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TTU04: What it Takes to Become a Great Trader ft. Mike Dever of Brandywine Asset Management – 2of2
5th June 2014 • Top Traders Unplugged • Niels Kaastrup-Larsen
00:00:00 00:44:09

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In this episode we continue our conversation with the founder and CEO of Brandywine Asset Management and discuss the aspects of what makes his rule based asset management style so successful.

Enjoy the second part of my conversation with, Mike Dever.

In This Episode, You’ll Learn:

  • Continuing the Conversation around why Trend Following can be more difficult
  • Describing Disparate Return Drivers
  • How Brandywine Assets Management actually implements the decisions of their trading model
  • Why Position Sizing and Risk Management Principles are Everything
  • How position sizes are managed across various Return Drivers
  • Why Sharpe Ratio is a meaningless measure on it’s own. It doesn’t give you any idea on predictability of returns.
  • The professional traders approach to the emotional challenges of drawdown.
  • Managing regulation challenges
  • The environment of marketing trend following strategies to investors
  • What it takes to become a great trader today
  • Who Mike started out aspiring to be like
  • If Mike has any personal habits that contribute to his success

Resources & Links Mentioned in this Episode:

Follow Niels on Twitter, LinkedIn, YouTube or via the TTU website.

Follow Mike Dever on Linkedin.

IT’s TRUE 👀 – most CIO’s read 50+ books each year – get your FREE copy of the Ultimate Guide to the Best Investment Books ever written here.

And you can get a free copy of my latest book “The Many Flavors of Trend Following” here.

Learn more about the Trend Barometer here.

Send your questions to info@toptradersunplugged.com

And please share this episode with a like-minded friend and leave an honest rating & review on iTunes so more people can discover the podcast.

Transcripts

Mike

One of the things that's helped make trend following traders successful over the last few decades is that it's not an easy strategy to trade. You've got to sit there and ride through multiple years sometimes of just terrible performance and then wait for that quarter where it all comes back and you make money.

I think by maybe trying to just focus on trend following and smooth returns within that style of trading, people have started curve fitting their strategies a little too much on the past data to make it look like they had solved the problem, when in reality all they did was lower their predictability of performance. There's nothing worse than doing that, because then going forward you don't know what you're going to get. I think that's what surprised maybe a lot of these people who might have overly fit their strategies to the past data.

Niels

I think that's a great point. I really like the way that you phrase it and have the focus on predictability rather than the optimal way of trading. I think that that really sets you apart.

Mike

It's the only thing that matters.

Niels

Yeah. No, no. I agree. To summarize the program and the model, how many...I don't know whether it's the right phrase to say that each return driver is a model, or could there be a return driver that trades multiple markets? But I mean, how many models or return drivers are we talking about altogether, and how many combinations between these return drivers or models and markets do you actually employ?

Mike

Right. Well, our terminology we use at Brandywine is you have a return driver. Then the return driver is turned into a trading strategy by identifying the markets that are relevant to that return driver and the actual variables you're going to measure to capture that return driver. You end up with a trading strategy that, for example, the fundamentals merge and cost production strategy we talked about in a couple dozen different markets, it's whatever markets are relevant to capturing that return driver.

ETF money flow strategies. We apply that to...There's a number of different ETFs out there. Well over 100 that are doing leverage long-short. So there's a number of different stock indexes that we can trade that are relevant to that strategy, and we do the same thing with bond markets. There are a number of bond ratings that are relevant to the bond ETFs that are out there.

Then you've got in our portfolio, we've stopped giving out exact counts, but it's certainly dozens of return drivers that have been developed into trading strategies in the portfolio. Today, in combination, which we refer to as strategy market combinations, it's well over 1,000 strategy market combinations in the portfolio.

Any strategy at one point may be applicable to 20 or 30 markets. It may be only holding positions in one or two at a time depending on what markets were triggered by that strategy. But in general, it's well over 1,000 now strategy market combinations in the portfolio.

Niels

Well, I guess that's where technology has its advantage. It would take a little bit of time to keep track on that before we had computers.

Mike

Oh, yeah. You'd have so many mistakes in it. I don't think it really would be almost feasible at all.

Niels

Yeah.

Mike

It's great. It allows you to have so many disparate return drivers and really spread the risk across so many positions in the portfolio.

