will automatically on a weekly basis go over a bunch of factors calculate a bunch of things see if we need to adapt something and do what needs to be done but nobody sits down to look at a spreadsheet or press a button obviously it’s being monitored automate automated that never means uh that’s a common thing common expression in the business automated doesn’t mean unsupervised but it will collate orders together Mass orders from all of the individual um invested decisions taken Mass orders are executed by the Brokers Al systemized and centralized absolutely absolutely and of course in a different way with taking interday liquidity into account a bunch of other things to to to execute rationally but automated I mean if you manage 10,000 accounts you can sit there and actually do the math by hand or in a spreadsheet and then you know email orders in or enter the orders in the system it works different when successful in say one or two years time let’s let’s you know give it a time you know when you’ve got these multi-billion dollars you’re going to be moving the market with hush that would be a nice thought but if you see how deep this Market is um you know by the by the time we are big enough to move the market I’m going to be sitting at the island that I just bought having my drink and I mean seriously in in this market is deep we not we’re not dealing with El liquid nonsense here we’re dealing with highly liquid stuff of course at some point I don’t know look at look at poor David Harding I feel sorry for him almost every day when I think about the you know the 50 billion or something he’s managing it’s of course once you’re managing $50 billion you have a liquidity issue but you know what you can do of course which I’m if I’m not mistaken I think they did a bunch of years ago they just lower the volatility by half and half their um their um their fee structure I believe if I’m not mistaken I have some some memory of that anyway okay so that that’s one way of doing it okay fine we’re so big we got to do things in half scale but we’ll be fair and charge you half the price uh no I mean there all kinds of solutions but we’re dealing with highly liquid ETFs so I don’t see a problem all right uh Andreas let’s talk about technology a little more then so you’ve written a book on it now um it’s getting dramatically easier for people to program with python to be able to build their own back testing engine or other um software related to trading in Python um tell us about what you cover in the book and um you know the pros and cons of uh of taking this path how difficult is it so on and so forth what tools are out there libraries and so on how how achievable is this well I mean first I would say for anybody who wants to get into systematic trading I mean whether it’s for yourself it’s a hobby it’s a business whatever you want to do with it you need to learn programming it’s not that difficult people don’t take the shortcut of some some silly scripting thing or something very limited just learn to do it it’s not that difficult you don’t need to be an expert programmer but I like to compare with and I I’m sorry I said this so many times before when I get asked but imagine a I don’t know doctor or a lawyer like 50 years ago you think they could type on a typewriter no that’s a low-level job you know they have a secretary to do that nowadays imagine doctor or lawyer who can type his own things on a keyboard who like one finger at a Time come on he’s a helpless baby so things move and at the moment in this field you need to understand this stuff and it doesn’t help to hire somebody to do it for you because if you don’t know exactly what it is you’re you’re equally helpless you just hire the secretary to type your letters uh so learn that but it’s not that difficult so what I go through is first that book was was interesting experience to me because I I wrote this for fun I just thought it would be fun to write to put down my thoughts and see what happens I haven’t checked the stats in a while but that might is probably my second best selling book it took off like crazy I don’t know what happened there I I thought who’s going to buy come on a programming book about Quant trading with source code nobody wants that it’s sold really well I I tried to explain how to set up environment how to manage it how to connect your data and how to build and test your trading models how hard is it to build a back testing engine I don’t go into building a back testing engine I go into setting one up you could build your own slightly more advanced level but in the book what I say is there are open-source alternatives that you can install yourself you can uh hook up your data to that and if you understand some python you can very easily figure out you know what part you like what part you don’t like you can check how they do their math it’s all open source it’s not like you know Microsoft Excel you can can’t check the details on how they do the math you just have to trust them python is open so what I what I use in the book is uh something called zipline zipline was originally built by a company called quantopian that I was I was very close to back in the days before they went under I was a frequent speaker at their uh their events in New York and Singapore uh they unfortunately went under and a lot of people thought that’s it for their platform they built this great back testing platform called zipline the opposite thing happened it’s open source right so open source Community took it over and it’s actually been developing better and faster after that uh particularly there’s a few different Forks taken over by different people there’s one I use in the book called zipline reloaded it’s it’s an excellent platform and I would say that’s a great starting point for anybody it’s completely free by the way you just just start with it you need to figure out your own data because it doesn’t come with data but the platform is totally free does that include you know all the nuanced parts of of of back testing you know like the um the ability to deal with adjusted prices on stocks and yeah um Absolut little things that I’ll tell you an impressive thing that zipline does that I haven’t seen any other reasonably good open source Library do any way on the future side you don’t feed it a continuation like a lot of these platforms they work with continuations which again was a good enough solution back in the days when we let computing power but why would you want to back test on a continuation because that’s not