Markets move in trends. This is a glaringly obvious fact for anyone with eyes to see. In fact, already 2000 years ago in his timeless classic, “The Art of War,” Sun Tzu identified trends as one of the three great avenues of opportunity. In spite of that, the idea that markets move in trends is still vigorously disputed in some academic circles which have tightly embraced the notion that market price fluctuations are random and that trends are merely a hallucination, a figment in the imagination of the unlearned.

I was therefore delighted to accept the invitation from Dr. Damir Tokic to deliver a lecture on Trend Following at the University of Texas, Rio Grande Valley. My lecture condenses the 25 years of my own experience and research in trading, risk management and portfolio management. It is structured around the fact that the greatest challenge faced by investors, traders and hedgers is uncertainty and reviews the two conventional approaches to coping with uncertainty (quantitative methods and fundamentals analysis) and contrasts them with trend following.

I also reviewed the performance of momentum investing (another name for trend following) based on over a century of empirical data from 18 major global equity markets. Earlier, I also covered the performance of the value investing icons Benjamin Graham and Warren Buffett showing that both owed their outperformance over the S&P 500 entirely to their momentum picks. I summarized the evidence in this video. The evidence leaves little doubt that market trends are far and away the most potent drivers of investment performance.

My full lecture is below:

The content of this lecture was derived from my recent book, “Alex Krainer’s Trend Following Bible.”

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