Michael Covel talks with Michael Mauboussin. Mauboussin is an author ("More Than You Know", "Think Twice: Harnessing the Power of Counterintuition"), investment strategist in the financial services industry, professor at the Columbia Graduate School of Business, and serves on the board of trustees at the Santa Fe Institute (an independent, nonprofit theoretical research institute). Mauboussin joins Covel to discuss his new book, "The Success Equation: The Success Equation: Untangling Skill and Luck in Business, Sports, and Investing". Covel and Mauboussin discuss luck and skill, how they cross over and play off each other, and how both of those factors have played a part in both Covel and Mauboussin's careers. Even though their strategies may differ, the foundational elements in Mauboussin's work applies to Covel's trend following world perfectly. Covel and Mauboussin also discuss how Mauboussin came to start working on "The Success Equation"; how losing on purpose can define skill; how sports can provide great examples of what Mauboussin contends regarding skill and luck; the human desire and emotional need to tell stories, and how that plays into peoples' difficulty untangling skill and luck; Stephen Jay Gould's notion of the .400 hitter in baseball and the paradox of skill; physical limits and improvement in skill over time; sample size issues; process vs. outcome; what to do when you're the underdog and how complicating the situation can help when you're in that position; improving your guesswork on where you are in the luck-skill continuum; persistence and predictive value; and building skill. A must read new book! Special offer new DVD: www.trendfollowing.com/win.
Famed writer and trader Jack Schwager returns to the podcast to speak with Michael Covel about his new book, "Market Sense and Nonsense: How the Markets Really Work (and How They Don't)", which is released today. For those that have had a pulse in the investment world in the last twenty or so years, you've surely crossed paths with Schwager's earlier works--especially the "Market Wizards" series. "Market Sense and Nonsense" aims to reveal why so many "tried and true" investment models and ideas might be flat out wrong. Schwager approaches these assumptions and beliefs about the market from the ground up and investigates which ideas hold up and which crumble under the pressure of closer scrutiny. Covel and Schwager discuss how Schwager was able to make "Market Sense and Nonsense" accessible to both professionals and laymen and touch on some of the subjects contained within: market fallacies and misconceptions; the idea of cable news "experts", and what would happen if you actually followed all of the picks made by people like Jim Cramer and other talking heads; comparing performance streams against each other, and why you have to consider more than just the number; volatility vs. risk; if coming to a good risk adjusted return is based more on a scientific approach or personal preference; leveraged ETFs; the fear of hedge funds; the idea of leverage and why much of "Market Sense and Nonsense" was built around trying to understand it; and why fund-to-fund managers putting a large group of trend following traders together in one portfolio might not be a wise move. Covel and Schwager also touch upon the presidential election and discuss why whoever is selected to be the next president might not make much of a difference in the markets. Special free DVD offer: www.trendfollowing.com/win.
Michael Covel comments on four CNBC interview clips from legendary trend following trader David Harding of Winton Capital. Covel goes through the interviews with Erin Burnett, then of CNBC, Joe Kernen, and Fast Money. Covel comments as the anchors ask question after question that show they don't yet understand the basic concepts behind Harding's success. They beg for stock tips, ask predictive political questions, idiotically compare Harding's approach to Long Term Capital Management, and otherwise not get the big idea. Covel's analysis shows that reading teleprompters doesn't necessarily imply one has insight. It's an educational analysis to see how David Harding thinks and talks about trend following trading and to watch how the media system doesn't get it. Those lessons alone are worth the price in gold.
