Today on the show Michael Covel speaks with Mark Minervini. Minervini is the author of 'Trade Like a Stock Market Wizard: How to Achieve Super Performance in Stocks in Any Market' and was featured in Jack Schwager’s 'Stock Market Wizards'. Minervini and Covel discuss the importance of influences outside of the finance world; Minervini’s atypical background in music and how he got to where he is today; capturing 'super performance' and the trend; the importance of cutting your losers short; how Minervini spends his day; Richard Love and 'super performance' stocks; why Minervini is not a fan of diversification beyond the minimum amount that you can get away with; Richard Donchian, Jesse Livermore and their influence on Minervini; timeless strategies; Paul Tudor Jones and 'losers average losers'; the importance of not just trading what you know; 'new high ground' and not being afraid of buying higher highs; risk management and bet sizing; the biggest areas where new traders often start off on the wrong foot; Howard Lederer and poker players as an analogy to traders; why you shouldn’t even turn on the television as a stock trader. For more information on Mark Minervini, go to minervini.com. Want a free trend following video? Go to trendfollowing.com/win.
Michael Covel talks with Bill Adams in his second visit to the podcast. Adams is a private trader and systems developer. He is based in Zurich and works with institutional clients. Adams and Covel discuss if Adams views himself as a trend following trader; why the word futures can be problematic; broad diversification and diversifying on a number of different tiers; risk-based diversification; why making sure you're in the game is the most important factor; why every business is seasonal; why price is the most important aspect to a trade; how Adams has (or doesn't have) the "expertise" to trade certain markets; informing your system of various events as a quantitative or systematic trader; thinking about Adams' strategy in the context of evolution; core baskets vs. satellite baskets; the adaptive aspect of what Adams does; the philosophical and operational aspects of volatility; average true range as a volatility measure; trading to make a return vs. trading as an economist; Adams' greatest areas of challenge and frustration; Michael Lewis and whether the markets are "rigged"; and execution strategy. Want a free trend following video? Go to trendfollowing.com/win.
Michael Covel cuts up a Yahoo Finance segment called "Are Social Media Stocks In A Bear Market?" with Michael Santoli and Jeff Macke. Covel dissects the terminology and words used by the media, and the position of the talking heads on this Yahoo Finance article. Covel discusses the idea of researching stocks. There is advice that says you should be doing one hour of fundamental research per week on every stock you own. If you own 50 stocks, that's 50 hours a week. Covel thinks this advice is asinine, and points out that the best traders don't do that. If the best traders in the world don't do that, why should you? It doesn't matter what the research tells you; if you don't have a stop loss, you're going to lose your money. Period. Covel then moves on to the Jeff Macke/Michael Santoli segment and dissects it each step of the way. Covel breaks down the terminology, including "crowded longs", "chatter from brokerage firms", and "hedge fund favorites". Covel also discusses how we don't know the why behind bubbles, inspired by his Justin Fox interview from a few days ago. Covel also discusses why you don't need to know what a good price is on the way down; defining "smart money", "aggressively buying", and "leadership" in a trading system; and whether or not the market is "anxious". Covel ends with something inspired by James Altucher's article, "Ten Reasons You Have To Quit Your Job In 2014". Want a free trend following video? Go to trendfollowing.com/win.
Michael Covel speaks with Justin Fox. Fox is the executive editor at the Harvard Business Review Group. He writes a blog for hbr.org (http://blogs.hbr.org/fox/) and a monthly column for Time magazine. Fox is also the author of "The Myth Of The Rational Market: A History of Risk, Reward, and Delusion on Wall Street". Covel and Fox discuss Harry Markowitz, Bayesian statistics, and making smart decisions in an uncertain world using quantitative tools; stocks, beta, and the importance of making useful predictions; Commodities Corporation and trend following trading in the early 1970’s; why a market in which everyone was rationally anticipating the future would be a random market; Amos Hostetter; how the behavioral mindset started to unfold in the 1970’s; Eugene Fama and the efficient market hypothesis; the Capital Asset Pricing Model; why well-designed markets and well-informed investors are prone to manias and panics; and individuals making errors vs. the group getting it right. Justin Fox can be found on Twitter at @foxjust or on the web at byjustinfox.com.
