Excerpt from Market Wizards:
Picture an oak-paneled English drawing room. Two obviously wealthy gentlemen sit in their armchairs facing a roaring fire, puffing on their pipes and discussing their philosophy of trading. “It is my proposition, Colin, that anyone can be taught to be a superior trader. There is nothing magical about it. There is no rare talent involved. It is simply a matter of being taught the appropriate rules and following those rules. There is no question in my mind that I could train virtually anyone to make a fortune trading.” “That is nonsense, Duncan. You just think your trading success is due to your system. What you do not realize is that you have a special talent. You could print out your rules in twelve-inch-high letters and have people read them every day for a year, and they still would not be able to do what you do in the markets. Your success is a function of your talent. It cannot be taught!” “Well, Colin, this must be the hundredth time we’ve had this discussion. Let’s settle it once and for all. Why don’t we just pick ten people, teach them my system, give them each 1 million to trade and see what happens.” “That’s an excellent idea, Duncan. Pick your ten people, train them, and if by the end of one year they are not ahead, on average, by at least 25 percent — a modest figure considering that you normally make two to three times that per year — you pay me 1 million. If they are up by more than 25 percent, I will pay you the same amount.”
Duncan and Colin then proceed to the window, watching the passersby for potential candidates for their experiment. Each time they agree on an individual, they send their butler out to summon the person.
— The above may sound like a fanciful plot for a story or movie. (Actually, it is a very loose adaptation inspired by the delightful Mark Twain story, The 1,000,000 Bank-Note.) However, change the setting from London to Chicago, eliminate the monetary element of the bet, and substitute a more sophisticated method for screening candidates, and you actually have a true story. The legendary trader Richard Dennis, who reputedly transformed an initial stake of several thousand dollars into a fortune estimated at $200 million, essentially had the same argument with his partner, William Eckhardt. It was Dennis’s contention that trading success could be taught, while Eckhardt scoffed at the idea.
What the Bet Was Really About
The argument between Dennis and Eckhardt was not really about whether trading could be taught. It was about the nature of human performance in uncertain competitive environments. Eckhardt’s position is the intuitive one: exceptional performance requires exceptional natural aptitude. The golfer who wins majors has gifts the club golfer does not. The chess grandmaster processes patterns automatically that novices must calculate consciously. The exceptional trader reads market conditions in ways that ordinary people cannot. These gifts cannot be transferred through instruction.
Dennis’s position is the counterintuitive and ultimately correct one: the exceptional performance in systematic trading comes from the rules and the discipline to follow them, not from innate pattern recognition or intuitive market feel. The rules can be written down. The rules can be taught. The discipline to follow them can be developed. The result of having the right rules and following them consistently does not require the kind of natural aptitude that exceptional athletes or chess grandmasters require.
The experiment settled the debate empirically. Twenty-three people were recruited through a classified advertisement, trained for two weeks, given funded accounts, and sent to trade. Over the course of the experiment, the group generated over $100 million in profits. Dennis was right. Eckhardt was wrong. Trading success could be taught — at least the systematic rules-based variety that Dennis practiced.
The Mark Twain comparison in the Schwager passage is apt. The 1,000,000 Bank-Note involves an ordinary person who is handed a resource they did not earn and must figure out how to use it. The Turtle experiment is similar: ordinary people were handed a trading system they did not develop and were measured on their ability to use it. Some used it well. Some did not. The divergence in outcomes among people who were given identical rules and identical capital is the finding that makes the experiment more instructive than its original result. The rules were teachable. The discipline to follow them through adverse conditions was not equally distributed.
William Eckhardt’s own trading operation, which he founded after the experiment, has produced exceptional returns for decades using systematic approaches. His skepticism about the teachability of trading did not prevent him from building a systematic approach himself. The debate was not really about whether rules could produce returns. Both men agreed that they could. The debate was about whether the element that produced Dennis’s exceptional returns was the rules or something else Dennis possessed that could not be transferred. The experiment’s results supported Dennis’s thesis that it was the rules.
Frequently Asked Questions
What was the Dennis-Eckhardt bet about?
Whether trading success could be taught. Dennis believed that anyone could be trained to trade successfully using the right systematic rules. Eckhardt believed that Dennis’s trading success reflected a special talent that could not be replicated through instruction. They resolved the debate by recruiting 23 people, training them for two weeks in Dennis’s systematic approach, funding their accounts with Dennis’s own capital, and measuring the results. The group generated over $100 million in profits, supporting Dennis’s thesis.
Who won the Dennis-Eckhardt bet?
Dennis. The Turtle traders he trained produced exceptional returns over the course of the experiment and, in many cases, for decades afterward as independent managers. Jerry Parker, Paul Rabar, and others went on to manage billions of dollars using approaches derived from what Dennis taught. The experiment is the strongest available evidence that systematic trading excellence is teachable rather than innate.
Why did some Turtles succeed and others fail despite having the same rules?
Because the rules are necessary but not sufficient. The discipline to follow the rules through extended losing streaks, drawdowns, and periods when the system seems broken is the variable that Eckhardt’s skepticism pointed at — correctly, if incompletely. The rules were teachable. The psychological resilience to continue following them without deviation through adverse conditions was not equally distributed among the Turtles. Some had it. Some developed it. Some could not sustain it under the real-world pressure of managing large sums in volatile markets.
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