How is trend following a bit like the Billy Idol song, "Dancing With Myself"? Michael Covel explains the importance of maintaining an independent spirit, feeling comfortable standing alone and outside the crowd and being your own self. Covel contrasts this to the famous scene in "American Psycho" where a group of executives compare the card stock and fancy presentation of their business cards trying to impress one another. That's the complete opposite of what "Dancing With Myself" gets at. Worry about yourself, not the crowd. Covel then quotes hedge fund manager Hugh Hendry. Hendry holds himself out in public as coming from a fundamental perspective, even though his hero is trend trader Bruce Kovner, who was trained by Michael Marcus, who was trained by Ed Seykota (all trend following traders). You get the picture. Hendry honestly states that he doesn't know what's going to happen, but he puts himself in the position to have probabilistic bets that can profit when the market moves--in whatever direction. Covel moves on to quote David Einhorn, a hedge fund manager. What will the Fed do if the bubble bursts when interest rates are at zero? Is Covel, in quoting Einhorn, trying to predict the future by talking about this subject? He's simply mapping out what he sees: A world that's rigged and manipulated, and a Federal Reserve that's trying to make its buddies at the big banks wealthy. In the midst of this how can you protect yourself and profit? The only way you can truly protect yourself is by looking at the price in the here and now from a trend following perspective. You can make decisions based on the price movement without having any idea what the Fed is doing behind the curtain. There is no certainty. There's only chaos, uncertainty, fractures, and cracks in the sidewalk. You have to have a plan before that fracture breaks. Although traders like Einhorn, Hendry, and John Hussman might not be trend following traders themselves, their observations certainly make the case for employing a trend following strategy. Special Offer? Free trend following DVD: www.trendfollowing.com/win.
Michael Covel talks with Peter Brandt, author of "Diary of a Professional Commodity Trader: Lessons from 21 Weeks of Real Trading", and a trader who has been in the commodity trading space since 1976. He's traded his own proprietary account from the late 1970's until today, and is currently entering the hedge fund world by running a multi-CTA fund-of-funds. Brandt got his start in Chicago trading commodities and working at the Chicago Board of Trade for Continental Grain Company. Along the way he jumped from approach to approach until he found the book "Technical Analysis of Stock Trends" by Edwards and MaGee, and became a classical chartist. However, after leaving Continental Grain in the early 1980's he suffered a traumatic accident falling from seventeen feet onto a concrete slab while sleepwalking. Brandt suffered neurological and physical damage which affects him today, but he calls this tragedy a blessing. Covel and Brandt talk about how the accident influenced his trading and how great lessons can be learned through adversity. Covel and Brandt also discuss the idea of trading a five minute chart pattern vs. a weekly chart pattern; the biggest mistakes you can make as a novice trader; averaging a loser; risk management and the right amount to risk on any trade; upside volatility and the fantasy of a straight line up of profit gwoth; and the importance of reducing the incessant head chatter and living in the moment of now. There are some real commonalities between Brandt's approach and trend following, including the basic foundations of risk management and the importance of price. Brandt and Covel get to the bottom of their respective approaches, and explore how to find the best system for yourself. Special offers including a free DVD go to: www.trendfollowing.com/win.
Michael Covel talks about "The Power of Now" by Eckhart Tolle. Covel defends studying the book as a psychological manifesto for "navigating the trend following waters". Halfway through the book Covel realized how it sounded like all the trend following traders he's studied over the past fifteen years (even if it wasn't the author's intention). Covel isn't out to get you to start singing kumbaya and burning incense; he's just out to get you to look at the world differently so you can profit. Covel discusses Cullen Roche, author of the "Pragmatic Capitalism" blog, who posted some quotes from Warren Buffet recently. Covel acknowledges that Buffett is one of the most successful entrepreneurs in the history of modern man, but has no problem criticizing the myths that surround him. Buffett noted that Berkshire has $40 billion in cash on hand, but "prices are difficult right now". So, what does that even mean? Why is Buffett on CNBC? He's talking his "book", he's creating the aura, and perhaps confusing people into making decisions based off his advice. Or perhaps he simply needs his ego stroked. So, what do you buy based on that advice? How do you make buy and sell decisions? Trend following doesn't rely on vague statements, and the positive performance dates back to 1903. With trend following price is price. That is an under the radar concept though. Most people simply know Buffett's value investing, buy and hold world. However, there are inherent problems in value investing and Covel investigates by quoting David Rosenberg and John Hussman along the way. From their fundamental perspective Rosenberg and Hussman lay the foundation for trend following without thst being their intention. Covel also goes on to discuss "Finding Peace with Uncertainty" from the Zen Habits blog and announces a new $500 gun shooting video contest. Offer--Would you like a free special DVD: trendfollowing.com/free.html.
