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Subject:  Growing a Bond Turtle (Intro) Date:  2/13/2012  5:28 PM
Author:  trader2012 Number:  33661 of 36218

For those who don’t know the story of Richard Dennis and “The Turtles”, here’s a quick summary:

In mid-1983, commodities trader Richard Dennis was having an ongoing dispute with his long-time friend Bill Eckhardt about whether great traders were born or made. Dennis believed that he could teach people to become great traders. Eckhardt thought genetics were the determining factor.

In order to settle the matter, Dennis suggested that they recruit and train some traders and give them actual accounts to trade to see which one of them was correct. They took out a large ad advertising positions for trading apprentices in Barron's, the Wall Street Journal and the New York Times. The ad stated that after a brief training session, the trainees would be supplied with an account to trade.

This group was invited to Chicago and trained for two weeks at the end of December, 1983. They began trading small accounts at the beginning of January. After they proved themselves, Dennis funded most of the trainees with $1 million in February.

Dennis described [the program] to someone by saying, 'We are going to grow traders just like they grow turtles in Singapore.'"

A year ago, I funded an IRA for my daughter, so she could capture the tax-deferment, as well as have the means --and, hopefully, the motivation-- to begin the process of learning how to invest. Predictably, not a dollar of the $5k got spent, because she wasn’t interested enough in the investing game to do the needed work (she chose to do other things, like hike the Camino de Santiago) and because I was reluctant to push her in directions (e.g., stock investing) where I don’t know how to come out in the top 5%-10%. (Why play an investing game, no matter how popular, just to be merely average?)

Bond investing I know well, and I’m a competent futures trader. But not much can be done in bonds or futures with just $5k. This year, she’ll be adding her own $5k to the account. That is still tiny money. But it’s enough to begin learning how to put it to work. So, last weekend, as we were chatting long-distance, I cut to the chase and said, “This is what we’re going to do about that account. Bond prices are horrible, and now is a terrible entry point, but it’s a market I know, and I could train you to compete in it if that would be something that would interest you.”

She reminded me that I had considered introducing her to bonds the previous year, because it’s an asset-class that would fit well with her personality. But we had agreed to back away, because it seemed to me that the opportunities were fading and that she couldn’t make enough mistakes to learn anything useful with just $5k. In other words, in the initial stages of learning to investing (or trade), being able to do a lot of turnover without also destroying the account is hugely important. You learn absolutely nothing useful from making a few lucky guesses as beginner. (Or a few bad ones, either, whose explanation is due as much to randomness as research). At typically a thousand bucks a bet and only a $5k account, buying individual bonds wasn’t a good place for her to begin. But I’d argue that $10k might be enough money for us to get started, especially if the focus were on junk bonds where the problems of risk-management come right to the forefront and where decent rates of return can still be obtained (as opposed to in the rest of the bond market). In other words, if you can trade junk responsibly and effectively, you can trade (aka, invest in) the better quality stuff if/when it becomes available again.

Anyhow, that’s the plan. So I poked around this morning at the various bond brokers and came to the conclusion that E*Trade is where she should move her account to, because theirs is the easiest platform to work with. So that’s the “Where?” The “How much?” is already decided. All that remains is the tiny details of “How?”(LOL) This means I’ve got a ton of writing to do in the coming weeks as I try to distill what is still mostly a discretionary process for me into guidelines from which she can adapt her own way of doing things. To the extent that I find it useful, I’ll post my thoughts as I try to “grow a bond turtle”.

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