Episode 015: Inside the Loop — Uncertainty in War and the Markets (Part Two)

Episode 15: Inside the Loop — Uncertainty in War and the Markets (Part Two) Join Rich Brennan, Jerry Parker and Adam Havryliv for the conclusion of our two-part special, where the trend followers are joined once more by Mark “Moose” McGrath to finish walking the eight strategic ideas we set out to test. https://www.youtube.com/watch?v=8WimrGeFnZI A smaller room this time. Mike Melissinos and Ben Ford could not join us, so Jerry carried the trend following side where Mike would have come in, and Moose headed up the strategists’ side on his own. As it turned out, that made for one of the most heated and enjoyable conversations the show has produced. Part One was about the condition we all work under: you cannot see the future, your plan will not survive contact, and you still have to act. Part Two is about the craft, what you actually do with that. How you win when your chance finally comes, when to let go, how you survive a blow, and the kind of mind that holds it all together. And running underneath it, the same idea that carried the whole special. In war, you have to predict, because nothing tells you where the enemy will be. In trend following you never predict, because the price already gives you the crowd’s answer. Prediction on one side, following on the other. ⚔️ The Orthodox and the Unorthodox: winning when your chance comes In any fight there are two kinds of force. The ordinary one that holds the line and keeps the enemy busy, and the extraordinary one, the surprising move that actually wins the day. For trend followers that maps almost perfectly onto how the money is made. Most trades are small losses, the steady cost of showing up, and then every so often one runs and pays for the lot. Jerry took us to 1993, a year that came down to a single trade. He was trading forty or fifty markets back then, and one client had instructed him not to trade commodities. The only thing that moved all year was coffee, on the back of a Brazilian freeze. At the end of the year that same client asked why he had broken even while everyone else had made money. The answer wrote itself. There is a particular frustration, Jerry noted, in eliminating a market for no good reason and then watching it become the year. Moose took the war side and went straight to Sun Tzu, the one book Boyd could never find fault with across eight or nine translations, and to the employment of Cheng and Qi, the orthodox and the unorthodox. A Marine trains endlessly on the conventional, the drills and general orders and immediate action drills, so that when the environment refuses to match the book, he can reach for the unconventional. And then he made the point of the segment. Surprise is an output, not an input. You cannot decide to deploy surprise. You can only create the conditions where a mismatch emerges and the other side can no longer compute what is happening. He illustrated it with a story about jumping out to scare Rich, only for Rich to have anticipated it and turned up in a scream mask, leaving the rest of the room wearing their coffee. Rich put the question to the room: in war the surprise works because there is a mind on the other side to fool, but in markets there is nobody to surprise, so when the big winner finally pays, did we outfox anyone or was the rare event simply enormous while everyone else huddled in the ordinary? Moose reframed it around anticipation rather than prediction, and around Boyd’s constant game of interaction and isolation. The client who banned commodities did not interact with his world, did not anticipate, and isolated himself into a poor outcome. Adam admitted he is constantly surprised by markets, that the year’s profit almost always arrives from a source nobody expected, and that the discipline is simply playing the odds and executing day by day. Jerry landed the practical warning: the most dangerous moments for a systematic trader are the ones where, for whatever seemingly good reason, you are not able to follow your own process. 🏔️ The Culminating Point: knowing when to let go Clausewitz noticed that an advance has a culminating point, a place where the attack has outrun its own supply and strength, and the very next push, the one that feels like it should finish the job, is the one that breaks you instead of the enemy. Rich was careful with the translation, because there is an easy misreading. This is not about taking money off the table as a trend matures. Trend followers do not do that. It is about not dragging the giant position a huge trend built for you on into the next trade. When the trend ends, you take the exit and go back to the small starting bet. Jerry said cocoa had it all, that almost every lesson the markets can teach is in there somewhere. Do not remove something from your portfolio because it has not made money in a long time. Put things in because they diversify. The backtest is the answer to every question. And then the line of the segment, prompted by a story about Mike: a stock had run thousands of per cent and then sold off hard, and Mike’s followers were asking where he got out. His answer was that he did not, he was still in. That, said Jerry, was the only correct answer. The correct answer is never how much profit you gave back. It is that you followed your rules. Moose gave the room a genuine education on Clausewitz, and it was not reverent. He recommended Robert Coram’s biography for its account of Boyd’s battle with him, and offered the comparison that Clausewitz is the John Maynard Keynes of warfighting: no matter how thoroughly he is debunked, he

Episode 014: Inside the Loop — Uncertainty in War and the Markets (Part One)

