Russell Sands Responds To His Critics

1. If you’re such a good trader, why do you teach seminars

Well, I could give you a whole bunch of charitable talk about how I enjoy helping people, which is true, but the real crux of the matter is that the most important reason is money.

I have some valuable information, I am a good teacher, and people are willing to pay me for it.

I am a real (and profitable) trader, but even the best traders in the world go through some losing periods. Teaching is guaranteed income, with no variance, and no drawdowns.

I run a business and finance a household, and have expenses to pay every month. I cannot very well tell my programmer or my banker that I will pay them their salary or mortgage payment the next time I catch a big trade (whenever that may be). Also, if the teaching income allows me to pay all my business and living expenses, then I can allow the trading profits to build up and accumulate in my account.

And finally, people tend to like to do what they’re good at, and I happen to be very good at teaching. Maybe better than I am at trading. Many people, from large money managers to exchange executives, have said so. I still think I’m a pretty good trader, with over twenty years experience and still going strong. But you know, some of the best hitting and pitching coaches in baseball were only ‘average’ players. So even if my trading track record is not hall of fame material, that doesn’t mean I am not well qualified to teach others.

I also like to make money. And my time is valuable.

2. Russell was fired from the Turtle program for not following the rules, and never made any money trading

There has always been a lot of controversy surrounding this rumor, and the truth of the matter is that I never was fired, but that I resigned.

The formal tuition on the Turtle Program lasted 2 weeks we were then given money from Rich Dennis to trade with and told to follow the rules.

And my disagreements, if any, with Richard Dennis, had nothing to do with not following the rules.

I resigned over a difference of opinion as to what was ‘secret’ information and what was common sense.

I came to this job with more experience than most, and it was common sense to me that you trade larger volatility positions with smaller size, and vice versa.

I was overheard discussing this with some of my option trading friends one day after work, and all of a sudden I was accused of leaking out proprietary information. I thought it was silly then, and twenty years later, I still think it’s silly.

As for not making any money, well, 1984 was a tough year. The markets were choppy, and nobody made any money for about the first nine months of the year.
Rich himself lost money, and kept telling everyone else that losing money was not an indication of doing anything wrong. In fact, at one point he even came in and said that anybody who was making money at that time was probably doing something wrong (not following the rules).

Of course, extrapolating what happened in a nine month period over twenty years ago into saying that I have never made any money trading, is also pretty silly. If I didn’t start making good money at some point, how could I possibly have any credibility to still be in this business.
 

3. Russell Sands was fined by the NFA

When futures and commodities brokers see this they understand fully - brokers are fined almost incessantly. floor traders of the SFE were fined for swearing in the pit. One Australian trader I heard of was fined for writing his orders in Blue Pen not Black Pen as per the rule. Just to put things in perspective, Merrill Lynch and Goldman Sachs and a bunch of other large brokerage firms were recently fined over several hundred million dollars for order execution infractions, but they still seem to be in business as well.

Yes, it’s true. In 1997, I was fined $20,000 by the NFA Business Conduct Committee for misleading advertising material for one of my seminars.

I had produced a graph with a five year track record of my nightly Turtle hotline. The first year was a computer generated model, and the next four years were the results of an actual account I had set up. However, the graph did not have the accompanying hypothetical boiler plate disclaimer  underneath it. Big deal !

In fact, The NFA prosecutor in the case, Ron Hurst, did not think this was such an egregious violation either, and approached my attorneys before the hearing with an offer to settle the case, but I refused because I wanted to explain my side of it and be completely exonerated. Considering that the NFA needs to justify (and pay for) its existence, this was pretty naive on my part.

The simple truth is, given the (sometimes ridiculous) regulatory environment in this country, any large entity is going to at some point encounter minor infractions in the course of doing regular business. I paid my fine, considered it a frustrating cost of doing business, and continued on. I never lost any of my registrations or trading privileges, and the matter has been put to bed. By everyone except some stupid website guy who wants to keep reminding people what a terrible person I am.

