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.