Legendary Trader Gil Blake Gives You The 5 Rules To Market Success


Blake used mutual fund timing to profit from the spread between a fund's net-asset-value and the asset's real value.

Gil Blake is a legendary trader with a trading strategy that allowed him to take an enormous fee structure. (Over 12 years, Blake averaged a 45% annualized return)

"I took 25 percent of the capital gains,...However, I guaranteed to take 25 percent of any losses as well."

He continued: "I also assured each of my investors that I would cover 100 percent of losses if the account were down after twelve months."

Blake told a story that exemplified his self-confidence, he said I took out "four successive second mortgages over a three-year period". He literally put his house on the line.

Blake's strategy was mutual fund timing, an approach that aims to capitalize on differences between a fund's net-asset-value closing prices and the closing prices of the individual assets that make up the fund. (It was Blake's friend who showed him data stemming to this strategy)

"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 twenty-two consecutive days," he said.

"I quickly became convinced that there was definitely something nonrandom about the behavior of municipal bond funds," he said.

Blake realized that there was about an 83% chance "that any uptick or downtick day would be followed by a day with a price move in the same direction."

"True to his logo [Twenty Plus], he has never had a year with a return below 20 percent," Schwager wrote. "In fact, his worst performance was a 24 percent gain in 1984."

As all strategies do the mutual fund timing began to loose its potency and Blake spent about a year in the library reviewing out data trying to find the next break. Blake found that commodity funds and specific equity sector index funds (technology, oil, and utilities) all had discernible patterns embedded within their prices.

"Generally speaking, I found that a price change that was larger than the average daily price change in a given sector had anywhere between a 70 to 82 percent chance of being followed by a move in the same direction," he said.

Although Blake's relentless analysis of data and trends gave him and those that invested with him a wildly advantageous position, the trading rules that he implemented were fundamental in staying on top.

"In a nutshell, it all comes down to: Do your own thing (independence); and do the right thing (discipline). Blake said. Legendary traders like Larry Hite, Mark Minervini, William O'Neil, Marty Schwartz, and Paul Tudor Jones, among others, all mercilessly adhered to a set of predetermined criteria. Blake is no different.

Blake's five steps to make any trader successful.

1. "First, focus on trading vehicles, strategies, and time horizons that suit your personality,"

2. "Second, identify nonrandom price behavior, while recognizing that markets are random most of the time,"

3. "Third, absolutely convince yourself that what you have found is statistically valid,"

4. "Fourth, set up trading rules," he said. 

5. "Fifth, follow the rules," he said.

Read more here


Economics, Finance and Investing