Michael Covel opens up with the classic Pink Floyd song, "Brain Damage" and an interview with Pink Floyd leader Roger Waters explaining the composition of the song. Inspired by watching beautiful tufts of grass that were only to be looked at and not stepped on Waters explains the lunacy needed to step out of bounds in society and step on the grass you aren't supposed to. Trend following is all about standing in the middle of the grass and tearing it up to find enlightenment. On the heels of Waters' interview Covel discusses Seth Godin's new video, "Stop Stealing Dreams". Godin explains the number one purpose of school: obedience. Do as you're told and learn to be a cog in a wheel. Do you want to be an interchangeable part or do you want to create art? Waters sings about the lunatics who would dare to walk on the grass they weren't supposed to, and Godin questions the entire system of education. Why do people have such a hard time breaking out and finding a new way of thinking? Covel's analysis of Godin's work might give you some clues. All of this is a lead up to a fantastic white paper called "A Century of Evidence on Trend Following Investing" that tracks trend following performance back to 1903, which Covel discusses in detail. The data to back up trend following as a successful strategy for 110 years is all right here. Special offer free DVD? Go: www.trendfollowing.com/winl.
Michael Covel brings some unexpected trend following messages and inspiration from eclectic and unexpected places. The first comes from Neil Young, his lyrics signifying the ups and downs of life and trading. The important thing is that we're along for the ride: "I've been first and last, look at how the time goes past, but I'm all alone at last, rolling home to you." Covel discusses the unexpected inspiration he's found over the past few weeks leading up to his recent speaking engagement in Las Vegas arranged by Timothy Sykes. As you would expect Covel found some important food for thought on his trip and he shares these eccentric lessons: A pamphlet found in a hotel room from Affliction Clothing; a film called "Jiro Dreams of Sushi" that holds some important messages about passion and practice; a book that Covel received from his Yoga teacher titled "How Yoga Works" that has more to do with trading than you'd ever expect; and the book "Investment Biker: On The Road with Jim Rogers". Covel also discusses a quote from famed trader Larry Hite about how in the big picture nothing really changes. People are people and people are always motivated by greed and fear. A reader questions how high frequency trading and automation work into the equation and Covel answers. Covel also discusses some thoughts from more fundamental thinkers such as Hugh Hendry and John Hussman (and why, whether it is their intention or not, they write great missives about why trend following works). From a strategy perspective how do you follow along and make money in a world where fundamentals don't offer you hope on the timing of things? How can you make money in that world? The answer is trend following. If you don't have trend following in your portfolio what are you missing? Covel also makes a big announcement for a special in-person seminar event in Las Vegas coming up in December. The event includes both of Covel's dinosaur systems (T-Rex and Triceratops), a ton of materials (documents, audio, and video) that are unlikely to ever be released anywhere else, a long Friday night dinner, a full day session on Saturday--everything you need but the airfare. You'll have to make your decision by November 1st for the event on December 7th and 8th. Also a special DVD offer: www.trendfollowing.com/win.
Michael Covel talks with Frank Curzio of Stansberry and Associates. Curzio is a recognized experts in the small cap sector, the voice behind S&A Investor Radio, as well as the editor of the Small Stock Specialist. Curzio has been featured on numerous radio and television programs, and wrote a newsletter for TheStreet.com before joining Stansberry. Covel and Curzio come at the game from vastly different perspectives on how to make money, with Curzio's small-cap world playing the yin to Covel's systematic, trend following yang. Even with their differences Covel and Curzio find plenty of common ground in their alternative ways of getting to their ultimate goal: to make money. Covel and Curzio talk about Curzio's background coming up in New York, the influence of his father, and his introduction into the world of trading; Curzio's history with Jim Cramer, the info-tainment industry, and separating Cramer the analyst from Cramer the television personality; Stansberry's wide reach in the financial world and Covel's introduction to them through an event at Jekyll Island; how Curzio is still looking for big moves just like any trend following trader; how the "magic hand" of the Fed can affect strategies in both the fundamental and trend following worlds; Curzio's experiences with Jim Rogers, Jeff Macke, and Porter Stansberry; and the drastically different ways in which trends can be dissected. Special offer free DVD: www.trendfollowing.com/win.
