It wasn’t only British philosophy that turned Dennis into a skeptic. Growing up in the late 1960s and early 1970s gave him an antiestablishment view of the world. He witnessed protesters being beaten by the Chicago police during the 1968 riots, right next to the venerable Chicago Board of Trade. It was a turning point in his life:
Trading has taught me not to take the conventional wisdom for granted. What money I made in trading is testimony to the fact that the majority is wrong a lot of the time. The vast majority is wrong even more of the time. I’ve learned that markets, which are often just mad crowds, are often irrational; when emotionally overwrought, they’re almost always wrong.8
After graduating from DePaul University he received a fellowship to Tulane University graduate school, but promptly dropped out and returned to Chicago within days to start trading full time. Dennis bought a seat on the MidAmerican Commodity Exchange with money borrowed from his parents (part of it from a life insurance policy in his name). He still needed cash to trade, however. His initial war chest of $100 came from his brother Tom’s earnings delivering pizzas.
This was not a family of market operators. Dennis was always honest about his father’s “hatred” of the market, explaining, “My grandfather had lost all his money in the stock market in the Depression. The urge to speculate kind of skipped a generation.” He knew his father’s perspective would never work for him:
You can’t have a standard attitude about money and do well in this business. What do I mean by that? Well, my father, for instance, worked for the city of Chicago for 30 years, and he once had a job shoveling coal. So, just imagine coming from his frame of reference, and thinking about losing $50 in a few seconds trading commodities. To him, that means another eight hours shoveling coal. That’s a standard attitude about money.9
It didn’t take long for his father to recognize Dennis’s unique abilities to make money. By the beginning of 1973, at twenty-four, Dennis had made $100,000. Around that time he cockily preached to the Chicago papers, “I just wanted to be able to get up and say, ‘I once made $100,000 a year, and I still think you are an ass.’ That rhetoric may not be wholesome motivation, but I do think it’s part of what drives me.”10 He was making so much money fast that whatever the context or content of an interview, it was outdated in weeks or even days.
A rebel at heart, Dennis cultivated being a character from the outset. He was fond of saying that he never liked the idea of sharing a birthday with Richard Nixon—a gentle stab at all those conservative traders surrounding him in the pits on LaSalle Street. He was an anti-establishment guy making a fortune leveraging the establishment, while wearing jeans.
Society was splintered during the time Dennis earned his first big money. Nineteen seventy-four was a difficult year in which to focus. What with G. Gordon Liddy having been found guilty of Watergate charges and the Symbionese Liberation Army kidnapping Patricia Hearst, it was a wild time of constant turmoil. To top it off, Richard Nixon became the first President of the United States to resign from office.
Current events did not stop Dennis from leveraging a 1974 run-up in the price of soybeans to a $500,000 profit. By the end of the year, at age twenty-five, he was a millionaire.11 Even though he downplayed his success, he couldn’t hide it. When he showed up late one day to the soybean pit explaining that his beat-up 1967 Chevy had broken down, other traders gave him flack, knowing full well he could afford a new car hundreds of times over.
Not only was his persona different, his trading was different. Dennis read Psychology Today (no government economic or crop reports for him) to keep his emotions in check and to remind him of how overrated intuition was in trading. He took delight in boasting, in contrast to most traders who got up early to read all they could from weather reports to daily Department of Agriculture assessments, that he stayed in bed until the last minute before getting to the exchange just as trading started.12
At one point during this time, Dennis was in the middle of an interview with a reporter as he went to the bank to make a deposit. He was depositing a $325,000 check (in 1976, that represented two to three weeks of work for him). Depositing an amount like that in the mid-1970s was not normal. Dennis always got hassled when he tried to deposit checks that size.13 He was oblivious to the fact that the teller was looking at a check that likely would exceed her total career earnings. Yet Dennis, probably younger than she was, couldn’t sign his name straight.14
As his notoriety continued to grow, national newspapers like the Chicago Tribune, the New York Times, and Barron’s trumpeted his youth and success. This was not standard operating procedure in a tight-lipped world where the big Chicago traders typically kept silent.
Dennis enjoyed and even reveled in his upbringing and the unique perspective it afforded him:
I grew up in an Irish-Catholic family on the South Side of Chicago. My institutional values were very strong, if somewhat confused. My holy trinity consisted of the Catholic Church, the Democratic Party, and the Chicago White Sox. I would describe my early value system as nourishing, if limited. When my father took me to Hurley’s Tavern, I saw people falling off their bar stools—about what you’d expect from people who called whiskey “Irish pop.”15
The Church, baseball, Democratic politics, and Irish drinking weren’t only an influence on his youth:
How much of my holy trinity informs me as an adult? In the White Sox I have a deep and abiding faith. In the Democratic Party I have shallow and fading faith, which is almost never rewarded. In the church, well … I fear 16 years of Catholic education left me a skeptic.16
Look at that 1976 New York Times photo of the then twenty-six-year-old multimillionaire, lounging on the couch with his dad seated to his left, seemingly oblivious to the photographer, and it is easy to see anti-establishment staring into the camera. The photo caption only reinforced Dennis’s differences: “He drives an old, inexpensive car, he dresses in cheap knits; his money tends to pile up, unused.”
