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.
Michael Covel talks with Barry Ritholtz, an author ("Bailout Nation"), newspaper columnist, blogger (www.ritholtz.com), equities analyst, television commentator, and CEO of Fusion IQ. Ritholtz is deep down a quant guy, but brings strong views and opinions. However, he won't sit around and "fight the tape". Covel and Ritholtz talk about the price of paying attention and why you should be selective in what you watch, read, and listen to; the onslaught of political information; the insatiable need to consume information and knowing when it's the right time to quarantine yourself from being influenced by someone in particular; Ritholtz's views on gold, why attaching your emotional well-being to it is wrong, and how it won't be quite as valuable as most people think in the event of a crisis; cutting your losses short and letting your winners run; the real value of intuition; how Ritholtz views the world and where we're at right now, societal and economic cycles, and how you can't be a doom and gloomer seeing what's coming down the pipeline in the next generation; and the importance of not being cash rich and time poor, getting "lost in the screens", and leading a good life instead of always chasing money for its own sake. Ritholtz brings a fun and engaging edge to the podcast. He also appeared in Covel's documentary film "Broke". Ignore his wisdom at your financial peril. Free DVD: www.trendfollowing.com/win.
Michael Covel talks about the incessant search for the "new new thing". He quotes author and blogger Seth Godin and his article, "The Decline of Fascination and the Rise in Ennui". Covel notes how the only constant in life and trading is change. Uncertainty is the root of trend following and if you have a philosophy that's grounded in change, you'll have a strategy that responds well to the world of ebbs and flows. You'll have a strategy that won't leave you blindly sitting there and will let you participate when a market either goes up or down. It won't leave you at the mercy of the latest "new new thing". So, which strategy can make you money in unending change? Trend following is a fantastic option. Covel goes on to quote Michael Mauboussin and notes the importance of process vs. outcome and the tricky subject of luck: "If you compete in a field where luck plays a role, you should focus more on the process of how you make the decisions and rely less on the short term outcomes. The reason is that luck breaks the direct link between skill and results. You can be skillful and have a poor outcome, or unskillful and have a good outcome." Covel discusses the criticism of people that expect positive trend following performance every month. Look in the books, look at the charts--trend following is a long term strategy. As Covel has said in the past any strategy that gives you a steady 1% a month is probably Bernie Madoff or Long Term Capital Management (i.e. soon to be exposed or busted). Covel goes on to quote an article by PFP Wealth Management regarding the essence of trend following. Covel also uses the classic Pixies song, "Debaser" and notes that it has about as much to do with your trading as turning on CNBC or Bloomberg. Think about it. Free DVD: www.trendfollowing.com/win.
"Mr. Serenity" Tom Basso, the trend following trader famously featured in Jack Schwager's "New Market Wizards", returns to the show to speak with Michael Covel. This time, the focus is on questions posed by listeners. Basso and Covel go over the questions and talk about subjects such as the video of philosopher Alan Watts that Covel discussed on a recent podcast that asked, "what if money was no object?"; how Basso manages his emotions during both losing and winning periods; what drove Basso to "enjoy the ride" and whether there were periods in his life when it was difficult to do so; exit strategies on winning positions; Basso's use of hedges; the process behind taking a developed system from testing to live trading; what Basso learned from his earliest large drawdown; Basso's use of money management and risk control; Basso's advice to the first time programmer; how to handle skeptics of trend following; whether Basso considered the notion of serenity from the very beginning of his career; the career of John W. Henry; Basso's coin flip entry method, and the importance of exit strategies; percent betting; diversification; what would cause Basso to stop trading a particular system; comfort with uncertainty; Basso's views on initial capital at risk vs. unrealized gains; and fighting against your gut reaction when your system tells you otherwise. Basso brings a wealth of knowledge in answering these listener questions, so hop on and (as Basso says) "enjoy the ride".
Note: This original #83 episode has to been updated to include all Basso interviews so far. 4 hours plus!
