Synopsis: Michael Covel talks to Cole Wilcox of Longboard Asset Management. Wilcox has been in the trend following space for quite some time, first as a CPO and now as a CTA and mutual fund manager. Wilcox is trying to find the “next wave” hence the name for his firm, Longboard. Wilcox was also profiled in Covel’s “Little Book of Trading” with his partner Eric Crittenden. Wilcox has achieved some notoriety in past four weeks because a stock that he’s been speaking about has been doing quite well (Tesla). Covel asks Wilcox about his firm’s recent fundamental-style pick on the aforementioned stock despite the fact that much of Longboard is an automated, technical trend following firm. Wilcox talks about discretionary aspects of Longboard and the fact that price still rules in the end. Covel and Wilcox also discuss process and how Wilcox found his way into Tesla; finding the next Tesla; asymmetric bets; parabolic moves; the reception to having a fundamental trend-spotting program as well as a traditional systematic price-based approach; why a purely systematic trend following system would have had you in Tesla anyway; being flexible when your hypothesis has been revealed to be wrong; whether new technologies can succeed against the vested interests of those that are making money from keeping those new technologies from succeeding; comparisons of Apple to Tesla; pollution and the electric car; Wilcox’s thoughts on J.P. Morgan’s recent profits 63 of the past 63 days, and why a firm like Longboard doesn’t have those kinds of profits; raw information, the idea of information overflow, and how to narrow things down and not find yourself distracted; the importance of travel; the future of communication; language; and the importance of resiliency and the ability to prepare, plan for, absorb, recover from, and more successfully adapt to adverse events. Enjoy! Complimentary DVD delivered: www.trendfollowing.com/win.
Michael Covel at CLSA (Tokyo 2013)
Michael Covel at Wat Tham Sua (Krabi, Thailand)
TrendFollowing.com Little League Team (Vienna, Virginia)
Reader at South Beach
THE TREND FOLLOWING™ MANIFESTO BLOG
May 21st, 2013
May 21st, 2013
Just saw a commercial on CNN stating that “young people + decent jobs = growth.” There are two types of people. One group sees that ad and says, “Yes, I agree decent jobs!” The other group says, “What does the word ‘decent’ mean and who pays for it all?” I maintain the group you select to associate with will determine your lifetime financial success.
May 20th, 2013
We’re on a roadshow for the new fund, and hitting about 7 cities in 3 weeks. When I go into the pitch on the trend model the institutional fund of fund investors are like “what”? It’s pretty funny, but when I explain the rationale why the “short option mindset” took over the hedge fund business vs. the better “long option mindset” of a trend [following] person, they then get it. [name] is our lead investor so it gets us in the door, but then we definitely blow their mind a bit. BTW, you ever talked to or heard of [name]?
Thanks [name]. Keep me posted. Short option profile v. long option profile? For the curious out there, go check out the differences. Hint: one short option fund that bit it.
May 19th, 2013
From Oct 25, 2012:
On a similar note, I’ve basically spent the past 3 years of my life wandering the globe as a vagabond, with a major emphasis on southeast Asia. So I have a lot of knowledge and recommendations for your upcoming trip (which I look forward to following on the blog/podcast). I am also very likely to be in SE Asia starting fairly soon, so it’s possible that our paths will cross. I’m in LA now, for about 2 more weeks. Anyway, I’ve long wanted to reach out and tell you this stuff, though I have no idea why. I hope you didn’t read this and think “this guy’s some kind of crazy stalker,” because I’m not. But the commonalities have definitely contributed to your podcast resonating so strongly with me.
Thanks for the note Paul. Definitely working toward the SE Asia venture and will definitely want your insight soon! Thanks for reaching out.
From Dec 5, 2012:
I’m in Ubud now, for about 10 days. I imagine that when you talk of coming to Bali, you’re probably talking about Ubud. You must know that the Kuta area, where the bombs have gone off, is pretty much 20 year old drunken Aussie tourist hell. Ubud is a great spiritual place, just lacking a beach (which kind of sucks, but it has lots of other attributes that make up for it in the short term.) I’m basically doing 4-6 hours of yoga a day at an awesome studio called Radiantly Alive, which I highly recommend. No need to go to an expensive yoga retreat here. You can create your own for about 1/4 the price and have more flexibility. Given your path in yoga, you’ll love it here. And the food is great too.