Trend following wisdom with the most inspiring Market Wizard Ed Seykota.
Michael Covel speaks with Thomas Gilovich. Gilovich is a professor of psychology at Cornell. He is an expert on behavioral economics and decision making. Covel and Gilovich discuss how his world dovetailed into money and markets; basketball, streak shooting, and the “hot hand”; randomness and the clustering illusion; the missing Malaysian Airlines flight and probability; the reluctance to accept a probabilistic view of the world; politics, predictions, and probabilities; people who see the world in black and white; drawing conclusions from incomplete and unrepresentative evidence, and how to avoid that folly; the position of the devil’s advocate, and the importance of that role; Gilovich’s response to the media’s talking heads, and their often black and white opinions; behavioral economics vs. traditional economics; when people do the wrong thing because the public demands it; Bill James and the closer; instinct vs. considered judgment and test taking; irrationality in financial markets and bubbles; loss aversion; and why you don’t need to be better than the market. More information on Thomas Gilovich can be found at psych.cornell.edu/people/thomas-gilovich. Want a free trend following DVD? Go to trendfollowing.com/win.
Michael Covel speaks with Tom Dorsey, of Dorsey Wright & Associates. Dorsey expands on his view of technical analysis, with a specialization in point & figure and relative strength. It’s a little different from Covel’s world, but occupies the same head space. Dorsey Wright & Associates was started in 1987, and Covel asks how Dorsey first came to technical analysis. Covel and Dorsey also discuss dealing with a bear market in Dorsey’s early days; early training in options; how Dorsey learned about point & figure trading; definitions and explanations of point & figure trading; how point & figure works like a tennis match; automating your strategy; the criticism of “black boxes”; a third grade experiment; how Charles Schwab changed the world; and how technology influences the technical analysis world. More information about Tom Dorsey can be found at dorseywright.com. Want a free trend following DVD? Go to trendfollowing.com/win.
Michael Covel speaks with Marc Faber, Editor and Publisher of "The Gloom, Boom & Doom Report", in person on the podcast (recorded in Chiang Mai, Thailand at Faber's office). Covel and Faber discuss the current state of Russia; changing geopolitics; Faber’s experience living through the Cold War; the difference between Crimea’s value to the west and its value to Russia; why the Russians perceived the uprising in Kiev to be financed by western power; China’s reaction to the situation in Crimea; the construction boom in China; the difficulty of forecasting China’s geopolitical changes; positive and negative valuations of the market, and finding investments to be “cheap” or “expensive”; Faber’s advice to young people following his path today in the face of money printing and bailouts; what can be done about wealth inequality; making a living in the face of instant communication and globalization; central banks’ role in wealth inequality; why money printing leads to bubbles; Warren Buffett’s involvement with the bailouts, and how his government connections have helped his investments; and how governments are assimilating everything; “Capitalism and Freedom” by Milton Friedman; and the cost of large government in the US and elsewhere. Plus, included are Faber's views on relationships, contrasting the West and Asia along with Facebook fame (not related to investing, but wise and entertaining words). Want a free trend following DVD? Go to trendfollowing.com/win.
Michael Covel speaks with Martin Bergin, CEO of Dunn Capital Management. Bill Dunn and Dunn Capital were famously profiled in Covel’s book Trend Following and they have a 39 year track record of trend following performance. Covel and Bergin discuss the early stages of Dunn Capital, and how it arrived where it is today; trend following with futures; volatility within Dunn’s system, and why volatility is important to the overall performance; targeting losses; how history informs system creation; adapting to the marketplace and to available technology; what it means to be 100% systematic with no overrides; defining “black box” systems, and the difference between Dunn Capital’s strategy and black box strategies; location in relation to Dunn Capital, and why it isn’t necessary to be in a big city like London or Tokyo; how the core of Dunn Capital has stayed the same while certain aspects of business has evolved; decreasing drawdown without decreasing profitability; behavioral finance and dealing with biases; the adaptive nature of trend following; predictive vs. reactive trend following; and Dunn Capital’s fee structure. More information about Dunn Capital can be found at dunncapital.com. Want a free trend following DVD? Go to trendfollowing.com/win.
