Today on the podcast Michael Covel speaks with Tushar Chande. Chande is a trader, author, and the co-founder and head of research at Rho Asset Management in Switzerland. Chande has had a long and distinguished career in technical analysis; he brings a unique perspective on how to look at the markets as a trend following trader. Chande was born in India and began his career intending to become an engineer. He came to America and earned his Ph.D. in metallurgical engineering from the University of Illinois in 1984; however, when he came to the end of his Ph.D. studies he started look outside his chosen career path and found the world of finance. Chande's research skills as an engineer were easily transported to analyzing numbers in finance which gave him a leg up in his early trading days. Covel and Chande discuss Chande's other early influences, and chart the journey from his days as an engineering student to his accomplishments as a systematic trend following trader. Covel and Chande also talk about the analogy between sports and trading, how the best sportsmen rely on having a stable and predictable environment (unlike the markets); evaluating performance within the context of the market; discretionary trading v. systematic trading; learning through "trial and terror"; the Rho Trend Barometer and the ability to quantify the environment; the problem of indexes; the Sharpe ratio; the importance of market movement to trend following trading; "the black box disease"; trusting your system; cognitive biases; the benefit of the "black swan" and outlier events and why these events are so beneficial to a trend following system; and whether "one-hundred Ph.D.'s are better than one". Free trend following DVD: www.trendfollowing.com/win.
Michael Covel monologue.
In his book "Trend Commandments" Michael Covel included a "cheat sheet" for the reader. It opens up with this quote: "Golf is not safe. My grandfather died playing golf. Speaking up is not safe. People might be offended. Innovation is not safe. You'll fail; perhaps badly. Now that we've got that out of the way, what are you going to do about it? Hide? Crouch in a corner and work as hard as you can to fit in? That's not safe either. Might as well do something that matters instead." The cheat sheet focuses on core principles of trend following trading: profit in up and down markets; no more buy & hold, analysts or news; no prediction; the big money of letting profits run; risk management; a scientific approach to trading; strong historical performance during crisis periods; no traditional diversification; ride the horse that's winning; no government reliance; and taking advantage of mass psychology. In his last podcast before Christmas 2012 Covel gives a cheat sheet podcast of sorts too; he presents invaluable audio clips from his collection of great trend following traders. These legendary traders include William Eckhardt; Bill Dunn (talking about risk management from his perspective); and Jerry Parker (talking about the difference between mean reversion and trend following). Why is it hard to accept their principles outlined? They sound rational and reasonable, right? Covel also excerpts a speech from Elizabeth Cheval to explain her view of chronocentricity. Covel continues on with three clips from David Harding of Winton Capital Management and again asks the question, "Why don't we all go his way?" Unfortunately, much of the wisdom illustrated is not accepted or taught in mainstream education. Covel ends with a clip from author Seth Godin to help illustrate why current education models are dead ends. There is a way out, but waking up is a first step to financial freedom. Free DVD: www.trendfollowing.com/win.
Today's podcast is about the six inches between the ears: your mind, your ego, and the mental part of the game that is so important to being a successful trader, entrepreneur, or pretty much anything that doesn't involve working for the man. Michael Covel opens up by talking about a book by Brenda Ueland called "If You Want to Write". Specifically, it's a book about writing, how to write, and how to think about writing. However, Covel notes that you can take the word "writing" and insert anything and have it apply: trend following, basket weaving, running--it doesn't make a difference. That's the way the book was written, and that's what Michael Covel gets at in today's episode. Understanding the precepts that Covel talks about in today's episode are relevant to trend following trading, being an entrepreneur, having a good life, having good friends, or having a family. For those of you that might be "quant jocks", and might not think the emotional and psychology are as or more important than the numbers, Covel passes along an anecdote about legendary trend following trader Ed Seykota. It's the internal, the ego, the psychology, the emotions--all these pieces wrapped together are the foundation for all success. Covel goes on to read selections from a new e-book compilation from several different authors, and connects the dots. He covers fascination, gumption, focus, leaping, timeless, confidence, passion, poker, and adventure. It's not time to just count another year. It's time to plan an adventure--whether it's travel, becoming a trend following trader, or anything else that speaks to you. Regardless of whatever success you want to achieve, this is it. If you can get the mental side of the equation down, you're going to win. Free DVD: www.trendfollowing.com/win.
Michael Covel talks with trader and author Richard Weissman. Weissman is a professional trader with over 25 years of experience. His most recent book is "Trade Like a Casino: Find Your Edge, Manage Risk, and Win Like the House". Weissman considers himself a "swing trader", and he and Covel compare this approach to that of a trend following trader. Covel and Weissman have some contrasts in their techniques, including Weissman's use of fundamentals in his trading, and they work out their differences along the way. However, regardless of the name they give to their individual trading styles, Covel and Weissman have plenty of commonalities and they discuss some classic precepts that are important to the foundational philosophy of any good trader. The two explore Weissman's path from how he started trading with his father in 1987 to how he made his way to where he is today. Further topics include the background to Weissman naming his book "Trade Like a Casino", and how Casinos and the gaming industry are the models for successful speculative trading; the influence of Jack Schwager's work; risk management; positive expectancy; how Weissman defines trends and signs of strength; the idea of "don't anticipate, just participate"; positive expectancy and the probability skew; the connection between table limits and risk management; how there are no truly "safe investments"; some tools that Weissman has used to influence his own trading psychology and smooth out the emotional highs and lows; not letting a high price stop you from buying, and not letting a low price stop you from selling; Weissman's concept of "the opaque urn"; and the three things you can guarantee. Weissman and Covel also go over some of Weissman's great one-liners: "don't tug at green shoots" and "trade the market, not the money". Free DVD: www.trendfollowing.com/win.