Michael Covel talks with Mark Shore, a trader and educator whose main area of expertise is managed futures. Shore has an MBA from the University of Chicago, was the former head of risk at Octane Research (over a billion AUM), was the former COO of VK Capital (a subsidiary of Morgan Stanley), and now is an adjunct professor at DePaul University teaching the only accredited course on managed futures in the country. Covel talks to Shore about Shore's experience in getting the "a-ha" moments out of his students when teaching managed futures, and how he brings his students into the world of managed futures; how and why those working in the CTA/managed futures/trend following space have a firm grasp on risk management that exceeds the understanding of competitors (i.e. mutual funds); how the term "managed futures" (which refers to the instrument and not the strategy) might be problematic; skewness; drawdowns; why managed futures performance is famous for doing extremely well when chaos unfurls; why the majority of the mutual fund industry hasn't adopted CTA strategies; the issue of survivorship bias; why certain people can't wrap their arms around strategies not based on fundamental analysis; Shore's paper, "Decoding The Myths of Managed Futures"; the emotional elements of trading; and others experiences while working at VK Capital. Would you like a special DVD sent along for free? Go: www.trendfollowing.com/win.
Michael Covel discusses an article titled "21 Ways Rich People Think Differently Than Average People". The word rich may not be the best term here as Covel notes, "being rich or poor doesn't stop you from being a schmuck." Covel makes a more clear distinction between average people and people of high character. He goes through the list and offers commentary on statements such as "average people think money is the root of all evil; rich people believe poverty is the root of all evil." Money, Covel maintains, is just a medium of exchange and that's all it is. It's what you make of it that becomes good or bad. Readers will see that many of the precepts and principles in this article are straight out of Trend Following 101. Further, commentary includes seeing money through the eyes of emotion vs. seeing it logically; following your passion vs. working for the man; setting low expectations vs. challenging yourself; knowing the markets are driven by emotion and greed; being a slave to debt; surviving vs. thriving; education vs. entertainment; finding comfort in uncertainty; and trend follower Larry Hite's concept of asymmetric bets. Next, Covel discusses "An Investor's Guide to Famous Last Words" from The Motley Fool. Covel used to spend time ripping The Motley Fool for pumping buy and hold, and in the end pulls no punches in revealing the author to be a die hard "value" guy (despite agreeing on certain points). Would you like a special offer DVD sent to your home or office? Go: www.trendfollowing.com/win.
Michael Covel speaks for the second time with managed futures expert, editor/writer for Opalesque, and author Mark Melin. Melin has his fingers on the pulse of the nasty things going behind the scenes; specifically, over-the-counter ("OTC") markets and the MF Global scandal. Covel talks to Melin about his recent piece in Opalesque: "The Untold Story: Brooksley Born, Larry Summers & the Truth About Unlimited Risk Potential". Most understand stock and futures exchanges; you can trade in these exchanges and expect a certain amount of regulation and transparency, and people understand the balancing side of the equation. However, the OTC derivatives that Melin has been digging into are completely off the everyone exposed to a possible mega-implosion in the near future. Melin discusses the history of these unregulated derivatives and notes that if the problems that were initially identified by Brooksley Born in 1998 are not properly addressed, the next market catastrophe could be worse than anything that has preceded it. Covel and Melin discuss the possible solutions; if politicians can actually be held accountable if there are no repercussions beyond not being reelected; and how the average American can digest this information and how it affects them. Covel also brings up the idea of the "four political parties": Democrats, Republicans, Libertarians, and Bankers. If you look at it from that perspective can they be defeated? (Covel: "No.") You can't vote the bankers out. Melin contends that if the debt crisis in Europe unfolds banks are going to expose the US government to unlimited loss potential. Covel and Melin go on to discuss how people simply won't listen if the Dow is rigged to keep them happy; why the average person who sees the Dow at a high level today should care about this, and what they can do to protect themselves beyond sitting around and waiting for the sky to fall. Covel is the skeptic and Melin is the optimist in this fiery conversation about how to handle this situation before it implodes. Melin notes: "The Fed cannot prop up the stock market forever. At some point, gravity takes over." Covel believes the die is cast and offers trend following as an "out". Special offer free DVD: www.trendfollowing.com/win.