Michael Covel speaks with Howard Lindzon. Lindzon is a Canadian entrepreneur, author, financial analyst, technical analyst and angel investor. Lindzon manages a hedge fund, serves as managing partner of the holding company Social Leverage, limited partner at Knight's Bridge Capital Partners, and is the co-founder of StockTwits. He’s also known for the satirical podcast Wallstrip. Lindzon and Covel discuss the commonalities between the angel investing world and trend following; over-diversification; diversification in private investments vs. stocks; how Lindzon got the entrepreneurial “bug”; Lindzon’s early career as a stockbroker; the beginnings of Wallstrip; Lindzon’s comedy influence; how Wallstrip led to the next four years of Lindzon’s investments; how Lindzon’s mistakes helped him grow as an investor; Lindzon’s experience with fraud committed by a business partner; keeping your business drama-free; the issue of distraction; Lindzon on the birth of StockTwits; the investment that changed Lindzon’s financial life in 2005; the future of StockTwits as Lindzon sees it; social leverage; the art of curation and verticalization; and thinking of the financial web as a social bank account. Howard Lindzon can be found on www.howardlindzon.com. Want a free trend following DVD? Go to trendfollowing.com/win.
Michael Covel speaks with Victor Sperandeo. Sperandeo was originally featured in The New Market Wizards by Jack Schwager and has a Wall Street career that spans back to 1966. From trader, to historian, to a man with very strong public policy opinions, Sperandeo comes to the podcast to discuss his career and views with Covel. Sperandeo and Covel discuss recent public policy directions; trading against your public policy interests; zero interest rate policy; whether the S&P is a “bribe”; the Fed mandate to keep stocks from falling and to stop volatility; the wealth effect; why the stock market going up is a very poor instrument to fix the economy; the trend towards socialism; Sperandeo’s experience working with George Soros; Sperandeo’s experience with the DTI index; black swans and the effects of large, catastrophic events on the market; why the only way to protect yourself is extreme diversification; volatility balancing; and Sperandeo’s experience as a young man and how he came into the trading world. Want a free trend following DVD? Go to trendfollowing.com/win.
Today on the podcast, Michael Covel talks with Carl Richards of Behavior Gap fame. Richards is also a Certified Financial Planner. Behavior Gap, featured in the New York Times and often posted by Covel, features sketches filled with insights into finance and into life. The Behavior Gap brings good investing and behavioral economics together in an understandable, digestible format. Covel and Richards discuss Richards’ new radio venture; how Richards came to start The Behavior Gap; outliers, and living your own bell curve; risk on a daily, weekly, and monthly basis; the definition of radical self-awareness; mindfulness and awareness as applied to our financial decisions; habit, action, feeling, and thought; simplicity and effectiveness; government intervention in the markets; quantitative easing; buy and hold in Japan; loss aversion and the pain of loss; and feeling loss more than the joy of gain. More information on Carl Richards is available at behaviorgap.com. Want a free trend following DVD? Go to trendfollowing.com/win.
Michael Covel speaks with Sam Polk on today’s podcast. A friend of Covel’s that has previously been on the podcast, Peter Borish, recommended that Covel speak with Polk. Polk wrote an interesting op-ed in the New York Times called “For The Love of Money”. Polk is a former wall street banker who walked away after making millions. Today, Polk runs a non-profit to help the poor understand nutrition. However, his op-ed is definitely controversial. Covel and Polk discuss the intensity surrounding the reaction to Polk’s op-ed piece; reactions from friends and colleagues about the article; envy and jealousy in the Wall Street world; Polk’s background and life growing up; filtering cultural messages; the line between individual responsibility and being part of a system; crony capitalism; power dynamics; the mythology of risk-taking in America; the solution for the investment banks out there; and Polk’s non-profit which he runs today. Want a free trend following DVD? Go to trendfollowing.com/win.
