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Ep. 278: Larry Swedroe Interview with Michael Covel on Trend Following Radio

Michael Covel speaks with Larry Swedroe on today’s podcast. Swedroe is a Buckingham Asset Management principal. He is also a principal and co-founder of BAM Advisor Services, LLC, and serves as the director of research for both entities. Swedroe has authored or co-authored fourteen books and comes at investing from an evidence-based approach. Covel and Swedroe have different vantage points, but there are some commonalities in their thinking. They discuss forecasters and prediction; the three types of forecasters; confirmation bias; how your political affiliation might change your willingness to listen to forecasts; value perspective vs. momentum perspective; the anomaly of momentum; the evidence-based thinking approach; momentum trading in 2008; how Swedroe prepares for the unexpected; not treating the unlikely like it’s impossible; managing your risk; process vs. outcome; the equity risk premium and bear markets; commonplace crises; planning ahead; and diversification attempts to get outside of equities. Want a free trend following DVD? Go to

larry swedroe

Note: These episodes play by clicking “listen”. You may also want to “save as” each file to your device. All episodes on iTunes too.

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Posted in Interviews, Multimedia, Podcasts, Trading 101, Trend Following

Nice Work Sir!

Podcast feedback:

Since discovering your podcasts, I have not gotten much else done. Nice work sir.

A fun comment from Brad Rotter (a guest!).

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Posted in Trend Following

Trend Following: Freedom and Opportunity

Feedback in:

Greetings Michael, My name is [Name] and I am a relatively new investor/trader. I have been unsuccessfully trading the stock market since early 2012. I have approximately $30K invested in the stock market and have seen that investment go down by $6K twice including today’s massive sell-off as well as up $8K twice. For some reason i keep making the same mistakes and I would appreciate some help with sticking to some rules. I really see myself as a trend follower because the stock market is very unpredictable. I would love for some help and guidance with this. I actually just finished your interview with Kevin Bruce and my goal in achieving high returns in the stock market is for “Freedom” and opportunity for various choices. I follow tweets from both you and Jon Boorman.


My options: books and podcast. Great place to start. Also, for more hand holding: go.

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Posted in Feedback, Trend Following

Ep. 277: A Million Words and Justifications with Michael Covel on Trend Following Radio

Synopsis: Today on the podcast, Michael Covel opens up relating a Bob Dylan lyric to uncertainty. You can’t tell what’s going to happen tomorrow; you can’t tell what’s going to happen to people in your life. You can just go with it–you can just keep on keeping on. But predicting tomorrow, thinking that you have an explanation as to how it’s going to actually unfold? You’re kidding yourself if you think you can predict tomorrow. People are paid a lot of money to pretend that they can predict tomorrow. But it is pretending, no doubt about it. Covel moves into his main topic for the day, noting that since March of 2009, stocks have taken off. It’s a massive trend–a trend following dream for stocks. Covel also sees that the fundamental guys look at the all-time highs with justifications. Trend followers have no justifications. There have been millions of words since March of 2009 written by fundamental traders justifying the all-time highs, and people get paid a lot of money to write these justifications. What will all those words count for if the S&P makes another 50% drop? How do you make a fundamental decision in the face of a game where fundamentally, the only thing you really have is “can you predict what the Federal Reserve will do next?” Covel also shares some words of wisdom from trend following trader Jerry Parker that he obtained through a recent email, as well as words from Tom Basso and David Cheval. These traders all agree on one thing: ride the trend. Building on these thoughts, Covel moves into talking about football, Chip Kelly, the Philadelphia Eagles, Hal Mumme, and Mike Leach. Covel uses this as a metaphor for why you can’t be a trend following trader in one market alone. So, if you can’t predict tomorrow, what can you do? You can take what’s given. You can take the trend that arrives. Want a free trend following DVD? Go to


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Posted in Multimedia, Podcasts, Trading 101, Trend Following

