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Trend Following with Michael Covel

Bestselling author Michael Covel is the host of Trend Following Radio with 6+ 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 600+ eps at trendfollowingradio.com/rss.
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Now displaying: July, 2016

Bestselling author Michael Covel is the host of Trend Following Radio with 6+ 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 600+ eps at trendfollowingradio.com/rss.

Jul 29, 2016

Emma Seppala is today’s guest. She is author of “The Happiness Track: How to Apply the Science of Happiness to Accelerate Your Success.” She is the Associate Director for the Center of Compassion at Stanford University. Emma’s work isn’t based on theories or common knowledge, there is a tremendous amount of neuroscience backing her work.

Emma starts the podcast off stating that being happy is a very subjective experience. With that in mind, in general, happiness is divided into two main categories; hedonic and eudemonic. Hedonic happiness doesn’t last long and is more associated with short burst of excitement such as sex and food. Eudemonic is much longer lasting and is more associated with self-fulfillment. Emma goes into depth explaining and giving example of both forms of happiness.

Michael asks Emma to talk about the myth of success next. Emma says Americans are over stimulating themselves, and believing that running on adrenaline is the best way to get things done. Chronic stress is actually what we are embracing and it starts to deplete our immune system. Emma acknowledges that you may not be able to control the world around you, but you can control your state of mind. Working on Stanford’s campus, Emma has seen first hand the severe epidemic of students buying into myths of happiness, especially on higher achieving campuses. They believe the only way to be successful is to burn themselves into the ground and of course, this notion is completely false. Unplugging and taking more vacations is the best way for us to reach our maximum potential. Creativity and happiness in the workplace depends on it.

Next, Emma discusses the impact breathing has on our emotions. There are different breathing practices that help out with stress and anxiety. Nurturing more calmness in our life helps us manage our energy much more. There was a study done at Harvard that showed our brains wonder 50% of the time. However, science shows that we are never happier than when we are in the moment of now. With technology constantly at our fingertips, it is getting harder and harder to be in the present moment. But when we are in the moment, it boosts our charisma and happiness. People are drawn toward others that are satisfied being in the present moment with them. Michael and Emma turn the conversation to negative emotions. These emotions make us more focused on ourselves and selfish. When the focus shifts to positivity, authenticity is created. Others crave authentic people they can connect to. They finish on talking about creativity and how to best tap into the creative parts of your brain. Just by making small changes in the way you work can really make a huge difference in the way your feel and your brain works.

In this episode of Trend Following Radio:

  • Benefits of happiness
  • Stresses in life
  • Controlling your mind
  • Happiness in college
  • Cultivating resilience
  • Tapping into the opposite of fight or flight response
  • Impact of different breathing techniques
  • Living in the moment of now
  • Authenticity
  • The flow state
  • Activating creativity
Jul 25, 2016

Michael takes the podcast back to 1959 with an interview between Mike Wallace and Ayn Rand. Wallace and Rand focus on her ‘revolutionary’ view on the world. Rand capsulizes her views as a philosophy based on objective reality. She expands on a new code of morality centered around mans life as a standard of value. This means that a mans highest moral purpose is the achievement of his own happiness and each man must follow his own rational self interest.

Atlas Shrugged demonstrates Ayn Rand’s philosophy in human terms. Rand and Wallace briefly touch on many subjects such as; self sacrifice, love, altruism, the democratic system, and welfare.

Michael wraps up the podcast by summarizing the interview and comparing it to life in 2016. He talks about the importance of leaving his own impact on the world and how necessary logic and reasoning is to being successful.

In this episode of Trend Following Radio:

  • Man’s morality
  • Altruism
  • Self sacrifice
  • Free and unregulated economies
  • Capitalism with government help
  • Welfare
  • Depressions due to government interference
  • Strategic decision making
Jul 22, 2016

Laura Roeder is a serial entrepreneur and her newest company is Edgar, a social media application. She started working for herself creating websites for people when she was 22 living in Chicago. It spread to optimizing traffic and online marketing for her clients. In 2014 she launched her social media software business, Edgar. They haven’t taken any money from investors and have grown to 2.8 million annual revenue.

Twitter, Facebook, and LinkedIn are the biggest social media platforms today. Many entrepreneurs get overwhelmed by the scope of content creation and posting needed to be successful. They tend to give up before they have even begun. Laura goes into the advantages of recycling content, notes that small percentages of your audience will ever see your content, and that the nature of the internet is all about repeated content.

The questions to ask yourself are, “How much traffic are you driving back to your website? How many people are buying off of that traffic?” There needs to be a balance between providing worthy content to your social media followers and not just pushing ads at followers. Michael then asks, “How important is it to be authentic?”

Don’t worry about people who want to un-follow or unsubscribe to your email. If they don’t want to follow you, then you don’t want them anyway. The extreme side of un-followers are critics. Laura and Michael talk about critics and how to cut them loose. They finish up talking about Edgar and how it works to make social media easier by automation, along with how Laura has carved out her space as a entrepreneurial woman in the tech space.

