The movie Trading Places was released on 9th December 1983. The story of the film is that two wealthy investors (the Duke brother) have a bet on whether successful investors are born or made. To determine the winner they engineer a spectacular fall from grace for a top trader and replace him with a down-and-out with no previous experience whatsoever. A few days later celebrity investors Richard Dennis and William Eckhardt made a real-life bet on the same topic, but they elected to resolve it in a rather more humane manner.
Turtles on the way up
Dennis believe that he could create investors “the way they breed turtles in Singapore”, to prove his point, he chose a group of average people (21 men and 2 women) and gave them a 2-week intensive course in what we would now call a “mechanical investment strategy”, which is to say that the investors were given a set of rules to follow which were given precedence over intangible concepts such as instinct and judgement (and, of course, experience, since the trainees had none). At the end of the course, they were given a month to try out what they had learned in the real world. Those who succeeded were left to continue trading for another five years, at the end of which time their aggregate profit was believed to be $175 million (and remember this was in the late 1980s). Many of the turtles went on to have successful careers as investors, including one of the two women, Liz Cheval.
Turtles all the way forward?
While the turtles paddled to some impressive results there are three factors to remember before deciding how much to be impressed by their strategy. Firstly, only the turtles who passed the initial probation phase were selected to continue in the programme. This suggests that while it may very well be true that successful investment is a skill which can be taught, not everyone is equally good at learning it or at least not in the way which was taught by Dennis. Secondly, the turtles started out with funds of between $500k and $2m (in 1984) which made it easier for them to generate large profits. Thirdly, this experiment took place in the 1980s, when the stock-market tide was rising and rising and, as the old saying goes, “a rising tide floats all boats”. Investors who tested this strategy in later periods, did not achieve the same degree of success, in fact the results slowed down as early as 1986.
Turtles to the end of the story
After the official end of the “turtle programme”, the former turtles were placed under a ten-year embargo, which prevented them from monetizing their experience in any way. After it ended, two turtles revealed the “secret” rules and started to market themselves as investment coaches. In order to put a stop to this, some of the other turtles, most notably Curtis Faith, published the rules for free. Interestingly, even though the original turtles did make a profit, neither Faith nor Dennis believed that knowledge of the rules alone would make a person a successful investor. They both felt that successful investors balanced theoretical knowledge with a certain personality traits (including confidence and consistency). This is pretty much what most investors today now take as read, although we would probably add that relevant experience is beneficial. Dennis’ experiment does, however, have significance in that it highlights the importance of developing a strategy and having the confidence to stick to it consistently, unless there is strong evidence that it should be changed, which is far removed from the old-school idea of successful investors being extraordinary people with great trading instincts.