Michael Covel speaks with Jason Russell, the President and CIO of Acorn Global Investments in Canada. Russell brings a unique perspective to the show with a very clear strategy on how his firm makes money for their clients. Covel and Russell discuss Russell's background and how he came to form Acorn Global Investments; Russell's strategy for Acorn and "the baker analogy"; the idea of "winners stay, losers go"; showing his investors every position that Russell has; how the terms "commodity trading adviser", "trend follower", "quantitative trading" don't exactly describe what many traders do; Ed Seykota and the "trading tribe"; letting go of "why" and simply riding out trends; where strategies like Russell's fit in the context of a portfolio; the importance of delivering uncorrelated results to the S&P 500; drawdowns and the psychological effect of going through one alone, uncorrelated to other markets; and how there's nothing more important than risk management. More info on trend following? Receive the free DVD: www.trendfollowing.com/win.
There's no better lyric than "Life of Illusion" by Joe Walsh to describe the most recent trading performance that was reported by J.P. Morgan. In the first quarter they were profitable on 63 out of 63 trading days. Think you can develop a trading strategy that can compete with J.P. Morgan? You can't. What J.P. Morgan has done is not trading performance; it's an incestuous union between them, the United States government and the Federal Reserve. You don't make money 63 out of 63 days trading. That's not trading; it's a gift. Of course, if you have a position in J.P. Morgan, that's great; ride the trend. But what's unfortunate is that we're in the middle of a societal tsunami on Wall Street that makes it very difficult for the average person to know what's real. To the average person that wants to learn about trading, J.P. Morgan's performance looks like a noble goal. Unfortunately, this level of making money has nothing to do with a trading strategy. It has everything to do with being in a symbiotic union with the government and the Federal Reserve. It's not trading, it's taking. Can you replicate a trading strategy where you get the same advantages that J.P. Morgan does? And what happens when the black swan flies in? Covel goes on to explain comparing the performance records of Bill Dunn to J.P. Morgan. When these black swan events happen, strategies like Bill Dunn's excel, and fundamental strategies don't. It's that simple. You're left with the idea of worshiping a false idol (JP Morgan) or the Bill Dunn strategy that doesn't make money every day, but in the long haul makes more money and protects you when the tsunami hits. Covel closes by talking about the high priest himself, "Venus", the man from Omaha. Even though his fourth quarter profit rose 49% on gains tied to derivatives--derivatives that he once called "weapons of mass destruction"--it's no matter to his worshipers. Covel gives him all the credit in the world for amassing his great fortune; he's one of the greatest capitalists of all time. However, it's the disingenuous, manipulative nonsense of telling people not to trade derivatives but then doing it himself that really gets to Covel. Venus pretends that his words don't matter. Want a free trend following DVD? Go to trendfollowing.com/win.
Michael Covel talks about getting "picked" on today's episode of the podcast. Starting off with Blind Melon's "No Rain" Covel sets the groundwork for what's inspiring him today. This isn't a trading specific podcast today, at least for those of you out there that think that trading psychology and trading philosophy are irrelevant. Covel meets people all the time looking for the "secret sauce". Today, you aren't going to get the secret sauce; or at least the secret as you perceive it to be. Inspired by Seth Godin's recent thoughts on being picked Covel talks about Marc Maron, a comedian who recently has found success through his own podcast. Covel talks about how Maron wasn't picked through traditional means: Meeting with Lorne Michaels of Saturday Night Live, Maron's meeting went sideways, he was rejected, and he ultimately had to carve out his own path. Maron started a podcast which became viral, and now even though Lorne Michaels did not pick Marc Maron, Maron sits with his own destiny in front of him, chosen by him. All because he looked at the world slightly differently. Today, he enjoys massive success through an IFC television show, a new book, and a top rated podcast all because of setting out on his own path. Circumstances forced him to do this, but he learned that being picked was not the end all be all. Covel relates this back to his audience: you weren't picked for the trading job, you weren't picked for the investment banking team, and you're already psyching yourself out. A lot of people do this: they don't get picked and then complain for the rest of their lives and essentially quit. If you don't see the relevance in picking yourself to success in trading, you might not ever see it. Godin received complaints through his article on Marc Maron and Covel has received similar complaints which he retells here in the podcast. Some people want to do specific things. Doing "this" requires being picked: "I want to play the flute in this particular orchestra", "I want to trade for Goldman Sachs". At the end of it all, there is a great Buddhist thought: "Live like a mighty river". A mighty river flows. A mighty river does not complain. A mighty river gets it done. Covel talks about his own experience of not being "picked" for CNBC. They were looking for Jim Cramer, Jr. Covel went into the meeting with his eyes wide open and was looking to get the experience to pass along to you today that CNBC, behind the scenes, is a farce. Covel wanted to see behind the scenes for himself, and he got that opportunity being interviewed for CNBC. Covel wasn't picked by CNBC, but they weren't picked by Covel either. That's the attitude to have. Covel concludes with a recent story about being picked that he experienced himself in Thailand, and with what Godin says in his blog post: The problem is that it's frightening to pick yourself, Godin says. "It's far easier to put your future into someone else's hands than it is to slog your way forward, owning the results as you go." Free trend following DVD? Go to http://www.trendfollowing.com/win.
