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.
The first monologue of the new year! Covel goes on to review four things that have recently hit his desk that highlight the misinterpretations of trend following and trading in general. The first, regarding a speaking gig in Beijing, concerns itself with distinguishing between reality and unreality. The second comes from Teller, of Penn and Teller fame. Covel goes on to discuss whether a trading system should be specifically designed to suit your personality--something Covel doesn't necessarily agree with. He gives examples of the Turtles, AHL of London, Larry Hite, Ken Tropin--all traders who have different personalities but are similar in their systematic approaches. It's not about whether trend following trading "fits" your personality--it's about the fact that it works and there is performance data that proves it. The third example comes from a listener, and Covel discusses time decay and "choppy markets". The fourth comes from Jim Rohrbach, who put a piece out in late December in which he caught a radio show that stated "the stock market is always right". Paraphrasing Rohrbach, Covel notes that the market does what it wants to do. When the market doesn't do what a trader thinks it should do, they insist the market is wrong. We may not like or agree what the market is doing any any particular time, but it's futile to say the market is wrong or to invest opposite the market. It's as simple as being long when the market is going up, and being short when it's going down. Of course, you need rules to deal with that: choppy markets, knowing when to exit, and keeping losses to a minimum--that's what Covel teaches. Free DVD: www.trendfollowing.com/win.
Michael Covel speaks with traders Chris Kacher and Gil Morales, authors of the new book "In The Trading Cockpit with the O'Neil Disciples: Strategies that Made Us 18,000% in the Stock Market". Their book is a step-by-step instruction guide to implementing Morales and Kacher's trading methods. Covel starts off by asking Kacher and Morales about the "fiscal cliff", why quantitative easing is not the answer to economic growth, and why all of this isn't necessarily relevant to making money. None of it matters if the Dow ultimately goes from 13,000 to 26,000. Regardless of your political views you shouldn't be sitting on the sidelines if that happens. Ultimately, the trend is your friend. In a pure trading mindset, all this news, the fiscal cliff, the debt limits--they aren't necessarily relevant to making money. Covel, Kacher, and Morales go on to talk about their new book, "In The Trading Cockpit with the O'Neil Disciples"; the "O.W.L." ethos, and the story behind it; reversion to the mean mentality, and how it can often be the kiss of death for traders and investors; trading psychology, the idea that "you must lose to win", how the least important statistic is your percentage of gains v. losses in your trading account; dealing with emotionalism and why clients often want to hear something that will make them feel better; teaching people to let go of the news and simply watch the price action; why people think that "this time is different", put their trust in the central economy, and why trend following will survive into the future; understanding that investing is always a process of changing along the way; and what mental clutter in the way of fears, biases, concerns and more can build up in the mind and get in the way of clear and decisive decision-making. Dig in! Free DVD: www.trendfollowing.com/win.
Today on the podcast Michael Covel speaks with Tushar Chande. Chande is a trader, author, and the co-founder and head of research at Rho Asset Management in Switzerland. Chande has had a long and distinguished career in technical analysis; he brings a unique perspective on how to look at the markets as a trend following trader. Chande was born in India and began his career intending to become an engineer. He came to America and earned his Ph.D. in metallurgical engineering from the University of Illinois in 1984; however, when he came to the end of his Ph.D. studies he started look outside his chosen career path and found the world of finance. Chande's research skills as an engineer were easily transported to analyzing numbers in finance which gave him a leg up in his early trading days. Covel and Chande discuss Chande's other early influences, and chart the journey from his days as an engineering student to his accomplishments as a systematic trend following trader. Covel and Chande also talk about the analogy between sports and trading, how the best sportsmen rely on having a stable and predictable environment (unlike the markets); evaluating performance within the context of the market; discretionary trading v. systematic trading; learning through "trial and terror"; the Rho Trend Barometer and the ability to quantify the environment; the problem of indexes; the Sharpe ratio; the importance of market movement to trend following trading; "the black box disease"; trusting your system; cognitive biases; the benefit of the "black swan" and outlier events and why these events are so beneficial to a trend following system; and whether "one-hundred Ph.D.'s are better than one". Free trend following DVD: www.trendfollowing.com/win.