However, all this press at such a young age left Dennis confronted by something he probably wasn’t expecting: people with their hands out, asking for money. “Most of them were very sad,” he recalled. “One person said, ‘Help me to learn how to trade. I’m in debt.’ Some people made it sound as if $5,000 or $10,000 were all they needed to make them happy. Those were the only letters worth answering—to explain that money won’t really make a difference.”17
Not many twenty-six-year-olds would have been mature enough to handle the press using such folksy wisdom. Yet Dennis never let the swirl around him interfere with what he was doing to make money. Quite simply, his trading technique was to trade seasonal spreads. In other words, he wanted to take advantage of seasonal patterns in markets like soybeans—his initial specialty. Dennis would hold “long” (bets to profit as the market increased) and “short” (bets to profit as the market decreased) positions in futures contracts simultaneously in the same or related futures markets.
The MidAm Exchange Experience
Once he had his MidAm seat (formerly called the Chicago Open Board), Dennis was off and running. Initially he had no clue what he was doing, but he was a fast learner who learned to think like a casino operator:
When I started out, I had a system called “having no idea whatsoever.” For four years, I was just taking edges. If someone was giving me a quarter cent edge to buy an Oat contract, I didn’t think he knew anything either. I just knew that I was getting a quarter cent edge, and at the end of the day, the edges would approximately equal my profit. Obviously, on an individual basis that doesn’t have to happen, but over a longer period of time, it will. I tried to be like the house in the casino. It wasn’t that novel. People at the Board of Trade had been doing it forever. But for the MidAm, it was kind of revolutionary because no one would understand that you could balance your risk with a lot of volume. That’s how I started.18
Dennis went from zero to sixty on the MidAm in record time, and no one knew how he learned to do what he was doing
. He knew that traders had a tendency to self-destruct. The battle with self was where he focused his energies: “I think it’s far more important to know what Freud thinks about death wishes than what Milton Friedman thinks about deficit spending.”19 Go down to Wall Street today after work with the hot-shot traders all earning $500,000 a year at the big banks and you’ll find very few who talk about Freud being the ticket to making millions.
However, trading was harder than Dennis let on. The early ups and downs took a toll on him, but he learned the hard lessons within months. “You have to have mentally gone through the process of failure,” he said. “I had a day during which I made every mistake known to modern man. I took too big risks. I panicked and sold at the bottom of every break. I had built my net worth up to about $4,000 coming into that day and I lost about $1,000 in two hours. It took me about three days to work through that experience emotionally, and I think it was the best thing that ever happened to me.”20
It was about this time, in 1972–73, that fellow traders Tom Willis and Robert Moss met Dennis. They would go on to work together for years as close friends and business associates, with Dennis as their leader. The star did not wear a polished Armani suit, nor did his buddies. They sported used-car-salesman jackets, with muttonchops and bad hair, but their appearance disguised calculated gamers looking to beat the pants off their peers every day of the week.
Willis, like Dennis, was brought up in a working-class family. His father, who worked first as a milkman and then delivering bread, helped him buy a seat on the MidAm for $1,000 at age twenty-one. Willis had never heard of the exchange until he saw an article in the Chicago Tribune with the headline “Altruistic Grain Trader Successful.” It was about 22 ½-year-old Richard Dennis.
Willis immediately identified with his peer’s anti-establishment way of viewing the world. Dennis was not afraid to say that he had voted for Eugene McCarthy and didn’t think that just because he had radical ideas he should be driving a cab. Years later, Dennis was even more direct, saying that “the market was a legal and moral way to make a living. Being a trader doesn’t oblige one to be a conservative.”21
Yet Dennis’s political stance was not what first caught Willis’s attention; it was his attitude about making money in a world where class and distinction were always barriers to entry. Without a second thought, Willis hopped in his Jeep and drove to the Fisher Building in the Chicago Loop to check out the exchange. When he arrived at the MidAm for the first time, his soon-to-be role model dominated the landscape: “Rich was in the pit. I knew him by the photo from the Tribune.”
Willis started trading with his MidAm seat, but had no immediate contact with Dennis even though they were the two youngest traders in the pit. Nearly everybody else was sixty-five to eighty years old, and they actually had chairs and spittoons in the trading pit. A young Dennis, towering above a sea of old guys lounging on chairs, must have been a sight.
Situated only a few blocks from the Chicago Board of Trade, the MidAm was a bit player at the time. It was small, perhaps fifteen hundred square feet. While Willis didn’t know how his start at the MidAm would unfold (he ended up building a thirty-plus-year trading career), he was certain Dennis saw a much bigger future.
Even then, big wigs from the Chicago Mercantile Exchange (CME) were coming over in their limos to pick young Dennis’s mind. Ultimately, Dennis approached Willis most likely because he was good enough not to go broke and because they were both about the same age.
Dennis told Willis, “If you’re buying wheat and it’s strong and the beans are too low and the wheat is five higher, why don’t you sell soybeans instead of selling the wheat you bought?” It was a very sophisticated insight. In fact, buying “strength” and selling “weakness” short still befuddles investors. It is counter-intuitive to buying low and selling high.
