DynexCorp - from systems to market pulse: a life long performance in currencies >>>
Having been hooked on currency trading for almost 40 years, one could say I wear currencies like I am wearing my clothes, even like my own skin. My reaction to familiar market situations is instinctive, acquired through life-long conditioning. Te new kids on the block will always come up with new-fangled ideas, but looking back, not much has changed in what really drives the currency markets. Supply and demand fundamentals do not work as easily as they do in commodities, but positioning, recursive feedback and emotions do.
I have to thank a brilliant trader, Albert Friedberg, President of Friedberg Mercantile Group in Toronto, for introducing me to the contrarian way of looking at markets as early as 1973. Ever since, I have used sentiment and contrary opinion to guide the non- systematic part of our trading approach. Another highly successful proponent of analysing market sentiment is John Percival, with whom we have been closely associated since the mid-1990s. A former Lex Columnist of the Financial Times, JP writes the weekly Currency Bulletin (since 1984) which must be one of the oldest currency advisory letters in existence. He is also the author of the book Te Way of the Dollar (out-of-print, but available as e-book). Tis is quintessential reading! For me this book became the bible of currency trading.
Our operational advantage is our longevity, survival power and persistence. Starting with the Magnum Program in 1979 we have a continuous track record of 32 years, 90% of which are certified or audited. Tere is no failure, pause or interruption. Surely this is unique? We cannot think of any other currency manager still in business who can match this record, other than Albert Friedberg in Toronto. Reliability and continuity is often the most sought after requirement by institutional clients. Our other operational advantage is our compact size. Small is beautiful, said Leopold Kohr, the Austrian economist, who wrote in 1957 “Tere seems to be only one cause behind all forms of social misery: bigness“, in his visionary book “Te breakdown of Nations”. Because of the compactness of the underlying instruments, currency hedge fund managers succeed in operating efficiently with a limited number of
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staff. Computerisation, electronic trading and Straight Trough Processing have made this even more feasible.
How would you describe your investment philosophy and what are the main strategies which DynexCorp has traditionally employed?
Traditionally we have been trading-system oriented. But trading-systems seem to have a half life and start to decay after a handful of years. Caxton Corporation’s Bruce Kovner pointed this out when I had the chance to converse with him for a full evening at his Manhattan apartment (his family had gone skiing). We shared the opinion that systems are tweaked every so often, mostly of course after a draw-down. I postulated in the late 1980s that baby markets lend themselves better to systematic trading than mature markets. In effect, the Magnum Program which ran from 1979 to 1984 had a good chance since currencies in those years were indeed baby markets. Te Magnum trading rules which worked fine for currencies would not have worked with the stock market (e.g. the S&P500 Index), the most mature market of all.
Today’s currency markets have become mature by their sheer size and liquidity. For that reason we have abandoned purely systematic trading and are putting more weight on market sentiment, positioning research and contrarian opinion, particularly in our
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