In his first podcast back from China Michael Covel talks about trend following in the context of The Middle Kingdom. Through five flights, four cities, untold hotel rooms, two speeches before crowds of 500 people, and over a dozen presentations in front of some of China's largest hedge funds, Covel brings the wisdom gained through his excursion back to his podcast audience. First, he responds to a reader from China who heard about one of Covel's presentations, and the criticism that Covel didn't give the "secret sauce" to win at trend following. Richard Dennis was famous for saying that he could publish his rules in the newspaper and nobody would follow them, and Covel could explain exactly how to be a trend follower and it'd go over many heads. So it's not surprising that in a crowd of 500 some would have their expectations of learning about some kind of "secret sauce" not met. Covel isn't trying to impress that person, and they aren't the type of person that would ever get it anyway. They're looking for the shortcut-- the angle, the quick fix. If you have Covel speak to your group, after fifteen years of his life spent researching the topic and putting together the best educational materials for new and experienced traders alike, if your first thought is "you didn't give me the secret sauce", it might not be for you. But Covel did reach a great many people, and he got a great deal of excellent feedback. He discusses the typical Chinese investor mindset and what got them to take a second look at trend following. Covel also waxes on the idea of trust in China, the parallels to America, and how the acceptance of "the new" in China might go down easier than elsewhere. Next, Covel adds some lessons to the overall trend following education. Covel's journey shows that an outsider can get to be an insider. Unfortunately, one of the common questions posed to Covel by the media in China was to ask if any average person could succeed in trend following. Covel discusses how this is a defeatist question. If you consider yourself average: quit now. Suitability, however, is something different. Is trend following, or investing in general, suitable for everyone? If you don't have the education, it might not be. Covel also gives some examples from his journey that help to put trend following in context. Covel notes a bit of censorship in his presentations via the Chinese regulatory committees. One slide was not allowed in his presentation. What was that slide? Covel explains. Also, Covel recently discussed Ray Dalio at Bridgewater, the biggest hedge fund on the planet. Covel reads a letter from a listener that gives anecdotal evidence about how Dalio could be a closet trend follower. Want a free trend following DVD? Go to trendfollowing.com/win.
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.
Michael Covel presents a series of great audio clips rather than his normal monologue or interview today on the podcast. Most of these are clips that Covel hasn't played on a podcast before, and they all loosely connect around the idea of risk, the unexpected, and black swans. First up, Covel plays a clip from Warren Buffett talking about Long Term Capital Management, the hedge fund that almost took the system down in the summer of 1998 (a huge winning time for trend followers). Covel follows it up with two clips from David Harding of Winton Capital Management--one of the top trend following traders of all time--talking about the lack of data on history's greatest manias, crashes and panics; a second clip of Harding talking about the difference between today's crashes and panics and ones that have happened over the past century; author Peter Bernstein (whose book, "Against the Gods", Covel calls a must-read book on risk); Dr. Vernon Smith, who appeared in Covel's film, "Broke: The New American Dream", talking to ReasonTV; Nassim Taleb, author of "The Black Swan". Finally, Covel ends with a clip of Ben Bernanke walking down the street. Somebody asks him about Nassim Taleb, the author of "The Black Swan". You would think that after we've just listened to all of these pragmatic voices lay the foundation for why you have to know there's always going to be another black swan to arrive, Bernanke completely dismisses it and says he doesn't read Taleb's work. Isn't it good to know that Bernanke, the man who is control of the Fed, doesn't even pay attention? All of these great voices that Covel has played today show how imperitive it is to prepare yourself for the next black swan; the next unknown event. Want a free trend following DVD? Go to http://www.trendfollowing.com/win
Larry Tentarelli joins Michael Covel for his second appearance on the podcast; his no-nonsense take on trend following is a perfect match for Covel. Covel asks Tentarelli about his background and how he's become such an advocate for systematic trading. After working for Merrill Lynch for about five years, Tentarelli realized it wasn't the right side of the business for him; however, he still retained his passion for trading. Tentarelli set out on his own and picked up Covel's "Trend Following" where he learned about traders that didn't pay attention to the news or fundamentals, used price as their primary data, and traded every market the same way. Covel and Tentarelli talk about educating others about trend following and trying to get these messages across to the masses; the difference between following and predicting trends; getting over the emotional tug-of-war that so many investors and traders experience. Covel talks about one particular family office with a single client that was much more open to trend following v. other offices in Asia, and he and Tentarelli go on to discuss Cypress and why predicting the implosion of the financial system simply isn't relevant to a trend following trader; how using a fifty day moving average allows you to not pay attention to the latest news; the idea of capturing the "middle meat", not getting in at the bottom or out at the top, and following the path of least resistance; Tentarelli's connection to Tom Basso from "The New Market Wizards", what he's learned from him, and the importance of reaching out to others; Tom DeMark and predictive technical analysis vs. reactive technical analysis, the lack of track records in the predictive technical analysis genre, and the advantages for risk management in reactive technical analysis styles; John Hussman; and the importance of exit strategies. Want a free DVD? Go to trendfollowing.com/win.