Episode 14: Inside the Loop — Uncertainty in War and the Markets (Part One) Join Rich Brennan, Jerry Parker, Adam Havryliv and Mike Melissinos for a special two-part episode of Turtle Talk, where the trend followers share a room with two Marines for a conversation unlike anything we have done before. https://youtu.be/DdZmMknK2Ag This one breaks our usual format on purpose. A little while back, Rich, Jerry and Mike were invited onto the No Way Out podcast with Mark McGrath and Brian Rivera, and we went in expecting to explain our world to theirs. What we found instead was that we were almost speaking the same language. The way they think about acting under fire, and the way we think about following a trend, kept landing in the same place. So we repaid the favour and brought Mark “Moose” McGrath and Ben Ford onto Turtle Talk to keep the conversation going. Two worlds, one room. Eight strategic ideas drawn from the old military thinkers, walked one at a time, with a single question asked at each: does the answer hold on both sides of the door, for modern warfare and for trend following alike? And running underneath all of it, the one idea the whole special turns on. In war, the Marine has to predict, because nothing tells him where the enemy will be. The trend follower never has to predict, because the price already gives him the crowd’s answer in one live number. Prediction on one side, following on the other. This is Part One. We walk the first four ideas here. Part Two arrives next month. ⚔️ Meet the room Two camps, six voices. On the war side, two Marines. Moose McGrath, of AGLX and the No Way Out podcast, a US Marine and one of the deepest readers of John Boyd you will find. And Ben Ford, a Royal Marines commando turned software builder, formerly of AHL and an Aspect subsidiary, who has taken these military ideas and built them into working code. On the trend following side, Rich Brennan hosting, Jerry Parker, the Lord of classic trend following with four decades and world-class returns behind him, co-host Adam Havryliv bringing the behavioural and cognitive angle, and Mike Melissinos, the punk rocker of trend following, who joined a little later after a proper battle with New York traffic on a Pride March weekend. A nice illustration of the theme before we had even started: the plan meets the world, and the world does not care about the plan. 🔧 Friction: when the plan meets the world Every plan is perfect until it meets reality. Jerry opened with a story from 1992, only a few years into his trading life, when the British general election went the other way to expectations and the Tories under John Major were unexpectedly returned. He drove into the office at three in the morning to liquidate his positions in gilts, short sterling, the FTSE and the pound, and had a quiet word with himself in the dark about what the job actually demands of you. Moose reached for the seminal Marine Corps text, Warfighting, freely available online, and made the point that you could just as easily retitle it as a trend following manual. Ben brought the practitioner’s view from inside the planning process, the part the military calls “actions on,” where after you have built your perfect plan and laid out your assault in the sandpit, the final and most important step is to rehearse what happens when it all goes wrong. Adam tied it back to the mind, and to the mental friction every trader knows: the energy breakout earlier this year that looked flawless on the chart, drew everyone in, and then reversed, and the work of reorienting when reality and expectation come apart. Where the two camps agreed: the plan never survives first contact, so you build for the mess rather than the whiteboard. Where they split: a Marine’s friction is partly a thinking enemy choosing to resist him, while the trader’s friction is a market that does not even know he is there. 🌫️ The Fog: you can never see the whole picture Rich read the old verse, For Want of a Nail, and then unpacked why it really captures uncertainty rather than just illustrating bad luck. The problem was never a lack of information. Everyone could see the nail was missing. The trouble is that no one standing at the blacksmith’s could have traced the line from one missing nail all the way to a fallen kingdom. Each step only makes sense looking backward. Forward, from where you actually stand, the chain is invisible. That, as Rich put it, is the fog. Not darkness, not missing facts, but a future that refuses to assemble into a picture no matter how long you stare. Moose connected it to the interconnectedness and complexity that defines an atmosphere of uncertainty, the reason a Marine has to live in a constant state of reorientation, and noted that the fog is exactly why so many trend following books belong on a Marine’s reading list. Ben offered one of the images of the episode. Think of taking an action as casting a pebble into a pond. The only way to read the result is to watch the ripples, but everyone is throwing pebbles, at different speeds and distances, and all any of us ever receives is the overlapping pattern where those ripples meet. A whole crowd can come to agreement without ever exchanging a word, simply because they are all sitting on the same pond reading the same surface. In markets, that shared surface is the price. Rich made it concrete with the hurricane. The only way to know exactly where it will be in six weeks is to wait six weeks and watch it arrive. There is no formula that skips ahead. The future is not hidden, as if someone knows it and is keeping it secret. It is simply not