A couple of weeks ago, we published a newsletter called “Is Trend Following Dead?” We don’t believe it is, but the piece has generated a great deal of conversation in investing circles. Perhaps the best example has been the running commentary on LinkedIn. You can take a look at some of the feedback here, but generally speaking, there are a lot of folks out there who are buying into the obituary of trend following. Their reasoning?
- There is too much money in trend following now, distorting the trends in the markets.
- Continuous government intervention in the markets has stymied the development (expansion) of significant trends.
- Risk on/risk off trading has brought all correlations to one- there is no diversification anymore.
- Interest rates at 0% have made it too difficult to make money.
- High frequency trading has destabilized the natural progression of the market cycles.
However, as long-time trend following advocate put it, “You can find these exact same comment streams every time there is a trend following DD.”
Turns out, he was right- and has said the same thing before. You can find these sorts of time of death proclamations here and here, for instance. We could go on, but for our two cents, the eulogies being written today are premature. Given that these kinds of comments in the past have preceded a trend following resurgence, we’re hopeful they are a contrarian indicator. Past performance is not necessarily indicative of future results, of course, but if you ask us, trend following isn’t dead – merely resting.
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