As America approaches Thanksgiving this week Michael Covel is feeling reflective. He plays a speech by author and philosopher Alan Watts asking, "What would you do with your life if money was no object?" Covel shows you how you can make money, but asks: What will you do with it once you have it? It's about freedom, it's about finding options. It's not just about protecting it once you have it. So once you have the money you need what are you going to do with it? Covel goes on to discuss the importance of making something of yourself; of not sitting there and completing the dry obligations of the day. You need a shake-up in your life. It's time to find something different. Next, Covel plays a talk by author and blogger Seth Godin. Covel riffs off Godin's Q&A session noting the importance of finding something you truly feel passionate about, but knowing that it might not necessarily mean you'll be the next Apple. The important thing is to start now; don't wait until you finally realize the industrial revolution is over. You don't have to have a plan--just put yourself into motion. That's what Covel did: Start with your passion, and figure out how to pay the bills around that. Whether it's investing, building a business, entrepreneurship, or anything else (like trend following). Godin is great at explaining that accepted systems are dead. You have to create and use your own microphone to get your message out. Covel also discusses resistance, being able to survive to play the next hand, the importance of bet size, and diversity in your betting. Don't become emotionally invested in one idea; you might have to adjust within the place that you love. Next, Covel talks about a recent experience he had with government bureaucracy with regard to an international deal and how his experience might hint at future ills. Free DVD offer: www.trendfollowing.com/win.
Michael Covel analyzes a recent interview from famed trader Hugh Hendry of Eclectica Asset Management given at the Buttonwood Gathering held by The Economist. Hendry is not a trend following trader--at least publicly--and Covel gives some insight on how some very important trend following ideas have made their way into Hendry's work. Unlike Covel's comment on David Harding's interview from several weeks ago, this analysis is not about the skewed media perception of trend following, but rather how big name traders like Hendry use trend following philosophies in their trading, even if they would deny the label. Stick with it as Hendry talks about some of his fundamental views, because the trend following principles sneak up on you later in the interview. A narrative and a story is important in trying to sell yourself, and some of Hendry's thoughts belie the fundamental perspective on trading he presents to the public; Covel helps to read between the lines and see the underlying trend following thread inherent in Hendry's work. Covel comments as Hendry gives his thoughts on central bank manipulation and the consequences of those actions; how Hendry doesn't want to hear from the ridiculous analysts that can't help you in buying, selling, allocating to assorted markets in your portfolio, having a bet size strategy, and having a risk management strategy; how he made 50% in October of 2008 (and how this leads Covel to believe some trend following strategies might have been employed); and how Hendry is a student of uncertainty.
Michael Covel speaks with Robert Greene, the bestselling author of the classic book, "The 48 Laws of Power", in addition to other bestsellers such as "The Art of Seduction", "The 33 Strategies of War", and "The 50th Law" with musician and entrepreneur 50 Cent. His new book, "Mastery" is out. Covel and Greene came together through their mutual friend Ryan Holiday (author of "Trust Me, I'm Lying"), a past guest on Covel's podcast and a former apprentice of Greene. Covel talks to Greene about the influence "The 48 Laws of Power" had on Covel's own writing; using the 48 Laws as a defense strategy rather than as a cutthroat offense; some of Greene's early influences that led him into his writing career; using Zen Buddhism and meditation as a tool to gain perspective and focus; the importance of using your unique life experiences in your career to create an irreplaceable style; and embracing opportunity. When "The 48 Laws of Power" unexpectedly pushed a button in the hip-hop community, Greene and musician 50 Cent began a collaboration that eventually became "The 50th Law". Covel and Greene discuss the stories surrounding their collaboration, why 50 Cent should be taken seriously as an entrepreneur, and how he embodies the paradigm found within Greene's new book, "Mastery". On the subject of "Mastery", Covel and Greene discuss how Greene mined the biographies of both contemporary masters and masters throughout history to discover how these people reached new levels and developed a different kind of intelligence. These people are highly creative, can connect ideas in a way that no one else can, and have become masters in their own respective fields. Greene made the startling discovery that genius, talent, luck, and intelligence did not lead his subjects to this power. Rather, they went through a process: They went through apprenticeships, mentored with the right people, knew how to observe what was happening around them, absorbed all of the rules of their field, developed skills, and had many failures. They aren't superhuman. They went through a process that Greene discusses in extremely clear terms in his new book. Greene makes the case that given the competition in today's world, becoming a master in your field is the only way to achieve true success. Special offer DVD: www.trendfollowing.com/win.
