Buying Draw Downs of Commodity Trading Advisors
In theory it seems a valid process to buy when a long term commodity trading advisor experiences a draw down. It is as if you are buying on sale an exceptional product. In the real world however you never know how long or how much further the draw down will continue. At times it can be almost Murphys law. I have been on both sides of the table. I entered one long time trend following commodity trading advisor who had a draw down approximately half of his greatest draw down. His greatest draw down was ( so far..your biggest draw down is always ahead of you) approx 26%. I entered in at a 16% draw down. To my good fortune after I entered I was lucky the following month he returned 19%. I ended up so far up approx 53% from my entry several months short of 2 years.
However this is where the patience and discipline needs to come in. Just the exact opposite has occurred with buying the draw down in another program. Prior to his greatest draw down which was approx 27%…he experienced a gut wrenching 41.51% draw down. I entered and low and behold as I was entering that month he generated a 22% return. When I enter a new allocation to a commodity trading advisor I only take his new positions. These old positions kicked and returned in one month 22%. I missed it…
However I am still trending water and have not generated a positive return yet. I was debating to allocate to the commodity trading advisor I did allocate to or another one. Again Mr. Murphy Law stepped in and if I had chosen the other commodity trading advisor I would have out performed. However in reality it does not matter as when I allocate I look to invest for at least 5 years to 10 years.
The point I would like to present is that buying draw downs is an advantageous way to invest…however rebounds do not occur when we would want them…and it takes patience & discipline to grind out positive returns. It is not retirement in a box.
Past performance is not indicative of future performance
Futures trading involves risk. People can and do lose money