Niels

Yeah. Is any of the trades you have, do any of them focus on some kind of profit level, or is there always a trigger that looks for actually the return driver to not having an effect anymore before you exit the market?

Mike

Well, remember, we're trying to capture in as pure a way possible the return driver associated with each trading strategy. If there's something that's fundamentally based that's looking at price levels in a market, then yeah, you could say that has a profit market on the trade, because it's looking at price level of the market to determine an exit on it.

Niels

Interesting. Now, shifting gear a little bit. Trade implementation. Running this, looking at 1,000 combinations and so on and so forth. How often do you run all these strategies from getting the data in and checking to see whether there are any new signals or trades? How does that work from an implementation point of view?

Mike

Okay, so it depends on each strategy. We have some strategies that are only looking at, the event strategy looking at employment report once a month. The report comes out and that strategy is invoked. It determines whether or not there's a decision to be made and orders to be placed.

We've got others that are looking on an intraday basis, saying, "Okay, based on price action, we're looking for something occurred during the day." If that happens, we buy or sell during the day on that strategy. I'd say the bulk of them probably are daily though. For example, the ETF strategy I talked about. It's looking to ETF money flows to trade the futures, equity and bond futures.

We're pulling down that data each day and compiling it. We have an outside researcher that's doing that for us. Then that comes into our cadence system, which does the evaluation on whether or not there was a trade to be signaled or not. There's a lot of them like that that are only able to collect the data on a daily basis. So they're daily strategies.

Niels

But just for me to understand, is there any of the strategies that require sort of a constant feed during the day in order to do the analysis, or is it all at a minimum, say, end of day data, or is it really continuous during the day?

Mike

Yeah, so there are some that require continuous through the day, but often those are strategies that aren't always invoked. They may go months where they don't care at all. Then they go for periods of time where they're looking at every intraday move and making determination where they've got to do a trade. So there's periods where they're not invoked and there's periods where they're invoked.

Niels

Sure, sure. Do you tend to continue to come up with return drivers or strategies based on some of the current return drivers, or do you feel you're pretty full now in terms of ideas in the model?

Mike

No, we continue. There's just so many ideas. Let me backtrack on the one that's invoked. Whether a strategy is invoked or not is part of the strategy. It's not us sitting there saying, "Hey, we think we're going to use this strategy now." I wanted to clarify that.

But I've got a library of a backlog of return driver concepts. It's kind of amusing in a way. It's a little sad, but it's amusing that there's so much academic research that's done, say, in the equity markets. People just fawn over the fact that Fama/French have come up with a three factor model. Not only momentum, but value and capitalization have effects on stock prices.

To me, it's like, "Well, yeah. Of course."

Then you'll have decades of academic research that expands on that initial idea, when there's literally hundreds of potential return drivers that are sitting out there that people can use to properly truly diversity their portfolio. Instead of trying to tweak evaluation model in equities to get an extra few basis points over some benchmark, they could be looking at some fundamental model that's looking at seasonal tendencies in the cocoa market to come up with a strategy that's totally uncorrelated to anything else they're doing, has a high probability that its returns will continue to recur in the future.

Again, decades long periods. It may lose money. But over generations, it's a sound logical

strategy. No different than I think value is a sound logical strategy in trading equities. So there's literally hundreds, I believe, of return drivers that are valid and that can be captured and converted into trading strategies and traded in a portfolio. That's what Brandywine is doing.

two dozen strategies in July,:

Today we've got more than twice that number. We've continued to develop strategies. We will continue to develop strategies. I think we've got a long way to go before we've exhausted the return driver opportunities.

Niels

Sure. That's exciting.

Mike

It is.

Niels

Now, with all these things going on at the same time, risk management to me sounds like that's crucial to keeping a balance in things. How do you view risk? How do you handle risk? Again, in my view, I think position sizing is probably greatly undervalued by many people because they don't realize how important it is in order to survive in this business. How do you view that side of things and how do you do that?

Mike

talked earlier about the late:

Our focus, moving from the traditional optimization models to predictive models, led us to develop what we refer to today as our predictive diversification portfolio allocation model. It's solely based on creating performance that when we look at it historically, we have a high degree of confidence that that could continue into the future. We do that by creating balance across the portfolio. If you want to get predictability, one of the main most important ways to do that is to create portfolio balance.