Michael Covel starts with "It Was a Very Good Year" by Frank Sinatra because what's more useful as a human being? Is it more useful to get all geared up about elections, or to listen to a Frank Sinatra sing a nice walk through life. A pleasant, easygoing way. Of course, the pleasant easygoing way is better. Covel discusses what the election means for both sides, even if he doesn't seem to care one way or the other: On the conservative side, if you keep running social issue candidates, you'll never win an election again. To the liberals, if you think the government can give you economic freedom, you'll never have economic freedom. So, where is Covel going with this? He goes the Frank Sinatra way, the go-with-the-flow way. Every couple of years, someone says "trend following is dead". Usually it's right at the time trend followers have a drawdown. The idea is to have your wins far outweigh your losses. You'll have volatility in your returns. Life is volatile and you can't predict what's going to happen. You can only make your bets, have stop losses in the market, and say "I'm going to get out if I lose this amount of money". Covel quotes Jason Gerlach of Sunrise Capital (a firm with a 30 year track record of success) as a response to those that say "trend following is dead": "Trend following is no more dead than the sport of sailing or the act of kite flying would be considered dead if, for a period of time, the wind didn't blow. Like a sailboat, or a kite, a trend following trading model is designed to capture the power of environmental forces. When the requisite environmental forces don't occur for stretches of time, activities that depend on those environmental forces are not going to be successful. Once the winds started blowing again, sailboats will sail, and kites will again fly. The same holds true for trend following. Just as the wind will always return to blow in the future, the forces that drive price trends: greed, fear, euphoria, panic, will return at some point, and when they do, trend following trading models will make a great deal of money." Covel again notes AQR's paper discussing trend following's positive returns dating back to 1903 as evidence of this. Yes, there's a chance wind will never return, but do you want to bet everything on that?
Michael Covel talks about his upcoming trip to Asia (with a special song intro for Korea). His plans include a speech in Tokyo, time spent in Singapore, Bali, Penang, KL Thailand, with various speaking events throughout. Covel's Asian odyssey is sure to be documented in the podcast. Covel also thanks the listeners for the success of the podcast. People feel stuck, and Covel talks about Stephen Cope's "The Great Work of Your Life: The Guide to the Journey of Your True Calling". Most Americans don't want to be on the endless treadmill, and maybe trend following is a way to get the freedom that you need in order to find your calling. Next, Covel discusses a quote from Bob Prechter, of Elliott Wave fame. Covel doesn't think that predictive techniques work, but Prechter had a fantastic piece of writing that Covel shares that analyzes some of the Fed actions in the past compared to what they're doing now. Covel contemplates what this might mean, and how it shows the Fed might be in a panic. But what does this mean to a trend following trader? Very simply, it's just another reason to employ a trend following strategy. If the Fed has dampened speculation in the past by raising interest rates to pop a bubble, and today you've got markets right back at the all-time highs but rates are still at 0%--what might this mean? If this scenario is accurate, what strategy do you employ? You can either trust the system, or you can put in place a strategy that only places trust in price action. Look at what Prechter says to inspire you to become a trend following trader. So how do you adjust? Covel goes on to discuss how to get "unstuck" quoting author Seth Godin: "Starting without seeing the end is difficult, so we often wait until we see the end." Next, a quote from Atul Gawande that talks about knowing your fallibility, and the importance of practice and nurture (in trend following). Covel also discusses an upcoming massive searchable .PDF file that he's putting together featuring 15 years of research containing background documents, systems, and other research materials. Covel's special offer new DVD: www.trendfollowing.com/win.
