For years, I have heard the name BLH mentioned as one of the major players in the futures markets, particularly T-bonds, the world’s largest futures market. I assumed BLH was a huge trading corporation, but in seeking out the country’s best traders, I discovered that BLH was basically a single individual: Gary Bielfeldt.
Who is Gary Bielfeldt? Where did he get the capital to rival the primary Wall Street institutions as a major force in the T-bond futures market? Bielfeldt began his trading career twenty-five years ago, with a mere $1,000 investment. At first, his capital was so limited he confined himself to trading a single corn contract—one of the smallest futures contracts at a time of relative stagnation in agricultural prices. From this extremely modest start, Bielfeldt eventually built his account up to staggering proportions.
How did he do it? Bielfeldt does not believe in diversification. His trading philosophy is that you pick one area and become expert at it. For much of his trading career, the soybean complex and, to a more minor extent, the related grain markets provided that focal point of attention.
Although Bielfeldt had the desire to become a full-time trader from the beginning, his tiny capital base restricted his trading to a part-time endeavor. In those early years, he earned his living running a small brokerage office. The problem he faced was how he, a trader without any independent funds, could develop a sufficient capital base to become a professional trader. Bielfeldt’s strong desire to make this leap in his capital base prompted him to take a large, if not imprudent, risk.
By 1965, Bielfeldt had painstakingly built up his initial $1,000 stake to $10,000. Based on his fundamental evaluation of the soybean market, as well as the concurring opinion by his former agricultural economics professor, Thomas Hieronymus, Bielfeldt strongly believed that prices would go higher. In an all-or-nothing play, he bought twenty soybean contracts, an extremely high-leverage position given his $10,000 account size. A mere 10-cent price decline would have completely wiped out his account, while a considerably smaller decline would have been sufficient to generate a forced-liquidation margin call. Initially, prices did move lower, and Bielfeldt came perilously close to that damaging margin call. But he held on, and prices eventually reversed to the upside. By the time he liquidated the position, he had more than doubled his equity on that single trade. That trade launched Bielfeldt toward his much sought after goal of becoming a full-time trader.
Bielfeldt built his account with unerring consistency. By the early 1980s, Bielfeldt’s trading size had grown to the point that government-established speculative position limits in the soybean and grain markets were becoming an impediment. This factor, aided by a particularly bad trade in the soybean market in 1983, prompted Bielfeldt to shift his focus to the T-bond futures market, which at the time had no position limit. (Although a position limit was eventually implemented in the T-bond market, the 10,000 contract limit dwarfed the 600-contract limit in soybeans.)
The 1983 soybean loss may have been the best thing that ever happened to Bielfeldt. His shift to T-bonds coincided with an evolving major bottom in that market. He became very bullish and built up a huge long T-bond position at the right time. When the T-bond market exploded during the mid-1984 to early 1986 period, Bielfeldt was perfectly positioned to garner huge profits. His ability to stay with a major position for a long-term move allowed him to leverage his well-timed trade to a much greater degree than would have been achieved by most professional traders with the same initial position. This long T-bond position was Bielfeldt’s best trade ever and catapulted him into a new echelon. That, in short, is the story of how a one-lot corn trader became a T-bond futures trader in the same league as the most prominent institutional market participants.
Bielfeldt could not be further removed from the popular image of a large-scale trader in the highly leveraged sphere of futures trading. One would hardly expect to find one of the world’s largest bond traders in Peoria. Bielfeldt’s attachment to his home town is so strong that he refused to consider becoming a trader on the floor of the Chicago Board of Trade because it would have meant giving up his cherished lifestyle. He is the epitome of the small town model American citizen: honest, hard working, devoted to family and community. One of Bielfeldt’s major goals has been to plow back a portion of his trading-derived wealth into projects benefiting his home town.
I interviewed Bielfeldt in his large, comfortably furnished office. The huge, wraparound desk configuration was flanked by ten quote screens. Despite this vast array of electronics, Bielfeldt was low keyed. He rarely glanced at the screens during the afternoon I spent in his office, and it is hard to visualize him trading frantically at any time, the vast array of quote machines notwithstanding.
Bielfeldt is a soft-spoken man of few words. He is also a very modest man who consistently hesitated talking about his achievements, lest it sound like bragging. His very conservative nature led him to avoid even seemingly innocuous subjects. For example, at one point in discussing the reasons for his net trading losses in a given year, he asked me to turn off my tape recorder. I could hardly imagine what he might say that necessitated this precautionary measure. The off-the-record comments proved far from shocking. It turned out that his trading losses in that year were influenced by an overextension into other commitments, including his membership on the Chicago Board of Trade Board of Directors, a position which required frequent travel to Chicago. Apparently, he was reluctant to be quoted because he did not want to make it seem that he was blaming his other responsibilities—which he deemed part of his natural obligations—for his trading losses.
