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Gil Blake – The Master of Consistent Trading Strategies: Quotes and Insights

By
Oddmund Groette
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Gil Blake is an American investor and fund manager and is perhaps most famous for being interviewed in Jack Schwager’s New Market Wizards. By the time of the interview, Gil Blake had an amazing win rate of 134 months out of the last 139 months. Because of this, Schwager called Blake the Master of consistency.

This article looks at the trading career of Gil Blake, and we end the article by taking some of the most interesting quotes from Jack Schwager’s interview.

Gil Blake’s life and trading career

Gil Blake was born on July 14, 1945, in New York. He graduated from Cornell University and served three years as a naval officer on a nuclear submarine. He subsequently attended the Wharton Business School and graduated with the highest honors. Following business school, he worked at Price Waterhouse as an accountant for three years and nine years at Fab-field Optical as its Chief Financial Officer.

During all this time, he hadn’t thought about trading or even getting involved. Although he generally believed in the truth of the random walk theory, which he had learned in school — this theory implied that the market moves randomly.

But his life experienced a significant change when he walked into his friend’s office one day and was shown some evidence of non-random market behavior that he assumed was just pure chance. He went ahead and did his own research to prove his point. Instead, his results convinced him that there was indeed concrete proof that non-random behavior in the market exists that provided unbelievable profit opportunities. Following this, Gil Blake decided to become a trader — fifteen years after graduating from college.

He developed an investment strategy known as mutual fund market timing. Mutual fund timing involved improving the yield return on a bond fund or stock by switching into a money market fund whenever unfavorable market conditions present themselves – some kind of sector rotation.

That is, when stocks are in a bull market, he trades stocks and mutual funds, but when a bear market hits equities, he switches to trading money market funds.

However, Blake did not merely switch back and forth between a single mutual fund and a money market fund. But instead, he chose which sector in a group of sector funds provided the best opportunity on a given day.

He used technical analysis to generate signals for the optimum Daily Investment Strategy. Blake held his trade between one and four days. By following this strategy, he had been able to show consistent monthly gains even in months that the funds he invested in registered a significant loss.

In the U.S. Trading Championship, Blake came second in 1988 and won from 1989 to 1993.

His confidence was not misplaced: in the twelve years since Blake started trading, he averaged a net 45% annual return. The most remarkable thing about Blake’s performance is his consistency. He has never had a return below 20%. His worst performing year was in 1984, with a return shy of 24%. Even with that percentage, he made money all twelve months. Out of 139 months, he traded, an outstanding 134 (that’s 90%) months were either breakeven or profitable. His longest winning streak was 65 months (56 trades).

He charged his clients 25% of total annual profits. Blake also agreed to pay his client 25% of any loss and 100% of losses incurred in a new account during the first twelve months.

Other famous traders and their trading strategies

Gil Blake trading strategy quotes

Gil Blake’s interview is among the best of all in the series of Jack Schwager. Here are a few excerpts and quotes:

I’m not a big fan of diversification. If the odds are 70 percent in your favor and you make fifty trades, it’s very difficult to have a down year.

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The next step in my evolution as a trader began when that pattern started to go away – as most of these things eventually do.

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What I was confident in was the probability of winning after fifty trades per year.

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Opportunities change, strategies change, but people and psychology do not change. If trend-following systems don’t work as well, something else will.

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Why do traders lose? First of all, most traders don’t have a winning strategy. Second, even among those traders who do, many don’t follow their strategy.

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There are five basic steps to becoming a successful trader. First, focus on trading vehicles, strategies, and time horizons that suit your personality. Second, identify nonrandom price behavior, while recognizing that markets are random most of the time. Third, absolutely convince yourself that what you have found is statistically valid. Fourth, set up trading rules. Fifth, follow the rules. In a nutshell, it all comes down to: Do your own thing (independence); and do the right thing (discipline).

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My approach is to confront losses even before they materialize. I rehearse the process of losing. Whenever I take a position, I like to imagine what it would be like under the worst-case scenario. In doing so, I minimize the confusion if that situation actually develops. In my view, losses are a very important part of trading. When a loss happens, I believe in embracing it.

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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.

FAQ:

What trading strategy did Gil Blake develop, and how does mutual fund market timing work?

Gil Blake developed a strategy known as mutual fund market timing. It involves switching between a bond or stock fund and a money market fund based on market conditions. This sector rotation strategy selects the best opportunity from a group of sector funds using technical analysis for optimum daily investment.

How can traders improve their chances of success, according to Gil Blake’s perspective?

Gil Blake emphasizes focusing on trading vehicles, strategies, and time horizons that suit one’s personality. Identifying nonrandom price behavior, ensuring statistical validity, setting up trading rules, and disciplined rule-following are key steps. He highlights the importance of independence and discipline for success.

What is Gil Blake’s approach to losses, and why does he emphasize embracing them?

Gil Blake’s approach to losses involves confronting them even before they materialize. He rehearses the process of losing and embraces losses to minimize fear and confusion. He believes that losses are a crucial part of trading and that embracing them helps in adapting to increasing levels of risk over time.

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