Michael Covel sometimes feels like he's floating above and looking down like the protagonist in David Bowie's "Space Oddity". In today's episode Covel closes this alienating gap with his explanation of the "lottery society": The idea that you don't have to work--you simply make a small bet of your time and money and your your entire world can change through one single action (even though the odds say there is no chance). We've pushed aside the notion of purposeful, driven, consistent effort and work. You can see the concept of a "lottery society" beyond the notion of buying a scratch-off: the idea that the Presidential election will change your life, reality shows and American Idol's instant fame fantasy and drugs and alcohol as the quick fix. It all sounds well and good, but the lottery mentality doesn't work. It sucks the life out of you. How did we even get to the point where being "picked" has replaced the notion of good, consistent hard work and creating something from scratch? It's the gap between wishing and doing. We're in a fantastic world of distraction and the lottery mentality is a perfect example of that distraction. Covel goes on to explain the parallels between fundamental analysis and the lottery mindset; perspectives on the lottery mindset from writer Seth Godin; the perils of watering down a clear trend following trading strategy with short term trading strategies, fundamental analysis, and media input; and the illusion that tools such as the iPhone make us more productive. Next, Covel notes how many want a hero these days (instead of viewing themselves as heroes). Currently, the "hero de jour" is Ben Bernanke, chairman of The Federal Reserve--except most don't have a grasp why his current rate policy is so problematic. When you have rates artificially reduced to zero it forces people to invest in the stock market. Covel offers commentary regarding current Fed policy by giving context via an exploration of recent tech and real estate bubble histories. As Charles Hugh Smith (www.oftwominds.com) has noted, "If you prop up an artificial economy long enough, does it become real?". Covel gives his personal view of the current situation: You know it's bad, you know it's eventually going to pop, but what do you do? That's the hard question. So how can you profit in the face of such uncertainty? Trend following is the profit answer when the black swan swims in. Special offer: Receive a free DVD here: http://www.trendfollowing.com/win.
"The pleasure is to play, it makes no difference what you say. You win some, lose some, it's all the same to me." Michael Covel opens up with one of the greatest heavy metal songs of all time and notes some unexpected lessons that can be taken from the lyrics. Sticking with the theme of taking trend following inspiration from unexpected places, Covel then goes on to discuss several posts from Zen Habits, a blog that contains lessons from the perspective of Zen Buddhism. Covel discusses "Finding Peace With Uncertainty": "Why is not knowing so scary? If you roll a dice and don’t know what it will be, is that scary? No, it’s not the 'not knowing' that’s the problem it’s the possibility that what comes up on that dice will bring us pain, suffering, loss." Covel relates this to a recent experiment he did that illustrates trend following through the roll of dice. If you get a two or a six, you win three pennies. Any other number, you lose a penny. The two and the six only come up a third of the time, and even though you don't win many of the rolls, the wins are big. The winners, because they're bigger, pay for the losers. That's trend following. So, how do you deal with uncertainty? Extricate yourself from harmful ideas and strategies: lose the small things that have no positive impact on your trading, such as buy & hold strategies, watching CNBC, etc. Know the worst case scenario. Become comfortable with waiting, and stop obsessing on uncertainty. Voltaire said, "We never live; we are always in the expectation of living." That's the goal. It's not the expectation of living--it's the "right now" that's important. In the next section, Covel comments on some trading and life commandments--inspirational reminders that you need to hear, including "The Ten Most Foolish Things a Trader Can Do". Special offer with free DVD: http://www.trendfollowing.com/win.
Michael Covel talks to Darren Kottle. Kottle is the CEO of Caddo Capital Management a trend following firm. He talks about his roots, growing up in Shreveport, Louisiana. Shreveport was an oil town and Kottle talks about the experiences growing up in an entrepreneurial town. Covel and Kottle also discuss Kottle's early experiences in the market, starting off in a discount stock brokerage; his experiences working with a Nobel laureate Kenneth Arrow at Stanford; the sources of trend following profit; George Soros' concept of reflexivity; the importance and believing in your system to the core; thoughts on investment banks; the pivot point for Kottle to fully embrace a trend following system; what the Turtle story did for him when he first heard it; uncertainty vs. being wrong; and the percentage of people that truly understand that "it's all reflected in the price". Special free DVD offer: www.trendfollowing.com/win.
"It takes two to make things go right, it takes two to make it out of sight". That's a market for you. It takes you over there and me over here and we reach across to make a deal. That's what the market is: it's a bunch of hands shaking, except it's in the form of stocks or futures. Covel talks about "Pawn Stars" and how it's simply price discovery; two people coming together to find a price. Covel takes this and expands on how it's terribly complicated to get to a price. But here's the trick: except for trend followers nobody really wants to talk about how the stuff that gets to the price is waste product. The price is the smartest one out there. Covel also talks about the source of trend following profits in the zero sum game. Trend trader Dave Druz makes the case that it's the risk premium from hedgers. Covel talks about hedgers, the futures market, how it's very much like insurance in a way, and how it relates to the source of trend following profits. Covel also talks about a white paper called "The Winners and Losers of the Zero Sum Game: The Origins of Trading Profits, Price Efficiency, and Market Liquidity" by Lawrence Harris, and how it changed the direction of his own career. Special free DVD offer? Go: www.trendfollowing.com/win.