Michael Covel talks with Tadas Viskanta. Viskanta is the founder and editor of the Abnormal Returns blog and a private investor with 20-plus years of experience. His first book, "Abnormal Returns: Winning Strategies from the Frontlines of the Investment Blogosphere", is out now. Viskanta calls his blog a "forecast free investment blog", and that sort of outlook certainly appeals to Covel and his trend following philosophy. Covel and Viskanta cover a wide range of topics, from investment philosophies and strategies to the challenges authors and bloggers face in the world today. Specifically, Covel and Viskanta discuss the disadvantage given to those who follow the constant data stream from the media; why Viskanta felt the need to write "Abnormal Returns", and the strategy and style behind it; the phrase "abnormal returns" and trying to measure returns over and above the risk taken; underperforming; preparing for abrupt change in the markets; Viskanta's move from value investing to a more systematic strategy--and Covel's early experiences with value investing material; now that so many global barriers are easy to cross, why so many people have "home bias" and difficulty placing global investments; why people still look at the markets with rose colored lenses and so easily forget the bubbles of the past; the behavior gap; why having a suboptimal strategy that you can follow in a systematic way is better than having no strategy at all; the ramifications of instant feedback in the blogosphere; and why you need a burning desire to be an author today. Yes, some territory is covered! Free DVD: www.trendfollowing.com/win.
Michael Covel talks to Jonathan Davis, one of the UK's leading writers on investing. Davis has written 3 books, is a regular writer for the Financial Times, and is the director for three investment companies. Covel and Davis talk about Davis' new book "Professional Investor Rules" which has a bit of a fundamental flavor to it. Hardcore trend followers need not get bent out of shape, however; Davis and Covel's conversation crosses strategy lines and gets to the heart of some important investing and economic topics. Davis has been following the markets for over thirty years, first as a journalist, and has had quite a history. He was fortunate enough to spend some time at MIT studying and writing a thesis about Warren Buffet, whom he met on several occasions. His new book looks into the lists of rules that professional investors had made for themselves over the years, both for education and entertainment purposes. Covel and Davis talk about what's going on in Europe, where the socioeconomics might be headed, how the history of Europe plays into the problem, and how Davis sees it playing out; the importance of performance data; how "the recent past is out to get you"; how volatility is not something the average investor instinctively understands; investing in Asian markets; the efficient market theory; the idea of "the hedgehog" (people who only really know one thing) and "the fox" (people who know many things, and are constantly looking for more) in the context of investing, and how the foxes can allow themselves to be adaptable and flexible to all sorts of market conditions over time. Davis also shares his take on David Harding of Winton Capital, and his view of Marc Faber.
The debate now is all about the fiscal cliff. You seemingly can't turn on the TV, the radio, or look on the web without it. When it comes down to it, the debate is really about money. It's quite crass and crude, the debate about money in America, because we've lost site about what money is and what it represents. It's become an inanimate object that we all desire, but they way it's discussed in popular culture, politics, and most everywhere you look, it's become a pejorative. Most people don't even want to think about it. Michael Covel discusses money and what it represents: It's the exchange mechanism amongst honest people. We use money to give each other our value. That's the way it works. So, in the spirit of this thought process, Covel reads an excerpt from "Atlas Shrugged". He notes that he was given this book to read as a homework assignment after meeting famed trend following trader Ed Seykota. We all know there are vastly different opinions on Rand. Some people love her and build upon her work as the foundation of their ethos, and others refer to it as a childish teenage dream. Regardless of your views on Rand, the excerpt Covel reads can be appreciated for its intelligence and wisdom about money. Free DVD: www.trendfollowing.com/win.
Michael Covel discusses a sketch he recently saw on gapingvoid.com depicting an office with a poster on the wall that says: "Fanatical: Kiss every hope of leading a normal life goodbye". Covel relates and wishes that he could impart this message upon people. If you listen to the words that Covel says, perhaps the enthusiasm that he brings can also bring you to see your life as fanatical. You've got to be fanatical, whether you're going to be an entrepreneur, or a trend following trader. You have to be focused, you have to be passionate, and you have to understand. You have to *want it*, otherwise you simply won't get there. Covel goes on to discuss a white paper by SEB Asset Management in Sweden. There's always ups and downs in trend following strategy. A strategy that makes a promise to make you money every month is a fraud. There will be periods of time while you follow a trend following strategy where you have drawdowns. It's just the way it works. But if you live to play another day, you can come up on top in the end. However, if you believe that the world has changed forever in such a way that there are no more business cycles, no severe banking crises, real estate crises, government bond crises, and corporate crises; that there will never be any large movements in the currency markets, no longer any social or military crises, and no major recovery from these crises--then trend following investments is unnecessary. Do you really expect there to be no future change? If we accept unpredictability, trend following is the best strategy to follow. Covel goes on to talk about the Fed, and whether we want the Dow to be elevated at the expense of our interest income. Covel continues on with the idea of information overload. How do you make decisions with it all? You can't. It's not a day trading rat-race. The most successful people in the world take a step back and look at the big picture. Simple makes money, simple finds freedom, and simple can be inspiring. The complexity is useless. Knowing every single data point does nothing for you in the long run. It's just a game of trivial pursuit. Also: Covel announces product specials for the month of December--a great long term trend following system.