Thanks Paul, perhaps once I get to new year and clear through holidays I circle back for some more great insights!
From May 6, 2013:
Michael, I just wanted to follow up with you on a couple of notes I made listening to your podcasts. First, I love how you used the old school version of NIB, with the long slow bass intro, in the podcast with the John Wooden recording. Nothing like drawing it out at the beginning, before it would really be identifiable as Sabbath style music (unless you know the song, of course.) What could go better together than Wooden and Sabbath?
Second, you talked about Lemmy in another podcast. It reminded me of how I saw Motorhead open for Sabbath twice, including once in 1995 in a small club in West Hartford, CT. I was front row center for Sabbath, though with Tony Martin singing, it was only moderately good. But the club itself had two sides. The other side was a really low grade strip club. My buddies and I wandered over there after the show, and it was mostly deserted. The Sabbath guys were sitting up in a balcony area, and Lemmy was down admiring and interacting with the heinous strippers. He was in all his glory. If it wasn’t so funny, I’d have to say it was sad. But Lemmy isn’t picky.
I hope you’ve enjoyed your Asian trip as much as it sounds on the podcasts. I’m at the beach in Thailand now after a month long tantric yoga course in Rishikesh, India (the “Yoga capital of the world”) and then a few weeks in Nepal, trekking in the Himalayas.
I still recommend Ubud, Bali highly for a place to go nuts with yoga, great food, and good looking western yoga chicks from all over the world.
Thanks Paul! Sounds like I will definitely have to be checking out Ubud!
May 18th, 2013
Feedback to consider if your looking for a trader to manage your money:
Dear Michael, I appreciate the personal response. At risk of wearing out my welcome, I’d like to get some advice. I’m an economist, and I used to think that I understood the macro-economy well enough that I could make decent investments. After a pounding in the early 2000′s I got more astute. I was lucky enough to miss the 2008 crash, primarily because I saw the housing bubble coming. But in general, as you say, I don’t have any special knowledge that would allow me to do better than a monkey. My wife and I are in our mid-50′s and in the process of retiring. Our combined 401K balance is about $800K, which, along with other income is enough to live fairly comfortably, so long as we are careful. I recognize that the most successful trend followers also have some big drawdowns. I’d like to invest with a trend follower, but I can’t afford the risk of a significant drawdown right off the bat. Reasonable gains for the first few years would give us some padding, and we might get a little less risk averse after that because we could afford to be. You mention in Trend Following that Jerry Parker has developed a system that earns lower average returns, but that it is also lower risk. The returns he gets are significantly better than I can get in traditional investments and is entirely acceptable. Perhaps that is the appropriate place for us. My question of you is, is this a good way to look at it? Also, are there other trend followers like Jerry that I might consider? I’ve looked through the book and the websites of many of the people you mention in the book, but Jerry is the only one I can find that specifically seeks lower risk trades. Any advice you can provide would be greatly appreciated.
I don’t recommend individual traders. As far as all the issues that go with making a decision, not sure I follow your exact question beyond a desire for a manager recommendation?
Mike, nearly all of the traders mentioned in the book seem to focus on maximizing the return. That’s fine for people that can afford a significant yet temporary decline, but I cannot. I like trend following, but I’d like to find a trader that uses a system that sacrifices return to gain lower volatility. Perhaps that’s what I should have said.
That’s not true that they all focus on absolute return alone. As I said from the top my books (plural) cover a wide selection of trend following issues and traders. I can’t advise you on a particular trader, but your view that trend following only shoots for absolute returns alone is not accurate. One question that I have? Were you fine with the S&P dropping 50% twice in last 13 years? And the Nasdaq 77% drop?