Michael Covel received an email from Jonathan Garner about a blog post from Derek Hernquist titled “I Have No Idea What Tesla Is Worth, Do You?”. It linked to a CNBC interview with an analyst named Brian Shannon. Covel plays the CNBC clip and gives commentary at specific points. Covel shares the technical analysis viewpoint with Shannon, but disagrees when it comes to price targets. Covel also points out some terms that aren’t part of the vocabulary of a trend following trader. A pure, predictive technical analyst could go that direction, but that’s not trend following. Covel isn’t trying to slam Shannon, who is trying to fight the good fight from a price action perspective. Rather, Covel focuses on CNBC’s coverage and one particular talking head who has no idea about technical analysis. Covel points out that even if you’re a purely fundamental trader, you have to know what trend following is, what it does, and how it behaves. Covel focuses on price action and momentum, not Tesla’s latest announcement. Shannon concludes by talking about risk management, which Covel then discusses. Covel ruminates on why trend following and technical analysis are so confused, and talks about the difference between predictive and reactive technical analysis. Continuing on with another example, Covel tells a story about a young man he met who invested in $10,000 worth of Facebook stock, and why it’s important to have an exit plan. Covel was forwarded the young man’s blog post, which stated the decision to invest in Facebook was based off a wealthy friend’s advice. If you’re going to follow advice, make sure it isn’t made up out of thin air. If you’re going to follow a thought process about how money is made, you have to scientifically dig in and look at the process. If not, it’s just gambling. To close out, Covel talks about a piece he re-read from Malcolm Gladwell about how Nassim Taleb first met Victor Niederhoffer. Want a free trend following DVD? Go to trendfollowing.com/win.
Michael Covel talks with writer and trader Jack Schwager, author of the Market Wizards series, in his third visit to the podcast. Today, Covel and Schwager discuss his newest book, The Little Book of Market Wizards. Schwager also has a new program out called Fund Seeder. Covel and Schwager discuss how Fund Seeder acts as a liaison for traders and investors; the difficulty of starting out as a new trader; how Fund Seeder is a global opportunity; Schwager’s last book, Hedge Fund Market Wizards; the timeless quality of the Market Wizards books; Jesse Livermore’s Reminiscences of a Stock Operator; how human nature is the only thing that will never change; looking for a “secret recipe” in the Market Wizards book; “The Upside of Down: Why Failing Well Is The Key To Success” by Megan McArdle; why failure is smart and an essential part of success; the importance of failure in the context of education; behavioral economics; Jack Horner and thinking outside of the box; the importance of loving what you do for a living; and the importance of travel. More information about Fund Seeder can be found at fundseeder.com. The Little Book of Market Wizards is also available now from all major retailers. Free trend following DVD? Go to trendfollowing.com/win.
Michael Covel interviews Al Abaroa today. Abaroa is Chief Investment Strategist at Kingsview and has been a registered broker and trader since 1993. He has seen all aspects of the investing industry. Today, Covel and Abaroa talk about a white paper that Abaroa wrote about trend following. Abaroa and Covel discuss how people forget that anything can and will happen; why we’re seeing optimistic behavior in the market; the similarities between the WhatsApp/Facebook acquisition and the AOL/Time Warner acquisition; Abaroa’s wealth formula; “reasonable returns”; long term vs. short term outlooks; the advantages of youth in trading; lifespan growth, and retirement; Tom Basso and black swan events; looking back on major crashes; development and distribution as the two modalities of price; focusing on price action; the Global Volatility Index; looking at black swan periods as a place to profit; the asymmetrical return stream and the asymmetrical nature of trend following; why trend following produces returns a minority of the time; position sizing; fixed contract allocation vs. fixed fractional contract allocation and their role in position sizing; trend following investors and market timing; seeking immediate gratification in trend following investments; and looking at trend following track records. Abaroa can be reached at firstname.lastname@example.org and the white paper discussed can be found at www.michaelcovel.com. Want a free trend following DVD go to www.trendfollowing.com/win.