In this episode of Trend Following Radio:

  • Social media
  • Business competitors
  • Success of Dropbox
  • Keeping up a great reputation
  • Be aware that competitors can access everything
  • Women in the entrepreneurial space
Jul 18, 2016

Michael starts off explaining how Trend Following Radio has morphed into the diverse podcast it is today. He started Trend Following Radio in 2012. It originally was all about trading, but with a Vernon Smith interview, then Gerd Gigerenzer and Dan Ariely interviews, he realized he could take it in a different direction. With those three interviews under the belt, he was able to secure Daniel Kahneman on the podcast which he believes was the real tipping point for the podcast.

For the rest of the episode Michael plays curated clips from the men mentioned above: Vernon Smith, Gerd Gigerenzer, Dan Ariely and Daniel Kahneman. He wraps up by playing a short clip from another brilliant mind in behavior finance, Nassim Taleb. The clips exemplify the spirit of behavioral finance. They range from helping people understand their behavior at a fundamental level to behavior in markets and what drives the average person to make particular risky moves in life and in their trading.

Michael finishes up talking about the enormous amount of misinformation in news and media. You need to do the reading and educate yourself. Absorb wisdom from the right people, do your homework and put in the work to get ahead. It will not just come intuitively or from “for profit” media outlets.

In this episode of Trend Following Radio:

  • Law of demand
  • Behavioral economics
  • Experimental economics
  • How do you make bubbles go away
  • Using algorithms over emotions
  • Noise reduction
  • Statistical thinking
  • Understanding the difference between risk and uncertainty
  • Probability theory
  • Risk Communication
  • Unconscious things that make us fearful
Jul 15, 2016

Michael and David Burkus start off talking about Fredrick Winslow Taylor. Fredrick’s claim to fame is discovering that it isn’t about innovating a product, but rather about innovating the factory. He looked into factory processes and what it took to make a product most effectively. The downside of his work was that he believed management should be operated scientifically as well. He thought that management was smart and factory workers were dumb. His values helped people focus on how to make a product most efficiently not how to make people sustainable, prolific and healthy. He took a lot of the emotion out of it. Most of his work has shifted from the United States and moved to other more factory driven places such as China.

The new form of work that we are seeing in most countries is creative work. Employees are required to make decisions or make collective designs with people in their company. Michael asks, “Isn’t this about making employees feel like entrepreneurs in their company or organization?” David uses tech start-ups as examples; Even as they get big they aim to make their companies continue to feel like a start-up and train their employees to think like solo entrepreneurs. This is how trust and intellect gets built within a company.

Next, Michael and David discuss the effectiveness of email. Pros: The cost of email is cheap and you can respond on your own schedule. Cons: Constant text and emails have diverted focus and created too much distraction. David stresses that there is no such thing as “multitasking”, there is only task switching. Some studies say it could take up to 15 minutes to get back to the focus you were at before you were interrupted.

Michael and David move the discussion back to the importance of keeping your employees happy. Having outstanding customer satisfaction comes down to putting employees first. Sometimes that means siding with your employees over your customers. You need to be able to tell some customers that your company or product simply may not be right for them. Also, creating the right work environment is key. Open work environments as opposed to more closed work environments have been becoming the norm. In an open office environment the idea is that working together is easy and creates a better collaborative environment. However there are negative effects such as increased sick days (perhaps because they do not want to see certain co-workers) and more distraction.

Michael and David finish talking about non-compete clauses and the counter productiveness of them. There is a difference between a non-compete and a non-disclosure. Apple and Google have two totally different views on this. Google is 100% fluid and open. Apple is very closed off and believes in the non-compete clause. When people migrate from one company to another, it has been shown in studies that both companies actually win from the intellectual knowledge transferred and gained from each other. Non-compete environments benefit everyone in the long term. Also, on a societal level you can see a huge benefit when non-competes are not allowed.

In this episode of Trend Following Radio:

  • Re-designing the factory
  • Physical labor vs. Intellectual labor
  • Machines vs. Man
  • Multitasking = Task switching
  • “The customer is always right” mentality
  • Confirmation bias
  • Introverts and extroverts
  • Customer service
  • Non-compete clauses
Jul 11, 2016

Michael starts an email from a listener that starts with praise, then turns around and claims that a top trend following trader has 400 employees and “super computers” to carry out trades, and that is why he is so successful. Michael uses this listener as just one example of how millions think. They are confused by what a computer does, and simply don’t understand what trend following is all about. The trader he refers to is on record saying that he trades off of Excel spreadsheets. For the remainder of the podcast, Michael expands on his response to the listeners email, and breaks apart algorithmic trading.

Michael next reads an excerpt from “Intuition Pumps and Other Tools for Thinking”, by Daniel Dennett. The excerpt breaks down algorithms in depth. Michael’s point is to show that a computer doesn’t make a great trader, it is the algorithms programed in the computer that creates the success. Where do the algorithms come from? Humans. Trend following is all about having the brilliance to come up with a strategy, but the execution is straightforward.

