‘What we’ve got here is failure to communicate’. Captain, from the movie “Cool Hand Luke”.

I had dinner the other day with an RIA friend with 30+ years in the business. Jane told me “I don’t like ‘commodities’ as an asset class” (she meant managed futures—more on that in a future post). Since I am a big fan of systematic trading, I wanted to know why.

As she listed her reasons I realized that we, in the managed futures industry and systematic trading in particular, need to do a better job of telling our story.

The gist of my friend’s gripe is a distrust of systematic traders. She is not naïve about markets. In fact she teaches her clients to expect and tolerate regular drawdowns in the S&P. But it’s easy to recommend the S&P because it has such a compelling story: you will own the 500 most successful corporations in the biggest, best economy in the world. Who could resist?

In contrast, what does the typical systematic hedge fund offer? Pick one of their websites and you will likely find some variant of: “we aim to provide uncorrelated risk adjusted absolute returns”. Accurate, not compelling, and they all sound the same. I understand that we are constrained by regulatory requirements for “communication with the public and promotional material”, but I believe we can do better!

Math is cryptic. People trust people, not math. So, talk about people.

I’m not suggesting “50 Shades of Systematic Trading”, just something more accessible. Let’s start with the fact that, in general, people trust people, not math. Math is difficult, statistics and probability are confounding. So let’s not mention math, let’s talk about people. Here’s a stab at it:

Markets are made up of the interactions of thousands of people. People are not rational, they herd, they panic, they are emotional. As a result, markets are not efficient and each little inefficiency is an opportunity to make money. A systematic trader aims to harvest those opportunities across all the markets of the world, day-in, day-out.

This is just one way of telling the story of systematic trading, and we could probably come up with a number of different versions. Your story will depend on your audience and highlight the strengths of your particular trading strategy.
While I don’t recommend taking things as far as Cool Hand Luke, try bucking the system a little and create an interesting narrative that might alter your investor’s perceptions of your product.

➤ Do you have any good ideas about how systematic traders can tell their story in a more compelling way? Let’s hear about them in the comments.

Stay tuned for future posts on perceptions of the Managed Futures industry.

Pic: By Warner Bros. Entertainment – Screenshot from the original trailer, Public Domain.