Michael Covel talks with Michael Mauboussin. Mauboussin is an author ("More Than You Know", "Think Twice: Harnessing the Power of Counterintuition"), investment strategist in the financial services industry, professor at the Columbia Graduate School of Business, and serves on the board of trustees at the Santa Fe Institute (an independent, nonprofit theoretical research institute). Mauboussin joins Covel to discuss his new book, "The Success Equation: The Success Equation: Untangling Skill and Luck in Business, Sports, and Investing". Covel and Mauboussin discuss luck and skill, how they cross over and play off each other, and how both of those factors have played a part in both Covel and Mauboussin's careers. Even though their strategies may differ, the foundational elements in Mauboussin's work applies to Covel's trend following world perfectly. Covel and Mauboussin also discuss how Mauboussin came to start working on "The Success Equation"; how losing on purpose can define skill; how sports can provide great examples of what Mauboussin contends regarding skill and luck; the human desire and emotional need to tell stories, and how that plays into peoples' difficulty untangling skill and luck; Stephen Jay Gould's notion of the .400 hitter in baseball and the paradox of skill; physical limits and improvement in skill over time; sample size issues; process vs. outcome; what to do when you're the underdog and how complicating the situation can help when you're in that position; improving your guesswork on where you are in the luck-skill continuum; persistence and predictive value; and building skill. A must read new book! Special offer new DVD: www.trendfollowing.com/win.
Famed writer and trader Jack Schwager returns to the podcast to speak with Michael Covel about his new book, "Market Sense and Nonsense: How the Markets Really Work (and How They Don't)", which is released today. For those that have had a pulse in the investment world in the last twenty or so years, you've surely crossed paths with Schwager's earlier works--especially the "Market Wizards" series. "Market Sense and Nonsense" aims to reveal why so many "tried and true" investment models and ideas might be flat out wrong. Schwager approaches these assumptions and beliefs about the market from the ground up and investigates which ideas hold up and which crumble under the pressure of closer scrutiny. Covel and Schwager discuss how Schwager was able to make "Market Sense and Nonsense" accessible to both professionals and laymen and touch on some of the subjects contained within: market fallacies and misconceptions; the idea of cable news "experts", and what would happen if you actually followed all of the picks made by people like Jim Cramer and other talking heads; comparing performance streams against each other, and why you have to consider more than just the number; volatility vs. risk; if coming to a good risk adjusted return is based more on a scientific approach or personal preference; leveraged ETFs; the fear of hedge funds; the idea of leverage and why much of "Market Sense and Nonsense" was built around trying to understand it; and why fund-to-fund managers putting a large group of trend following traders together in one portfolio might not be a wise move. Covel and Schwager also touch upon the presidential election and discuss why whoever is selected to be the next president might not make much of a difference in the markets. Special free DVD offer: www.trendfollowing.com/win.
Michael Covel comments on four CNBC interview clips from legendary trend following trader David Harding of Winton Capital. Covel goes through the interviews with Erin Burnett, then of CNBC, Joe Kernen, and Fast Money. Covel comments as the anchors ask question after question that show they don't yet understand the basic concepts behind Harding's success. They beg for stock tips, ask predictive political questions, idiotically compare Harding's approach to Long Term Capital Management, and otherwise not get the big idea. Covel's analysis shows that reading teleprompters doesn't necessarily imply one has insight. It's an educational analysis to see how David Harding thinks and talks about trend following trading and to watch how the media system doesn't get it. Those lessons alone are worth the price in gold.
