The Systematic Investor Series is the weekly co-hosted format on Top Traders Unplugged where Niels Kaastrup-Larsen and a co-host take the pulse of global markets through a rules-based lens. Richard Brennan was a regular on the show, and Episode 205 from August 2022 is one of the cleaner articulations of the core Outlier Hunter thesis.
The conversation centres on sample size as a structural problem in trend following research. Because the returns of a diversified trend following portfolio are dominated by a small number of very large outlier trades, the statistical properties of those returns are fundamentally different from normally distributed data. Standard statistical tools, designed for stable, mean-reverting distributions, are not well-suited to evaluating strategies where the bulk of the value comes from rare, extreme events. A backtest that captures only one or two of those outlier cycles is not a representative sample in any statistically meaningful sense.
This connects directly to the Outlier Hunter framework: the reason trend following continues to work, despite being well-known, is that its returns are structurally non-Gaussian. The outliers that drive performance are not predictable in timing or magnitude. What a systematic trend follower can control is the breadth of exposure, the quality of risk management, and the discipline to stay in the process long enough for those outliers to arrive. Episode 205 makes that case with particular clarity, in a year when the evidence was very much in the market.
Related reading: Read: The Birth of Trends: The Counterintuitive Role of Noise
205 Systematic Investor Series ft. Richard Brennan – August 14th, 2022