Michael Covel dives into the topic of cutting your losses, opening with a quote from "The Boxer" by Simon & Garfunkel: "The fighter still remains". It's a personal fight and personal responsibility for all those out there. And if you trade to money the fight to understand the topic of losses should be at the top of your list of concerns. Most people want to hear "instant profits"; they want to run away from discussing losses. However, knowing how to strategically approach losses is one of the most important concepts to understand as a trend following trader. Covel shares a note from a fan who made a connection between Covel's work and some of the ideas found in famed quarterback Joe Montana's book, "The Winning Spirit": "In training for success, we shouldn't hide from failure. Just like football players in the film room, we study failure. We want to see how it happens and which strategies work to keep us from making the same mistakes again." This doesn't just apply to trading: The loss cutting can be a relationship, a business, a family member--it can be anything. How do you know when to cut your losses and get out? Covel goes on to talk about the concepts of opportunity costs and sunk costs. When you've spent the money and it turns out to be "gone" you can't fret about it. It's over--it's a sunk cost. An opportunity cost is equally important: If you are doing A, you can't do B. It's a choice. If you invest your time, energy, or money in one relationship or one business, you can't spend your time, energy, or money with another. There is a cost to choosing one opportunity over another. Covel expands on these concepts relating them to familiar companies like Microsoft and Apple. Covel goes on to discuss how people have difficulty letting bygones be bygones; why people have difficulty with stop-losses in trading; and why having a system that forces you to take losses is the foundation of trend following trading success. A special offer from Michael Covel? Free DVD telling the story of a small town guy who made a trend following fortune. Delivered to your home or office: http://trendfollowing.com/win.
Michael Covel opens his monologue with a clip from the film, 'Patton'. He talks about persistence over time in relation to the film, relating it to some personal examples from his own life. Some people seem to have genetic disposition for certain skills; however, the drive to succeed supersedes any genetic disposition you may have. Dedication, persistence and the drive to achieve are the true keys to success. Covel leads into a clip of Maria Bartiromo talking with Ray Dalio of Bridgewater. Covel notes some things that Dalio goes into that have to do with trend following: having a strategic asset allocation mix that assumes you don't know what the future is going to hold; and the importance of the few big wins. However, Dalio says he isn't a trend following trader in the traditional sense: he's 100% systematic using fundamental information--not technicals. Covel goes on to surmise that there is evidence that some portion of Dalio's business is perhaps in the technical trend following space. Covel also talks managed futures: the origin of the term; how it describes an instrument and not a strategy; and its relation to trend following. Further topics include why you don't need a Ph.D. to be a trend following trader, and process vs. outcome. A special offer from Michael Covel? Free DVD telling the story of a small town guy who made a trend following fortune. Delivered to your home or office: http://trendfollowing.com/win.
It's common knowledge that if you throw a lobster into a pot of boiling water it will scream for its life. However, if you put the lobster in cool water and slowly bring it to a boil the lobster will accept its fate. Michael Covel notes that this is the scene for many investors today: they're like the live lobster in a pot of cold water as it's coming to a boil and they don't know what's coming. Covel presents this idea and several others in the context of gambling, chance, and uncertainty. Gambling can be a pejorative term for many, but Covel relates it to trading. Covel discusses an article entitled, "The Illusion of Control: Dancing With Chance" and relates its ideas to trend following trading. Covel also discusses a TED video from Dylan Evans. Evans talks about three different types of gamblers: problem gamblers, leisure gamblers, and expert gamblers. Covel extends Evans' categorization to traders. These different types of gamblers play for different reasons, handle profit and loss differently, and bet on different games. Are you a problem trader, a leisure trader or an expert trader? Do you trade for fun or for money? While problem gamblers will bet the farm, leisure gamblers know their limits (using a nascent kind of stop strategy), and expert gamblers aim for profit. A problem gambler will bet on anything, but an expert gambler will only bet on games with an element of skill. Covel also analyzes Evans' three ways to make decisions: setting a threshold (how much are you willing to lose?); bet sizing (how much do you bet on each trade?); and the expected value (if you follow your strategy, what is going to be your average winner and average loser?) If you look at the market price of a diversified portfolio of markets, have an entry and exit strategy, and have a bet sizing strategy, then you can make money over the long haul if you have a positive expected value. Please note: Michael Covel quotes Christopher Hitchens in this episode, which contains an f-bomb. Special Offer: receive free DVD delivered to your home or office: www.trendfollowing.com/win.