Michael Covel monologue.
In his book "Trend Commandments" Michael Covel included a "cheat sheet" for the reader. It opens up with this quote: "Golf is not safe. My grandfather died playing golf. Speaking up is not safe. People might be offended. Innovation is not safe. You'll fail; perhaps badly. Now that we've got that out of the way, what are you going to do about it? Hide? Crouch in a corner and work as hard as you can to fit in? That's not safe either. Might as well do something that matters instead." The cheat sheet focuses on core principles of trend following trading: profit in up and down markets; no more buy & hold, analysts or news; no prediction; the big money of letting profits run; risk management; a scientific approach to trading; strong historical performance during crisis periods; no traditional diversification; ride the horse that's winning; no government reliance; and taking advantage of mass psychology. In his last podcast before Christmas 2012 Covel gives a cheat sheet podcast of sorts too; he presents invaluable audio clips from his collection of great trend following traders. These legendary traders include William Eckhardt; Bill Dunn (talking about risk management from his perspective); and Jerry Parker (talking about the difference between mean reversion and trend following). Why is it hard to accept their principles outlined? They sound rational and reasonable, right? Covel also excerpts a speech from Elizabeth Cheval to explain her view of chronocentricity. Covel continues on with three clips from David Harding of Winton Capital Management and again asks the question, "Why don't we all go his way?" Unfortunately, much of the wisdom illustrated is not accepted or taught in mainstream education. Covel ends with a clip from author Seth Godin to help illustrate why current education models are dead ends. There is a way out, but waking up is a first step to financial freedom. Free DVD: www.trendfollowing.com/win.
Today's podcast is about the six inches between the ears: your mind, your ego, and the mental part of the game that is so important to being a successful trader, entrepreneur, or pretty much anything that doesn't involve working for the man. Michael Covel opens up by talking about a book by Brenda Ueland called "If You Want to Write". Specifically, it's a book about writing, how to write, and how to think about writing. However, Covel notes that you can take the word "writing" and insert anything and have it apply: trend following, basket weaving, running--it doesn't make a difference. That's the way the book was written, and that's what Michael Covel gets at in today's episode. Understanding the precepts that Covel talks about in today's episode are relevant to trend following trading, being an entrepreneur, having a good life, having good friends, or having a family. For those of you that might be "quant jocks", and might not think the emotional and psychology are as or more important than the numbers, Covel passes along an anecdote about legendary trend following trader Ed Seykota. It's the internal, the ego, the psychology, the emotions--all these pieces wrapped together are the foundation for all success. Covel goes on to read selections from a new e-book compilation from several different authors, and connects the dots. He covers fascination, gumption, focus, leaping, timeless, confidence, passion, poker, and adventure. It's not time to just count another year. It's time to plan an adventure--whether it's travel, becoming a trend following trader, or anything else that speaks to you. Regardless of whatever success you want to achieve, this is it. If you can get the mental side of the equation down, you're going to win. Free DVD: www.trendfollowing.com/win.
Michael Covel talks with trader and author Richard Weissman. Weissman is a professional trader with over 25 years of experience. His most recent book is "Trade Like a Casino: Find Your Edge, Manage Risk, and Win Like the House". Weissman considers himself a "swing trader", and he and Covel compare this approach to that of a trend following trader. Covel and Weissman have some contrasts in their techniques, including Weissman's use of fundamentals in his trading, and they work out their differences along the way. However, regardless of the name they give to their individual trading styles, Covel and Weissman have plenty of commonalities and they discuss some classic precepts that are important to the foundational philosophy of any good trader. The two explore Weissman's path from how he started trading with his father in 1987 to how he made his way to where he is today. Further topics include the background to Weissman naming his book "Trade Like a Casino", and how Casinos and the gaming industry are the models for successful speculative trading; the influence of Jack Schwager's work; risk management; positive expectancy; how Weissman defines trends and signs of strength; the idea of "don't anticipate, just participate"; positive expectancy and the probability skew; the connection between table limits and risk management; how there are no truly "safe investments"; some tools that Weissman has used to influence his own trading psychology and smooth out the emotional highs and lows; not letting a high price stop you from buying, and not letting a low price stop you from selling; Weissman's concept of "the opaque urn"; and the three things you can guarantee. Weissman and Covel also go over some of Weissman's great one-liners: "don't tug at green shoots" and "trade the market, not the money". Free DVD: www.trendfollowing.com/win.