PIMCO: Trend Following Through the Rates Cycle


Some investors have been concerned that the historical success of trend following–a quantitative strategy that seeks positive returns by capturing momentum across major asset classes–would unravel in a period of range-bound or rising interest rates. PIMCO’s New Neutral thesis anticipates that interest rates will remain lower for longer. Eventually, however, rates are likely to rise from today’s rock-bottom levels. Even so, history shows that trend following strategies have the potential to generate positive returns amid rising rates–and indeed, across all interest rate environments. Most asset classes have benefited from 30 years of falling interest rates, as future cash flows have been discounted at steadily lower rates, boosting present values. Accordingly, passive long-only strategies now face a challenge in generating positive returns in a period of range-bound–or worse, rising–rates, which could partially reverse this discounting windfall. Trend following strategies, which take long or short positions across equity, bond, currency and commodity futures markets consistent with trends in these markets, rode the long downward trend in rates and often profited. However, unlike most passive strategies (and many active ones), trend followers have no fixed directional bias and can short any and all markets that are falling. By their nature, trend followers will often miss turning points. But whether markets are rising or falling, if trends are persistent and strong, trend following strategies are designed to seek profits.


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Posted in Trend Following

Do You Trust the S&P?

A successful trend following trader recently emailed:

It’s very hard to embrace diversification, especially without a systematic trend following portfolio scheme, when you are being frequently compared to the S&P and other indices. How can you convince your bosses that it’s okay to “underperform” when it’s due to diversification. Everyone sees the S&P as a minimum ROR, you are missing out if you make less no matter what the reason.​

He goes on to send me this article by Randall Smith, “Pressure for High Marks at Harvard Extends to Its Investment Chief”:

The chief investment officer of the Yale endowment, David F. Swensen, set the bar for universities starting in 1988 when he created a widely imitated blueprint for high-octane investment returns with heavy doses of private equity and other alternatives to stocks and bonds.

Then from 1990 to 2005, Jack Meyer of Harvard gave Yale a run for its money with a streak of returns almost as sizzling, achieved by a team of swashbuckling in-house traders whose sky-high pay eventually led to their departures after an outcry from faculty and alumni.

But over the last decade, miscues by university management and more tepid investment returns have pulled down Harvard’s results, culminating in the June resignation of Jane L. Mendillo, the chief executive of the Harvard Management Company, who started just before the market collapse in July 2008.

The performance of Ms. Mendillo, who is leaving at the end of the year, illustrates not only the vicissitudes of investing but also the revolving-door aspect of an operation like the Harvard endowment, where retaining top talent can be difficult because of the intense scrutiny and the availability of bigger paychecks elsewhere.

“The pressure on people in that kind of institution is tremendous from people who want to see good results all the time,” said Keith Ambachtsheer, who runs an education program for nonprofit board members at the University of Toronto. “There’s no patience for the fact that managing endowments is a long-horizon enterprise that naturally involves occasional periods of disappointing results.”

Harvard expects endowment investment returns of about 15 percent for the year ended in June.

Harvard officials defend Ms. Mendillo’s record, saying that over the five years ended in June, the university’s endowment, the nation’s largest at $32.7 billion, matched its long-term record of 11 to 12 percent annual returns. They add that Ms. Mendillo coped well with multiple challenges during the financial crisis and stabilized the organization. And this month, Harvard is expected to report a return of about 15 percent for the year ended in June, the second-best of Ms. Mendillo’s term.

In three of the five Mendillo years for which Harvard and its Ivy League rivals have reported detailed results, however, as well as for the five years ended in June 2013, its endowment trailed all seven other Ivies. Including a steep 27.3 percent decline during the market collapse year, its five-year return was just 1.7 percent, compared with an average of 4.2 percent for the others.

“Their performance was not very good,” said Charles Skorina, a San Francisco endowment recruiter who calculated the five-year Ivy returns.

Results were all the more disappointing, he added, because Harvard pays “top dollar” for an in-house staff that invests about 40 percent of the assets, including $4.8 million for Ms. Mendillo in 2012, and $7.9 million and $6.6 million for her two highest-earning deputies. Other Ivies farm out most of their investments to outside managers and do not generally award such lavish paychecks.