Michael Covel opens with quotes from both Jay-Z and Malcolm Gladwell ("My goal of the day is to fully listen to my critics, even if they may not know exactly what they're critical of."). Jay-Z recently spoke with Russell Simmons about Occupy Wall Street, noting that he wasn't sure exactly what the message was behind the rally. Covel talks about the Occupy movement, about criticism he's received in support of Jay-Z's stance, trend following in general, and the culture of "trolling" that has popped up on the internet. Next, Covel covers some of the more technical details regarding trend following trading. How can you detect a trend? How can you measure it? For anyone with a pulse, it's really simple. A trend is from point A to point B. There are all kinds of different trend lengths, but you don't know the trend until it's over; you enter, you exit, and then you see where the trend was. The goal is to capture the "meat" in the middle. Covel covers the five basic precepts of trend following: What markets are you going to follow? What will be your signal to enter a trade? What will be your exit signal for getting out with a gain? What will your exit signal be for getting out with a loss? What will your bet size be? Covel also discusses drawdowns, speculation, and entry signals. He notes the connection between wildcatting/speculation and trend following, referencing P.T. Anderson's film about oil speculators, "There Will Be Blood". You can enter randomly, but if you can give yourself an edge on the entry, you should take it. Think about drilling an oil well: You show up and you start drilling holes. You can drill randomly, but if you do a little geological homework, you can find out where to drill to increase your odds. The same logic applies to trend following. You're going to drill a lot of holes: some of them are going to be dry, but you're going to hit a few gushers along the way. No one will care about the dry holes when you hit the gusher that pays for them all. You can either call Fidelity, give them all your money, and wait and hope that you have the timing correct for your own retirement; or you can craft your life around looking for the gushers with a strategy that gives you an edge. Special Offer: receive free DVD delivered to your home or office: www.trendfollowing.com/win.
Michael Covel talks to trader, educator and author Dr. Alexander Elder. Besides his numerous other books, just about everybody involved in the trading space in the past 15+ years has Dr. Elder's international best-seller "Trading For A Living" on their shelves. Dr. Elder's unique and inspiring story starts with his dissatisfaction with the communist system in his home country of Estonia. At 23, while working as a ship's doctor, he jumped a Soviet Union ship in Africa and received political asylum in the United States; he also ended up on the KGB's wanted list. Dr. Elder worked as a psychiatrist in New York City and taught at Columbia University, and he shares with Covel how his experience as a psychiatrist provided him with a unique insight into trading. Dr. Elder's work has established him as one of today's leading experts on trading psychology and in the use of technical analysis with money management. Elder and Covel talk about the psychology of trading; how a high degree of education can sometimes be a hindrance; the most dangerous personality traits to have as a trader; the stages of trader development; the importance of money management; the importance of keeping records and diaries of your trades; the notion of exiting long positins and shorting weakness; the similarities and differences between traders in different geographic locations; and how financial markets can be like manic depressive patients. Special Offer: receive free DVD delivered to your home or office: www.trendfollowing.com/win.
Michael Covel talks with trader Steve Brechtel. Over the past 20 years Brechtel has worked as a trader for three of the top 100 hedge funds in the world: Trout Trading (now Tewksbury Capital) in Chicago and Bermuda, Crabel Capital in Milwaukee, and now Two Sigma in NYC (a $10 billion fund) -- all short-term systematic funds. Considering the often secretive nature of hedge funds Brechtel's candid talk about Two Sigma required internal clearance from his company and is a rarity in the hedge fund world. Covel and Brechtel cover Brechtel's history, from his beginnings roughing it as a Pizza Hut manager while working an insurance job, to finding his way to Monroe Trout, to working at Crabel, to his career at Two Sigma today. They also discuss their mutual history in Virginia; why he was hired at Monroe Trout in the first place as a new trader and the advantages of having a beginner's mind; the difference between the short term/systematic traders that Brechtel worked for and the longer term trend following Covel talks about; the six strategies Brechtel learned trading the pits; what's changed and what's the same now that technology has evolved; Ayn Rand, objectivism, and Trout; Brechtel's transition from Trout to Crabel, and the differences between these two firms; and his work at Two Sigma today. Brechtel also has written a screenplay ("Unhedged") using hedge funds and high finance as its backdrop. He shares his experience in writing the script, how his movie differs from other Wall Street movies, and Covel talks with him about his experience in making his own documentary, "Broke: The New American Dream". Special Offer: receive free DVD delivered to your home or office: www.trendfollowing.com/win.
