Richard Dennis
Turning $400 into $200,000,000
Today we will talk about Richard Dennis, a trader that influenced me in a major way through his performance when I started my career in trading as a young man a decade ago.
The Exploit
Richard Dennis, a renowned commodity trader, made his mark in the trading world with his extraordinary exploits. Beginning in the 1970s with a modest $400 from his family, Dennis ventured into commodity trading and demonstrated exceptional skill and adaptability. He transformed his initial stake into a staggering fortune estimated to be around $200 million. Dennis's success is attributed to his ability to weather tough times with resilience and maintain confidence in his trading strategy.
Dennis is widely regarded as one of the trading legends of his time, with his peers acknowledging his unmatched expertise.
Early days
Born in Chicago in January 1949, Richard J. Dennis, also known as the "Prince of the Pit," rose to prominence as a commodities speculator. His remarkable journey began as an order runner on the trading floor of the Chicago Mercantile Exchange at the young age of 17. In a few years, he ventured into trading for his own account at the MidAmerica Commodity Exchange, where he cleverly worked as his own runner to bypass the age requirement of being twenty-one.
Dennis pursued a degree in philosophy from DePaul University and even received a scholarship for graduate study at Tulane University. However, his passion for trading ultimately drew him back into the world of finance. With a modest loan of $1,600 from his family, he purchased a seat at the MidAmerica Commodity Exchange, leaving him with $400 as his initial trading capital.
Through astute decision-making and a keen understanding of the market, Dennis steadily grew his capital. By 1970, he had multiplied his funds to $3,000, a significant leap from his meager beginnings. His capital continued to soar, reaching over $100,000 by 1973. Notably, Dennis achieved a profit of $500,000 through soybean trading in 1974, catapulting him to millionaire status before he turned twenty-six.
Major achievements
Richard Dennis, widely known as the "Prince of the Pit," made a staggering $80 million in 1986, contributing to his overall fortune of $200 million. His success put him in the same league as billionaire hedge-fund manager George Soros and junk bond king Michael Milken.
Despite facing significant volatility and enduring losses of up to $10 million in a single day, Dennis distinguished himself as a trader who held onto positions for extended periods, riding out market fluctuations. While he suffered a major setback between 1987 and 1988, losing over 50% of his managed assets, his story goes beyond the end of his trading career.
Dennis imparted his trading knowledge to a select group of individuals, known as Turtles, who continue to thrive in the industry. By combining Dennis's money-making methods with effective risk management protocols, traders can better control losses.
The approach
Richard Dennis primarily traded commodities, including soybeans and corn, during his successful career as a trader. His trading strategies were centered around trend-following systems. Rather than attempting to predict market direction, Dennis believed in capitalizing on existing trends. He would buy when prices increased above recent ranges and sell when they fell below those ranges.
"You have to minimize your losses and try to preserve capital for those very few instances where you can make a lot in a very short period of time. What you can't afford to do is throw away your capital on suboptimal trades."
This simple yet effective approach allowed him to capture significant market moves. Dennis emphasized the importance of minimizing losses and preserving capital, advocating for cutting position sizes during losing periods. He also employed pyramiding techniques, gradually increasing position sizes during profitable trades. By holding positions for longer periods, Dennis aimed to ride out short-term fluctuations and benefit from sustained price trends.
"I learned to avoid trying to catch up or double up to recoup losses. I also learned that a certain amount of loss will affect your judgment, so you have to put some time between that loss and the next trade."
His success in commodities trading and his ability to teach his strategies to others cemented his status as a trading legend. Perhaps one of the best sources of information on the assets he traded and strategies he implemented comes from the Turtles, the group of traders he trained.
These individuals report having traded:
Bonds: 10 & 30 Year U.S. Treasury Bond and 90 Day U.S. Treasury Bills.
Commodities: coffee, cocoa, sugar, cotton, crude oil, heating oil and unleaded gas.
Currencies: Euro, US dollar, Swiss Franc, British Pound and Japanese Yen and Canadian dollar.
Precious metals: gold, silver and copper.
Index futures: S&P 500, Dow Jones.
The Turtle Traders
"We are going to grow traders just like they grow turtles in Singapore."
Richard Dennis
This simple phrases started one of the most influential traders training project ever.
Richard Dennis, recognizing the potential to teach successful trading methods upon a disagreement with his partner, recruited and trained 23 individuals, selected from about 1000 applicants, known as the Turtle Traders. In two separate groups formed in December 1983 and December 1984, Dennis trained a total of 21 men and two women.