In a letter sent last month to Harvard’s president, Drew Faust, a group of nine Harvard alumni renewed its past criticism of the pay for the endowment’s staff, noting that the total for 2013 of $132.8 million had doubled in the previous four years. ”

Harvard officials say the higher pay levels reflect Ms. Mendillo’s efforts to rebuild the staff, which had been depleted by the departures of numerous top traders, and the exceeding of certain benchmarks.

Some associates of Ms. Mendillo, who came up through the ranks at Harvard and then led both the Wellesley and Harvard endowments, say she acknowledged unhappiness with the scrutiny on Harvard’s returns. “She didn’t like it; she is a very private person and doesn’t seek the spotlight. So the negative focus on absolute returns did bother her,” said Verne O. Sedlacek, chief executive of Commonfund, which manages $25 billion for nonprofit groups. Mr. Sedlacek worked with Ms. Mendillo, 56, at the Harvard endowment for a decade. Harvard officials declined to comment beyond a brief statement applauding the latest five-year returns as a “strong recovery.”

One former official of Harvard Management compared the endowment’s cautious, defensive style in the Mendillo years to a soccer team that tries to keep possession of the ball instead of taking shots on goal. Many of the company’s alumni called Ms. Mendillo more of a steady, capable manager than a visionary investor.

Returns in the first of the cellar years, ended in June 2009, were weighed down by the need to sell illiquid assets at a discount to produce cash for the university, as well as a decline of more than 50 percent in the endowment’s real estate holdings — roughly double the decline of the United States stock market. But former Harvard endowment employees say returns in the other bottom-ranked years ended in June 2012 and 2013 were held back by less obvious factors like holding too few publicly traded United States stocks, which shot up 12.2 percent annually in those two years, and placing too big a bet on emerging stock markets, where Harvard underperformed market indexes that themselves produced annual losses of 6.7 percent.

Another drag during the five-year period ended June 2013 were “real assets,” including real estate, natural resources and commodities, where Ms. Mendillo kept the weighting at as much as 25 percent — higher than most other Ivies — which produced losses of 3.6 percent annually, held back by low inflation.

Her best sector was fixed income. As initially reported, it returned an average annual 4.8 percent, beating Harvard’s own benchmark of 2.8 percent, while trailing a more widely used index, BarclaysU.S. Aggregate, which gained 5.2 percent. Harvard says it actually beat the Barclays index with a 6.1 percent return because it retroactively removed high-yield securities from the category after it incurred steep losses in 2009.

Mr. Meyer’s successor, Mohamed A. El-Erian, who arrived in February 2006 and left after only 21 months for what he said were family reasons, posted a return of 23 percent during his lone full year ended June 2007, aided by a 44 percent bounce in emerging markets and a surge in commodities.

Friends say Ms. Mendillo is looking forward to escaping the pressure cooker, where criticism of the recent results may have made it tougher for her to lead and retain top talent. For example, after the longtime head of private equity, Peter Dolan, resigned last year, his successor, Lane MacDonald, abruptly departed in February after just a few months in the job to manage a family office for the Johnson family, which owns a stake in Fidelity Investments.

Lawrence E. Golub, a Harvard alumnus whose Golub Capital lends to midsize companies, said Ms. Mendillo did “a great job” steering Harvard through the crisis and revamping its risk and liquidity profile. But he noted that the job required three separate skills in investing, managing and dealing with Harvard’s various “constituents and interest groups.” He added, “Any job with those challenges, that’s a very tiring job.”

It’s also worth noting what the S&P really represents today for folks like at Harvard fund management. It represents government policy. So trust the S&P, you trust the government.

Trend following just ignores it all.

Posted in Feedback, Trend Following

Where Can I Get Podcast Summaries?

Feedback in:

Hi Michael, I’ve recently learned of your work and I’m enjoying it very much. Would it be possible to get the podcast descriptions for podcasts in text form?

