'Turtle Trader' Jerry Parker Spurns Indices, Volatility Targeting: 'Less Is More'

Chesapeake Capital’s Jerry Parker joined the investment world by no conventional means.

“I read an advertisement in the Wall Street Journal that [Richard Dennis] was hiring people, teaching them how to trade and staking them with money,” Parker told Benzinga.

From there, the then-accountant joined the exclusive “Turtle Traders,” became a Dennis protégé and transitioned into trading. Now, he credits the Turtle program with his financial success and the technical, systematic approach that propelled him.

“I certainly had a lot of bad ideas going into that program, and it’s sort of scary to think where I'd be now if I hadn’t met them,” he said, recalling undue confidence in his knowledge of the markets.

New Dogs, Old Tricks

Now, Parker sees his old, unpolished thinking driving mistakes throughout Wall Street.

“I think the biggest thing that I read about a lot that I had the same bad ideas was sort of the amount of variables one can use,” he said. “I think the systematic approach...can’t be fine-tuned too much, so the more you try to make the approach better by adding other features to it, it actually weakens the approach.”

The thought is that more variables diminish sample size, which in turn inspire weak market predictions. Features identifying only the “good trades” or eliminating losses or drawdowns further diminish the power of an otherwise effective method, he said.

A Simple Plan

Professing a creed that “less is more,” Parker's investment philosophy emphasizes risk-mitigation through diversification across stocks, commodities, currencies and interest rates ━ but not indices.

“The stock indices are evil,” he said. “No one should ever trade them, they’re horrible and especially trend following. Single stocks are great. They need to be in everyone’s portfolio, but only to a limited extent.”

He discourages overexposure to one investment type because each market is susceptible to “funks” or immobility, and spreading funds limits drawdown.

Beware The Volatility

Index trading isn't Parker’s only concern with contemporary markets. There are “bad things going on” with volatility targeting.

Investors, as an uncoordinated block, buy on low volatility and sell on high, and as $100 billion or $200 billion hit the markets at the same time, the sum delivers momentary shocks to the markets.

“It’s really a plague on the markets ━ people doing the same thing indiscriminately and without regard to what they’re causing,” Parker said.

The trader will join Benzinga’s PreMarket Prep radio show Thursday at 8 a.m. EST to expound on his theories, particularly single stock futures trading.

See Also:

Why You Shouldn’t Buy Or Sell Financials Based On Interest Rates