Now, there's a lot of ways people might argue on what is portfolio balance, but for us it means over a reasonable period of time, a generation, say, that our returns and our risk will be pretty much equal across each of the strategies, return drivers, and markets in the portfolio. That there won't be any dominant tendency, that interest rates are what drove the portfolio over that period or it was all stock index or all agriculturals. By doing that, we end up on a day to day basis with a portfolio that generally has position spread across a lot of different areas with very few outliers.

Outliers may occur at times, but those outliers may mean that that could contribute to 50 basis points risk in the portfolio. That would be an outlier type position. Nothing where you're so dominant that you're going to be able to say, "Oh, yeah. We lost 10% where the draw down was due to blank." We're never in that position to be able to identify a single or even a handful of causes that contribute to a drawdown of that magnitude. It's really the entire portfolio.

Niels

On an individual basis, does that mean that each position has a stop-loss, or how do you manage sort of the risk from that point of view?

Mike

Okay, so we let every individual trading strategy capture the return driver that it's designed to capture. If we were to put stop-losses on every strategy on every position, we essentially turn them on to trend following strategies, because trend went this direction and we went with the trade in the direction of the trade. Whether it was stopping us in or stopping us out is irrelevant. We still made a decision based on a trend.

Now you've lost the diversification in the portfolio. A lot of people feel good about doing that, because they say, "Oh, I can look at this position and say if it goes here, I'm getting out." But what they've done is ruined their predictability and actually increased the risk in the portfolio because now they have model strategies that are being dominated by a single return driver, trend following.

So we don't do that. We avoid anything that could possibly create a single decision point that would dominate the portfolio's performance. For example, I've talked to a number of people who come up with strategies for timing their portfolio or timing their investments or that allocation. If they're down a few months in a row, they maybe increase the allocation because they think they're due to come back.

What you've done is now create one variable that dominates your returns. As soon as you've done that, you've lost predictability. Again, the one sole characteristic that we insist on across the entire portfolio is this predictability issue.

Niels

Does that mean that if you get into a particular trade and, say, for example, the model dictates you to buy 10 lots of cocoa for that particular strategy, does the strategy stay with the 10 lot position size throughout, or is there something else that can influence volatility changes or positions in other related strategies that might cause it to decrease the position size?

Mike

Yeah, that's a great question, because when I talk about portfolio balance, that's a dynamic issue. As you add other strategies in a portfolio with similar positions, well, necessarily they may be coming out of balance, because you get a concentration in one position.

Or if a market's volatility increases or its price level is twice as high as it used to be, well, if we traded the exact same position size with twice the price level and the same volatility, we would end up with twice the exposure to that. It would now be out of balance. So yes, the portfolio, and this is the predictive diversification portfolio allocation model that does, to keep things in balance, adjust position sizes based on changes and correlations, and volatilities across the portfolio.

Niels

Yeah. Very, very interesting. Related to risk management comes draw downs. I'd love to know how you or whether you do predict in your testing and analysis a level of expected draw down for the way the portfolio operates. Is that how you come up with the overall balance to say, "We're happy to do this, because we expect it to have," as you say, "a certain level of return, a certain level of standard deviation?" I don't know whether you relate that standard deviation to draw downs as well or how you look at that.

Mike

Yeah, so I consider drawdowns a true measure of portfolio risk. Volatility. You can look at 100 specific examples where volatility is meaningless. Certainly an option writing strategy that has no volatility to it does not mean it has no risk to it.

Conversely, one of the examples I give in the book was a strategy based on a time-price series that had pretty enormous volatility in it. It was over the course of a year...I forget what the actual volatility number was. I think it was in the 30-40% range of daily price activity. But it was an extra super safe strategy and highly predictable.

All I was showing was the average mean temperature in Philadelphia on each day of the year. It's something that cyclically pretty much, if you bet in the winter that it was going to go up between then and the summer, you were going to make money, but there was a high level of volatility during that period. There's a number of instances where volatility is meaningless as a measure of risk.

We really look at draw down as a true measure of risk. We structured our portfolio. Even though I mentioned it has 8% annualized standard deviation, I'll talk about that in a second, we have about a 7% probability that you'll incur, about 6% probability incur, 10% draw down from start. We have about a 70% probability that you'll have sometime in the first 10 years, you're going to have a 10% draw down from a peak equity level. That's our numbers.

