The Turtle Trader Origin Story | with Richard Dennis, Jerry Parker, and Brian Proctor

Episode Overview

• Richard Dennis, the creator of the legendary "Turtle Trading" experiment, along with original Turtles Jerry Parker and Brian Proctor, reveal the true story behind the program.
• The discussion clarifies the program's origin, which was a "nature vs. nurture" debate about whether great traders are born or can be made through a rule-based system.
• The episode debunks common myths, such as the experiment being inspired by the movie Trading Places, and confirms the "turtle farm in Singapore" story as the source of the name.
• The guests reflect on the selection process, the process-oriented culture, and why the core principles of trend following remain robust decades later.

Key Concepts

• Origin of the Experiment: The program was created to settle a philosophical debate between Richard Dennis and William Eckhardt on whether trading skill is innate (nature) or teachable (nurture).
• Selection Process: Applicants were given a rigorous test to gauge statistical aptitude and psychological makeup. The program favored novices without prior trading experience to avoid the need to unlearn bad habits.
• Predicting Success: Richard Dennis admitted that they were surprisingly inaccurate at predicting which candidates would ultimately become the most successful traders.
• Process Over Outcome: The culture of the program emphasized following the rules correctly as the primary measure of performance, rather than short-term profits and losses.
• Rules vs. Discretion: The core belief is that a systematic, rule-based approach is superior to discretionary judgment because it enforces persistence, which is nearly impossible to maintain through intuition alone.
• Adoption of Trend Following: The strategy is not more widely adopted by institutions due to its inherent volatility and difficult drawdown periods, which many find hard to tolerate.
• Systematic vs. Discretionary Trading: The idea that systematic trading is a "black box" is challenged, with the argument that a discretionary trader's unstated thought process is far less transparent and predictable.

Quotes

• At 0:04 - "I'm going to stick with the first story about the turtles in Singapore... If I had a dollar for every plastic turtle that people have given me, I'd be indeed rich." - Richard Dennis humorously confirms the origin of the "Turtle" name while commenting on its lasting legacy.
• At 11:55 - "I thought that two-thirds of trading was following rules and maybe one-third was intuition... and it seemed to me that we could resolve the question by trying to train people and giving them rules." - Richard Dennis reveals the true philosophical origin of the Turtle Program: to settle a debate on whether trading skill can be taught.
• At 20:47 - "We preferred people who hadn't actually been on the floor and traded because that was kind of a detriment. It wasn't what they knew; it was what they knew for sure that just wasn't right." - Richard Dennis on why they favored applicants without prior trading experience, as they wouldn't have to unlearn bad habits.
• At 23:38 - "If you're doing the right thing, that's going to be the bottom line on your performance... versus 'please make me some money and I don't really care how you do it.'" - Jerry Parker describing the unique, process-focused culture of the Turtle program, where adhering to the rules was prioritized over immediate profits.
• At 24:35 - "I have come to believe that mediocre rules are better than good traders' judgment. And that's because... it's almost impossible to be as persistent using judgment as if you follow a system." - Richard Dennis making a powerful case for systematic trading, arguing that consistency is more valuable than discretionary skill.
• At 35:12 - "To me, the real black box is the discretionary trader who you don't know what's going through his mind in any given market environment." - Brian Proctor countering the criticism that systematic trading is a "black box" by arguing that discretionary trading is far less transparent.

Takeaways

• Prioritize building and consistently following a rule-based system, as systematic persistence is a more reliable path to success than relying on discretionary judgment or intuition.
• Evaluate your performance based on your adherence to a sound process, not on short-term profits or losses. Correct execution is the true measure of success.
• Be willing to unlearn preconceived notions and bad habits. Approaching markets with a beginner's mindset is often crucial for successfully implementing a systematic strategy.