May 17th, 2013
Synopsis: Michael Covel talks to Jim Woods. Woods is a financial journalist with Trader’s Reserve. His book “The Wealth Shield, A Wealth Management Guide: How to Invest and Protect Your Money from Stock Market Crashes, Financial Crisis and Global Economic Collapses” is available now. His aim is to make sure you’re prepared for whatever black swan might come your way. Covel talks to Woods not to discuss how to find absolute returns, but to talk about the market, the economy, and uncertainty; to talk about the idea that things don’t always don’t go up. How do you think about the options and the possibilities of the market, and how do you think about what might go wrong? Covel and Woods talk about zero interest rate policy, or “ZIRP“, and why normal people are taking on more risk to get the same returns; if another 50% meltdown happened in the S&P while rates were at zero, what might the chain reaction be? Would you be prepared trading wise for that?; technology taking away the need for human capital; the power structure in Washington; the societal implications of ZIRP; what the stock market might do if interests rates went up; the concept of “blowback”; the importance of having a plan; protecting yourself, and the eventuality mindset; the US as a “prison” banking system; and the importance of investing in other currencies for beyond trading reasons. Want a free trend following DVD? Go to trendfollowing.com/win.
May 16th, 2013
Distraction is eating away at society. Now that almost everyone has a handheld computer at their disposal 24/7 distraction is life. This is an older video from Microsoft, but worth checking out again. It is a perfect example of how much of our lives are being missed by chatting with someone in cyber space rather than living in the moment:
Too much stimulation is like a massage that never ends–no good. Think about it from an investing perspective too.
May 15th, 2013
Not interested in trading your own money? There are plenty of trend following firms out there to choose from. Some feedback:
I’m reading your book Trend Following, and I’m a believer. I’m not interested in becoming an expert. I would rather have someone do the investing for me, but I don’t see on the website any links for investors who want someone else to manage their funds. Have you got any options for me?
My five books are filled with ideas for those who might manage your money. I am not currently in the recommendation game.
May 14th, 2013
Mike. So to be clear. You don’t sell the software itself just the code?
We teach the psychology, philosophy and rules. Those rules can be coded into dozens of different programs and software packages. The key is the rules though. That’s where it all starts.
Ok understood… By the way I should really introduce myself properly. I was a CEO and shareholder of an investment bank in the Middle East (I’m also a UK chartered accountant and a lawyer). I am now retired (53 not 73) and living in Singapore. I have made millions for myself trading FX but I use a sniper approach (don’t laugh). Very simply put I wait till price hits the most significant support and resistance areas (on weekly charts) and then just assume [the] probability is it will reverse direction. I then observe price action and divergences in the shorter time frames and swing the other way if it all stacks up. However, my positions are very large. Usually up to $15 million. The approach I use is obviously discretionary but I suppose I could try to code it (not sure how this could be done as the support and resistance lines are a visual check). I’m interested in your products because I have a 22-year-old son who wants to get into trading and investment full time and I want him to start his education with the right approach and the right people. You know very well there a lot of ‘useless’ trainers and systems out there in the market. Which brings to the subject of the ‘rules’. Are you providing the actual program codes (eg. for Tradestation or MT) or are you expecting your clients to find someone to code them up (which can be frustrating)??
As for code… Yes, we are expecting clients to code the rules we teach [if that is their desire]. Why? There are too many different code formats out there. We do have an option for Flagship clients. We provide Tradestation® code for two separate trend following systems. Hope this helps.
May 13th, 2013
A good email exchange with some FAQ’s:
Hi, I stay in India. The 1st most important thing which I would like to know is that classes are held online or on-site? Secondly, there are 4 Systems. How do I know which one I must buy. I understand the basics of the markets, but I do not have a good strategy in place, which is what I am looking for. Third, can the strategies taught be applied to Indian stocks since volatility is less when compared to asset classes such as forex, etc. Will things like stock selection be taught? Also, if you have a brief intro and performance results of the strategies, kindly forward it to me.
Both. But mostly it is home study with email support. First place to start is Flagship system/training. Strategies are for all markets. Volatility is always a factor and is always considered and accounted for with our systems. Stock selection is part of the training, yes. You can see an intro to materials and potential performance here:
Thanks for the quick reply. Are your strategies based on indicators or just price action? Secondly, how is the $2997 system different from that of $2497 one? Both pages mention that strategies are not meant for day traders? May I know how long should one look to hold the position using these strategies?