Michael Covel talks to Nick Radge in his second visit to the podcast. Radge operates The Chartist (www.thechartist.com.au) and is the author of the book "Unholy Grails". Radge lived in Singapore for two years and he and Covel talk about their shared experiences traveling in Southeast Asia. Covel brings up the lack of familiarity with trend following when giving presentations in Southeast Asia and how, just like in the US and Europe, 99% of the people out there really don't understand what constitutes a real trend following strategy. Radge and Covel break it down to the basics and use Apple as an example of how a trend following trader might look at one particular example. In Apple's case it's possible to see 700 as an anchor and think that although it's at 450 now, it's got to go back up. It's easy to take the value investing perspective and think that you're buying a quality stock on discount. However, there's one core thing that Radge stresses people have to understand is the undeniable truth: every company that goes bankrupt exhibits the exact same traits. They all trend down in a sustained manner; they don't just open and go bankrupt on one day. A company trends down over a sustained amount of time and eventually goes bankrupt. Of course, Radge isn't saying that Apple is going to go bankrupt; he simply says to pay attention and not get anchored to a higher price. Warren Buffet's idea of buying a good company on sale doesn't apply because he's obviously looking at things that people can't or won't pay attention to-- and his performance can't be replicated. Anchoring yourself to a price is dangerous, and Covel and Radge break down the idea of "anchoring" even further. Radge defines it as when an investment has reached a particular level that an investor has become emotionally attached to and has future expectations of the investment reaching past performance peaks. A trend follower would follow a stock that is at least moving in the right direction to start. Covel and Radge further discuss education, how the trend following world is foreign to many people who have been educated in the "right" places, and how the idea of taking losses and being incorrect in your position seem to be counterintuitive to them; the importance of drawing distinctions between traditional value investing and alternative systems like trend following; how the name of the game for many fund managers is not necessarily performance but funds under management; playing the game of mathematics vs. playing the game of picking the right stocks; why the US stock market has gone straight up despite all the fear going on elsewhere in the world, and why you shouldn't "fight the tape"; closet trend followers; why price can't be faked (and how sentiment plays into the picture); trade restrictions, cultural attitudes, and the importance of being able to step out of the crowd; why individuals have an advantage over fund managers; the value of understanding trend following even when you don't actually use it as a strategy; spotting 'trends', how you can't spot a trend until it's started or until it's over, and using hitchhiking as an analogy for trading; how trend following is useful when outlier events and black swans appear; using rules and strategies to fight fear; the difficulty of using Warren Buffett as an example, and the problems the arise when managing larger amounts of money; and Radge's thoughts on being an entrepreneur. Dig in! Free DVD? www.trendfollowing.com/win.
Michael Covel has done a podcast on Apple before, but today's podcast focuses on the media coverage surrounding people calling the top. Covel just saw an interesting article called "Following a Herd of Bulls on Apple" by James Stewart. Covel reads through the article and gives his commentary and notes that the premise of the article is disingenuous at best and dishonest at worst. The main subjects of Covel's criticism are the people that they bring on to criticize the Wall Street analysts. Covel isn't here to defend the Wall Street analysts--anyone that makes a buy or sell decision based on a report from a Wall Street analyst after looking at the last 20 years of Wall Street history isn't doing their homework. The "funny" part of the article, Covel says, lies in the people who were quoted in the article--and the author. Jim Stewart has been around Wall Street for a long time. Did he just dial this piece in? Stewart knew it was impossible to predict Apple's top. Yet, for this article, they find one guy out there who pegged the top. And we're all supposed to look at this guy as some sort of miracle worker? You don't pick the top. People who pick tops like Apple at 700 are lucky. It's not a skill. If you can only find one guy to do it, you've found the lucky survivor, and Jim Stewart built the article around him. Covel saves the most ire for the professors quoted in the article. The men who teach that markets are efficient. The ones who have the basics of finance wrong and continue to push this nonsense to their students: "Markets are efficient". The big scam is that the very people out there writing Wall Street research probably sat through that very professor's class. Wall Street is populated with people who obtained this sort of education. One other thing Covel covers is momentum: a great way to have traded Apple is through a momentum trend following style. A momentum trend following style wouldn't have had you getting in at the bottom or out at the top. All you can hope for is capturing the the middle meat of the trend. The trend following way doesn't require you to be worried whether wall street analysts are right or wrong; doesn't require you to be worried whether or not Jim Stewart had an agenda; or whether a Harvard university professor had conflicts of interest himself. Covel only brings it up to make a point and to sharpen the divide between these very different ways of looking at the world. On one side you have all the university nonsense; the efficient market hypothesis; Wall Street giving you buy/sell/hold decisions; and adulation for the one guy that picked the top. On the other side, you have the trend following traders who know that absolutely all of that is junk. Make your life simpler. Walk away from the nonsense and stick to the other side of that divide. Free DVD: www.trendfollowing.com/win.