The combination of Bielfeldt’s laconic nature, modesty, and conservatism made this a very difficult interview. In fact, this was the only interview I conducted in which the average length of the questions was longer than the average length of the responses. I considered deleting the interview from the book—a tempting choice since I had an excess of material. However, I found Bielfeldt’s story so compelling and his character so strong that I was reluctant to take the easy way out. As a compromise, I weighted this chapter to the narrative side and limited the interview section to a few excerpts.
What is your basic approach in analyzing and trading the markets?
I always try to lean primarily on fundamental analysis. However, since I found it was very difficult to know all the fundamentals—usually you are doing pretty well if you have 80 percent of the pieces—I thought it was important to have something to fall back on in case my fundamental analysis was wrong.
I assume you are referring to technical analysis as a supplement.
Right. I developed my own trend-following system.
Do you trade this system in any consistent way?
I use the system primarily as a backup to tell me when to get out of a position.
Can you think of an example?
At the start of 1988,1 was long the bond market primarily because I was expecting a weaker economy. Everything seemed to be on target until early March when the bond market started edging down. At some point, you have to say you are wrong. In this case, my system provided me with the rationale for getting out of my losing position.
What went wrong with that trade?
Basically, the economy was a lot stronger than I had anticipated. I thought that there would be a bigger fear factor left over from the October 1987 stock market crash than actually materialized.
What is your opinion of trend-following systems?
The best thing anyone can do when starting out is to learn how a trend system works. Trading a trend system for a while will teach a new trader the principle of letting profits run and cutting losses short. If you can just learn discipline by using a trend-following system, even temporarily, it will increase your odds of being successful as a trader.
Do you have an opinion about systems sold to the public?
I looked at some of these systems a few years ago and found that they generally made too many trades. If a system trades too frequently, the transaction costs will be too high, a factor that will significantly reduce the probability of the system working. I think to be viable, a trend-following system has to be medium to longer term. The more sensitive systems just generate too much commission.
Besides providing a training vehicle for learning good trading habits, do you feel that trend-following systems can provide an effective trading approach?
I would advise anyone who develops a system to combine it with their own judgment. In other words, they should trade half the money on a system and the other half using their own judgment, just in case the system isn’t working.
Is that the way you trade?
I used to pay more attention to systems than I do now. Basically, I just focus on my own judgment.
Is that because your own judgment is more reliable, or because systems haven’t been working as well as they used to?
They haven’t worked as well as they used to because there are too many people using them. Whenever too many people are doing the same thing, the market will go through a period of adjustment.
What are the key factors you focus on in fundamentally evaluating the T-bond market?
The economy is definitely the single most important factor. Four other important elements are inflation expectations, the dollar, the trade balance, and the budget deficit.
You have been trading for over twenty-five years—a much longer time period than most other traders. Is there any single trade that stands out as the most dramatic?
There are quite a few trades that would qualify as dramatic, but the one that stands out most prominently was my attempt to pick the bottom of the bond market in 1983 and 1984.
When did you start trying to buy the bonds?
I started trying to pick a bottom when the bonds were trading in the 63-66 area.
How much risk did you allow when putting on a trade?
Generally anywhere from \ to га points. [One point in T-bond futures is equal to 32 ticks. A 1-point move is equal to $1,000 per contract.]
So if you tried to pick a spot that looked good and it didn’t work, you would bail out and try again at another spot?
Since bonds eventually declined into the 50s, I guess you must have had a few strikes against you before you finally went long in the right place.
Yes, there were several losses over a period of time.
Do you remember when you finally got positioned at a point where you didn’t have to get out?
I turned really bullish in May 1984, when they auctioned off five-year notes at a 13.93 yield. I had been involved in banking since 1974, and at the time, we couldn’t find any qualified borrowers for three-year loans at 13 percent. Yet here were government five-year notes selling at nearly a full percentage point above that level. Moreover, this was at a time when we were at the height of a recession in Peoria: Unemployment was approaching 20 percent and the farm crisis was worsening. I felt that interest rates had probably gone high enough. From that point on through April 1986,1 traded T-bonds heavily from the long side. There is no question that that was my best trade and longest trend ever.
