Michael Covel talks to Dr. Eric Prentis, a graduate professor at the University of Southern California, and author of "The Astute Investor" and "The Astute Speculator". Covel talks to Prentis about his Zero Hedge article, "Everything You Know About Markets Is Wrong", which strikes down the efficient market hypothesis. Prentis lays the foundation for the credit crisis and everything that started to unfold in the summer of 2007; he lays the foundation, tells us how we got there, and the approaches we're taking to getting out. Covel and Prentis discuss "financial psychopaths" - and whether the public might be complicit in Wall Street's behavior; why the "wealth effect" isn't working today; how zero interest rate policy (ZIRP) is effecting us us, and why there isn't an uproar against it; why four years into the credit crisis, we still aren't seeing improvements; and using more debt to keep the debt cycle going (and why it's a dead end). Special Offer: receive free DVD delivered to your home or office: www.trendfollowing.com/win.
Michael Covel talks to trader and programmer Brad Rathe. Rathe allocates funds to other traders, as well as operatoring his own global macro fund. Rathe has worked at such firms as EMC (original Turtle), Northbourne, and Rotella. Rathe moved to Chicago the day he graduated college and immersed himself in the pits of the Chicago Board of Trade, initially working in the "meats" pit (pork bellies, live cattle, live hogs, and feeder cattle). Covel and Rathe talk about some of the practical/physical factors involved in the futures pit in the late 80's/early 90's. In the off-season, some of Chicago's athletes would work in the pits, and Rathe was surrounded by ex-Bulls, Blackhawks, and Bears. It was a very physical game back then, and Rathe saw broken ribs in the pits. Rathe shares some great anecdotes about someone who sold his spot in the pit for $1 million dollars - even though there were no assigned spots to begin with. Covel and Rathe discuss the move to screen-based exchanges (computer trading) replacing floor trading; Rathe states that when you get off the floor, it takes on more and more importance to have a systematic, non-emotion based trading strategy. Rathe fell into working at Globex, which was just starting, and saw some of the beginnings of electronic trading. By 1991, Rathe moved to EMC, where he worked under Liz Cheval (original Turtle). Rathe relates some of the lessons he learned from Cheval, and sheds a little light on the Turtle story from the perspective of having worked for Cheval. Covel and Rathe also discuss how the CTA business grew under the Turtles; the importance of programming; tweaking and changing your trend following system; MF Global, Madoff, Wasendorf and other cheaters; and the importance of being unemotional during a big blowup. Special Offer: receive free DVD delivered to your home or office: www.trendfollowing.com/win.
Michael Covel talks to Ryan Holiday, director of marketing for American Apparel; media strategist for Tucker Max, Dov Charney, and others; and author of the new book "Trust Me, I'm Lying: Confessions of a Media Manipulator". If you're in business, if you're an entrepreneur, if you're someone that needs to communicate with the public, or if you're anybody that has a message - Holiday's book has some important lessons for you. Holiday discusses the hard truths behind the media today: the blog-online media cycle not only drives the offline cycle, but determines and directs culture itself. As Holiday notes, a famous journalist once said in the early 1900's: "America is a country governed by public opinion, and public opinion is governed by newspapers. Isn't it critical that we understand what governs newspapers?" Today, newspapers have been replaced by the internet, blogs, and online media - and the internet rules over us all. It's integral that we understand what governs us in a world where page views drive everything. Holiday shares several stories that illuminate the truth behind the media today: the presidential candidacy of Tim Pawlenty, how Andrew Breitbart was able to exploit the system; and how Holiday was able to manufacture a fake controversy and jumpstart an ad-campaign he was working on - only to create real controversy along the way. Covel and Holiday also discuss the media food chain; what goes into media manipulation; the lie of "if you're doing something great, it will be heard"; gatekeepers in the media; how blogs are our digital bloodsport; why being inaccurate and inflammatory gets more page views; and how we don't seek honesty or reality. Cicero used to say, "Who benefits?". Ask yourself and examine who is writing what, and what they gain from it. Special Offer: receive free DVD delivered to your home or office: www.trendfollowing.com/win.