Michael Covel starts with an interesting blogpost from a reader quoting Dow theorist Richard Russell. Covel discusses his thoughts on Russell, noting that he saw him speak in San Diego and followed his writings some in 2009-10. Here's the thing: Russell got it all wrong at the time. He was calling for the end of the world and the Dow has gone up--way up. Russell isn't a trend following trader; he was using subjective discretionary technical views on what he thought the markets were doing, would do, and what the government or Fed might do or was doing wrong. Covel shares many of Russell's views about the economy and the Fed; however, his way of thinking about the markets in 2009 and 2010 was the kind of predictive technical analysis that Covel has rallied so much against in recent podcast episodes. Bottom line, if the market's up, you're long; if the market's down, you're short. Trend following is not Elliott Wave, it's not Dow Theory, it's not Gann, it's not anything Tom DeMark is describing. It's price action based and that's it. Covel goes onto discuss the gentleman's blogpost in further detail, and notes how taking hold of data such as trading volume and confirming the Dow and transports together are almost fundamental-like in their approach. From a trend following perspective, all of this is irrelevant. The gentleman's blogpost ends with the phrase the pressure in the market is building, and we may be watching the beginning of the most spectacular stock market blowoff ever. Just before an even more astonishing decline." The operative phrase there is "may be": if you hear a sentence like that, it's not trend following. Covel goes on to discuss more local Malaysian food, Yoga, getting the tar beat out of him in a Thai massage, General Patton, and invites listeners to write in with questions about predictive vs. reactive technical analysis. Covel ends with a clip from famed basketball coach John Wooden at UCLA. He had a brilliant way about himself, inspired many, and Covel notes how Wooden got down into the nitty gritty in coaching--even teaching players how to properly put their socks on so they didn't get blisters. Free DVD? www.trendfollowing.com/win.
Today on the podcast Covel gives us a peek into the presentations he's been giving and the responses of audiences abroad. Since February 25th he has been in Tokyo, Hong Kong, Singapore, and Kuala Lumpur (Malaysia). He's given 23 presentations--anywhere from 60 to 90 minutes long--spread over 4 cities. Covel speaks to us today from Kuala Lumpur where he was only supposed to stay for two days. However, Covel was so taken by the city that he decided to stay for three or four weeks. Covel weighs in on the food, the culture, and the experiences surrounding his recent travels before getting into the kind of presentations he has been giving abroad and the investment style of the people to whom he has been speaking. Unsurprisingly, many of the largest fund managers in Hong Kong, Singapore, and Kuala Lumpur are unfamiliar with trend following; they have the a similar understanding of many in America and Europe. Most of the fund managers Covel sat down with were long-only, fundamental and value-based. Perhaps they used some predictive technical indicators on top, but that was it. Covel would go through the big picture differences between trend following and what his audience was doing. While most of these investors were unlikely to wholly adopt trend following, if you can bring a trend following strategy in-house that produces returns at a different point in time than your typical fundamental value returns--that's extremely useful information. Covel also discussed behavioral finance aspects, the idea of the black swan, and outlier move issues. Ultimately, it's about this scenario: you wake up tomorrow and you're on a desert island. You've got nothing except the closing price of the 75 most liquid global markets (which somehow magically appear in the sand), and a phone to your broker to make the trades. You have nothing else--no Bloomberg, no Wall Street Journal, no CNBC. Can you look at that data--and only that data--over time, and figure out a way to make money? That's the challenge. Can you find a positive mathematical edge in that stew of data from all those different markets? You don't even need to know the names of the markets you're trading. All you need are the prices. Can you find a positive mathematical edge in the great spirit of Ed Thorp and "Beat The Dealer"? That is the rallying cry of the trend following world--the desert island trading scenario. Even if someone elected not to make an allocation to a trend following firm (or did not want to trade as a trend follower themselves) Covel invited them to create a model portfolio. That way, you can at least know when trend following is doing well. That piece of information can be a useful piece of fundamental data for your fundamental trading shop. Some criticisms? The idea that Covel is not revealing the "secret sauce", holding back, or not revealing the "new thing". You have to ask yourself: Can you look at a trend following system? Test it? Look at professional trend following managers and see how they have performed? Compare it all? And believe in it? Or do you allow yourself to be distracted by other peoples' comments? Distracted by society? Ultimately that might be the big picture issue that Covel is seeing in his journey. Distraction kills focus. Free DVD? www.trendfollowing.com/win.
