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The world’s greatest investors: John W Henry

John W Henry devised a mechanical trading system based around identifying and following price trends.

John W. Henry was born in Illinois in 1949 and attended Victor Valley College and the University of California. He studied philosophy, but dropped out in the 1970s and joined the family farming business. This led him to start trading commodities. In 1981 he set up John W. Henry & Company, a hedge fund, which eventually stopped managing money for external investors in 2012.

What is his strategy?

While he was on holiday in Norway in 1980, Henry devised a mechanical trading system based around identifying and following price trends. Before trading "live" (ie, using actual money), Henry conducted rigorous back testing (in other words, observing past data) to confirm that it could work. He believed that by removing the element of discretionary human judgement he could consistently generate profits and avoid some of the emotional mistakes that human traders make (such as taking profits too early and letting losses run).

Did this work?

His main fund was the Financials and Metals Portfolio, which started in October 1984. Between 1984 and the end of May 2006, $1,000 invest in the fund would have mushroomed to $129,101, for an average annual return of around 25%. While the returns for the final five years were much lower (which is why he eventually closed it), this still meant that it returned nearly 10% a year more than the stockmarket over the entire 28-year period. His current net worth is estimated to be $2.2bn.

What are his biggest successes?

Henry's trading programs were such that no one individual trade made his fortune. But his best year was in 1987, when his fund made a whopping 252.42%, including 105% in the last three months of the year alone. He admits that he was seriously tempted to retire afterwards, but remained involved in the markets. He also made a lot of money from buying a stake in the New York Yankees in 1992, which he would sell for a large profit in 2004.

What lessons are there for investors?

Henry's success demonstrates the power of "black-box" trend-following systems, though many of the most prominent have done badly over the past decade. Henry believes that there are six key elements to success in finance: "1. Realising that there is no Holy Grail' to trading. 2. Discipline is more important than genius. 3. Persistence is more important than talent. 4. Performance is more important than capability. 5. Ability to create value is more important than creativity. 6. You must constantly look for ways to create value."

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