Charles Faulkner visits the podcast for his third on-air conversation with Michael Covel--a conversation that started while Covel was recently in Malaysia and finished while he was in Vietnam. Faulkner is an author, trader, and international expert on modeling the knowledge and performance of exceptional individuals. He was originally featured in "The New Market Wizards" by Jack Schwager. Faulkner has a new book coming out this fall called "Higher Level Trading: The Five Stages To Trading and Investor Mastery". In their free-flowing conversation Faulkner and Covel cover wide territory. Covel and Faulkner discuss Faulkner's thoughts about human behavior and the investor's psyche. This brings the conversation to the idea that the world is getting more complex, and the increase of "magical thinking" in response. Covel and Faulkner move on to discuss further topics such as how Faulkner came to put together his newest book, "Higher Level Trading", and the qualitative differences between the five levels of experience, knowledge, and understanding; developing the different levels of thinking that lead to expertise, and the correct path to take to developing these skills; preparation, effort, "doing the work", and the right way to jump into investing; some of the commonalities between those profiled in the "New Market Wizards" book; Ed Seykota's recent statements on day trading; behavioral economics; the idea that the less you know about something the more convinced you are that it is true--and how a little knowledge can be a dangerous thing; "perfection seekers", variation, and letting perfection slow you down; outliers and the potential to make a change in your thinking; efficient markets, Vernon Smith, and bubbles; imagery, stories, prediction, and the skill of conceiving multiple scenarios; reducing information, and vetting your inputs to find out what information is important and what isn't; and why we are most influenced by parts of our environment that we are unaware of. Free DVD? Go to www.trendfollowing.com/win.
Michael Covel interviews trader and original student of the first Turtle class, Jerry Parker. In 1983, Parker was accepted into the Turtle Program, a select investment training program developed by successful Chicago portfolio manager Richard Dennis. He appears in Covel's "The Complete TurtleTrader" and has been the most successful TurtleTrader. Parker founded Chesapeake Capital Corporation, a global investment manager headquartered in Richmond, Virginia, in 1988. Chesapeake provides investment and portfolio management services to both private and institutional investors worldwide. Covel talks to Parker about the mistake of combining different strategies with trend following, and the importance of having a concentrated strategy that you can rely on; how discretionary moves can get in the way of your system, and "systematized discretion"; the psychological effect of following a trend following strategy for decades; the idea of going for positive expected value over what's least risky; why Parker doesn't like to use the term "managed futures", and why it doesn't really tell the story of trend followers; trend followers performing well at different points in time compared to long-only; using trend following as another strategy for investors who only invest through a long-only value-based system; the importance of not letting your views on politics and society influence your trading, and maintaining a systematic and disciplined approach; the growth of news media since 1984, information overflow, limiting your variables, and using price as your primary indicator; how Parker has learned over the years to deal with drawdowns, loving your losses, and the importance the Turtle program played in his education on drawdowns; why governments are the ultimate counter-trend traders; why buy and hold is not a good place to be even if people are saying it's turned around; Parker's stock-only trend following program, and why the diversified program will do better than the stock-only system; and leverage as a tool. Enjoy! Free DVD: www.trendfollowing.com/win.