Now, we feel pretty confident that targeting a daily standard deviation of 50 basis points, which comes out to about 80% annualized standard deviation, is a fairly good proxy for us to target those draw down probabilities. That's just because of the way our portfolio is built with the diversification balance across it. There is a reasonable relationship between volatility and draw down.

Where volatility and draw down break down in the relationship is where you don't have a balanced truly diversified portfolio. You're just doing one strategy or a sector of markets. Then the volatility that you're looking at is virtually meaningless. To me, Sharpe ratio is an absolutely meaningless measure on its own. It doesn't give you any idea of predictability of returns.

Niels

I couldn't agree more. In fact, over the years we looked at hundreds of CTA track records. What we found as a rule of thumb is that you should expect a maximum draw down for any manager of roughly five times their monthly deviation. If you have someone who is on a 5% monthly standard deviation, you should expect them to lose 25% at some point. As a rule of thumb, that's not too far off.

Mike

I think it's pretty close. If you have the less diversified their portfolio and strategies and markets, the bigger that draw down is going to be relevant to that standard deviation.

Niels

Yeah, yeah. No, I agree with that. Now, Mike, you've been around for a long time, and I'm sure some of the people listening today will love to hear your view on that. That is, draw down certainly adds to the emotional roller coaster that all managers go through. How do you, or what helps you keep an emotional balance when you go through these periods?

Mike

example, last summer, in mid-:

Peak the trough, which was at that point in our trading exactly where we should have had maximum draw down. It was a little delayed. It might have should have happened half a year or so sooner by then, so the probability was getting out there.

What we sent out in our monthly report, "Notice that hey, this is a perfect draw down. If you want to invest now, it's a great time to do that." I'm not advocating timing, because if you happen to have the draw down, great. Take advantage of it.

But you don't want to wait for a draw down, because you give up the positive return expectancy you achieve on a month to month basis. At that time it was just a perfect draw down. I guess react one way or another to it. It's just what it is. It's what it should be. I accept that as well as I accept the positive period.

Niels

Yeah. No, no. It's a perfect response, but I guess so few people out there on the investment allocator side will see it the same way as we on the manager side do.

Mike

It's funny, because they'll look at the back testing and the track record, the actual track record, and they'll see there's an 8% draw down. But then when you have it, they question it like there's something wrong. No, it's exactly what it's supposed to be. Nothing different.

It's no different than you have a child and they grow. Well, yeah. You're upset because they spurted six inches or whatever, they didn't. They're just supposed to do that. The trading systems are supposed to be the same thing.

Niels

Sure. That's very true. That's very true. Just touching a little bit on the business side of that, and maybe more general observations, but also if you can speak to it in terms of how you approach it. I guess partly because of the performance or lack of performance on the traditional CTA side and partly because of the extraordinary good performance in equities the last few years, growing businesses have become much harder for CTAs and similar styles. How do you approach the growth side of Brandywine, and what do you focus on in that area?

Mike

Well, as you might suspect, we're fairly systematic in how we approach that. It's just a process. No different than when I grew benchmark in the 90s. We grew from a million. We had close to 200 million at our peak when I got involved in launching spree.com. Similar process today. It's just staying in front of people, keeping them informed.

We don't really consider ourselves part of an industry. We use futures to trade, but we trade the way we trade. From what we can see, it's very different than what equity guys do or what CTA do for the most part. Now, from a regulatory standpoint we're registered as a CTA, because we trade in the futures markets. But when we talk to people, we don't try to talk about the industry. We simply talk about what we do.

For example, I did a talk in Europe a few months ago. I realized coming out of that that I never once mentioned futures in the entire presentation about what we do and what we trade. It wasn't an intentional site. It was just that I was talking about return driver based investing, developing trading strategies, predictive diversification, a global diversification across it.

When somebody asked in the audience, "Well, how do you do that?" that's when I realized, "Oh, yeah. I didn't tell you guys. We use futures markets to execute these strategies, because that's the most efficient way for us to get access to these various markets." As a way we're registered as a CTA. That makes us a CTA, but that's not how we present ourselves. We present ourselves as globally diversified managers.