Over a two-week period, he imparted a simple trend-following system to the Turtles, teaching them to trade a range of commodities, currencies, and bond markets. The strategy involved buying when prices rose above recent ranges and selling when they fell below those ranges. Additionally, the Turtles were instructed to cut position sizes during losing periods and aggressively pyramid their positions during profitable trades, with up to a third or half of total exposure being allocated. While the system generated losses during rangebound market conditions, it yielded profits during significant market moves.
I always say that you could publish trading rules in the newspaper and no one would follow them. The key is consistency and discipline. Almost anybody can make up a list of rules that are 80 percent as good as what we taught people. What they couldn't do is give them the confidence to stick to those rules even when things are going bad
Dennis believed that the Turtles could successfully apply his trend-following system beyond the specific markets he traded, expanding their ability to take advantage of profitable opportunities. The training aimed to instill discipline, risk management, and a consistent trading approach among the Turtles. This group of traders, under Dennis's guidance, effectively demonstrated that successful trading could be taught, challenging the notion that trading skills were exclusively innate. The Turtle Traders, armed with Dennis's strategies, went on to achieve notable success in their own right, further validating the effectiveness of his trend-following approach.
The traders were each given a $500,000 to $2,000,000 account. According to Russell Sands, a former turtle, the group went on to earn profits of $175 million in 4 years, or an 80% compounded rate of return.
Many turtles went on to create their own path within the financial world. Jerry Parker for example, created Chesapeake capital, raising a peak of $2.5 billion.
The Turtle experiment remains an influential case study in trading education and has inspired aspiring traders around the world to adopt similar methodologies
More about the Turtle Traders from my friends at Financial Wisdom:
10 Key lessons
Don't be too tied to history
While historical data can provide valuable insights, it's important not to rely solely on past performance when making investment decisions.Instead of rigidly defining market behavior based on historical patterns, it's better to focus on recognizing trends and their potential continuation or reversal.
Trend-following systems
Successful investors often employ trend-following systems that keep them in the market until there is evidence of a trend reversal. Such systems can help capture significant market moves.
Order size and trading success
As an investor's order size increases, it can become more challenging to execute successful trades. Diversification and employing different strategies can help manage larger amounts of capital effectively.
Knowing when you are wrong
It's essential to have predefined exit points and risk management strategies. If a trade starts showing a loss or fails to perform as expected over time, it's important to acknowledge the mistake and exit the position.
Common behavior among markets
Successful investors find similarities in patterns across different markets. If a trading system doesn't work for multiple markets, it may not be considered reliable.
Program trading and market behavior
Program trading should not be seen as a scapegoat for market declines. It may cause short-term market movements but doesn't impact long-term trends. False breakouts and increased computerized trend-following can lead to challenges and reduced effectiveness of traditional trend-following systems.
Dealing with losing streaks
When experiencing a losing streak, successful investors cut back their positions and, if necessary, take a break from the markets to regroup and reassess.
Public fallacies about market behavior
The belief that markets are supposed to make sense is a common fallacy. Markets can be influenced by various factors and often exhibit unpredictable behavior.
Emotional detachment in trading
Successful investors strive to make trading decisions based on objective analysis rather than emotions. Emotional involvement can be counterproductive to achieving consistent results.
Solutions to challenges:
Investors continually adapt and find innovative solutions to overcome market challenges. Avoiding the middle ground and being more short-term or long-term oriented can help navigate trends more effectively.
Final words
In conclusion, Richard Dennis's remarkable journey as a trader serves as an inspiration to aspiring investors. From his humble beginnings with a small loan to his immense success and transformation into a trading legend, Dennis demonstrated the importance of resilience, adaptability, and a disciplined approach.
His emphasis on trend-following systems, risk management, and recognizing market trends provides valuable lessons for traders. Furthermore, his creation of the Turtle Traders and their subsequent achievements showcases the power of education and mentorship in shaping successful traders.
As Richard Dennis himself once said, "We are going to grow traders just like they grow turtles in Singapore." And indeed, his legacy continues to inspire and shape the future generation of traders
If you liked this blog, please make sure to share it around and let me know what concrete steps you are taking to become top-tier yourself in the comments!
Thank you a lot for the article, enjoyed it a lot!
Lukas, about point number 6: this difficulty on traditional trend following strats can become a two edged sword, right? Like, if breakouts are failing more often --> people stop buying breakouts --> it comes back into working, so is there a point that one should not completely change their backtested approach against periods, provided you have the data to back yourself up, and just size down?
This is obviously one alternative while others might include finding better spots to enter, but I’m wondering what are your thoughts on this.
Congratulations on the article! I’m reading the complete turtle trader and I’d recommend to anyone wanting to dive deeper in Richard Dennis history and the turtles.