Dennis was already sharing his knowledge with other traders. He was a natural-born teacher. Dennis was teaching the young exchange members at either his or Willis’s apartment. Willis would buy two hundred pieces of chicken and a barrel of potato salad. There were fifty or sixty guys in his one-bedroom apartment with Dennis holding court, explaining how to trade.
There was a practical need for this. The MidAm was selling new memberships to all kinds of traders, many with no experience. Dennis and Willis were teaching “liquidity.” To give the market confidence in the viability of the MidAm exchange, there had to be a critical mass of buyers and sellers. This culture of education was creating a better exchange with better traders. And those better traders were starting to make money. It could all be traced to Dennis.
Craig and Gary Lacrosse, Ira Shyman, John Grace, Wayne Elliott, Robert Tallian, and David Ware are all Chicago traders who learned from Dennis. While they may not be household names, they became hugely successful in part because of the generosity of the young Dennis, who felt no compunction about sharing his skills with others.
After the apartment-training sessions everyone would go home, and they would meet the next day in the pits. During market hours they would ask Dennis, “Is this what you meant?” and he’d say, “Yeah.” Dennis freely gave away his knowledge.
The Chicago Board of Trade
Great experiences and profits aside, it wasn’t long before Dennis needed a bigger playing field than the minor-league MidAm. He was already plotting how to beat the big boys at the Chicago Board of Trade (CBOT), the world’s largest futures exchange. Once at the CBOT, his placid demeanor contrasted sharply with the hoarse shouts and wild gestures of other floor traders, many of whom were millionaire traders with decades of experience. He was soon beating them at their own game with a “betting” style that was often so relaxed that his trading cards would literally slip out of his hand onto the floor.
Dennis’s move to the CBOT was historic. Willis could hardly believe it: “Richard goes to the Board of Trade and knocks the cover off the ball. They’ve never seen anything like this. I mean this kid takes the whole pit off. Not because he can or not because he wants to show off, but corn is up, beans are up two and the corn is down three and they sell him a million bushels of soybeans up one and a half and the next thing you know they close up seven and they’re talking about him, ‘Who’s this new kid?’” Willis refrained from divulging the names of old-timers that Dennis was beating the pants off when he first hit the CBOT, since many of those losing traders are still around today.
One of Dennis’s students said that their teacher believed his physical attributes to be behind his pit-trading success: “You ever heard why he considered himself really successful? He is six feet something and the size of a freight train. He could see over people and more importantly, people could see him. People always knew that he was there. He honestly felt that’s why he was successful.”
Dennis’s attributing his height and weight as the reason he was successful is not the full story. There was more to becoming a millionaire by twenty-five than being “six foot something” and three hundred pounds plus. Even with excess weight, his peers described him as having cat-quick reflexes on the trading floor.
The Move from the Pit
Trading on the floor, down in the pit, might have been exciting during this era, but today the Chicago Board of Trade floor is silent. That doesn’t mean trading is dead today—far from it. Electronic trading outdated the old ways faster than anyone ever thought could happen.
However invigorating the trading floor may have been in the 1970s, the only way for Dennis to expand his trading success was to move away from it. The Chicago trading floors were designed with multiple pits and each pit traded a different market. To trade more than one market, he had to physically move back and forth across the floor to the various pits.
Dennis’s solution allowed him to remain faithful to buying in strength and selling in weakness. He knew that if his system worked in soybeans and corn, then it would also work in gold and stocks and all other markets.
At the same time, he saw Wall Street changing, with new markets
appearing fast and furiously as economies around the world opened and expanded. Fixed income futures were launched, and by 1975 the International Monetary Market (IMM) was allowing anyone to trade currencies the way they did stocks. Dennis knew what this would all mean.
To trade in that bigger world, Dennis moved into an office on the twenty-third floor of the CBOT, leaving the turmoil of screaming traders behind. Concurrent with his move, in November 1975, Dennis and Larry Carroll formed a partnership. Known simply by the first initial of their last names, C&D Commodities was born.
There is little public information on Larry Carroll (they did meet on the MidAm floor). And, although Dennis’s “D” came second, theirs was not a partnership where the decisions and profits were split fifty-fifty. Dennis was always the man. Within short order, C&D Commodities became one of the largest independent trading firms in the world. They quickly rivaled such established institutional investors as Salomon Brothers and the Pillsbury Company.22
However, other traders who had seen him dominate the pits were shocked when Dennis left the floor. They thought he was crazy. To compete against the likes of Pillsbury and Salomon Brothers was considered suicide, because no one thought he could maintain that floor “edge.” Dennis himself had always said the pit was the safest place to be.
The transition did almost sink Dennis. When he went off floor, he struggled. In the late 1970s, the markets were getting to him. Tom Willis saw the struggle and recalled, “He was a little disillusioned, a little off balance frankly.” Both men went out to a bar to discuss the situation. Dennis was not throwing in the towel. He looked at Willis and said, “Tom, I got stuff that’s so good that used off floor in the right hands it would make $50 million a year.”
The Complete TurtleTrader Page 3
