John W. Henry and Barings Bank Revisited
Back in 1996 TurtleTrader was the first and only organization to break the inside story of the Barings Bank scandal. It was a great story about trend following success. The lessons of the incident are timeless.
Even though TurtleTrader felt the inside story was worthy of major news coverage, main stream press only wrote about the young trader, Nick Leeson, who lost the $2.2 billion and ignored (to this day) who won the losses of Barings Bank. But, recently John W. Henry has finally confirmed what we first reported and explained back in 1996:
How are we able to make money by following trends year in and year out? I think it?s because markets react to news, but ultimately major change takes place over time. Trends develop because there?s an accumulating consensus on future prices, consequently there?s an evolution to the believed true price value over time. Since investors are human and they make mistakes, they?re never 100% sure of their vision and whether or not their view is correct. So price adjustments take time as they fluctuate and a new consensus is formed in the face of changing market conditions and new facts.
For some changes this consensus is easy to reach, but there are other events that take time to formulate a market view. It?s those events that take time that form the basis of our profits...Asia is another example of how one-time big events can lead to trends that offer us opportunity, and really shape our world. Whether you believe the causal story of banking excesses in Asia or not, there was a clear adjustment in the Asian economies that has been, and will continue to be, drawn out. Under these situations, it?s natural that trends will develop, and recognizing these trends allows us to capitalize on the errors or mistakes of other market participants. Because, after all, we?re involved in a zero-sum game.
Mr. Henry's reference to a causal story and mistakes of others is very clear indeed. But even now, don?t hold your breath on The Wall Street Journal running a story [Our original story].