How is trend following a bit like the Billy Idol song, "Dancing With Myself"? Michael Covel explains the importance of maintaining an independent spirit, feeling comfortable standing alone and outside the crowd and being your own self. Covel contrasts this to the famous scene in "American Psycho" where a group of executives compare the card stock and fancy presentation of their business cards trying to impress one another. That's the complete opposite of what "Dancing With Myself" gets at. Worry about yourself, not the crowd. Covel then quotes hedge fund manager Hugh Hendry. Hendry holds himself out in public as coming from a fundamental perspective, even though his hero is trend trader Bruce Kovner, who was trained by Michael Marcus, who was trained by Ed Seykota (all trend following traders). You get the picture. Hendry honestly states that he doesn't know what's going to happen, but he puts himself in the position to have probabilistic bets that can profit when the market moves--in whatever direction. Covel moves on to quote David Einhorn, a hedge fund manager. What will the Fed do if the bubble bursts when interest rates are at zero? Is Covel, in quoting Einhorn, trying to predict the future by talking about this subject? He's simply mapping out what he sees: A world that's rigged and manipulated, and a Federal Reserve that's trying to make its buddies at the big banks wealthy. In the midst of this how can you protect yourself and profit? The only way you can truly protect yourself is by looking at the price in the here and now from a trend following perspective. You can make decisions based on the price movement without having any idea what the Fed is doing behind the curtain. There is no certainty. There's only chaos, uncertainty, fractures, and cracks in the sidewalk. You have to have a plan before that fracture breaks. Although traders like Einhorn, Hendry, and John Hussman might not be trend following traders themselves, their observations certainly make the case for employing a trend following strategy. Special Offer? Free trend following DVD: www.trendfollowing.com/win.
Michael Covel talks with Peter Brandt, author of "Diary of a Professional Commodity Trader: Lessons from 21 Weeks of Real Trading", and a trader who has been in the commodity trading space since 1976. He's traded his own proprietary account from the late 1970's until today, and is currently entering the hedge fund world by running a multi-CTA fund-of-funds. Brandt got his start in Chicago trading commodities and working at the Chicago Board of Trade for Continental Grain Company. Along the way he jumped from approach to approach until he found the book "Technical Analysis of Stock Trends" by Edwards and MaGee, and became a classical chartist. However, after leaving Continental Grain in the early 1980's he suffered a traumatic accident falling from seventeen feet onto a concrete slab while sleepwalking. Brandt suffered neurological and physical damage which affects him today, but he calls this tragedy a blessing. Covel and Brandt talk about how the accident influenced his trading and how great lessons can be learned through adversity. Covel and Brandt also discuss the idea of trading a five minute chart pattern vs. a weekly chart pattern; the biggest mistakes you can make as a novice trader; averaging a loser; risk management and the right amount to risk on any trade; upside volatility and the fantasy of a straight line up of profit gwoth; and the importance of reducing the incessant head chatter and living in the moment of now. There are some real commonalities between Brandt's approach and trend following, including the basic foundations of risk management and the importance of price. Brandt and Covel get to the bottom of their respective approaches, and explore how to find the best system for yourself. Special offers including a free DVD go to: www.trendfollowing.com/win.
Michael Covel talks about "The Power of Now" by Eckhart Tolle. Covel defends studying the book as a psychological manifesto for "navigating the trend following waters". Halfway through the book Covel realized how it sounded like all the trend following traders he's studied over the past fifteen years (even if it wasn't the author's intention). Covel isn't out to get you to start singing kumbaya and burning incense; he's just out to get you to look at the world differently so you can profit. Covel discusses Cullen Roche, author of the "Pragmatic Capitalism" blog, who posted some quotes from Warren Buffet recently. Covel acknowledges that Buffett is one of the most successful entrepreneurs in the history of modern man, but has no problem criticizing the myths that surround him. Buffett noted that Berkshire has $40 billion in cash on hand, but "prices are difficult right now". So, what does that even mean? Why is Buffett on CNBC? He's talking his "book", he's creating the aura, and perhaps confusing people into making decisions based off his advice. Or perhaps he simply needs his ego stroked. So, what do you buy based on that advice? How do you make buy and sell decisions? Trend following doesn't rely on vague statements, and the positive performance dates back to 1903. With trend following price is price. That is an under the radar concept though. Most people simply know Buffett's value investing, buy and hold world. However, there are inherent problems in value investing and Covel investigates by quoting David Rosenberg and John Hussman along the way. From their fundamental perspective Rosenberg and Hussman lay the foundation for trend following without thst being their intention. Covel also goes on to discuss "Finding Peace with Uncertainty" from the Zen Habits blog and announces a new $500 gun shooting video contest. Offer--Would you like a free special DVD: trendfollowing.com/free.html.