Michael Covel opens up with an excerpt from “River Deep, Mountain High”. A lyric invented for a bubble. Covel moves into a description of a trend following firm with a long track record and discusses their history and key features. Covel notes location independence, consistency, cutting your losses short, taking on volatility, being able to take advantage of outlier moves, and being 100% systematic. Covel also discuses being agnostic to which markets that allow you to make your money, as well as being agnostic to market direction and which markets you have in your portfolio. In reaction to a critical e-mail, Covel plays a clip of Charlie Rose talking to recent podcast guest Daniel Kahneman. Kahneman discusses trading, the ability to make money in the markets, prediction/forecasting, “Moneyball” by Michael Lewis, and Kahneman’s view on all of these. Covel also moves on and talks about his role as a curator. Want a free trend following DVD go to www.trendfollowing.com/win.
Michael Covel talks with Jonathan Hoenig. Hoenig is a regular on many news and cable news shows--you’ve seen him everywhere over the past decade. However, he got his start on the Chicago trading floors, and he talks to Covel today about his new documentary, “Pit Trading 101”. Covel and Hoenig talk about Hoenig’s branding for his hedge fund, Capitalist Pig; why capitalism has become demonized; the difference between capitalism and crony capitalism; Ayn Rand and capitalism as the “unknown ideal”; how Hoenig ended up in the Chicago trading pits, and what we can learn from studying pit trading today; the physical type of pit traders; the subculture of the pits; where Hoenig sees futures markets going; the blame of speculators; and America’s place in the world today. Want a free trend following DVD go to trendfollowing.com/win.
Daniel Kahneman has been called the most important psychologist alive today and joins Michael Covel on the podcast. Kahneman is the 2002 winner of the Nobel Memorial Prize in Economic Sciences. Together, Covel and Kahneman discuss Kahneman’s beginnings, and how he came to realize he was looking at the world from a different vantage point than most; how Kahneman’s work is foundational to trading; questioning the dogma of rationality; happiness, and the distinction between the remembering self and the experiencing self; the consumption of memories; the danger not making peace with a loss; bubbles and crowd behavior; happiness research and public policy; emotion, possibility, and probability; hope and fear; why optimism is the engine of capitalism; and the influence of prospect theory. Want a free trend following DVD go to trendfollowing.com/win.
Michael Covel talks with John Bollinger on today’s podcast. Bollinger is responsible for a technical indicator that just about everyone has heard of: Bollinger Bands. Bollinger has been popularizing price-based indicators since the early 1980s, and Bollinger Bands arose from the need for adaptive trading bands and the observation that volatility was dynamic, not static, as was widely believed at that time. Covel and Bollinger discuss Bollinger Bands as described for the lay person; defining when a price is relatively high or relatively low; defining “relatively high” and “relatively low”; measuring volatility to determine the “width” of a Bollinger Band; standard deviation; the beginnings of Bollinger Bands, and how John Bollinger came to put it together; different ideas about volatility in the 1980s; some of Bollinger’s early curiosity triggers, and why he started digging into finance after going to art school; light, film, and Bollinger’s experience at the School of Visual Arts; Bollinger’s experience in his apprenticeship to learn technical analysis; “the best authority is the price itself”, and why this statement isn’t very well accepted in the mainstream; differences between fundamental and technical analysts; Bollinger’s look at media and the presentation of his message over the years; why Bollinger would be known as a quantitative analyst instead of a technician if he started his career now; position sizing; and why volatility is the least understood aspect of the market. More information on John Bollinger can be found at www.bollingerbands.com. Want a free trend following DVD go to trendfollowing.com/win.