Is Michael Covel on vacation or a journey? Covel opens up today's monologue distinguishing between the two by answering a piece of listener mail. Covel gives credit to Tim Ferris and the four hour work week mentality, and discusses his ability to work from abroad and travel to a different country every two weeks. Next, Covel answers a piece of listener mail regarding his recent comments on day traders. Covel just gives his view. He's done his homework, done the research, and put the proof out there. It's not just Covel pontificating only about how the world should be, but trying to be objective. Day trading track records don't appear to exist, while trend following has a track record that's available for anyone to see in the back of Covel's books. Tons of people out there imagine that day trading is a legitimate way to operate, but there's just no proof that it works. Next, Covel reads another piece of mail talking about poor returns of hedge funds in the first quarter, and how certain hedge fund managers had picked the wrong direction. Covel gives another Seykota quote on the matter: "Artful politicians and religious leaders carefully keep their promises in the future, and their tithing and taxation in the now." Covel adds: Investing gurus are part of that list because investing gurus all want to be paid right now. Covel also talks about outlier events. Are you prepared for an outlier event? Whether a crazy North Korean dictator drops a nuke, whether one of the central bank policies across the world don't work as expected, or something else? What if the prescribed plan doesn't work? That's where fundamentals break down and when they do you need a plan. There's a great video that Covel posted recently by Dr. Vernon Smith stating that standard econometric models were not explaining what was happening in the real world. They weren't explaining bubbles, and not until Dr. Smith started studying the psychology of how people behave did he finally start to understand what was going on. Are you going to believe that Vernon Smith and Daniel Kahneman had figured something out about the human psyche when it comes to markets and money, or are you going to trust that government agencies have figured it out and are going to manage it all for you perfectly? If you do trust Dr. Smith, as Covel highly recommends, how are you going to prepare for the next event? Do you really think there's a chance that the S&P will only go up, and will never drop by 50% again? Get a strategy to help you out when there's an outlier move. That's the key. Covel moves on and talks about his time so far in Vietnam, including an all female motorbike tour, avoiding getting run over crossing busy traffic circles, and an incredible Vietnamese dancer. Are the communists doing better capitalism better? The question of the day! Free DVD: www.trendfollowing.com/win.
Michael Covel comes to today from Ho Chi Minh City, Vietnam after spending several weeks in Kuala Lumpur, Malaysia, and a few days in Singapore. Covel talks about some of his experiences is Singapore and Vietnam, but first he shares a quote from legendary trend following trader Ed Seykota regarding day trading: "Traders use it medicinally as distraction from deeper issues." Seykota has a remarkable ability to take complicated thoughts and reduce them down to only a few words, holding a mirror up to you and your life in the process. Covel talks about the "screen watchers" who have to look at their trades all day long and questions their performance. Where are all the day traders' performance data? They simply don't exist with only a few exceptions for big traders like Steve Cohen. Take that and compare it to trend following which has the performance data to prove its success. Without that data Covel's "Trend Following" book would have simply been opinion with no foundation. Covel digs deeper into the Seykota quote and discusses the core issues of what he's really talking about: is day trading simply the answer to your other problems? It's very similar to the lottery mentality regardless of how people try and talk it up: there's a very small chance of you winning big in the end. Covel also recounts some of his experiences abroad and compares it to the situation in America today. Compared to Singapore, America simply can't compete with what they are able to get done. Singapore has great economic freedom and there's a wide desire there to make money--not just live off the State nipple. Economic freedom and the desire to make money, however crass, leads to a better life. Covel mentions a book he's currently reading about how the Russian oligarchs came to power and made their billions. It's really rooted in the system that was the old Soviet Union system: the state-run economy and taking advatnage of that. Everything was run by the state: the banks, the delivery of bread, the production of produce, etc. Covel brings it up because he's currently in Ho Chi Minh City (formerly Saigon). Today, there's nothing that feels remotely communist to Covel. He saw a couple of flags on some government buildings, but that's about it. Instead, it's mostly commerce and entrepreneurs. There's an energy there and people are clearly ready to make something happen. Ultimately, this brings Covel back to America. America does not have the ability to build a Singapore right now. Covel discusses the voting process and whether it's better to have a system where you know you don't have certain rights and freedoms (like Vietnam) or to have a system that gives you those rights and freedoms, but it's more akin to a fantasy. He's not some angry ex-pat: Covel simply wants to point out that the American system was founded on pure and noble ideals, but the bureaucracy has gotten so big and so unwieldy that the average vote makes no difference. Even a change in political leadership doesn't make a difference, and those on the right and left have more in common than not in common. Want a free trend following DVD? Go to http://www.trendfollowing.com/win.