Jack Schwager titled his chapter on Gil Blake “The Master of Consistency” in The New Market Wizards and the numbers behind that title are hard to believe until you examine them. Over 12 years starting in 1984, Blake averaged 45% annualized returns. His worst calendar year produced a 24% gain. At one point he strung together 65 consecutive winning months. By the time Schwager interviewed him, Blake had been profitable in 134 of the previous 139 months. He won second place in the U.S. Trading Championship in 1988, then took first place every year from 1989 through 1993.
None of this came from a trading floor, a Bloomberg terminal, or a team of analysts. Blake built his edge in a library, flipping through microfiche, hunting for price patterns in mutual fund NAV data. He traded from his bedroom. No computers. No staff. No phones ringing.
The Background Behind the System
Blake was born July 14, 1945, in New York. He studied at Cornell University, served three years as a naval officer on a nuclear submarine, then earned his MBA at Wharton with top honors. After business school he spent three years at Price Waterhouse as an accountant and nine years at Fab-field Optical as Chief Financial Officer.
He did not think about trading during any of this time. He held the standard academic view: markets are random, and price patterns are noise. Then a colleague showed him something that did not fit the theory.
The One Penny Rule
The origin story is in the excerpt below, drawn from Blake’s Market Wizards interview. His colleague had noticed that the NAV of a Fidelity municipal bond fund had declined for roughly 22 consecutive days. He asked Blake whether this trend persistence could be traded. Blake pushed back. He told him to get more data, confident the pattern would dissolve. It did not.
Q. You became a mutual fund timer long before it became popular. What was your original inspiration?
A. Well, I really owe it to a friend. I remember the day as if it were yesterday. I wandered into a colleague’s office, and he said, Hey, Gil, take a look at these numbers. He had invested in a municipal bond fund to take advantage of the prevailing high interest rates, which at the time were about 10 to 11% tax free. Although he was getting a high interest rate, he discovered that his total return was actually declining rapidly because of the steady attrition in the net asset value (NAV). He handed me a sheet with about a month’s worth of numbers, and I noticed that the trend was very persistent: the NAV had declined for approximately 22 consecutive days. He said, Fidelity allows you to switch into a cash fund at any time at no charge. Why couldn’t I just switch into a cash fund at any time at no charge. Why couldn’t I just switch out of the fund into cash when it started to go down and then switch back into the fund when it started to go back up? My reactions was, Nick, I don’t think the markets work that way. Have you ever read A Random Walk Down Wall Street? I pooh-poohed his idea. I said, The problem is that you don’t have enough data. Get some more data, and I bet that you’ll find this is not something you could make any money on over the long run. He did get more data, and, amazingly, the persistency of trends seemed to hold up. I quickly became convinced that there was definitely something nonrandom about the behavior of municipal bond funds. It was the simplest approached that proved the best. We called it the one penny rule. In the two year’s worth of date we obtained, we found that there was approximately an 83% probability that any uptick or downtick day would be followed by a day with a price move in the same direction. In the spring of 1980, I began to trade Fidelity’s municipal bond fund in my own account based on this observation.
Blake started trading in 1980, fifteen years after finishing college. He was so convinced by the data that he took out four consecutive second mortgages over a three-year period to fund his trading; possible because housing prices in the Northeast were rising at the time. That is not the behavior of someone dabbling. That is the behavior of someone who has done the work and trusts what the numbers say.
How the Strategy Worked
Blake’s method was mutual fund market timing. The core mechanic was switching between a sector fund and a money market fund based on technical signals in daily closing prices. He would sample 10 to 20 stocks within a sector to anticipate which direction the fund’s NAV would close the next day. When the signal was favorable he held the fund. When it turned, he moved to cash. Average holding periods ran one to four days.
He started with bond funds, where he had found the 83% directional persistence edge. Over time he extended the approach to commodity funds and equity sector index funds covering technology, oil, and utilities. In those markets he found that larger-than-average daily moves carried a 70% to 82% probability of continuing in the same direction the following day. The specific percentages varied by market, but the underlying principle held: trend persistence is not random, and it can be measured.
Blake’s company was called Twenty Plus. Its logo showed a probability distribution curve with a 20% return sitting two standard deviations to the left of the mean; a visual statement about the floor he expected to hold, not the ceiling he was chasing.
The Fidelity Problem
Blake’s edge in mutual fund timing eventually drew regulatory friction. Fidelity and other fund companies began imposing restrictions on frequent switching, including fees on positions held fewer than 30 days. Blake’s view was that the profits market timers extracted came not from long-term shareholders but from unsuccessful market timers on the other side of the trade. The fund companies disagreed. Their restrictions forced Blake to adapt his approach and look for timing opportunities elsewhere.
This friction is worth noting because it reflects something important about systematic edges: they attract competition and regulatory attention when they work. The edge does not disappear. It migrates. Blake’s response was to move into sector equity funds, where he found similar persistence patterns and continued trading them with the same discipline.
Blake’s Five-Step Framework
In the Market Wizards interview Blake laid out the process he used to build and validate any trading approach. It is worth reading as a framework rather than a footnote:
- Accept that non-random price behavior exists and that markets are random most of the time, but not all of the time.
- Identify the specific non-random behavior through research.
- Convince yourself with statistical rigor that what you have found is real, not noise.
- Build trading rules around it.
- Follow the rules without exception.
Step five is where most traders fail. Blake was direct about this: most traders either lack a winning strategy, or they have one and do not follow it. He considered an undisciplined trade a mistake regardless of outcome. Win or lose, a rule broken is a rule broken. He said he would remember those moments for years. His analogy was dieting: break the discipline once, and the next transgression becomes easier.
Blake on Psychology and Loss
Blake’s approach to the emotional side of trading was grounded in deliberate practice. He wrote:
By embracing a loss, really feeling it, I tend to have less fear about a potential loss the next time around. If I can’t get over the emotions of taking a loss in twenty-four hours, then I’m trading too large or doing something else wrong. Also, the process of rehearsing potential losses and confronting actual losses helps me adapt to increasing levels of risk over time.
This is a practitioner’s view of position sizing; not a formula, but a behavioral signal. If a loss keeps you up past the 24-hour mark, the size was wrong. The emotional response is data.
What Blake’s Story Means for Trend Followers
Blake is not a Turtle. He did not train under Richard Dennis, and his instrument was not futures. But his story sits squarely within the trend following tradition because the logic is identical: find a market that exhibits directional persistence, build rules to exploit it, and follow those rules with discipline through losses and drawdowns alike.
Schwager positioned Blake as a contrast to traders like Paul Tudor Jones; fast-paced, phone-driven, screens across the walls. Blake worked alone, from his bedroom, with paper records and library microfiche. Two entirely different operating styles, the same underlying truth: find an edge, size it well, follow the system.
The profile of Blake also raises a question that applies to any systematic trader: what do you do when the market structure that produced your edge changes? Fidelity’s restrictions forced Blake to evolve. His answer was to extend the same logic to new vehicles rather than abandon the logic itself. That adaptability, rooted in principle rather than attachment to a specific instrument, is what separates traders who survive structural changes from those who do not.
For more on the traders and systems that share this philosophy, see the profiles of Richard Dennis, Jerry Parker, and the Turtle trading rules.
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