Niels

Sure. Again, looking at the business side, is it different today than it was when you ran the benchmark program? Is it, running the business, so to speak, has that changed? Is there any different challenges? You mentioned regulation. I don't know whether you view that as a challenge or what. Has anything changed from that point of view, do you think?

Mike

Well, regulation's always a challenge, because you've got regulators who don't understand what the goal of their job is and so they do the wrong things. For example, UCITS in Europe. They put this huge structure together, the UCITS structure. As part of it, they essentially mandated you cannot diversify your portfolios. You can't have commodities included in a UCITS structure.

Now, who would do that? That's just the most insane structure. I mean, if you really want to try to get true diversification of portfolio and lower risk to investors, you would almost demand that they put that into the portfolio. You have things like that.

The U.S., it's almost innumerable the problems you have with the regulatory environment, keeping the people who could best benefit from these types of investments out of them. You know, a smaller investor who can only go into mutual funds. They can't go into our product.

All these people who have money invested in 401ks, which is just a huge market. 401ks have these captive structures where people are essentially limited to be in long equities or long bonds. Essentially, they're telling people, "You have to gamble with your money." The intent was that they prevent risk, but they've created it. That's always a bit of an issue.

The other side is that in the 90s we actually did get a reasonable amount of client introductions through FCMs, through brokers. Today it's not happening. Part of it's because of this concentration of the FCMs and the fact that you have IBs. But IBs are essentially prohibited from putting their clients into diversified products, because they can't put them into a fund. They're not SEC registered. They're not broker dealers.

So they can only put them into managed accounts. The clients they have are looking for $25,000 to maybe $200,000 managed accounts. By definition, you're going to create a non diversified portfolio when you're trading something of that size. They're going into managed accounts that have higher level of risk than if they were able to go into a fund, but they can't go into the funds.

The IBs can't refer them to the fund, because the IB can't get paid on it. So you've got a lot of impediments to doing the right thing for investors that the regulatory authorities have put into place. We have seen changes and some differences. For us, the growth so far has been direct to investor.

We're now in some number of due diligence processes with institutional investors. It seems like there's a level of individual high net worths that can come into us direct. Then you have the institutional guys who are looking for diversification in portfolio and coming to us direct. But in between, that sort of middle range of other FCM or IB referred investors, that's just not there anymore.

Niels

rly has been diminished since:

Mike

Well, we're just now starting to make those pitches more, so it's hard for me to say compared to 20 years ago what that's like. I do think there's certainly much more awareness in the institutional investors than there was 20 years ago. I think it's easier to talk to them. The flip side of that though is that awareness comes with preconceived idea of what it is you're doing. If I went to them, for example, and I said, "CTA," and I said, "systematic," and I said, "diversified," automatically, I'll spend the next hour telling them why we're not trend followers, because that's all they know. We've gotten mandates that we've responded to where a consultant got an institutional investor to go out to find specifically trend following CTAs for their portfolio, because the consultants don't know what they're doing.

They just see that this return driver, trend following looks like it's been beneficial and provided tail risk protection over time. "So we think you should have some of that in your portfolio," rather than looking and saying, "Oh, let's go with a return driver based approach. You want to have diversification across your portfolio. Let's try to diversify across return drivers." They've only identified the one, trend following, that they think is suitable.

I don't think you get a lot of value out of consultants except for they cover the ass of the institution, which is nice. But from that standpoint, if an institution is using a consultant, a lot of times they're not going to make the right decisions. But we are seeing institutions who are doing their own thinking and analysis who are starting to make what I would consider the right decisions to diversify the portfolios.

Niels

Yeah, and I think also part of the problem has been that I think maybe we as a collective group of managers have been focusing on explaining how we do things and what we do, but we actually left out probably the most important point, and that is why we do it. Why do we do what we do? I think you actually have a great story, and the whole concept of return drivers and so on and so forth to me, when I hear it, sounds much more like the why.

I think that's what's important. It doesn't really matter whether we use computers or whether we use break out or moving averages, but why do we do what we do. That's what people should be buying and paying attention to.

Mike

Right. I think from a manager standpoint as well, it provides such a structure and level of comfort. We know exactly what we need to be doing. It goes back 25 years to when we first discovered this concept of return drivers. It makes it real easy for us when we're developing a strategy to figure out where we're getting our returns and not just be back testing and number crunching and trying to figure out why something works.