Michael Covel talks about the dwindling lack of individual responsibility in America today, and the emphasis on the group rather than the single individual. In a recent speech, President Obama said, "If you've got a business, you didn't build that. Somebody else made that happen". While his speech noted some great communal national achievements, it negated the importance of the individual to a great degree. It's not a political issue; whether you're on the right or the left, you are responsible for your own work. The state can't fix your problems. It's up to you. America may have built the infrastructure and the roads, but an individual made the car. There are some great things that have come about as communal, national achievements; however, mitigating the individual achievements of entrepreneurs gets us nowhere. A few years ago President Bush stated that he needed to suspend the free market system to save the free market system. Do we want the State equalizing everything? If you want to get ahead today, it's got to be purposeful, hard work on your own part. The State can't do it for you. Successful entrepreneurs aren't just lucky; it requires hard work and dedication. Special Offer: receive free DVD delivered to your home or office: www.trendfollowing.com/win.
Michael Covel talks to Patrick De Villiers, a co-founder of systematic trend following fund Neural Capital. Originally from South Africa and now based in Cyprus, De Villers talks about his early background and the philosophy behind Neural Capital. De Villiers had no background in finance until he left university. Instead, he studied experimental physics in superconductivity, which helped give him the background in analyzing and looking for patterns in data (that he later used in his financial career). Staying in South Africa, he found it difficult to find work, but met a woman at an investment bank--and that opened a door. He was assigned to a graduate development program and found his way into the trading room. The idea of hiring individuals with scientific backgrounds was just taking off at that time in South Africa, and De Villiers got in on the ground floor. De Villiers eventually teamed up with Brett Venter and founded Neural Capital in 2004. They started by looking at predictive investment models using neural networks; however, this didn't pan out, and they eventually found the trend following strategy that they employ today. Covel and De Villiers discuss that when you're at a big bank the performance can be based on the franchise you're working at; the connection of ego to performance; how to explain a trend following approach to clients; capturing the "fat" of the trend; outliers and black swans; putting the unexpected moves in your favor; the relation of trend following to behavioral finance; and insuring that you're in the game for when the big winners come. Special Offer: receive free DVD delivered to your home or office: www.trendfollowing.com/win.
Michael Covel talks to trader and author Gil Morales. Morales got started in the early 90s, became a broker with Merrill Lynch in Beverly Hills, and moved on to work as a portfolio manager and ultimately chief market strategist at William O'Neil's firm (of IBD and CANSLIM fame). Morales eventually moved onto his own investment advisory firm with with Chris Kacher. His book with Kacher is called "Trade Like an O'Neil Disciple: How We Made 18,000% in the Stock Market". Covel compares Morales' trend trading style to his via a comparison of going to Tokyo the first couple of times: It's a parallel world - everything is different, but they're ultimately trying to achieve the same thing. Covel also gets into some of Morales' unexpected beginnings. Morales actually started as a cartoonist, and discusses his early influences during this phase of his career. He also relates some interesting stories working at the Beverly Hills branch of Merrill Lynch. Covel and Morales go into a broad overview of William O'Neil's strategies, which ultimately provide the stepping stone for Morales' strategies today. Covel and Morales discuss how "you can't kiss all the babies", and how you have to keep from getting distracted with too many potential investments. Further topics include how O'Neil's system is trend following at its core; fibonacci sequences, the moment of "now"; getting away from the rationale and the narrative of the trend; and why losers average losers. Special Offer: receive free DVD delivered to your home or office: www.trendfollowing.com/win.
Michael Covel talks to Dave Stendahl of Capitalogix. Stendahl's world is 100% systematic, and he has been involved in conceptualizing and thinking up systematic approaches to trading the market for decades. But what is a system? Stendahl's explanation appeals both to the average person and to the seasoned trader. Stendahl's approach is that a system should have as few moving parts as possible; it should be simple enough to be explained on the back of a cocktail napkin. Covel and Stendahl make an analogy to cars, and how you can easily fix a simpler car in your garage as opposed to a complex Lexus. Stendahl explains that everyone is using a system in one way or another: every time you make a decision to buy or liquidate, whether it's based on a real system or based on advice from someone on the television, it's systematic in some regard. If you can talk it, you should be able to quantify it. If you can't quantify it, it might not really be there. Stendahl also talks about his beginnings, collaborating with his father in the mid 1970's. This was his exposure to the investment arena. It wasn't until college that he started taking "technical" things more seriously. When he was introduced to technical analysis, and had the lightbulb moment, he realized he could make money based off of something other than fundamentals. Interestingly, this was rooted in Stendahl's dyslexia. He turned this disadvantage into an advantage, and was forced to find his own solutions: to learn specifically how to automate everything from start to finish. This allowed him to look at numbers and trading