really what you’re trading so what I do in zipline is excuse me I feeded like 25 25 to 30,000 individual Futures accounts uh Futures contracts individual contracts with the start and an end and the data between there and the back testing engine itself can from there depending on my parameters calculate continuations when I need it based on that but we are not we’re not trading the continuation we are trading the actual contract like in real life that also means I can do a lot of more complex things I can do spreads I can do curve strategies I can trade further out on the curve um as Rich would definitely know I mean most of the time in Futures world you trade the front contract but there’s lots of interesting strategies where you trade something else and you write the the the the curve itself and trade the the term structure yeah in your book you include a very good section on on trading the term structure is additional source of Revenue uh to the trend following method but it was excellent there but uh that’s interesting so you you’ve got all of your contracts in place so obviously your back testing is also telling you when you need to roll uh so you’re getting all of that information coming out of it as well that that’s great well I mean it’s not really telling me what to roll I can get the information to decide myself which is what I do yeah I mean with a with a continuation it’s somebody did it for you and now you need to understand exactly what it does and how this flawed estimation of reality impact your results if you trade the individual contracts I can have my own Logic for when I want to roll yeah yeah that’s great okay um I think we should start to wrap it up we’ve been talking for almost an hour and a half sure um Rich wor thing about it is I could go we could go on for hours with Andreas we could but we do have to wrap it up maybe he’ll let us Happ to do another session guys just yeah get him on the show for a part two that would really be cool actually um and uh I guess just to to finish off Andreas do you want to just talk about um your websites people getting in contact with you I mean I know that uh the trend following sites been around for a long time but y you’ve got a few contact points now I’m not sure exactly what’s what’s the most relevant to you and what people should be looking at but true uh I’ve been doing a lot of things I I I just say I I always struggle to explain to everybody including people in the business what I do for a living because I I have a short attention span and I do a lot of different things at the same time the many hats of Andreas clel yes and I need them as well these days uh so H I would say if you want to get in contact with me the easiest thing and that is probably the EAS one to remember as well clout.com and you’ll always find me there there’s not too much there it’s just a personal website trying to collect a bit of things that I do haven’t been updated in in ages but at least uh you can always get get in touch with me on there I’m I’m a pretty easy guy to to get a hold of uh I I have run since quite a while an automated analytics website called CL of research.com that was actually a that was my therapy project when the world shut down as you might remember some uh you know some four years ago or or so uh when there was a few weeks there where you could really do nothing everything was down and you don’t know if you just took massive losses or not or there was a scary few weeks there and we all needed some therapy project so I built an analytics website and I taught myself how to build a a python based Analytics website uh so behind that pay wall um Andreas there’s a lot there obviously I was I was almost pressing the the login button and the Subscribe button but I was holding myself back but um there’s a lot of content behind that payall y yeah it’s quite a lot of analytics on on stocks uh Futures and and ETFs including automated trading models with the updated resour every day the analytics the rules all of this stuff it’s it’s all on there and it’s it’s a completely automated website so that that was my my my my therapy project when we all needed therapy for a few weeks back then well done so yeah I run that one and of course the uh the get get hush get hush. apppp where we are trying to launch our Venture and um yeah that’s pretty much it but you can always get a hold of me on I wish all success with your hush project that’s that’s a little more active on on Twitter these days or not really you’re not really I’m starting to so I I usually get active on social media when when I have something that was just released that means most of the time I kind of I I I don’t participate that much in discussions on social media but when you have a book or something coming out and this case uh the app you get a little bit more active start talking to people and usually a lot of fun things come out of it in between I tend to be a little bit too busy but uh I’m getting active again so I’m on I’m I’m on Twitter and most of these things as well great yeah cool all right Andreas well um we could definitely do a part two there’s uh there’s always so much to talk about we could Deep dive a particular topic of Interest we’d love to follow along with with with hush as well I think that’s a really interesting project um we should we should bring that out to Australia um yep those kind of things are popular here they do do well here so um we wish wish you really well with it and with with the novel a most private bank which I’m looking forward to having a read of I can’t wait yep there we go oh yes I’m looking forward to the movie yeah that’ be nice that’ be nice indeed that’ll be a shift away to that’ll definitely be another hat you’ll be wearing all right we we really need to wrap it up so I’ll just say thanks once again it was a real pleasure and uh we look forward to keeping in touch thanks guys was fun we should remind you that the conversations on this show are informal and for entertainment purposes only certainly any general advice you may hear is obviously not specific to your needs goals or objectives so nothing discussed on the show should be considered as investment advice if you want that you’ll need to actually do your own research and speak with your financial advisor remember trading can be extremely risky and past performance is not necessarily indicative of future returns if you enjoyed the show Please Subscribe or leave us a review and if you have any questions or feedback we’d love to hear from you bye for now [Music]