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Trend Following with Michael Covel

Bestselling author Michael Covel is the host of Trend Following Radio with 5 million listens. Investments, economics, decision-making, human behavior & entrepreneurship--all passionately explored. Guests include Nobel Prize winners Robert Aumann, Angus Deaton, Daniel Kahneman, Harry Markowitz & Vernon Smith. Also: James Altucher, Dan Ariely, Jean-Philippe Bouchaud, Kathleen Eisenhardt, Marc Faber, Tim Ferriss, Jason Fried, Gerd Gigerenzer, Larry Hite, Sally Hogshead, Ryan Holiday, Jack Horner, Ewan Kirk, Steven Kotler, Michael Mauboussin, Tucker Max, Barry Ritholtz, Jim Rogers, Jack Schwager, Ed Seykota, Philip Tetlock & Walter Williams. All 500+ eps at www.trendfollowingradio.com/rss.
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Now displaying: April, 2016

Bestselling author Michael Covel is the host of Trend Following Radio with 5 million listens. Investments, economics, decision-making, human behavior & entrepreneurship--all passionately explored. Guests include Nobel Prize winners Robert Aumann, Angus Deaton, Daniel Kahneman, Harry Markowitz & Vernon Smith. Also: James Altucher, Dan Ariely, Jean-Philippe Bouchaud, Kathleen Eisenhardt, Marc Faber, Tim Ferriss, Jason Fried, Gerd Gigerenzer, Larry Hite, Sally Hogshead, Ryan Holiday, Jack Horner, Ewan Kirk, Steven Kotler, Michael Mauboussin, Tucker Max, Barry Ritholtz, Jim Rogers, Jack Schwager, Ed Seykota, Philip Tetlock & Walter Williams. All 500+ eps at www.trendfollowingradio.com/rss.

Apr 29, 2016

Michael Covel interviews Parag Khanna. Parag is an international relations expert, a CNN Global Contributor and Senior Research Fellow at the National University of Singapore. He is also the Managing Partner of Hybrid Reality, a geostrategic advisory firm, and Co-Founder & CEO of Factotum. Parag’s new book, “Connectography: Mapping the Future of Global Civilization” recently came across Michael’s desk. The concept of connectivity does not just relate to mobile phones and Skype. There is a very physical and tangible evolution of connectivity that can be boiled down into three categories; transportation, energies and communications.

Michael and Parag start the podcast off touching on what connectivity is and then dive into the relationship between cities and states. Parag says that there is not one single successful state that is not built upon the stability of their successful cities. We have more mega and viable cities than states in the world. Cities are the drivers of growth. More mayors are sitting heads of states or presidents nowadays than any other time in history and think of themselves as CEO’s rather than politicians.

Next, Parag elaborates on supply chains. The diversity of products available today is truly global. A product can have digital design from Silicon Valley, assembly in China, and a call center for product customer support in Vietnam. As a business, the combination of infrastructure investment and connecting through supply chains to global markets makes you a real player in the economy. Michael brings up the economical impact that globalization has made, in particular to taxes. Apple is working with Ireland to keep their investments outside the U.S. More and more companies are realizing that they can operate over “the cloud.” Markets are everywhere and sales are everywhere so investments should be able to be everywhere as well. American politicians have been counter productive in trying to capture taxes from some of the biggest companies in America.

Michael brings the conversation back to China and their infrastructure. China has made a global plan to help counties boost their infrastructure. They are spending their own money to help gain trust and also smooth the flow of goods in and out of developing countries by building railways, airports and shipping ports. Most of the world trade growth is happening across the Indian Ocean because of the Chinese.

Next, Michael brings up country borders and the reservations citizens may have about immigrants. No country has gained more from accepting immigrants into their society than America Parag argues. Parag says that unfortunately people are acting more with their hearts rather than acting on the data. There are far more benefits to welcoming immigrants into societies as opposed to shutting them out. People talk about globalization doing us wrong. It is not. It is political governments that are failing. Policies in politics are the problem.

Michael and Parag finish up discussing the booming rise of Dubai, and how the city is a perfect example of infrastructure growing a city. Dubai has thought strategically about all their expansion, from their roads to their buildings to their education system. It’s a place that represents a leap in quality of life for people who are on the move and doing different things.

In this episode of Trend Following Radio:

  • Supply chains
  • Connectivity
  • Cities vs. State
  • Chinese infrastructure growth
  • Trade
  • Trust among China’s neighbors
  • Territory borders
  • Globalization
  • Winners and losers in the 21st century
  • The idea of “not in my backyard”
  • Growth of Dubai
Apr 25, 2016

Michael Covel starts off reading an email from a listener asking, “Do all trend followers use spreadsheets alone to trade? Or do they also use charts for visualization? I am having a hard time trading using a spreadsheet alone and I tend to need to see a chart. It provides the visualization I need.” Michael responds saying “What does the visualization do? Are your trading decisions based on the price or visualization of a chart?” You don’t need charts or multiple monitors streaming at a time. That is not how the best traders trade.