It starts out with the premise of why we think it will work. It makes it so much easier and more comfortable for us to develop strategies and build out a portfolio than I think maybe a lot of institutions who don't really know what they're capturing. They just were told from a consultant that they need trend following to help provide tail risk.

Niels

Sure, sure. Mike, the last sort of section that I wanted to cover today is a section that is not part of the standard questions that people ask when they come and see you, no doubt. I just want to take a few of these and get your opinion.

I'm sure a lot of people will really appreciate looking at it from your experience, in particular the part of the audience that maybe aspire to be the next Brandywine and so on and so forth. In your opinion, what does it take to be a great trader or be a great trader? What does it take nowadays to get to that point?

Mike

All right, so to do what we do, you do need a fairly sizable base of research. If people are willing to take more risks than we're willing to take, they could develop a handful of strategies structured around a similar return driver maybe, but they've got to understand and really appreciate the fact that they're taking a huge amount of business risk in that they may go just years and years with subpar or negative performance.

Now, that doesn't meant that it's not worth taking the risk and developing some sound logical strategies based on your return drivers. Not having the full diversification, you may want to start your business that way and hope in the first few years that you happen to have one of the more positive periods associated with that return driver. But it's difficult, because what we do and what we strongly believe is you need that broad strategy market diversification, which you can't just sort of do seat of the pants with a small amount of equity.

That doesn't mean you can't start with a small amount of equity. You're just going to be taking a higher risk, because the probability that your performance is going to repeat in the future as it did in the past is going to be lower. But I would always recommend having a structure in place, systematic application of whatever that strategy is you have, and diversify it as much as you have.

If it's a single return driver, make sure you apply it to every relevant market. Not just the ones it tested well on. Every relevant market, even if they lost money, because going forward, those may very well be the markets that perform for you.

Niels

Sure. When you first started out, Mike, was there anyone that you were aspiring to be? You obviously mentioned some of the people who became and still are some of the greatest managers in the world, but did you have anyone at the time when you started out that you were looking at to say, "Wow, if I one day could have a business like them, I'll be very happy?"

Mike

It's funny, because not really. I just always kind of was me. But I remember looking at one point to a CTA who had about a million under management, and at that time people were charging six and 15. This is late 70s. I looked at that and I said, "Wow, if I could get a million under management, I'd make $60,000 a year," and thinking that would be the greatest thing, to have that kind of steady income coming off of managing the money. But I never I guess looked at any single manager.

There were a number of people out there that I've been associated with or worked with, like the people I mentioned earlier over the years that I greatly admire. They're not just great traders in a lot of cases. They're just really great people.

That's one thing that I've loved about futures as an industry, if you refer to it as an industry, is that it seems like there's some of the best, most humble, decent people that operate within this industry. I've had exposure. We've done marketing direct strategies and other equity based strategies as well, and I didn't see that on the traditional side.

Niels

That's interesting.

Mike

I saw a lot of hubris and a lot of a lot of arrogance and people that I just didn't enjoy being around as much as the futures people for some reason. I keep coming back to them. But nobody in particular. Just a synthesis of all the people I've seen, that I've tried to aspire being the best of each of them.

Niels

Sure. Do you have any kind of sort of like a personal habit that you do that you believe has been contributing in particular to your own success? Is there anything about what you do on a daily basis that you say, "Wow, this has really helped me over the years?"

Mike

You know, I have no lucky socks. I think my biggest flaws over the years were seeing too many opportunities over the years and trying to capture them. Moving into things like spree.com and the various technology ventures I got involved in, which took my focus away from Brandywine. I wasn't fully joking when I said that the downside is I could have owned a professional baseball team today.

I definitely look back and I have things that I regret. So I've changed some of the ways I structure my day and I do things to avoid regrets I guess. But nothing in particular for the most part.

Overall, I guess it's stay as focused as I can. For example, the last few years we haven't distracted Brandywine with getting into any of the other strategies we did in the past, marketing to equity strategies, for example, or long-short strategies. We're very focused on what we're doing with Brandywine's Symphony program. If there's any kind of a daily ritual or focus, it's just to kind of make sure I've got my checklist and everything on that list is driving me towards the goal of just building up Brandywine, creating the best product.

