Episode summary
What Investors Get Wrong About Trend Following | Philippe Jordan | Top Traders Unplugged | Ep. 154
Top Traders Unplugged
· · Hosts: Niels Kaastrup-Larsen, Alan Dunne · Guests: Philippe Jordan
Summary
Philippe Jordan argues that trend following is valuable, but not because it acts as reliable crash insurance. He says its main role is diversification, and that investors often misunderstand both the frequency at which trends work and the limits of what can be expected from them. CFM’s approach, he says, evolved after painful episodes like 1994 and 2007 into a broader systematic platform built around multiple uncorrelated strategies rather than a single trend book.
He describes CFM’s edge as a combination of scientific rigor, growing compute power, and a culture that fits the firm’s collaborative style. In his view, the firms that succeed in quantitative investing are the ones that adapt to technology without losing strategic coherence. He also says AI is already changing research by helping researchers screen ideas, and eventually will be used more directly in trading, but only within a framework of diversified risk allocation and strong human oversight.
Jordan is skeptical of overpromising on alternative markets or fast-trading edges. He says most investors should think in terms of diversification, alignment, and realistic expectations rather than trying to force trend following into a role it cannot play. He also highlights longer-run risks such as demographics and social pressure, which he believes are underpriced and likely to shape markets over the next 10 to 15 years.
Key takeaways
- Philippe Jordan says trend following is a 0.5 Sharpe strategy over long periods, not a dependable crash hedge.
- He argues that CFM’s real edge is combining scientific methods with a culture that supports collaboration and long-term adaptation.
- Jordan says AI should first amplify research productivity, then gradually support trading, but always with human judgment and portfolio diversification.
- He believes the most attractive true alternative markets CFM found were Chinese markets, because they were liquid, operationally sound, and diversifying.
- Jordan thinks demographics and generational tensions are underpriced structural risks that could matter for the next 10 to 15 years.
Notable quotes
“I think what makes a firm successful is to have a strategy which is in line with its culture”
“trend following is an interesting strategy. It has a very robust Sharpe, but it doesn't have a Sharpe of one”
“the most successful ones are the ones that adapt to the technological changes”
“I think everybody is going to be a manager of agents”
“the reality of trend is that it is a 0.5 sharp strategy”
How the episode opens
What makes a firm successful is to have a strategy which is in line with its culture. And to stay that way. And that doesn't mean your culture stays static, it grows, but your strategy is in line with your culture. I think most firms get into trouble when they start desiring what other firms are very good at.
Welcome to Top Traders Unplugged. In markets, success doesn't come from predicting what happens next. It comes from being prepared for what you can't predict.
In each episode, we go deep with some of the world's most thoughtful minds in investing, economics, and beyond to understand how they think, how they prepare, and how they decide, and the experiences that shaped how they see the world. No noise, no shortcuts, just real conversations to help you think better and invest with confidence.
Philippe, if money flowing into a strategy helps create the returns that attract the next wave of investors, how can we tell whether we found a lasting edge before those flows reverse?
Oh, well, that depends on what frequency you're talking about. Um, if you're talking about something that's operating at two to three or four days or a month in frequency, that would have a pretty high impact. If you're talking about something that's operating over four months to six months in frequency uh and does have turnover as opposed to none, um I would think that doesn't have much impact.
If you have no turnover at all, I think that would have a lot of impact.
Yeah. Yeah, absolutely. Today Alan and I joined by Philippe Jordan, president of CFM International. And for those who may be newer to the show, CFM is one of the leading quantitative investment firms Europe and in the world with about 36 billion in assets under management.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- trend following misconceptions
- human judgment vs models
- ai in quantitative research
- diversification and portfolio construction
- investment culture and systematic investing
Companies and tickers mentioned
- CFM
Watch the episode
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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Top Traders Unplugged, this episode and its artwork belong to Niels Kaastrup-Larsen. Octagon is not affiliated with the show; this page is an independent summary.