For the remainder of the episode Michael leads with a presentation from Gregg Popovich, the head coach of the San Antonio Spurs basketball team. Gregg talks about organization, discipline, player relationships (between players and the coach and between players and players), and the importance of being comfortable enough in your own skin to take advice from others, among many other subjects. You can’t begin to execute a trading rule until you have sound philosophical grounding. It starts with the right mentality and imagination, and Gregg is a perfect example of this. There are countless lessons to be learned listening to Gregg’s presentation. His outlook is applicable to anything you could want to do in life whether it be starting a business, trading, or running a marathon.

In this episode of Trend Following Radio:

  • Why cultivating your second string is so important
  • Foreign players vs. U.S players
  • Accountability
  • Importance of honesty
  • Having the same standards for everyone
  • Importance of humility
  • Execution
  • A different perspective on goal setting
  • Looking at the big picture
Apr 22, 2016

Michael Covel speaks with Simon Black. Simon is an investor, entrepreneur and the founder of Sovereign Man. He has a travel perspective that has given him unique insights on freedom, making money, keeping as much of it as possible (and protecting it from the government whatever government that may be).

Michael starts off the podcast asking Simon, “I want to know your story. How did you go down this path? How did you start?” Simon’s journey started in the military. He went to West Point. Upon graduation he was commissioned as an Army intelligence officer and stationed in the Middle East around the time Bush was accusing Saddam Hussein of having weapons of mass destruction. As the U.S. was gearing up for war, it became abundantly clear that it was all a lie, and Simon realized that if the president would be willing to go to war over something that was so false, then what else would the government be willing to do?

Simon breaks down the idea of currency. He says that everyone should have physical cash money. There are different forms of money or “legal tender.” One form of currency would be U.S. government bonds which are used by large entities. Another type of money is banking accounts. That is what most of us use. 90% of the money supply is in banking accounts, otherwise known as in digital form. Most people have their money in a computer stored in a windowless building somewhere. Physical cash is another form of money. It is the money you see in your had. Those are three very different forms of money, however they all happen to trade at a 1-1-1 exchange rate. That could change at any point. Simon urges that everyone should have physical money at their disposal in the case that banks shut down our ability to withdraw.

Michael and Simon talk travel next. Modern transport technology has made travel simple and given people a unique opportunity to see different places and cultures. Simon makes the point that freedom is a state of mind, it isn’t necessarily attached to travel. Every country has a unique vantage point such as great health care or education. Simon talks about health care in particular and the cost differences in the U.S compared to certain places in Asia.

The thrust of today’s podcast is to point out that everyone should be responsible for his or her own security and safety. One should be sovereign over his or her own life, experience freedom and live independently. Challenge the status quo. Think outside the box, whether that be choosing your healthcare, profession, or where you want to live. Think differently.

In this episode of Trend Following Radio:

  • Health care
  • Banking system
  • Government
  • Travel
  • Breaking the rules
Apr 18, 2016

Today on Trend Following Radio Michael Covel reads Sam Hinkie’s resignation letter, former general manager of the Philadelphia 76er’s basketball team. His management strategy was stats driven. Sam talks about how critical it is to focus on process and not be fixated on the outcome. Process you can plan out and control, you can’t always control the outcome. The point Michael aims to make by reading the letter is not to show whether Sam was a good or bad GM. His wisdom is something we should all not just consider, but wisdom we should learn from.

In this episode of Trend Following Radio:

  • Thinking about thinking
  • The importance of intellectual humility
  • The necessity of innovation
  • The longest view in the room
  • A contrarian mindset
  • A tolerance of uncertainty
  • Be long science
  • A healthy respect for tradition
  • A reverence for disruption
Apr 15, 2016

Michael Covel interviews Jesse Lawler. Jesse is the host of Smart Drug Smarts, a podcast that is centered around supplements people can take to augment brain function. He has an out of the box perspective on health, fitness and enhancing cognitive performance.

Michael and Jesse start the conversation off with the question, “What is healthy?” Some athletes that can perform amazing feats are actually destroying their bodies to get there, so are they really healthy? Mind and body can be at total odds when it comes to health. Jesse breaks open the idea of cognitive performance and where a good starting point is when trying to increase your performance. He says your brain is meant to do everything. It is a universal machine that does things that we are, and are not aware of. To improve performance of the brain, there are a variety of things one can do. He breaks it down into four categories: Mood, focus, creativity, and anxiety. Jesse goes in depth on different supplements you can take to improve your focus (in particular) such as increasing your dopamine.

