Podcast Summary: Timeless Lessons from a Trend Following Legend – Jerry Parker on Excess Returns

Podcast: Excess Returns
Episode: Timeless Lessons from a Trend Following Legend | Jerry Parker
Date: October 15, 2025
Host(s): Jack Forehand, Justin Carbonneau, Matt Zeigler
Guest: Jerry Parker (Founder, Chesapeake Capital, original Turtle Trader)

Episode Overview

This episode provides an in-depth masterclass on trend following with legendary Turtle Trader, Jerry Parker. The conversation covers Parker's formative years in the original Turtle Trading program, the evolution and psychology of trend following, modern portfolio construction, risk management, and the increasing accessibility of managed futures for retail investors. Parker emphasizes the timeless principles of systematic trading and shares honest insights into the practical challenges and enduring lessons from his decades-long career.

Key Discussion Points & Insights

1. Turtle Trading Origins & Formative Lessons

• [02:45] Jerry shares how he joined the Turtle Trading experiment led by Richard Dennis and Bill Eckhardt, responding to an ad in the Wall Street Journal in 1983, leaving public accounting to become a commodities trader.
• Key Lessons:
  • Systematic rule-following is fundamental for long-term success.
  • “They taught us everything we needed to know at the time. And… the principles… are going to last for a lifetime.” [04:30]
  • Parameters and specifics (such as trend lengths) must adapt over time, but core rules remain essential.
  • Extreme leverage in early years led to outlier years, both positive and negative. Emphasis was on capital preservation despite high risk-taking.

2. Psychological Difficulty & Human Nature

• [11:44] The greatest battle is not with the market, but with one’s own psychology.
• Memorable Insight: “Trading is hard. It should be hard. You should try to make it psychologically hard. You should seek out ways that make you uncomfortable… The whole pursuit of smoothness is totally wrongheaded.” — Jerry Parker [00:00 & 53:55]
• Many early mistakes arise from not putting on trades or cutting winners too early, a tendency that persists even with computerized trading.
• Missing trades is “a big no-no for a trend follower because inevitably that’s going to be the one that’s going to have a material impact on your performance.” [12:40]
• Human instincts push traders to smooth out profits, but true trend following requires tolerating volatility and letting profits run.

3. Evolution in Trend Following

• [08:39] The field has shifted from short-term, high-leverage strategies toward longer-term holding periods (6-12 months+).
• Ongoing research is vital: “It was never a situation where we felt like… you’re done learning, go off and do your make money for the rest of your life.” [10:45]
• The proliferation of computers and high-speed, short-term trading has made short-term trend strategies less effective.

4. Portfolio Construction: Maximizing Breadth and Diversification

• [23:34] Jerry advocates for including as many liquid markets as possible, with minimal optimization based on past performance.
• Quote: “In my opinion, we should just trade as many markets as possible. It's the most robust way to spread out the risk.” [25:50]
• Uses the same system across all assets: stocks, commodities, currencies, interest rates, and now crypto.
• Treats all signals similarly and resists the temptation to weight based on historical sector performance.

5. Risk Management & Position Sizing

• [28:38] All positions use identical systems, with risk management relying on stop losses and trailing stops.
• Distinctive practice: Do not include open trade profits in assets-under-management calculations for new positions, reducing the risk of compounding recent big winners into outsized bets. [29:08]
• Importance of short trades, even though they are rarely as profitable as longs.

6. Modern Trend Following and the 60/40 Portfolio

• [32:16] Trend following strategies can add valuable diversification to traditional 60/40 portfolios, offering unique return streams, especially in commodities and crisis scenarios.
• But: “I don't think you can bank on this ‘crisis alpha’… [Trend following] has a tendency to do that sometimes but the last time it really did was 2008. Recently, it was an abject failure… violent sell offs and then V bottom…” [34:05]
• Trend systems handle risk more systematically than buy-and-hold but underperform when markets move up steadily without corrections.

7. Adoption for Average Investors & Rise of ETFs

• [41:04] There is growing accessibility via ETFs, including trend-following programs from major asset managers.
• Adoption depends on live performance and investor patience, not just backtested results.
• There is, however, a behavioral barrier: Many investors seek smoother or more exciting returns, contrary to the core of trend following.