Michael Covel starts off the podcast with two famous film speeches: one that you've probably heard and one that perhaps only those with some Wall Street experience may be familiar with. Covel notes that this is how most young men begin their understanding of Wall Street: through the brokerage lens (hence the 2nd speech). It's how Covel first understood it, too: through the lens of Liar's Poker and Salomon Brothers. The idea is that if you work for this big investment bank and become a broker, you can make yourself a fortune. And you can call yourself a trader. But, being a broker doesn't make you a trader. You have to put your time in and you have to allow yourself to be in learning mode. Can you put off all the distractions and focus on the education of learning a trend following system and trend following psychology? Or do you operate under society's rule that if you lift a finger someone has to pay you first? If you have the opportunity to learn trend following trading don't worry about the silly stuff: how much time it will take, how much money you'll have to spend, etc. As long as you don't go broke it will be fine. The important thing is taking the proper amount of time and effort to prepare. In stark contrast to the earlier clips Covel transitions into playing and analyzing several excerpts from legendary trend following traders Bill Dunn, Jerry Parker and David Harding. These excerpts are not the Hollywood speeches: they're real, raw and full of priceless trend following insights. Covel ends with a quote by Harding: "We know that we know almost nothing, but the almost nothing we know isn't completely nothing and we only bet on that." We all know the price action; we know whether a market is moving up or down. We can follow that flow. If you can follow the flow of a market either up or down you've got a chance. Don't try and predict tomorrow, it's impossible. Take what you do know for sure and look for a way to use it and be prepared for when the next black swan swoops in, the next big event appears suddenly. As Bruce Lee says: "Be water, my friend." DVD: www.trendfollowing.com/win.
Michael Covel opens up today's podcast by playing an interview with freelance journalist and author Helaine Olen from "The Daily Show With Jon Stewart". Olen is there to promote her book, "Pound Foolish: Exposing The Dark Side Of The Personal Finance Industry". Olen notes that how when those in the "financial entertainment" business such as Suze Orman and Jim Cramer gives stock picks, the stock goes up. However, it almost always falls back down several weeks later. To that end, Olen recommends immediately shorting anything Jim Cramer mentions as a buy. However, towards the end, the interview takes a different tone as Stewart mentions that he doesn't understand "why we don't value work more and why investment has become so valued". Covel kicks into gear and comments on the interview, first noting that he's a fan of Stewart, but also pointing out the problematic attitude Stewart takes. There was something distinctly missing from Stewart's interview with Olen: personal responsibility and how the world really works. The search for security, especially in your investments, is fool's gold. But why did Covel play this clip? It's a lead into today's topic: how the world really works. Covel talks about Google clinging onto it's cash waiting for the right opportunity. Google is waiting for the good bet. Their hand is not being forced and they don't care what you think about them. So, Google can wait, but can you? They know the right move will come, and they know they have to have the capital when it does. So in a sense, Google is acting like a trend following trader. That's trend following 101. You have to wait for the home run. So what causes us not to wait? What screws us up? Covel plays a clip from Keith Chen to illustrate why in which he about how language can have an effect on your ability to save money. Covel comments on the clip, noting how being a trend following trader involves reacting to right now. You're not dealing with tomorrow. All you're dealing with is the here and now. Looking at the machinations of American investors through Chen's speech, Covel notes how we all want to deal with the non-existent future, but if you want to step outside of that bubble, it's up to you. It's your personal responsibility. Free trend following DVD? Visit www.trendfollowing.com/win.
Michael Covel comes to us with his first podcast in in China, dedicating today's episode to the the city of Hong Kong. Having just arrived in Hong Kong from Tokyo, Covel ruminates on the differences between the two places. Tokyo is a fantastic, organized, and civilized place. Covel discusses the feel of the city, especially loving green tea vending machines every hundred feet giving hot or cold tea perfectly every time. However, he notes a somewhat slow pace which is a direct contrast to the speed of Hong Kong. Hong Kong is on fire, and everybody is there trying to make things happen. You don't have to like it-- and it does have some rough edges-- but it's alive. It's a giant melting pot with a pulsating energy in the air of people making things happen. Covel also details the events surrounding the presentation he gave for CLSA at the Hyatt in Roppongi, Tokyo. Following Covel's presentation, Dr. Marc Faber spoke. Faber and Covel share a view that all of the misadventures happening in society today will eventually end badly. If you're going to try and trade all this uncertainty you'd better have a timing indicator. Trend Following has a timing indicator built in: price action. You'll never get in at the very bottom and you'll never get out at the very top, but you'll get out alive and with a profit. Covel shares a quote from Seth Godin on that subject and discusses alternatives to staying glued to the television. Is it really fun staying glued to the screen watching blips go by? Or do you do it because you think that's how you make money? Fortunately, you don't need to be worried what high frequency trading is doing and you don't need to be worried about the next Fed announcement. Consider the alternative: you want to be ready when markets move in larger trending directions and get aboard the trends that have much lengthier time horizons than fifteen seconds. You want to be prepared for when the next black swan swoops in. If you put the fifteen second news flashes aside and start trading something like a six month signal instead, doesn't that allow you a much nicer life than fixating on the minutia of every moment? Also: Covel talks about why Hugh Hendry will probably never do the podcast, shares a speech from the "Kid President", and finally uses the word "ladyboy" on the podcast. Want a free trend following DVD? Visit www.trendfollowing.com/win.