Michael Covel opens up with the classic Pink Floyd song, "Brain Damage" and an interview with Pink Floyd leader Roger Waters explaining the composition of the song. Inspired by watching beautiful tufts of grass that were only to be looked at and not stepped on Waters explains the lunacy needed to step out of bounds in society and step on the grass you aren't supposed to. Trend following is all about standing in the middle of the grass and tearing it up to find enlightenment. On the heels of Waters' interview Covel discusses Seth Godin's new video, "Stop Stealing Dreams". Godin explains the number one purpose of school: obedience. Do as you're told and learn to be a cog in a wheel. Do you want to be an interchangeable part or do you want to create art? Waters sings about the lunatics who would dare to walk on the grass they weren't supposed to, and Godin questions the entire system of education. Why do people have such a hard time breaking out and finding a new way of thinking? Covel's analysis of Godin's work might give you some clues. All of this is a lead up to a fantastic white paper called "A Century of Evidence on Trend Following Investing" that tracks trend following performance back to 1903, which Covel discusses in detail. The data to back up trend following as a successful strategy for 110 years is all right here. Special offer free DVD? Go: www.trendfollowing.com/winl.
Michael Covel brings some unexpected trend following messages and inspiration from eclectic and unexpected places. The first comes from Neil Young, his lyrics signifying the ups and downs of life and trading. The important thing is that we're along for the ride: "I've been first and last, look at how the time goes past, but I'm all alone at last, rolling home to you." Covel discusses the unexpected inspiration he's found over the past few weeks leading up to his recent speaking engagement in Las Vegas arranged by Timothy Sykes. As you would expect Covel found some important food for thought on his trip and he shares these eccentric lessons: A pamphlet found in a hotel room from Affliction Clothing; a film called "Jiro Dreams of Sushi" that holds some important messages about passion and practice; a book that Covel received from his Yoga teacher titled "How Yoga Works" that has more to do with trading than you'd ever expect; and the book "Investment Biker: On The Road with Jim Rogers". Covel also discusses a quote from famed trader Larry Hite about how in the big picture nothing really changes. People are people and people are always motivated by greed and fear. A reader questions how high frequency trading and automation work into the equation and Covel answers. Covel also discusses some thoughts from more fundamental thinkers such as Hugh Hendry and John Hussman (and why, whether it is their intention or not, they write great missives about why trend following works). From a strategy perspective how do you follow along and make money in a world where fundamentals don't offer you hope on the timing of things? How can you make money in that world? The answer is trend following. If you don't have trend following in your portfolio what are you missing? Covel also makes a big announcement for a special in-person seminar event in Las Vegas coming up in December. The event includes both of Covel's dinosaur systems (T-Rex and Triceratops), a ton of materials (documents, audio, and video) that are unlikely to ever be released anywhere else, a long Friday night dinner, a full day session on Saturday--everything you need but the airfare. You'll have to make your decision by November 1st for the event on December 7th and 8th. Also a special DVD offer: www.trendfollowing.com/win.
Michael Covel talks with Frank Curzio of Stansberry and Associates. Curzio is a recognized experts in the small cap sector, the voice behind S&A Investor Radio, as well as the editor of the Small Stock Specialist. Curzio has been featured on numerous radio and television programs, and wrote a newsletter for TheStreet.com before joining Stansberry. Covel and Curzio come at the game from vastly different perspectives on how to make money, with Curzio's small-cap world playing the yin to Covel's systematic, trend following yang. Even with their differences Covel and Curzio find plenty of common ground in their alternative ways of getting to their ultimate goal: to make money. Covel and Curzio talk about Curzio's background coming up in New York, the influence of his father, and his introduction into the world of trading; Curzio's history with Jim Cramer, the info-tainment industry, and separating Cramer the analyst from Cramer the television personality; Stansberry's wide reach in the financial world and Covel's introduction to them through an event at Jekyll Island; how Curzio is still looking for big moves just like any trend following trader; how the "magic hand" of the Fed can affect strategies in both the fundamental and trend following worlds; Curzio's experiences with Jim Rogers, Jeff Macke, and Porter Stansberry; and the drastically different ways in which trends can be dissected. Special offer free DVD: www.trendfollowing.com/win.