Jesse and Michael talk about how Jesse rode his bike from the west coast to the east coast in about 5 ½ weeks. Michael asks “Why do you think you are constantly experimenting?” Jesse says there are a lot of things that you can’t get the gist of without going through the experience. He wants to continue to understand, and maintain his brains capabilities to keep up with the evolving world.

Jesse moves on to explaining what nootropic drugs are and the cognitive effects of them. He is not a doctor but has given himself an education over the last few years by immersing himself in these subjects and talking with field specialists such as doctors or pharmacists a couple times a week. Michael asks about jet lag and how to beat it with different techniques. Jesse says that one of the best ways to beat jet lag is by fasting until it is dinner time at your new destination. Overdosing on tea or coffee can be a good way to stave off the hunger if you choose to use this method. Another trick to help beat jet lag is taking particular weight loss drugs to help you stay awake until it is bedtime at your new destination. Lastly, Jesse talks about some of the more popular drugs on the market such as marijuana and ecstasy and his views on them.

In this episode of Trend Following Radio:

  • Cognitive performance
  • Effects of caffeine
  • Augmenting brain function
  • Dealing with mood, focus, creativity, and anxiety
Apr 11, 2016

Today on Trend Following Radio Michael Covel talks about personal responsibility. Michael brings in basketball references from the Boston Celtics and their head coach Brad Stevens. He goes into the accomplishments of Stevens as a coach and as a quant. Stevens coaching is all about numbers and probabilities.

Michael plays a clip from Chris Mannix of the Vertical Podcast with Brad Stevens. Stevens explains how he uses statistical analysis in his coaching and how the “best of the best” like to be coached. Most don’t care about a numbers to numbers speech but everybody wants to know how they can best play and attack situations. Michael circles the conversation back to trading markets and trading on the numbers. Mannix then asks Stevens if coaching is just coaching being on an NBA sideline as opposed to other sidelines? He says that the longer he has been a coach the more he has been able to take emotion out of the game and it has become a job. By the time a game nears the end he isn’t even thinking of the game, he is thinking of the next practice, and how he can make the team better.

Michael ends with reading interview questions that were asked to Stevens; “Is your calm demeanor a part of your coaching philosophy?” He says that his philosophy is doing 99% percent of the work behind the scenes and hopefully that is enough to prepare him for the next game. He is always thinking about the next play, therefore you will not see him doing cartwheels on the sidelines very often. Stevens is also asked, “How is the style of play at the professional level evolving?” He says the game use to be about height and weight as opposed to skill. The game is now being flipped around.

In this episode of Trend Following Radio:

  • Process vs. outcome
  • Sports and trading analogies
  • Statistical thinking
Apr 8, 2016

Michael Covel interviews Cole Wilcox. Cole is the CEO of Longboard Asset Management and has appeared on the show many times. Cole and his business partner Eric Crittenden are featured in Michael’s book, “The Little Book of Trading.” Eric and Cole started their firm from the ground up. They pushed hard and now have hundreds of millions of dollars AUM.

Michael and Cole start off talking about the recent volatility in the markets; crude oil in particular. Cole is a trend follower through and through. He says that there will always be fluctuations in the markets, but with the right tools and rules, you can ride those waves out successfully. He stresses that diversification is the only “free lunch” that exists. His firm focuses on building multi asset portfolios that provide diversification. “When you are in 130 markets around the world, you can’t know all the fundamentals about those markets, the only thing you have to guide you is the price,” says Cole. Focus on what those price trends are doing, positive or negative.

Michael moves on to ask, “Do you think of you and your firm as more offensive minded or defensive minded?” Cole says they are definitely more defensive minded. Any successful trader or sports coach knows that you will ultimately get ahead and compound your success by making sure you cover you bases on the defensive. Having an unemotional approach to the markets is key. Cole then shows a unique differentiation between trend following managers in regards to their amount of AUM. The way a trend following firm trades it’s money can vary greatly depending on how much AUM they have. The larger firms aren’t able to move into some of the smaller markets where big money can be made.

Cole speaks to the business thought process Longboard is built on, particularly what made him want to start his firm. He says there are three core components: Having a dream or vision about what you are doing, the people you surround yourself with to execute that dream, and the principles/operating rules of the game. When you get those three things to line up inside an organization you can create something magical. Michael asks how he has won people over and gotten them away from the “buy and hold” mentality. Cole says the trend of alternative investments is starting to grow rapidly. His firm takes a different approach in how they interact with clients. They focus highly on their communication process and willingness to be open.

NOTE: On this episode Cole recommends favorite business books. Here is the list.