8. ETF Strategies & Approach to Crypto

• [43:29] Jerry’s ETFs trade hundreds of markets, including up to 200 single stocks, and offer either broad (400 markets) or more traditional managed futures (25% stocks, rest in other assets) exposures.
• For crypto exposure, Chesapeake uses either futures or ETFs, depending on liquidity and costs. “It’s perfect for what we do and should be embraced by everyone.” [47:22]
• Emphasizes inverse volatility position sizing—volatile assets like Bitcoin receive smaller allocations.

9. Trends in the Current Market

• [49:14] Noted strong trends in gold, coffee, cocoa, silver; new moves emerging in copper, aluminum, zinc, and palladium.
• Cautious about currency trends, especially USD, and ambivalent on rates due to repeated false breakouts.
• “CTAs traditionally don't have a way to say ignore those trend signals… They just continue to take the signals.” [51:40]

10. AI and Systematic Trading

• [52:19] No AI in trading systems, but uses AI tools for research and coding assistance. “It’s a pretty good guesser and very intuitive. So I think that is really just hopefully just the beginning…” [52:32]

11. Timeless Truths & Controversial Beliefs

• [53:55] Trend following is difficult because “you should seek out psychologically difficult and hard things to do and let that guide your research.” [53:55]
• Notable Quote: “This whole pursuit of smoothness is totally wrongheaded. You don't want to make anything smooth. It's going to continue to work if it's choppy and bumpy and something that other people really don't like to do.” [55:15]
• Anti-Sharpe ratio: “I’m really anti Sharpe ratio. I think it’s only right to be anti Sharpe ratio when your distribution is nonnormal… We’re really trying to find those outlier trades.” [56:08]
• Strong advocacy for diversification—even into correlated markets—because the next major outlier may occur where it's least expected. “The market that you’re underweighting… because it’s correlated with other markets can have a huge trend and you do not want to miss that…” [57:20]

Notable Quotes & Memorable Moments

• “Trading is hard. It should be hard… The whole pursuit of smoothness is totally wrongheaded.”
  — Jerry Parker [00:00, 53:55]
• “Missing trades is a big no-no for a trend follower because inevitably that’s going to be the one that’s going to have a material impact on your performance.”
  — Jerry Parker [12:40]
• “We’re really trying to find those outlier trades and sometimes… that heating oil trade [in] February 1984…was the first big outlier trend.”
  — Jerry Parker [56:50]
• “You do not want to miss that…having as many correlated markets as possible is good, because sometimes only one will trend.”
  — Jerry Parker [57:20]
• “You should seek out psychologically difficult and hard things…do the hard thing, do the right thing.”
  — Jerry Parker [53:55]
• On diversification: “We pretend that we’re really big into diversification… but what we’re really trying to find is those outlier trades.” [56:08]

Timestamps for Key Segments

• 00:00 / 53:55 — Trend following should be intentionally hard; smoothness is counterproductive.
• 02:45 — Jerry’s story: From accounting to Turtle Trading experiment.
• 08:39 — Evolution from short-term to longer-term trend following.
• 11:44 — The biggest challenge: human psychology and rule-following.
• 23:34 — Portfolio construction: the case for trading every liquid market.
• 28:38 — Risk management and the importance of stop losses.
• 32:16 — Impact of trend following on traditional portfolios.
• 41:04 — ETFs, accessibility, and the behavioral barrier.
• 43:29 — Jerry’s ETF strategies and crypto exposure.
• 49:14 — Current market trends and CTA positioning.
• 52:19 — AI use in research, not strategies.
• 53:55 — Timeless truths and anti-Sharpe philosophy.
• 56:08 — Outlier trades, diversification, and being anti-optimization.

Conclusion

This episode distills a lifetime of experience from one of systematic trading’s pioneers. Jerry Parker urges investors to embrace discomfort, resist the urge for smooth returns, and focus on robust diversification and strict rule-following. His perspectives challenge common industry beliefs, particularly regarding risk metrics and sector optimization, arguing instead for adaptability, psychological endurance, and the perpetual hunt for market outliers.