It was a few years ago when trader, investor, and venture capitalist Brad Rotter expressed his belief to Michael Covel that technology was arbitraging away the need for human capital. People just aren't needed anymore. This idea stuck with Covel and he explores the idea that, if people are needed less and less as technology increases, what do you do to get ahead? You can be replaced if you're working for the man. It's harder than ever to build a life around the beautiful little house and the white picket fence when your job might be taken out from under you as technology progresses. So what kind of strategy do you use in the face of that? You can become an entrepreneur. Covel thinks its one of the most exciting times ever for would-be entrepreneurs. Yes, some jobs are going away forever, but that just might be the kick in the pants you need to go and do something that matters: to make art of some kind, whether it's painting, creating software, designing a trading system, developing a new way of teaching, or trading your own account. When you're 90 years old you'll be able to day that you didn't just clock in for the man every day of your life. Who wants to be a desk jockey working for the man for minimum wage? Instead of being a cog in the wheel, you can make a new wheel. The simple notion of being an entrepreneur is the magic elixir in the face of the problem of technology arbitraging away the need for human capital: you create something new that is of value, someone buys it, and money is exchanged. The idea is that you control it. Technology can't take your place if you're bringing unique and new ideas to the table. Everyone has some sort of skill; everyone brings something to the table. But people are scared to make the leap. You have to have a belief in yourself; you can't fear failure. Making mistakes is the magic that leads you to success. If you don't have any mistakes under your belt, you have a fragile foundation. Ultimately, you can make people believe in you and compensate you for the value that you bring. All you need is your wit, your smarts, and your enterprising spirit to make something happen. DVD: www.trendfollowing.com/win.
Michael Covel returns for his first podcast since going abroad in Southeast Asia. Currently in Thailand, Covel catches us up on where he's been so far. He notes the history of past conflicts in the area and his thoughts from a mountain view six-thousand feet above the ground looking onto the landscape below. Since leaving the US Covel has especially enjoyed not paying attention to the news coming from America. The idea of noise is afterall pointless from a trend following perspective. If you can get away from it, either physically (like Covel) or mentally, it's a good idea to eliminate it in your life. Along the lines of what's needed and not needed, Covel plays a video called "What Do Prices Know That You Don't?", a clip from a Duke professor that discusses relying on price to make decisions. Even though the video doesn't come from a direct trend following perspective, it illustrates the danger of too much information. It's easy to play the game of waiting for one more news report, watching one more episode of Bill O'Reilly, or trusting the promises of one last politician. That's where we are right now: we're in a game. So, if you are in a game, how do you navigate it? What do you do? What decisions do you make? And what happens when the game doesn't go the way the government has said? So, what lies ahead? Covel reads a piece of writing from Transtrend's newsletter regarding the role of the government and what you can expect, followed by a piece from John Hussman. Both readings seem to agree on one thing: something will happen at some point. Are you prepared? Or do you just want to just trust that the government will forever be able to prop up the market? Hussman makes the point to not follow prices, which Covel disagrees with--if the Chinese stock market is going up, you want to be long. The issue isn't what to do in a market that's going up; the issue is having an exit strategy. Covel's view is to be long and be happy in a rising market, but have an exit strategy. That's the solution. If you can't wrap your arms around that you might think about getting out of the markets completely. Even if you don't ultimately adopt a trend following strategy, if you're going to be trading, it's of dire importance to understand the concept of trend following. It's essential to have it in your arsenal of tools. Covel wraps up and shares some other observations about Asia, his upcoming presentations abroad, announces an upcoming audiobook version of The Complete TurtleTrader, and discusses what you can expect from the podcast in the coming months. Want a free trend following DVD? Visit trendfollowing.com/win.