In this episode of Trend Following Radio:

  • Defensive trading vs. Offensive trading
  • Risk management
  • How to help people understand trend following
  • Diversification is the only free lunch
  • Price trends
Apr 4, 2016

Today on Trend Following Radio Michael Covel discusses scams and what can be learned from them. Any scam that takes place today, we have seen before. In the early 2000’s Enron was at the height of its game. Turns out they had a fake trading floor set up just to convince Wall Street they were real. At Enron’s peak, their company was trading at $90 a share. When it crashed, their stock traded around $0.50 a share. And that story brings us up to current day with the latest Enron.

Michael continues to read more feedback, but this time from a listener of his podcast seguing him into the current blowup of the pharmaceutical company, Valeant. Valeant’s share prices went from $250 to $30 in short order. Even as the stock was crashing people were buying the hype and false fundamental information. Michael reads from sources such as Jim Cramer, Morgan Stanley, and Valeant themselves. He then connects articles from Enron’s press releases back in 2001 before their crash and press releases from Valeant in 2016. Quotes from both companies CEO’s have strikingly similar comments on their companies as events led up to their falling apart.

Bottom line, if you are in a stock that goes from $250 to $30…You screwed up. There is no reason for that except you. When the numbers say exit, you exit. Ego must be left out of your trading. Michael ends with excerpts by Steve Sjuggerud. Check your ego at the door, have a stop loss, and stick to your plan.

In this episode of Trend Following Radio:

  • Ponzi schemes and scams
  • The Enron scandal
  • Valeant meltdown
  • Ego in trading
Apr 1, 2016

Michael Covel interviews Anders Ericsson. His new book is “Peak: Secrets from the New Science of Expertise.” Starting around high school, Anders became interested in how he could best improve himself. When he got to college he studied how people could achieve above average performance. He did a study showing the number of digits average people could repeat back correctly. The average number was about 5-7 digits. After an hour of practice they were able to repeat about 20 digits correctly. With even more training one student was able to get 70 digits in a row. This showed Anders that the mind can improve with the right kind of practice. Performance is trainable and purposeful practice is key. One major component of successful practice is immediate feedback on whether you are accurate or not.

Michael moves onto a study Anders did on taxi drivers in London. They have to go through extensive training to drive the streets of London. They are average people, but train for many years to be able to pass this taxi driving test. After learning over 10,000 streets and different connections there brains actually changed. He compared bus drivers in London, who did not have to go through the same training, to the taxi drivers. The same changes did not occur in bus drivers brains like the taxi drivers. They did not have to master all the streets but rather just master certain routes. Michael asks, “If they stop their taxi driving profession, does the brain regress?” Anders says that yes, without practice your mind will revert back to the old state.

Next, Michael and Anders use Mozart as an example of nature vs. nurture. His father was a musician and taught young children how to play instruments. Mozart was able to learn many of the musical distinctions that he was famed for because he started so early, around age 3-4. Any child at that age is able to learn the things Mozart learned, however it is virtually impossible as an adult. This moves into the idea of brain plasticity. It is important to realize that you can’t push your child to learn longer than they want to learn for. About 30 minutes is their limit. Beyond that, they lose their capability for deliberate practice. Deliberate practice helps raise the bar and get you better than you were before.

The next example of extraordinary talent brought up are master chess players. They don’t look at pieces individually, but rather base their actions on pattern recognition. They see structure and see where attacks may be successful. Grandmaster chess players are able to play blindfolded and against 25 or so people simultaneously. These are skills that are acquired and practiced. Stephan Curry is also used as another great example of an extraordinary achiever. If you understand the practice an individual does then you can see their improvement over time. Michael asks, “Has anyone said that their improvement was easy?” Anders said that he has been studying this subject for over 30 years and about 50 people have said that improvement came easy, but after talking for a few hours, their answers change. Michael then asks about the validity of the idea that 10,000 hours makes you an expert. Anders says he hasn’t seen that 10,000 hours is a magical number. You need a lot of practice, but there are no magical boundaries. When people count the number of hours that they have done something, and it happens to add up to 10,000 hours, then that doesn’t make you an expert. For example, if you have driven 10,000 hours, that doesn’t make you an expert.

Lastly, Michael circles back to the importance of deliberate practice asking about the difference between youngsters and older people seeing the benefits of deliberate practice. Anders says that unfortunately most younger people that are so focused as a child in their performance don’t go on to have careers in the field they were pushed into. Those who chose and want to be in the sport they are in usually go on to continued success. Deliberate practice alone doesn’t make you successful. You need to have a sincere desire for what you are doing.

In this episode of Trend Following Radio:

  • Discipline and practice
  • Solo and group practice
  • Flow state
  • Social Motivation
  • The late birthday rule
  • 10,000 hours of practice
  • Nature vs. nurture
  • Brain plasticity
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