"You have to understand, most of these people are not ready to be unplugged. And many of them are so inured, so hopelessly dependent on the system, that they will fight to protect it." That quotation inpsired Michael Covel to analyze the two political conventions in America over the past few weeks offering a trend following perspective as an alternative. Within politics people seem to be marionettes attached to strings with invisible hands moving them all around. On either side of the aisle you have people blindly following "their guy" thinking their political win is the answer to their problems. Yet if you want the dollars in your account to go up clapping like a "happy seal" at one of this conventions ain't going to cut it. Covel compares today's landscape to the famous Twilight Zone episode where Roddy McDowall finds himself crash landed on Mars only to realize the comfortable home that has been made for him is a prison where he is exhibited like he's in a zoo--an "earthling in his natural habitat". Covel also notes how technology is arbitraging away the need for human capital and how no politician in America is honest enough to admit it. If so, how do you succeed in this environment? You have to pick an option that's not simply a political belief in "your guy". So what's a way out? Covel lines up some of the basic trend following concepts and applies the eight key features of the scientific method. However, if everyone adopts trend following how can it still be successful? The vast majority of invested assets are in buy and hold mutual funds and unless people stop gambling, stop watching CNBC, and stop drawing false parallels, trend following will never be adopted by the masses. However, the fact that most people are unable to adopt trend following gives you the leg up and a fantastic opportunity to mint cash. Get out of the human zoo. Stop being a marionette. Stop being manipulated. And do something big for yourself. Special Offer: receive free DVD delivered to your home or office: www.trendfollowing.com/win.
Michael Covel speaks with trader, author and blogger Steve Burns. Burns has written two books (his most recent book "New Trader, Rich Trader: How to Make Money in the Stock Market" is available on Amazon) and operates an educational website. Burns is an up-and-comer, and Covel talks to him about his early start, his Nashville location and lessons learned along the way. Burns' start came during the tech bubble of the late 1990's, and he discusses how the bubble bursting helped to shift his perspective from a fundamental, buy and hold approach to the trend trading perspective he's adopted today. Covel expands on some of the chapter titles in Burns' book, such as "New traders try to prove they are right, rich traders admit when they're wrong," and "New traders bet the farm, rich traders carefully control position size." They also discuss the problems with buy and hold; how "rich" can be a mindset rather than a number; the role of luck and circumstance in trading; staying away from the need for constant action and waiting for the "fat pitch"; developing a robust system; staying away from predictive trading approaches; and viewing the markets as a video game as a means to help with trend trading understandings. Special Offer: receive free DVD delivered to your home or office: www.trendfollowing.com/win.
Michael Covel discusses reducing decisions in our lives. He lays the foundation by exploring typical Yahoo Finance articles and a recent John Bogle piece titled 'Ten Rules of Investing', which basically pumps a buy & hold strategy. These articles are the digital stress and information overload of our lives. They don't help us make decisions; instead, they distract. Covel relates this to a white paper from the Bank of England called "The Dog and the Frisbee". Thousands of decisions and factors go into the simple act of a dog catching a frisbee, but does the dog ever think of all those factors? Does the dog crunch the higher math? No! This makes for an easy connection to trading. The objective is to reduce trading decisions down to a simple factors, and to make good buy and sell decisions with some sort of risk-management constraint. So, how do you reduce the buy/sell decision-making process down to something manageable? A trend following strategy and trade based on price. All of the Yahoo Finance, CNBC, and Bloomberg articles in the world won't help make better trading decisions--its all overload. Focusing on the thousands of factors that can go into any market decision will leave your head spinning; if you adopt a trend following approach, you can reduce all decision-making down to the price action up or down of the instrument you're trading. Simplicity in life and the markets--the key. Special Offer: receive free DVD delivered to your home or office: www.trendfollowing.com/win.