from another light, and this approach ended up being very profitable for him. Covel also asks Stendahl about Ray Dalio of Bridgewater, who says that he is 100% systematic, but doesn't use any technical information. Stendahl explains that Dalio says he's looking at fundamentals from all these different markets, and this requires a huge amount of work. For Stendahl, he simply has one major input. Making price action systematic vs. taking in a massive number of fundamentals systematically. In the early 90's, Stendahl tried to work with fundamentals, but he found that the numbers were always changing, the data was slow, and given the amount of inputs, it would be much more complex and slow to put a good systematic program together. Stendahl chose to take the easier and more robust route, but he was very sophisticated in the way his systems were designed. Your system doesn't have to be complex to work. Sometimes the best system can be only four lines of code. Covel and Stendahl also discuss position sizing and money management, and how you can approach this systematically. Free Dvd? www.trendfollowing.com/win
Michael Covel talks about "Zen Habits", a website that offers general wisdom from the Zen school of Buddhism. What you might not realize is that this philosophy is incredibly relevant to trend following traders. Michael discuses one post in particular called "The Wisdom of Allowing Things to Happen". In our Western society, we're doers and creators; we don't just wait for things to happen. Michael doesn't discount the amount of effort needed to start a successful business or to be a trend following trader, but there is immense value in simply allowing things to happen, observing, and responding to the change. Covel discusses Zen, Yoga, and the aforementioned article from a trend following perspective. We think we're in control, but we're really not. We don't control the overwhelming power of nature or the market, yet we have the illusion of control in our lives. "You learn how things work. Instead of trying to make things work the way you want them to work, just watch them work. You'll learn more about human nature, about the nature of the world, as you see things work without you controlling it. It might change you. The best you can do is take what is presented to you in the moment of now and respond to it. Covel relates several anecdotes that link the Zen mindset and trading. "To control your cow, give it a bigger pasture". By allowing things to happen, giving them more room to grow and prosper, your needs will also be met - and you've done no work." Ultimately, trend following is about allowing something to happen. With trend following, you can't control the cow, you can't control the market. However, you can react and respond to it. The trend follower's job is not to predict, but to observe and respond. You don't control the markets. You don't control how much you're going to make tomorrow. If you accept the fact that you don't know what will happen, you open yourself up to better ways to minimize risk, better strategies that embrace the unknown, and outcomes that you couldn't conceive of on your own. The wisdom of allowing things to happen is rock central to life success, entrepreneurial success, and trend following success. Special Offer: receive free DVD delivered to your home or office: www.trendfollowing.com/win.
Michael Covel monologue.
Michael Covel discusses two philosophical approaches that are the key to being a success in any field: being awake to the outside world and thinking outside the box. Being part of the system is not going to reward you, and if you're awake to the outside world, you can see things you wouldn't otherwise notice that you can use to your advantage. From his childhood to early experiences doing opposition research in a political campaign, Covel offers several anecdotes regarding "lightbulb" moments that have come about as a result of thinking outside the box. Covel has used the same principles and outside-the-box thinking to get at the insights of how trend following really works. Trying to figure out how people like Bill Dunn, John W. Henry, and Jerry Parker all pieced together was revealed to Covel at a conference in London. He relates the story that was the foundational thread for much of his later work. Covel also connects outside-the-box thinking to trend following in general: If there's anything hard about being a trend following trader, it's that you have to be comfortable being by yourself. You can't take solace in the crowd, and thinking differently is the key.
Michael Covel talks to Mike Dever, founder of Brandywine Asset Management and author of "Jackass Investing: Don't Do It. Profit From It." Covel talks to Dever about being an entrepreneur from an early age and making his first investments in his early 20s. Starting with $5,000 in 1979, Dever quickly ran it up to $60,000 and learned some of his first trading lessons along the way. After deciding to set up some systematic trading models to help protect his investments, he put together his first fund in 1981. Dever had some interesting experiences at a fairly young age with some people who became big names on Wall Street: Paul Tudor Jones and John W. Henry. Deciding to get outside brokers to manage a fund to diversify his own business, he ended up starting funds with both of these legendary traders. Covel and Dever discuss some of the myths discussed in "Jackass Investing"; how everybody is a market timer; the stigma against investing in futures; return drivers; the risks you take by being risk averse; and the shift in attitudes towards volatility in America. In 2011, Dever relaunched Brandywine; he discusses why strategies based on sound return drivers are so important to his firm and where he's at today. Dever was on the show many months ago, but this episode goes much more in depth with some really fantastic color regarding the early stages of the managed money world. Note: This is Dever's 2nd appearance on the podcast. Special Offer: receive free DVD delivered to your home or office: www.trendfollowing.com/win.