Michael Covel talks with Mark Shore, a trader and educator whose main area of expertise is managed futures. Shore has an MBA from the University of Chicago, was the former head of risk at Octane Research (over a billion AUM), was the former COO of VK Capital (a subsidiary of Morgan Stanley), and now is an adjunct professor at DePaul University teaching the only accredited course on managed futures in the country. Covel talks to Shore about Shore's experience in getting the "a-ha" moments out of his students when teaching managed futures, and how he brings his students into the world of managed futures; how and why those working in the CTA/managed futures/trend following space have a firm grasp on risk management that exceeds the understanding of competitors (i.e. mutual funds); how the term "managed futures" (which refers to the instrument and not the strategy) might be problematic; skewness; drawdowns; why managed futures performance is famous for doing extremely well when chaos unfurls; why the majority of the mutual fund industry hasn't adopted CTA strategies; the issue of survivorship bias; why certain people can't wrap their arms around strategies not based on fundamental analysis; Shore's paper, "Decoding The Myths of Managed Futures"; the emotional elements of trading; and others experiences while working at VK Capital. Would you like a special DVD sent along for free? Go: www.trendfollowing.com/win.
Michael Covel discusses an article titled "21 Ways Rich People Think Differently Than Average People". The word rich may not be the best term here as Covel notes, "being rich or poor doesn't stop you from being a schmuck." Covel makes a more clear distinction between average people and people of high character. He goes through the list and offers commentary on statements such as "average people think money is the root of all evil; rich people believe poverty is the root of all evil." Money, Covel maintains, is just a medium of exchange and that's all it is. It's what you make of it that becomes good or bad. Readers will see that many of the precepts and principles in this article are straight out of Trend Following 101. Further, commentary includes seeing money through the eyes of emotion vs. seeing it logically; following your passion vs. working for the man; setting low expectations vs. challenging yourself; knowing the markets are driven by emotion and greed; being a slave to debt; surviving vs. thriving; education vs. entertainment; finding comfort in uncertainty; and trend follower Larry Hite's concept of asymmetric bets. Next, Covel discusses "An Investor's Guide to Famous Last Words" from The Motley Fool. Covel used to spend time ripping The Motley Fool for pumping buy and hold, and in the end pulls no punches in revealing the author to be a die hard "value" guy (despite agreeing on certain points). Would you like a special offer DVD sent to your home or office? Go: www.trendfollowing.com/win.
Michael Covel speaks for the second time with managed futures expert, editor/writer for Opalesque, and author Mark Melin. Melin has his fingers on the pulse of the nasty things going behind the scenes; specifically, over-the-counter ("OTC") markets and the MF Global scandal. Covel talks to Melin about his recent piece in Opalesque: "The Untold Story: Brooksley Born, Larry Summers & the Truth About Unlimited Risk Potential". Most understand stock and futures exchanges; you can trade in these exchanges and expect a certain amount of regulation and transparency, and people understand the balancing side of the equation. However, the OTC derivatives that Melin has been digging into are completely off the everyone exposed to a possible mega-implosion in the near future. Melin discusses the history of these unregulated derivatives and notes that if the problems that were initially identified by Brooksley Born in 1998 are not properly addressed, the next market catastrophe could be worse than anything that has preceded it. Covel and Melin discuss the possible solutions; if politicians can actually be held accountable if there are no repercussions beyond not being reelected; and how the average American can digest this information and how it affects them. Covel also brings up the idea of the "four political parties": Democrats, Republicans, Libertarians, and Bankers. If you look at it from that perspective can they be defeated? (Covel: "No.") You can't vote the bankers out. Melin contends that if the debt crisis in Europe unfolds banks are going to expose the US government to unlimited loss potential. Covel and Melin go on to discuss how people simply won't listen if the Dow is rigged to keep them happy; why the average person who sees the Dow at a high level today should care about this, and what they can do to protect themselves beyond sitting around and waiting for the sky to fall. Covel is the skeptic and Melin is the optimist in this fiery conversation about how to handle this situation before it implodes. Melin notes: "The Fed cannot prop up the stock market forever. At some point, gravity takes over." Covel believes the die is cast and offers trend following as an "out". Special offer free DVD: www.trendfollowing.com/win.
