Donchian: Forbes Circa 1982

An excerpt from Forbes circa 1982:

The fundamentalists — a decided majority among successful investors — look on chartism somewhat the way physicists look on parapsychology. They are probably correct to regard them so, but there is no rule that does not have an exception. Dick Donchian seems to be that exception. Donchian differs from many a chart watcher: He doesn’t predict price movements, he just follows them. His explanation for his success is simple and as old as the Dow Theory itself: “Trends persist.” He will buy a hog or Treasury bond future after an upswing is under way, and sell it only after the price has begun to tumble. He misses some of the profit, but that’s part of the discipline of his style of investing. “A lot of people say things like: ‘Gold has got to come down. It went up too fast.’ That’s why 85% of commodities investors lose money,” he says. Donchian gained that wisdom the hard way. His Futures Inc., the first publicly offered commodities fund, came out in 1948 at $10 a share. It was before its time — or Donchian’s. “When I started trading I was bearish,” he recalls. “Cocoa seemed too high. So we took a short position at 30 cents, and it went down to 19. We made a lot of money at first; that was the worst thing that could happen. I looked around for another commodity that was overvalued. Coffee was making a new high of 20 cents, so we took a short position, and it went up to $1. I made a rule never to be a price trader. There’s no such thing as too high a price or too low a price.” Futures Inc. went as low as 4 cents a share before finally being dissolved…The essence of trend-following, however, is always this: Buy on a rising price and sell on a falling price. That sounds like buying dear and selling cheap, but it works, if prices move not in random walks but in long strides.

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