Richard Dennis
Encyclopedia
Richard J. Dennis, a commodities speculator once known as the "Prince of the Pit," was born in Chicago, in January, 1949. In the early 1970s, he borrowed $1,600 and reportedly made $200 million in about ten years. When a futures trading fund under his management incurred significant losses in the stock market crash of 1987 he retired from trading for several years. He has been active in Democratic
and Libertarian
political causes, most notably in campaigns against drug prohibition.
at age 17. A few years later, he began trading for his own account at the Mid-America Commodities Exchange, an entry-level floor where "mini" contracts were traded. To circumvent a rule requiring traders to be at least twenty-one years of age, he worked as his own runner, and hired his father, who traded in his stead in the pit.
Dennis earned a bachelor's degree in philosophy from DePaul University
, then accepted a scholarship for graduate study in philosophy at Tulane University
, but then changed his mind, and returned to trading. He borrowed $1,600 from his family, which after spending $1,200 on a seat at the Mid-American Exchage left him $400 in trading capital. In 1970, his trading increased this to $3,000, which he described as "compared to $400 ... a real grubstake", and in 1973 his capital was over $100,000. He made a profit of $500,000 trading soybeans in 1974, and by the end of that year was a millionaire, just short of twenty-six years of age.
Dennis profited, as he bought successively new weekly and monthly highs in the trending inflationary markets of the 1970s, an era of repeated crop failures and the "Great Russian Grain Robbery" of 1972, when agents of the Soviet Union
secretly purchased 30% of the U.S. wheat crop in the space of a few weeks. This set the stage for solid, sustained price trends in both directions for the next several years, a period in which "anyone with a simple trend-following method and a dart board could make a million dollars".
In contrast to the vast majority of floor trader
s, who quickly scalped trades throughout a trading day, Dennis held positions for longer periods—riding out short-term fluctuations and holding over the intermediate term. Dennis often pyramided his positions. In the late 1970s, he bought a full membership at the more expensive Chicago Board of Trade
and opened an office upstairs in order to trade more markets.
Dennis believed that successful trading could be taught. To settle a debate on that point with William Eckhardt
, a friend and fellow trader, Dennis recruited and trained 21 men and 2 women, in two groups, one from December 1983, and the other from December 1984. Dennis trained this, known as Turtles, for only two weeks about a simple trend-following
system, trading a range of commodities, currencies, and bond markets, buying when prices increased above their recent range, and selling when they fell below their recent range. They were taught to cut position size during losing periods and to pyramid aggressively—up to a third or a half of total exposure, although only 24% of total capital would be exposed at any one time. This type of trading system will generate losses in periods when the market is rangebound, often for months at a time, and profits during large market moves. Then, he gave each of them a million dollars of his own money to manage. When his experiment ended five years later, his Turtles reportedly had earned an aggregate profit of $175 million. The exact system taught to the Turtles by Dennis has been published in at least two books and can be back-tested to check its performance in recent years. The result of such back-test shows a drastic drop in performance after 1986, and even a flat performance from 1996 to 2009. However, a number of turtles (eg. Jerry Parker of Chesapeake Capital, Liz Cheval of EMC, Paul Rabar) began and continued careers as successful commodity trading managers, using techniques similar, but not identical, to the Turtle System.
Dennis managed pools of capital for others in the markets for a while, but withdrew from such management in the spring of 1988 after his clients suffered heavy losses. In the Black Monday
stock market crash of 1987, he reportedly lost $10 million, with a total of $50 million reportedly lost in 1987-88. In 1990 his firm settled investor complaints of his failure to follow his own rules, for over $2.5 million, without admitting or denying any wrongdoing. He also managed funds for some time in the mid and late 1990s, closing these operations after losses in the summer of 2000.
Dennis has published op-ed
articles in The New York Times, The Wall Street Journal, and the Chicago Tribune. He is the president of the Dennis Trading Group Inc. and the vice-chairman of C&D Commodities, a former chairman of the advisory board of the Drug Policy Alliance
, a member of the Board of Directors of the Cato Institute
, and on the Board of Trustees of the Reason Foundation
.
Democratic Party (United States)
The Democratic Party is one of two major contemporary political parties in the United States, along with the Republican Party. The party's socially liberal and progressive platform is largely considered center-left in the U.S. political spectrum. The party has the lengthiest record of continuous...
and Libertarian
Libertarian Party (United States)
The Libertarian Party is the third largest and fastest growing political party in the United States. The political platform of the Libertarian Party reflects its brand of libertarianism, favoring minimally regulated, laissez-faire markets, strong civil liberties, minimally regulated migration...
political causes, most notably in campaigns against drug prohibition.
Career
Richard Dennis became an order runner on the trading floor of the Chicago Mercantile ExchangeChicago Mercantile Exchange
The Chicago Mercantile Exchange is an American financial and commodity derivative exchange based in Chicago. The CME was founded in 1898 as the Chicago Butter and Egg Board. Originally, the exchange was a non-profit organization...
at age 17. A few years later, he began trading for his own account at the Mid-America Commodities Exchange, an entry-level floor where "mini" contracts were traded. To circumvent a rule requiring traders to be at least twenty-one years of age, he worked as his own runner, and hired his father, who traded in his stead in the pit.
Dennis earned a bachelor's degree in philosophy from DePaul University
DePaul University
DePaul University is a private institution of higher education and research in Chicago, Illinois. Founded by the Vincentians in 1898, the university takes its name from the 17th century French priest Saint Vincent de Paul...
, then accepted a scholarship for graduate study in philosophy at Tulane University
Tulane University
Tulane University is a private, nonsectarian research university located in New Orleans, Louisiana, United States...