What are the elements of good trading?
The most important thing is to have a method for staying with your winners and getting rid of your losers.
What do you do to make sure that you stay with a winning position to exploit the longer-term trend? How do you avoid the temptation of taking profits prematurely?
The best way I know to learn discipline and patience is to think through a trade thoroughly before putting it on. You need to develop a plan of your strategies for various contingencies. That way, you won’t get swayed by every news item that hits the market and causes prices to move up or down. Also, it helps greatly to have a long-term objective that you have derived by really doing your homework. You combine that long-term objective with a protective stop that you move as the position goes your way. Alternatively, you could use a trend-following system to signal when you should get out of the trade. By having thought out your objective and having a strategy for getting out in case the market trend changes, you greatly increase the potential for staying in your winning positions.
Why do most traders lose?
They overtrade, which means that they have to be right a lot just to cover commissions.
What are the traits of a successful trader?
The most important is discipline—I am sure everyone tells you that. Second, you have to have patience; if you have a good trade on, you have to be able to stay with it. Third, you need courage to go into the market, and courage comes from adequate capitalization. Fourth, you must have a willingness to lose; that is also related to adequate capitalization. Fifth, you need a strong desire to win.
Those elements seem fairly straightforward, except for the willingness to lose. Can you expound on that?
You should have the attitude that if a trade loses, you can handle it without any problem and come back to do the next trade. You can’t let a losing trade get to you emotionally.
Can you talk more about what you mean by courage?
If a 260-pound fullback is running through the line and a 175-pound linebacker has to stop him, he has to have the courage to go into him. You need that kind of courage to be able to participate in the markets. If everyone is bullish the dollar, and the yen is sharply lower, it takes courage to fade that major consensus and buy the yen.
How do you judge success?
Most people will judge success by how well they do in their field. A teacher would judge success by how well the students do and how they go through life. A trader would probably judge success by whether he wins or loses in the market.
Speaking personally, how do you judge success’.
I judge success by what I do with the money I accumulate. One of the things that my wife and I have done is to establish a foundation so that we could share some of our success with the community by supporting various programs.
Is this foundation one that you just fund, or do you have a hands-on relationship in running it?
My family and I are directly involved in evaluating different projects and deciding which ones to fund.
When did you set up this foundation?
In 1985. But I had thought about the idea as far back as the early 1970s. I had always planned that if I were to become successful, I would set up a foundation to help the community.
Do you think this long-term goal was an important motivation leading to your success as a trader?
Yes, I think it helped.
What advice do you have for the beginning trader?
When you are starting out, it is very important not to get too far behind because it is very difficult to fight back. Most traders have a tendency to take risks that are too large at the beginning. They tend not to be selective enough about when they take risks.
At this point, Bielfeldt asked me to turn off the tape recorder. He talked about the relevance and application of poker strategy to trading. His reason for keeping the comments off-the-record was that he didn’t want to contribute to the image of trading as a form of gambling. I found his analogy particularly apropos and finally persuaded him to put it on the record.
Could you explain your analogy between trading and poker?
I learned how to play poker at a very young age. My father taught me the concept of playing the percentage hands. You don’t just play every hand and stay through every card, because if you do, you will have a much higher probability of losing. You should play the good hands, and drop out of the poor hands, forfeiting the ante. When more of the cards are on the table and you have a very strong hand—in other words, when you feel the percentages are skewed in your favor—you raise and play that hand to the hilt.
If you apply the same principles of poker strategy to trading, it increases your odds of winning significantly. I have always tried to keep the concept of patience in mind by waiting for the right trade, just like you wait for the percentage hand in poker. If a trade doesn’t look right, you get out and take a small loss; it’s precisely equivalent to forfeiting the ante by dropping out of a poor hand in poker. On the other hand, when the percentages seem to be strongly in your favor, you should be aggressive and really try to leverage the trade similar to the way you raise on the good hands in poker.
Bielfeldt’s story provides an inspiring example of what is attainable given patience on the one hand and an aggressive trading style on the other. Here is an individual who, starting with a minuscule amount of money, working independently, and without benefit of staff or elaborate technology, became one of the world’s most successful traders. Moreover, because of his long-term goals and actions, his ultimate success positively impacted an entire community.
The portion of Gary Bielfeldt’s interview that I found most insightful was his analogy between poker and trading. It is also interesting to compare Bielfeldt’s key point in this analogy to the similar advice offered by James Rogers: Have the patience to wait for the right trade to come along.