Thanks and best,

Go to: or

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Posted in Feedback, Trend Following

Ep. 276: Richard Lewis Interview with Michael Covel on Trend Following Radio

Synopsis: Michael Covel speaks with Richard Lewis. Lewis is the author of When Cultures Collide and When Teams Collide. He is a cross-cultural expert who has been studying language and communication his entire career. He’s traveled to 130+ countries and speaks eleven different languages. Why have a language and communications expert on a trend following trading show? Covel explains: We live in a complete and real world. You’re not just a trend following robot. There are many facets to life and the ability to communicate can’t be ignored. Covel and Lewis discuss how Lewis’ love affair with language started; the best way to start learning a language; travel as a “magic elixir” of sorts; the Lewis model; cultural differences in language, and what Lewis means by linear-active, multi-active, and reactive; the idea of losing face in the context of cross-cultural communication; microculture and macroculture; cross-cultural teams vs. homogenous teams; normal and abnormal in a cultural context; paperwork and punctuality in different cultures; why the linear-active person confronts with logic, the multi-active person confronts emotionally, and the reactive person is never confronting; and why there’s much more to making a deal than just quantity and price. Want a free trend following DVD? Go to

richard lewis

Note: These episodes play by clicking “listen”. You may also want to “save as” each file to your device. All episodes on iTunes too.

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Posted in Interviews, Multimedia, Not Wall Street, Podcasts

Finding Opportunity Means Taking Shots: Same for Football, Same for Trend Following

Excerpt from here:

In finding Leach, an alumnus and fellow acolyte of BYU, Mumme stumbled upon the Paul McCartney to his John Lennon. Neither one of them gave a damn about college football’s hallowed traditions. Both cherished the lessons you could learn from heroic iconoclasts like Davy Crockett or Geronimo. And both liked getting in the car, blasting Jimmy Buffett and driving to any football practice in the country where they thought they could snatch up another crazy idea and make it part of their oeuvre.


Well before Gus Malzahn and Chip Kelly were riding their wide splits and hurry-up offenses all the way to the BCS championship game, Mumme and Leach were running the concept on a small practice field in Mount Pleasant, Iowa. “The more shots on goal you get, the better,” Leach says. “That’s how we saw it. And with so many people touching the ball, it elevates the enthusiasm of the whole team.” In their three years at Iowa Wesleyan, the Mumme and Leach show went 25-10 and led the nation in passing once and finished second twice.

“The more shots on goal you get, the better” is the reason why you CAN’T be a trend follower on one market alone. You need opportunity. Trade one market, you are limited to one opportunity. It’s like running the fullback straight ahead for 3 yards every play. Bad strategy. You need diversity in opportunity.

Bruce Lee on Opportunity

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Posted in Psychology, Trading 101

Ep. 275: Joel Mokyr Interview with Michael Covel on Trend Following Radio

Michael Covel speaks with Joel Mokyr on today’s podcast. Marc Andreessen, one of the founders of Netscape, tweeted that Mokyr was one of his heroes. This intrigued Covel, and hence his desire to have Mokyr on the show. Mokyr is a economic historian at Northwestern University. He focuses on technological progress, and how it affects growth. From Mokyr’s perspective, we haven’t seen anything yet. He’s not trying to predict what will happen next; he’s just confident and ready that big things will continue to happen. Covel and Mokyr define technology; the notion of playing God with technology; how technology and economic growth are intertwined; why screwing up is part of technology; the acceleration of technology; new ways of measuring growth; anesthesia and antibiotics as technologies and imagining new technologies as revolutionary as them; moving from a wheat and steel economy into an information economy; the factory, the separation between firm and household, and the Industrial Revolution; the death of distance; why technology is often not reflected in the GDP; solving the language barrier through technology; why the global acceptance of the English language is driven by technology; why innovation isn’t natural to us; the declining respect of the writings of previous generations; why the median age will continue to increase; why we are moving into a mass-customization society; changes in material science; and the best way to think about the future. Want a free trend following DVD? Go to



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Posted in Economics, Interviews, Multimedia, Podcasts, Trading 101
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