Michael Covel reflects on the recent guests he’s had since his last monologue, including guests like Ed Seykota. Covel discusses Seykota’s book, “Govopoly”, and how government and crony capitalism is eating the US from the inside-out. If you have to navigate a system like this, that’s unpredictable at its essence, there’s no better way to maneuver around the chaos than with trend following. Covel discusses how trend following, and being an entrepreneur, gives you freedom. Covel moves on to talks about the 2014 conference in Singapore, where Covel is preparing to have some of the best and brightest names in trend following. Covel then plays a clip from CNBC featuring David Harding. Covel discusses the clip and gives his commentary, discussing momentum and trend following in Harding’s own work, and how the talking heads just don’t get it. Covel questions why CNBC would bring on someone and act like they have no idea of what he does, and spends some time exploring why CNBC would have someone on and ask the questions they ask. Harding also interestingly notes that he is not at the particular conference he is at to learn strategy; Covel explores why Harding might not want to learn strategy at a conference with some of the world’s most powerful people, and what this might mean to the young trader.
Michael Covel talks with Dave Rapach, a professor of economics at the John Cook School of Business at Saint Louis University. Rapach comes at trend following from an academic perspective, and he explains it from this vantage point. Covel and Rapach discuss why trend following works from an academic standpoint; "publish or perish" and the difficulty of publishing scholarly articles on trend following; early research on trend following, the random walk theory, and Burton Malkiel’s “A Random Walk Down Wall Street”; Warren Buffett, Bill Dunn, and survivorship bias; a paper that Rapach traces to the reintroduction of trend following and technical analysis to the academic community; measuring systematic risk; Eugene Fama’s recent nobel prize; how the trend following world has been neglected by the academic community; how Rapach found his way into the academic finance world; Covel’s experience digging in to trend following research in the early to mid 1990’s; some of Rapach’s recent papers; and why recessions are good for trend following. For more information on Dave Rapach, visit http://sites.slu.edu/rapachde. Want a free trend following DVD go to trendfollowing.com/win.
Michael Covel speaks with Ed Seykota. Seykota was famously first featured in the original “Market Wizards” book. He’s also appeared in Covel’s “Trend Following”. Covel considers Ed a friend and a mentor, and Seykota has provided a major influence on Covel’s work. Their conversation today gets into a bit of trend following, but it’s mostly about Seykota’s new book, “Govopoly”. Together, Covel and Seykota discuss Seykota’s concerns about our economy; the assimilation model and how Seykota sees assimilation happening today; the definition of “govopoly”; how Seykota’s mentor’s work plays into Seykota’s work today; thinking about systems; what we can do to “fix” the economy, or to at least prepare yourself; the exponential curve that assimilation takes; noticing things before they’re important; why Seykota doesn’t provide a “solution” to the problem and instead advocates for the system to correct itself; what we can do as people in response to the system; Detroit as a microcosm of the US; and ways to make money during the assimilation.
Michael Covel interviews Dominic Frisby, a self-proclaimed accidental financial bod, comedian, actor of unrecognized genius, voice of many things, & presenter. His new book is called “Life After The State”. Covel and Frisby talk about Frisby’s beginnings as an actor and comedian; what comedy can teach us about finance and the discipline of clarity; how Cuba’s currency confusion led the nation to unfortunate circumstances; real estate; other peoples’ trust in the state; how the poor and needy would be cared for in a society without a state; the monopoly on compassion; how the state takes a piece of everything; “greed is good”, “money is the root of all evil”, etc; crony capitalism; predation vs. productivity; the influence of lobbyists; the duopoly on money by banks and the state; education; Bitcoin, digital currency, and taxation. For more information on Dominic Frisby, visit www.dominicfrisby.com. Want a free trend following DVD? Go to trendfollowing.com/win.
Michael Covel talks with Harry Dent in his second visit to the podcast. Dent studies demographic and historic trends to see major events unfolding long before the mainstream media has them on their radar. Dent’s new book is called "The Demographic Cliff". Covel and Dent discuss why demographics are so important; the definition of the "demographic cliff"; demographic comparisons between the US and Asia; rates of urbanization and GDP in emerging countries; the baby boomer generation; the Japanese "coma economy"; why the retirement age needs to be raised; how real estate in America will never be the same; and "die-ers" vs. buyers. For more information on Harry Dent, go to www.harrydent.com. Want a free trend following DVD? Go to www.trendfollowing.com/win.