4. Russell quit trading two years ago, saying the system didn’t work any longer because things had changed

The Pacific Turtle Fund (my major trading Fund) was closed down by agreement by the directors. The reason behind that was as follows:

1. The Fund had high administration fees
2. Government Tax policies changed so that investors in Cayman Island Funds lost their anonymity
3. The largest investor in the Fund accounted for  over 80% of the investments.
4. That investor decided they needed the money back
5. To maintain a smaller Funds Under management size on the fee structure with not much chance of new funds would have meant a drag on the returns of the existing Investors
6. Richard Dennis had closed down his fund (more on this later)
7. Because of point 7 I did think that something had gone wrong, and I did say that, and I did quit.

And I was dead wrong. Hey, first of all, everybody is entitled to an opinion, no matter how silly it may be, and second of all, everybody is human, and makes mistakes. I said what I thought at the time, wound up making a big mistake, and I have seen the light and since changed my mind. I was influenced by the opinions of others, including that of my original teacher, during a time when trend following was going through a long and extended drawdown period. I was tired, and burned out, and lost my tenacity. I should have known better, but I guess I
didn’t realize it at the time.

A year later, I saw how wrong I had been, and in fact, wrote a very lengthy report (free to any of you for the asking) in the beginning of 2003 explaining all of this. I have always had a reputation of being very outspoken about things.

Not everyone likes me for this, but I always say what’s on my mind, and don’t pull any punches. I said what I believed at the time. And if/when I’m wrong, which sometimes does happen, even to me, I admit it, and correct myself.


5. Richard Dennis blew up a trading fund – twice—

Well, I’m not sure that “blew up’ is exactly correct, but it is true that on two separate occasions, public funds managed by Richard Dennis suffered large losses and had to be closed down. As far as I know, one of these cases was completely Dennis’ fault, and the other was really nobody’s fault, but let’s look at each one and put them in perspective.

In the first case, about 15 years ago, a public fund run by Drexel Burnham had to be shut down because the account lost 50% of its net asset value and reached its legal termination point. I have no idea how this fund, managed by Richard Dennis, managed to lose all that money, because in that same year, both the Turtle computer model as well as all the other Turtles that were now working as CTA’s, had a large winning year. Can somebody say “not following the rules”.

Dennis later admitted that he implemented various new and different trading strategies, in part because he was afraid that if he and all the other Turtles kept chasing the same signals, the system would not work any longer. Well, everyone, both human and computer model, who stuck with the original program made money, and Dennis, who did something ‘different’ lost money. I guess if you have a proven system, and don’t follow your own rules, even if you happen to be the inventor of the system, you still do not get any special dispensation from the markets.

Now, as for the second instance which happened just a couple of years ago, the markets had been going through a long and extended choppy period, and all trend followers were suffering.

Dennis wound up suffering close to a 40% drawdown during the first nine months of 2001, and Kenmar Partners (the Fund operators) said he had hit his liquidation point so they shut it down. What people forget is that nobody makes money all the time, and even good traders always give some back.

In the previous couple of years that Dennis had been trading the Kenmar Fund, he had very impressive returns, such that all the original investors in the fund still wound up with a profit, even after the losses that were incurred. Imagine if you started with 100, doubled it to 200, doubled it again to 400, then again to 800, then took a 40% loss bringing you back down to ‘only’ 500. You are still way, way ahead of the game, but everybody just focuses on the (recent) losses.


6. Other people are willing to sell the Turtle system for less money (or for more money)

I hate to talk badly about other people, even when they talk badly about me. I have always held myself above that, and will continue to do so. There are a couple of other guys out there that are marketing “turtle” trading courses, and saying bad things about me to boost themselves up. I really have better things to do than get into a pissing contest with these clowns.