Michael Covel discusses how to best go about learning to become a trend following trader. Often when people come to trend following trading for the first time they get fixated on the rules alone, thinking there is a "magic potion". There are other factors to consider, and Covel examines them by relating to two articles: "Why Are Super-Achievers So Successful?" from Smithsonian.com and "The Secret Ingredient for Success" from The New York Times. Covel examines the common threads of the super-achiever: self-awareness and self-evaluation; finding ways to connect themselves to people that would support their dreams goals; the skill of active listening; and patience. Covel highlights one part of the article that states "you don't have to win every lap", and points out a perfect parallel to trend following trading. The best traders out there don't win every day or every month, but they pick up the big wins when they come along. Do you want to allow yourself to be seduced by the buy and hold mantra, to be at the mercy of when the S&P will take it's next 50% dive backwards? Or do you want to be a super-achiever? Covel's training programs will put you in the position to be a super-achiever: his fifteen years of his experience; his insight of knowing exactly what to do in your own personal circumstances; the attitude and psychology necessary to be a successful trader; and the personal support and motivation to go out there and make it happen. You can get the systems and education you need to get a head start in the trend following world. If you want more than Covel's five books and film, you can get a leg up through his flagship trading system or one-on-one training. Free DVD: www.trendfollowing.com/win.
For the past couple of years many of us have been in love with Apple. Their products, their style, and their stock. It was a great story as long as the stock was going straight up. On today's podcast Michael Covel talks about all things Apple: the worship; the seemingly romantic love of Apple stock; and the drop down to $450 a share from its peak above $702.10 in September (down 35% from its peak). Covel compares the fundamental viewpoint looking at Apple today to the trend following perspective that is purely based on price action. The Wall Street analysts all seem to insist that they can predict the future, but none of them predicted this. So, what does this mean? Is Apple a "broken company"? Apple had a profit of 13 billion dollars, sold 28% more iPhones and 48% more iPads, and the stock still went down. Covel looks at several articles from Wall Street analysts and notes that none of these people were saying what they're saying now when the stock was at 700 a share. Covel creatively points out the complete drivel coming from these analysts, and notes how nothing has changed on Apple's end but the price of their stock. So why is this only being pointed out now? And what is Covel's ultimate point? Follow the price action. Trend followers don't have to know anything about what's going on inside the back room of an Apple store. This is a classic example of a trend: ride the train up, ride the train down. Is the stock cheap now? What if it's at 350 or 250 next month? Do you buy on the dip? If the market is going down, get out or short it. The price knows more than any Wall Street analyst. There is no way on the planet to attach all fundamental views to the movement of the stock price. If the best traders on the planet don't have these insights, how can the stock jockeys at CNBC and Bloomberg, for example, have them? Free DVD: www.trendfollowing.com/win.
Inspired by a blog post by Barry Ritholtz, Michael Covel goes over his own list of "Things I Don't Care About". You can have the intravenous drip straight into your arm, but what does all that commentary do for you? Ultimately, if you're a trend following trader or any type of investor you need a process. You need a set of rules that tells you where to enter, where to exit, and how much to bet of your limited capital at all times. Regardless of account size, volatility, etc. You need a process that determines that for you. If you have that then eliminating all other stuff is paramount. And it's not just for trading reasons; it's for life reasons. Covel goes through Ritholtz's list and compares it to his own. On the flipside Covel also goes through a list of the things he does care about: Knowing how the "behind-the-scenes" action really works; the traders that he has learned from in his books; having honest interactions with people; Alan Watts; Ken Tropin's white papers; The Winton Papers; the Zen Habits blog; and Seth Godin's website. Covel relates several stories from traders such as Salem Abraham and David Harding which taught him some valuable lessons. Covel explains that if you want to be good at anything you have to be passionate about it. You have to care, you have to get inside it, and you have to own it. In the next segment Covel talks about the idea of the efficient market hypothesis, which is one of the foundational pillars for academics. They claim to have mathematical formulas which can predict the future, even though the underlying assumptions are false. Life is much easier for a professor who can fall back on beautiful mathematics. Unfortunately, many people have been sold up the river using investment products based on efficient markets. Covel quotes Charlie Munger of Berkshire Hathaway regarding extreme proponents of the efficient market hypothesis. Munger, even though he's a value investing guy, knows there are outliers and black swans. He knows that markets aren't efficient. Munger notes that mistaken professors were "too much influenced by rational man-models of human behaviors from economics, and too little by foolish man-models from psychology and real world experience." How can there be rational man when Jersey Shore gets high ratings? There's no such thing as rational today. Even if there was markets still might go in a completely different direction from what rational is even deemed to be. Free DVD: www.trendfollowing.com/win.