Michael Covel sometimes feels like he's floating above and looking down like the protagonist in David Bowie's "Space Oddity". In today's episode Covel closes this alienating gap with his explanation of the "lottery society": The idea that you don't have to work--you simply make a small bet of your time and money and your your entire world can change through one single action (even though the odds say there is no chance). We've pushed aside the notion of purposeful, driven, consistent effort and work. You can see the concept of a "lottery society" beyond the notion of buying a scratch-off: the idea that the Presidential election will change your life, reality shows and American Idol's instant fame fantasy and drugs and alcohol as the quick fix. It all sounds well and good, but the lottery mentality doesn't work. It sucks the life out of you. How did we even get to the point where being "picked" has replaced the notion of good, consistent hard work and creating something from scratch? It's the gap between wishing and doing. We're in a fantastic world of distraction and the lottery mentality is a perfect example of that distraction. Covel goes on to explain the parallels between fundamental analysis and the lottery mindset; perspectives on the lottery mindset from writer Seth Godin; the perils of watering down a clear trend following trading strategy with short term trading strategies, fundamental analysis, and media input; and the illusion that tools such as the iPhone make us more productive. Next, Covel notes how many want a hero these days (instead of viewing themselves as heroes). Currently, the "hero de jour" is Ben Bernanke, chairman of The Federal Reserve--except most don't have a grasp why his current rate policy is so problematic. When you have rates artificially reduced to zero it forces people to invest in the stock market. Covel offers commentary regarding current Fed policy by giving context via an exploration of recent tech and real estate bubble histories. As Charles Hugh Smith (www.oftwominds.com) has noted, "If you prop up an artificial economy long enough, does it become real?". Covel gives his personal view of the current situation: You know it's bad, you know it's eventually going to pop, but what do you do? That's the hard question. So how can you profit in the face of such uncertainty? Trend following is the profit answer when the black swan swims in. Special offer: Receive a free DVD here: http://www.trendfollowing.com/win.
"The pleasure is to play, it makes no difference what you say. You win some, lose some, it's all the same to me." Michael Covel opens up with one of the greatest heavy metal songs of all time and notes some unexpected lessons that can be taken from the lyrics. Sticking with the theme of taking trend following inspiration from unexpected places, Covel then goes on to discuss several posts from Zen Habits, a blog that contains lessons from the perspective of Zen Buddhism. Covel discusses "Finding Peace With Uncertainty": "Why is not knowing so scary? If you roll a dice and don’t know what it will be, is that scary? No, it’s not the 'not knowing' that’s the problem it’s the possibility that what comes up on that dice will bring us pain, suffering, loss." Covel relates this to a recent experiment he did that illustrates trend following through the roll of dice. If you get a two or a six, you win three pennies. Any other number, you lose a penny. The two and the six only come up a third of the time, and even though you don't win many of the rolls, the wins are big. The winners, because they're bigger, pay for the losers. That's trend following. So, how do you deal with uncertainty? Extricate yourself from harmful ideas and strategies: lose the small things that have no positive impact on your trading, such as buy & hold strategies, watching CNBC, etc. Know the worst case scenario. Become comfortable with waiting, and stop obsessing on uncertainty. Voltaire said, "We never live; we are always in the expectation of living." That's the goal. It's not the expectation of living--it's the "right now" that's important. In the next section, Covel comments on some trading and life commandments--inspirational reminders that you need to hear, including "The Ten Most Foolish Things a Trader Can Do". Special offer with free DVD: http://www.trendfollowing.com/win.