There is one guy who sells a course for about $1,000, which is a lot cheaper than mine. The only problem is, he is not a Turtle, never was a Turtle, and in fact, I have never been able to find out exactly who or what he is. Except that he has a nice slick website, and apparently a lot of experience with marketing various products over the internet. He has somehow learned some of the Turtle material, but by no means has all of it. And what is even worse, I have heard from many of his disgruntled customers that he is impossible to get hold of, and his follow up support is non-existent.

On the other end of the scale, there is another fellow, who is indeed a legitimate Turtle, and in fact one of the better ones as far as I can remember. This guy wants to give away the Turtle rules for free on his website, because he believes (as Richard Dennis has said in the past), that nobody is going to have the discipline to follow them anyway. And of course, he is right. But then his company wants to offer you a week long private trading course for the paltry fee of $25,000. Well, if you have that kind of money, please go and be my guest. But I just can’t imagine what he can teach you that I can’t that would possibly be worth that kind of money, or anything even remotely close.

The bottom line is that the material is only half the story, the more important half is the way it is taught. I know guys who are brilliant traders, but they couldn’t explain to you the first thing they do, because either they can’t quantify it, or they just don’t have the right communication skills. The value I give is not in just giving the rules, but in explaining how they work, how and when and where to use them, and to support them all with historical testing to show they really do work.


7. The Turtle system has very draw downs

Yep, it’s true. But the draw downs come after a big run up in equity ie after it has done really really well.

Show me any good system that doesn’t go through bad periods. It just doesn’t exist. It is a fundamental law of economics, if you want to get a reward, you have to take some risk. If you are not willing to take the risk, you are don’t deserve to make anything. You can  always go put your money in treasury bills, at 2% interest. What is important is that the risk and reward be commensurate with each other. And for the given amount of risk, there is no greater profit potential than the Turtle system.

Of course, if you are not comfortable with the risk, you can also reduce your leverage and trading size down to where you can sleep at night. The great power of the Turtle system is the flexibility of the money management rules, which are designed to let you choose your own level of risk and reward, and to keep you in the game during the rough periods. Hell, anybody with a computer these days can figure out halfway decent buy and sell signals, it’s money management that is most crucial.


8. The Turtle system just doesn’t work any more

Of all the objections and criticisms I hear, this has to be the silliest. Yes, of course, there are periods when the method just doesn’t work. False breakouts produce losses, and it can go this way for months at a time. But this is a long term system, one that has been consistently profitable (and I mean a 100% per year level of profits) for twenty years, and will continue to do so.

As I’ve said before, I wrote a lengthy paper on just how and why this will must be true, which I will be happy to send out free of charge to anybody that wants a copy.

But hey, don’t take my word for it. Thank god for machines like computers and programs like Tradestation. There is no computer program in the world that can predict the future, so I can’t guarantee that the Turtle method will continue to be profitable forever.  But I can show you that it has been very consistently profitable year after year after year since Dennis and Eckhardt taught it to us back in 1983. And there are no tricks here, no curve fitting, no optimizing. The exact same rules, applied the exact same way, to all the different markets, year after year. I couldn’t make this stuff up if I wanted to. You can read the code and print out the results for yourself.

This stuff works, plain and simple. If you learn the rules, and have the patience and discipline to follow them, you should be fine. If somebody, be it Russell Sands or Richard Dennis, or anybody else, messes up and doesn’t follow their own rules, well can say whatever you like about the personal disciplinary shortcomings of that person as a trader, but that still in no way will invalidate either the legitimacy or the profitability of the system itself.


Russell Sands

5 August 2003

PS I also trade the signals I give you I believe in these methods. My mentoring students receive the Signals every night and with my experience occasionally I add some expectation to the trade based on some concepts I teach in the course. This means I often outperform the Turtle System as such.

PPS I have written a nice article on my trading in a Big Coffee Campaign it is free to you as a gift click here to request it Free TurtleTrading Lesson>>

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