In this episode of Trend Following Radio:

  • “Super computers”
  • Systematic trading
  • Creating algorithms
  • Coding
  • Machines replacing humans
  • Breaking down the use of software
Jul 8, 2016

Jason Gerlach and Chris Stanton are the CEO and CIO of Sunrise Capital Partners. Sunrise Capital is a systematic firm located in San Diego. They were featured in The Little Book of Trading. Sunrise has been in business for four decades trading. Their goal is to invest in an intellectual way by taking human emotion out of their decision-making.

Michael opens the conversation up with Brexit and how Sunrise Capital reacted. There are foreseeable events and unforeseeable events. Brexit was a foreseeable event. Jason and Chris breakdown the weeks before Brexit, and how Sunrise has been positioning their portfolios in contrast to other firms. Jason and Chris say that in the systematic world there have been two different camps of thought in how to approach Brexit.

Michael moves the conversation from Brexit to Oil dropping in 2014. Jason and Chris say that these events are not just moneymaking events, they are also risk management events. People live in the middle of a bell curve and never think of the tail events in life. They trade and invest for the non-random times and are always shocked when events tend to go further than expected. Sunrise does the opposite and uses technology to curb our human irrationality.

Michael and Chris dive deeper into risk management and the importance of diversification. Sunrise has five systems that operate differently in all market situations. Chris explains risk adjusted return and how setting the “heat” is really the heart of leverage. “What kind of return is optimal for you?” The higher expected rate of return, the more drawdown you may have. When you look at someone’s rate of return, you have to look at what their drawdowns are like. Leverage is a reality in strategies; you just need to be responsible with that leverage and cater it to each individual investors needs.

Michael moves on to ask, “Has Brexit opened up Pandora’s box?” Chris and Jason say Sunrise believes that price distribution has changed since 2013. Intraday volatility has changed and prices now make huge jumps in smaller time-frames than they ever have before.

In this episode of Trend Following Radio:

  • Brexit and systematic trading
  • Price distribution
  • Price action
  • Directional betting on a coin flip event
  • Preparing for black swan events
  • Are computers good or bad?
  • MAR ratio
  • Diversification
Jul 4, 2016

Everyone was told to trust the system and be happy: “Save your money and interest income will be your retirement.” This has come to be completely untrue and people are collectively beginning to wise up, as seen in Brexit.

Michael goes into a timeline of market crashes illustrating trend following success: 1973-1974 stocks go down 50% and trend following kills it. 1987, known as Black Market Monday, US stocks go down 20%+ in a day and trend following kills it. Barings Bank collapses spring of 1995, trend following kills it. August 1998, Long Term Capital Management craters, and trend following made a fortune. It was almost a zero sum transfer from LTCM to trend followers in August of 1998. Spring of 2000, the dot com bubble bursts and trend following cleans up again. 2002 was one of the best trend following performance years ever. After 2002 another bubble is built and when it burst in October of 2008, trend following had outstanding performance results yet again. When the majority of people think the world is ending, trend following is reaping the profits. Brexit? Yes, too.

Nobody can predict the future but if you want to play the game, you have to place bets. Trend followers were in established trends once Brexit hit. They do not predict, but they have educated bets. Michael ends with one question, “What side are you going to be on? The side of the winners or the side of the losers?” It’s your choice.

In this episode of Trend Following Radio:

  • Boom and busts
  • Brexit
  • Certainty in markets
Jul 1, 2016

Michael and Jack Schwager talk about his new venture Fund Seeder. Jack is the author of the Market Wizard series. His books have remained relevant over the past 25 years, and for many traders they are the best trading books on the shelves today. Michael and Jack talk about the structure of the Market Wizards books and how they evolved to interview style format. Michael thanks Jack for opening his mind on the direction he took the Trend Following Radio podcast.

Many of the traders Jack was able to interview, such as Bruce Kovner and Michael Marcus, never did another interview after “Market Wizards.” A lot of the secret to the book series success was the exclusivity of the interviews. Michael asks, “Of all the traders you have talked to, what trader impressed you the most?” Jack has a hard time, of course, narrowing it down to just one because there has been so many extraordinary people that he has interviewed. That being said, in terms of track records and sheer intellect, he would chose one. Jack was completely awed by his accomplishments and was surprised how great he was on a personal level.

There has been a strong trend over the years for money to go to bigger and bigger asset managers. It has become a safer thing to do, to put money with a larger manager. It isn’t performance driven, it is purely safety driven. Jack says that even if you have skill it is becoming exceedingly more difficult to gain new clients and get big. Jack’s new venture is focused on helping these start up traders. The firm helps connect investors as well as companies that may want to find new and upcoming traders. Jack elaborates on the match making process and how they present verified and unverified track records.

In this episode of Trend Following Radio:

  • Trading legends
  • Futures markets
  • Equity markets
  • Gaining clients as a new trader; Fundseeder
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