Michael Covel talks to Eric Crittenden. Crittenden is a Founding Partner responsible for managing all research, risk quantification and trading operations at Longboard Asset Management. He's also been featured in Covel's own Little Book of Trading. Covel and Crittenden talk about Crittenden's beginnings, coming from a medical background and switching majors to economics. Crittenden got to see the world from two different perspectives: one from a biostatistics and natural sciences perspective, and also from a business school perspective. Crittenden is a little different than some of his counterparts in the industry in that he focuses more on "why?" than "what?". Covel and Crittenden talk about sustainability vs. short term inefficiencies; being "ultra long term trend followers" and some of the reasons why he believes it to be the most robust approach; Crittenden's peers and influences--particularly Tom Basso; the start of Longboard Asset Management; why Crittenden decided on a "trend following mutual fund" model, and the benefits to that model; looking at performance data and understanding when trend following (or the media perception of it) falls "below average"; diversification and the markets Crittenden chooses to trade; risk control at Longboard; who can buy into Longboard and the minimum investment required; whether most of the large liquid markets work within the robust structure Crittenden has developed for trading--and the one (only, single) market that long term trend following would have produced a loss on within the last forty years. Crittenden also gives an explanation on the source of trend following returns that might be one of the clearest explanations of the topic that Covel has heard to date.
Michael Covel opens up with some Johnny Cash. Like most of Cash's music it's a simple song. It's powerful, but it works. And its simplicity is exactly why it works. Covel dedicates today's episode to the topics of simplicity, prediction, and risk, and presents three articles revolving around each of these ideas. First, Covel mentions an article that appeared in Business Week regarding how Japan's fear of risk is getting dangerous. For those not aware the Japanese stock market is down 76% still from its 1989 high. That would have to be an entire generation--an entire country--that no longer believes in the stock market. That's not the reason Covel brings up the article; rather, it's the "play it safe" mentality. He goes on to discuss the tendency to focus on downsides rather than opportunities. The attitude of risk-aversion in Japan explains why few Japanese students choose to study abroad, why regulators hold up vaccinations, and why 844 trillion yen (almost twice the country's yearly economic output) sits idle in cash at home and in savings accounts earning 0.02% interest. We're not far away from this attitude coming to America, but with that comes an opportunity for you to profit. Covel isn't picking on Japan; it's just a useful example of the risk-averse attitude that seems to be spreading. Covel moves onto an article from Golf Digest called "What Predictions Say About Us". Predictions are about pretending to know. Covel points out one particularly compelling quote: "Human beings are wired to predict. In ancient times, predictions served as a psychological counterweight to the extreme uncertainty of life. As we've gained more control over this daily existence, predictions help encourage the illusion that we're in charge of our own destiny. The more that is unknown, the greater the urge to predict." Somehow we've come to think that we can predict almost everything. It's hard-wired into us. If you can understand that so many people are destined to predict (and continually predict incorrectly) it can put you in the position to profit--if you've got a strategy that's predicated on *not* predicting, i.e. trend following. Covel moves on to discuss simplicity quoting an article called "One Trick Pony". The article talks about Peyton Manning and Tom Moore, who teamed up with a NFL strategy that they used with great success. Their strategy was based on running the fewest play concepts of any offense in the league. It's not about trying to surprise the opponent, but in mastering a strategy that works. That's trend following, too. It's relatively simple, it's robust, it's big, and there aren't a lot of moving parts. It is what it is--which is a great opportunity for profit. Free DVD: www.trendfollowing.com/win.
Michael Covel sets the tone for today's propaganda-themed show with two clips: A Rod Serling monologue from "The Twilight Zone" and the infamous Apple "1984" commercial. Covel goes on to discuss an article about David Harding of Winton Capital--a trader who has become one of the major faces in trend following trading due to his track record in the last decade. The article notes Harding's -3.5% 2012, calls his success a "blip", and generally presents criticism without any foundational understanding of Harding's techniques. Covel tears the article apart point-by-point. It's a perfect representation of how the media misrepresents the facts. Covel's isn't motivated to critique this particular article because he's a David Harding fanboy--rather, his goal is to point out the intellectual dishonesty put on display so often in the media. Covel questions the motives of the writers; dispels the myth that massive computational power is needed to be a trend following trader; and questions how one 3.5% down year can possibly be considered a "plunge" or "blip" in the larger context of Harding's track record. The authors state that Harding was "blindsided by market uncertainty", but trend following is built on accepting the fact that a black swan can appear in at any moment--a fundamental concept that the authors clearly don't understand. Next, Covel discusses Dave Ramsey and Ric Edelman; radio hosts who both are convinced that you can't make money trading. So, they convince you to buy and hold mutual funds (perhaps some of which they've helped create) and leave you hoping for the best. Covel takes both of them on and dispels their claims that no one in the Forbes 400 makes their money trading. So, why do Ramsey and Edelman persist in putting out such information? Because they have something to sell. Covel has something to sell too, but he gives both sides of the story. He lays out the buy and hold strategies and compares them to systematic trend following. It's just clear who the winner is when you see the whole picture. Ramsey and Edelman neglect to talk about trading successfully; it's all part of the propaganda machine. Think critically. Don't be a sheep. If you want to obtain something more than average, you've got to keep your eyes wide open and look for the propaganda. Free DVD: www.trendfollowing.com/win.