Niels

Yeah. Based on everything you've learned over the years, if you were starting today, would you do anything different? If so, what?

Mike

Oh, you don't have enough time for that. Yeah, I'm not one of these guys who look back and say, "I'd do everything exactly the same." I'm constantly going, "Oh, I wish I didn't do that. Oh, I should have changed this." Big and small. Little things, day to day, things I said.

I'm sure if I listened back to this conversation, there will be a dozen things right out of the gate I'll go, "Oh my god. I sound like an idiot. Why'd I say that?" There's always regrets I guess in that sense, but I just keep moving forward. Definitely if I started over, I would do a lot of things different. I wouldn't have spent as much time on the discretionary trading, but I learned a hell of a lot.

Niels

Exactly.

Mike: I don't think I could have done today what I did without that experience, so I would have spent certainly a lot of time on it. Maybe not as much. I would have stayed more focused on building out the systematic models and just adhering to what we did through the 90s instead of getting involved in some of the internet ventures. There's a lot of things I would have done at a business standpoint, but overall I'm real satisfied where we are and my life and business and family, everything. It's going great.

Niels

I think that is the key point, because I think sometime people have just the wrong expectations. I think they come into the business and think, "Oh, we're going to be right on every single trade and we're going to make money and it's great," but the reality is that most firms in our business, they have many more losers than they have winners.

I think that's the point. We have to accept that nothing is perfect and we make mistakes. We learn from them. We move forward. I think that that's definitely something people need to take away from that if they're looking to get into this business. Yeah.

Mike

Yeah. One of the comments I make in the office here, "Every trade is a mistake." It's just so true. You'll have a trade. You pick up a big profit on it. You get out of that trade, and you would have stayed with it another three days, you would have made twice the profit. Every trade is a mistake. Nothing's perfect. It's just a matter of fuzzily being right most of the time.

Niels

Yeah, yeah. What do you think, what is the one question today that allocators should be asking you when they do their due diligence but they never do? Is there something where you say, "This is really what you should be focusing on?" I know you've alluded a little bit to it earlier, because they focus on maybe putting you into a box before they even get to know you, but is there anything out there where you say, "This is really what they should be focusing and asking," but they never do?

Mike

Yeah, no question. The main thing that seems to be almost a side thought is predictability of performance. The first question, it's not, "What's your edge?" which they'll ask, or "Explain this drawdown you had." It's, "Why is what you're doing going to continue into the future similar to what you're showing me you've done in the past?" That is the singular most important question that is not asked.

Niels

Yeah. Interesting, interesting. If you could ask a question to the next guest on Top Traders Unplugged, what would that be? What would you like to ask one of your peers? Mike: I'd like to ask them what return drivers they have that I haven't discovered yet.

Niels

Yeah, of course. Absolutely. Just finishing off, Mike, is there a fun fact about yourself that you could share that a lot of people might not know about you?

Mike

I'm very focused on the business. 20 years ago I got married. I've got three great kids now. I realized from the first 20 years in the business without family that during that period that was everything to me. I just lived and breathed the business. Since then I've kind of had a very nice balance between family and business.

Fun fact, I guess I've had two separate lives in a way. I had that great pre-family life that I did racing cars and flying airplanes and doing fun single guy stuff. Moved into the new life where I'm getting ready to head to my son's track meet when we're off this interview. I guess nothing fun. I'm kind of pretty normal and regular for the most part I guess.

Niels

Balance in your portfolio. Balance in your family life. I think that makes perfect sense. Before we finish, Mike, where's the best place that the audience and people who are interested in learning more about Brandywine, where can they best reach out to you and find you?

Mike

The simplest would be going to the website, which is www.brandywine.com.

Niels

Great stuff. Mike, this has really been a great conversation. I truly appreciate your openness and willingness to share your insights and views on your strategy and the firm and the industry as a whole. Of course, you know our listeners can find more details on the discussion today in the show notes for this episode on toptradersunplugged.com. I hope to connect with you at a later date and get an update on all the great things that you do. Thank you very much and take care.

Mike

I appreciate it. Thank you, Niels, and I hope it was helpful for your listeners.

Niels

Absolutely. Have a great day. Take care.

Mike

You too.

Niels

Bye.

Ending

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