, but then changed his mind, and returned to trading. He borrowed $1,600 from his family, which after spending $1,200 on a seat at the Mid-American Exchage left him $400 in trading capital. In 1970, his trading increased this to $3,000, which he described as "compared to $400 ... a real grubstake", and in 1973 his capital was over $100,000. He made a profit of $500,000 trading soybeans in 1974, and by the end of that year was a millionaire, just short of twenty-six years of age.
Dennis profited, as he bought successively new weekly and monthly highs in the trending inflationary markets of the 1970s, an era of repeated crop failures and the "Great Russian Grain Robbery" of 1972, when agents of the Soviet Union
Soviet Union
The Soviet Union , officially the Union of Soviet Socialist Republics , was a constitutionally socialist state that existed in Eurasia between 1922 and 1991....
secretly purchased 30% of the U.S. wheat crop in the space of a few weeks. This set the stage for solid, sustained price trends in both directions for the next several years, a period in which "anyone with a simple trend-following method and a dart board could make a million dollars".
In contrast to the vast majority of floor trader
Floor trader
A floor trader is a member of a stock or commodities exchange who trades on the floor of that exchange for his or her own account. The floor trader must abide by trading rules similar to those of the exchange specialists who trade on behalf of others. The term should not be confused with floor broker...
s, who quickly scalped trades throughout a trading day, Dennis held positions for longer periods—riding out short-term fluctuations and holding over the intermediate term. Dennis often pyramided his positions. In the late 1970s, he bought a full membership at the more expensive Chicago Board of Trade
Chicago Board of Trade
The Chicago Board of Trade , established in 1848, is the world's oldest futures and options exchange. More than 50 different options and futures contracts are traded by over 3,600 CBOT members through open outcry and eTrading. Volumes at the exchange in 2003 were a record breaking 454 million...
and opened an office upstairs in order to trade more markets.
Dennis believed that successful trading could be taught. To settle a debate on that point with William Eckhardt
William Eckhardt (trader)
William Eckhardt is a commodities and futures trader and fund manager. He began trading in 1974 after four years of doctoral research at the University of Chicago in mathematical logic.- Education :...
, a friend and fellow trader, Dennis recruited and trained 21 men and 2 women, in two groups, one from December 1983, and the other from December 1984. Dennis trained this, known as Turtles, for only two weeks about a simple trend-following
Trend following
Trend following is an investment strategy that tries to take advantage of long-term moves that seem to play out in various markets. The strategy aims to work on the market trend mechanism and take benefit from both sides of the market, enjoying the profits from the ups and downs of the stock or...
system, trading a range of commodities, currencies, and bond markets, buying when prices increased above their recent range, and selling when they fell below their recent range. They were taught to cut position size during losing periods and to pyramid aggressively—up to a third or a half of total exposure, although only 24% of total capital would be exposed at any one time. This type of trading system will generate losses in periods when the market is rangebound, often for months at a time, and profits during large market moves. Then, he gave each of them a million dollars of his own money to manage. When his experiment ended five years later, his Turtles reportedly had earned an aggregate profit of $175 million. The exact system taught to the Turtles by Dennis has been published in at least two books and can be back-tested to check its performance in recent years. The result of such back-test shows a drastic drop in performance after 1986, and even a flat performance from 1996 to 2009. However, a number of turtles (eg. Jerry Parker of Chesapeake Capital, Liz Cheval of EMC, Paul Rabar) began and continued careers as successful commodity trading managers, using techniques similar, but not identical, to the Turtle System.
Dennis managed pools of capital for others in the markets for a while, but withdrew from such management in the spring of 1988 after his clients suffered heavy losses. In the Black Monday
Black Monday (1987)
In finance, Black Monday refers to Monday October 19, 1987, when stock markets around the world crashed, shedding a huge value in a very short time. The crash began in Hong Kong and spread west to Europe, hitting the United States after other markets had already declined by a significant margin...
stock market crash of 1987, he reportedly lost $10 million, with a total of $50 million reportedly lost in 1987-88. In 1990 his firm settled investor complaints of his failure to follow his own rules, for over $2.5 million, without admitting or denying any wrongdoing. He also managed funds for some time in the mid and late 1990s, closing these operations after losses in the summer of 2000.
Dennis has published op-ed
Op-ed
An op-ed, abbreviated from opposite the editorial page , is a newspaper article that expresses the opinions of a named writer who is usually unaffiliated with the newspaper's editorial board...
articles in The New York Times, The Wall Street Journal, and the Chicago Tribune. He is the president of the Dennis Trading Group Inc. and the vice-chairman of C&D Commodities, a former chairman of the advisory board of the Drug Policy Alliance
Drug Policy Alliance
The Drug Policy Alliance is a New York City-based non-profit organization, led by executive director Ethan Nadelmann, with the principal goal of ending the American "War on Drugs"...
, a member of the Board of Directors of the Cato Institute
Cato Institute
The Cato Institute is a libertarian think tank headquartered in Washington, D.C. It was founded in 1977 by Edward H. Crane, who remains president and CEO, and Charles Koch, chairman of the board and chief executive officer of the conglomerate Koch Industries, Inc., the largest privately held...
, and on the Board of Trustees of the Reason Foundation
Reason Foundation
The Reason Foundation is an American nonprofit think tank founded in 1978 that also publishes Reason magazine. Based in Los Angeles, Reason is self-described as nonpartisan and publishes a statement of values that can best be described as libertarian...
.
Published works
External links
- Street Stories
- Businessweek Profile, Rich Dennis: A Gunslinger No More, June 4, 1997.
- Curated Alpha: Curated Interview With Richard Dennis From Market Wizards