Michael Covel talks with Tadas Viskanta. Viskanta is the founder and editor of the Abnormal Returns blog and a private investor with 20-plus years of experience. His first book, "Abnormal Returns: Winning Strategies from the Frontlines of the Investment Blogosphere", is out now. Viskanta calls his blog a "forecast free investment blog", and that sort of outlook certainly appeals to Covel and his trend following philosophy. Covel and Viskanta cover a wide range of topics, from investment philosophies and strategies to the challenges authors and bloggers face in the world today. Specifically, Covel and Viskanta discuss the disadvantage given to those who follow the constant data stream from the media; why Viskanta felt the need to write "Abnormal Returns", and the strategy and style behind it; the phrase "abnormal returns" and trying to measure returns over and above the risk taken; underperforming; preparing for abrupt change in the markets; Viskanta's move from value investing to a more systematic strategy--and Covel's early experiences with value investing material; now that so many global barriers are easy to cross, why so many people have "home bias" and difficulty placing global investments; why people still look at the markets with rose colored lenses and so easily forget the bubbles of the past; the behavior gap; why having a suboptimal strategy that you can follow in a systematic way is better than having no strategy at all; the ramifications of instant feedback in the blogosphere; and why you need a burning desire to be an author today. Yes, some territory is covered! Free DVD: www.trendfollowing.com/win.
Michael Covel talks to Jonathan Davis, one of the UK's leading writers on investing. Davis has written 3 books, is a regular writer for the Financial Times, and is the director for three investment companies. Covel and Davis talk about Davis' new book "Professional Investor Rules" which has a bit of a fundamental flavor to it. Hardcore trend followers need not get bent out of shape, however; Davis and Covel's conversation crosses strategy lines and gets to the heart of some important investing and economic topics. Davis has been following the markets for over thirty years, first as a journalist, and has had quite a history. He was fortunate enough to spend some time at MIT studying and writing a thesis about Warren Buffet, whom he met on several occasions. His new book looks into the lists of rules that professional investors had made for themselves over the years, both for education and entertainment purposes. Covel and Davis talk about what's going on in Europe, where the socioeconomics might be headed, how the history of Europe plays into the problem, and how Davis sees it playing out; the importance of performance data; how "the recent past is out to get you"; how volatility is not something the average investor instinctively understands; investing in Asian markets; the efficient market theory; the idea of "the hedgehog" (people who only really know one thing) and "the fox" (people who know many things, and are constantly looking for more) in the context of investing, and how the foxes can allow themselves to be adaptable and flexible to all sorts of market conditions over time. Davis also shares his take on David Harding of Winton Capital, and his view of Marc Faber.
The debate now is all about the fiscal cliff. You seemingly can't turn on the TV, the radio, or look on the web without it. When it comes down to it, the debate is really about money. It's quite crass and crude, the debate about money in America, because we've lost site about what money is and what it represents. It's become an inanimate object that we all desire, but they way it's discussed in popular culture, politics, and most everywhere you look, it's become a pejorative. Most people don't even want to think about it. Michael Covel discusses money and what it represents: It's the exchange mechanism amongst honest people. We use money to give each other our value. That's the way it works. So, in the spirit of this thought process, Covel reads an excerpt from "Atlas Shrugged". He notes that he was given this book to read as a homework assignment after meeting famed trend following trader Ed Seykota. We all know there are vastly different opinions on Rand. Some people love her and build upon her work as the foundation of their ethos, and others refer to it as a childish teenage dream. Regardless of your views on Rand, the excerpt Covel reads can be appreciated for its intelligence and wisdom about money. Free DVD: www.trendfollowing.com/win.