Episode summary
Why Trend Following Feels Wrong (But Could Boost Your Portfolio)
The Meb Faber Show
· · 46 min · Hosts: Meb Faber · Guests: Jerry Parker
Summary
Jerry Parker argues that managed futures and pure trend following are not the same thing: managed futures is a broad bucket that can include mean reversion, carry, AI, and short-term trading, while his approach is classic trend following built around letting profits run, cutting losses quickly, and hunting a small number of big outliers. He says the strategy’s low batting average is the point, not a flaw, and that the real edge comes from a few trades each year paying for many small losses.
He also pushes back on the industry’s obsession with “crisis alpha.” Parker says a CTA can deliberately tilt toward better stock-crash protection, but that usually comes at the cost of overall performance, and most investors only allocate a small slice anyway. Instead, he prefers to maximize returns first and let diversification do the work across currencies, commodities, rates, stocks, and a few other markets.
A big theme is portfolio construction, especially why the fund trades individual stocks rather than just indices. Parker says that gives trend followers more breadth, more chance of capturing outliers, and better exposure to the right tail as well as the left tail. He closes by stressing that the hardest part is psychological: sticking with the process through underperformance until the inevitable cycle turns.
Key takeaways
- Parker says managed futures is a broad category, but pure trend following is narrower and is built on letting 5% to 10% of trades pay for the rest.
- He argues that chasing crisis alpha usually worsens overall returns, even if it makes a strategy look better in a stock-market drawdown.
- Parker says trading individual stocks instead of only indices gives the strategy more breadth and a better shot at capturing outlier winners.
- He says trend following works best when losses are cut quickly, winners are given room, and the portfolio is diversified across many markets.
- Parker’s view is that long underperformance is normal, so investors need to stay disciplined and keep sizing modest enough to survive the drought.
Notable quotes
“It's just really letting the profits run and um taking small losses and diversifying like crazy across the currencies commodity stocks”
“I don't want anything that doesn't have a stop-loss”
“we don't optimize the portfolio itself. We don't overweight the markets that have been the better trenders or underweight those that have not trended very well”
How the episode opens
Welcome to the Met Favor Show, where the focus is on helping you grow and preserve your wealth. Join us as we discuss the craft of investing and uncover new and profitable ideas, all to help you grow wealthier and wiser. Better investing starts here.
Met Faber is the co-founder and chief investment officer at Camry Investment Management. Due to industry regulations, he will not discuss any of Camry's funds on this podcast. All opinions expressed by podcast participants are solely their own opinions and do not reflect the opinion of Camrian Investment Management or its affiliates. For more information, visit cambrianvestments.com.
Welcome back everybody. Summer is winding down. Hopefully you had a great one.
We have a returning favorite on the show today. Former Wahoo, now Florida man, although he's calling in from New York, trend following extraordinary. Our guest is Jerry Parker, founder and CEO of Ches Peak Capital, which he started in 1988.
Jerry was one of the original turtles trained by Richard Dennis. He's been running systematic trend following strategies for four decades almost. Together, we run the Cambria Chesapeake Pure Trend ETF, ticker MFU, Mute.
Jerry, welcome back to the show.
Hey, thanks for having me. Glad to be here.
Last time we were hanging out, you know, it was just me, you, and the Nature Boy, Ric Flair in Tampa. I take that back. Ric Flair was also with a very beautiful 20-something female, which I assume was his granddaughter.
Listeners, don't let your mind go to a terrible place. Let's talk about what's going on in the world. How's the trend following world treating you?
We've had a a pretty awesome year this year after following kind of a a sideways period for the sock gen trend index last year.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- trend following vs managed futures
- crisis alpha misconceptions
- outlier hunting math and psychology
- volatility targeting and portfolio construction
- trend following in stocks and commodities
Companies and tickers mentioned
- Chesapeake Capital
- Cambria Investment Management, LP
Watch the episode
Watch “Why Trend Following Feels Wrong (But Could Boost Your Portfolio)” on YouTube
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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The Meb Faber Show, this episode and its artwork belong to The Idea Farm. Octagon is not affiliated with the show; this page is an independent summary.