One version is for brand new traders. The other is for those who have some experience. The strategies used price based indicators. No day trading–ever. A good trend could last over a year. A bad trade could be stopped out in days or weeks.
May I know if I require any charting software or any basic EOD software is OK to do the analysis? Secondly, what is the minimum risk reward I must look at while taking a trade? Also, what is the hit rate for the strategy? Strategy wise, the brand new trader strategy and the pro strategy are the same, right? What time frame is best suited for the strategy? Is multiple time frame analysis done or just one time frame is analyzed?
This is long term trend following. EOD data is fine. EOW data can also work. Yes, weekly bars. I did give a time frame example last email? Hit rate? The question should be: “does the system have positive expectation?” In isolation alone percent winners tells a trader nothing. Trend following aims for 35-50 winners with winners being 3-4x the size of losers. Strategy for pro/new the same. There is no minimum risk/reward. Risk is adjustable. We teach that and how each user can make the adjustment. Software? You could put the rules we teach into EXCEL. Other third party programs like Tradestation can work. I can’t vouch for all programs.
May 12th, 2013
Synopsis: Michael Covel speaks with Jason Russell, the President and CIO of Acorn Global Investments in Canada. Russell brings a unique perspective to the show with a very clear strategy on how his firm makes money for their clients. Covel and Russell discuss Russell’s background and how he came to form Acorn Global Investments; Russell’s strategy for Acorn and “the baker analogy”; the idea of “winners stay, losers go”; showing his investors every position that Russell has; how the terms “commodity trading adviser”, “trend follower”, “quantitative trading” don’t exactly describe what many traders do; Ed Seykota and the “trading tribe”; letting go of “why” and simply riding out trends; where strategies like Russell’s fit in the context of a portfolio; the importance of delivering uncorrelated results to the S&P 500; drawdowns and the psychological effect of going through one alone, uncorrelated to other markets; and how there’s nothing more important than risk management. More info on trend following? Receive the free DVD: www.trendfollowing.com/win.
May 12th, 2013
From Berkshire’s Chairman’s Letter circa 1996:
“To invest successfully, you need not understand beta, efficient markets, modern portfolio theory, option pricing or emerging markets. You may, in fact, be better off knowing nothing of these. That, of course, is not the prevailing view at most business schools, whose finance curriculum tends to be dominated by such subjects. In our view, though, investment students need only two well-taught courses “How to Value a Business” and “How to Think About Market Prices.”
Once you follow that bit of wisdom, you can start in on the derivatives racket too. Warren Buffett is one fantastic success story, but he is also a manipulative talking head with words flowing that don’t match his actions.
May 11th, 2013
There’s no better lyric than “Life of Illusion” by Joe Walsh to describe the most recent trading performance that was reported by J.P. Morgan. In the first quarter they were profitable on 63 out of 63 trading days. Think you can develop a trading strategy that can compete with J.P. Morgan? You can’t. What J.P. Morgan has done is not trading performance; it’s an incestuous union between them, the United States government and the Federal Reserve. You don’t make money 63 out of 63 days trading. That’s not trading; it’s a gift. Of course, if you have a position in J.P. Morgan, that’s great; ride the trend. But what’s unfortunate is that we’re in the middle of a societal tsunami on Wall Street that makes it very difficult for the average person to know what’s real. To the average person that wants to learn about trading, J.P. Morgan’s performance looks like a noble goal. Unfortunately, this level of making money has nothing to do with a trading strategy. It has everything to do with being in a symbiotic union with the government and the Federal Reserve. It’s not trading, it’s taking. Can you replicate a trading strategy where you get the same advantages that J.P. Morgan does? And what happens when the black swan flies in? Covel goes on to explain comparing the performance records of Bill Dunn to J.P. Morgan. When these black swan events happen, strategies like Bill Dunn’s excel, and fundamental strategies don’t. It’s that simple. You’re left with the idea of worshiping a false idol (JP Morgan) or the Bill Dunn strategy that doesn’t make money every day, but in the long haul makes more money and protects you when the tsunami hits. Covel closes by talking about the high priest himself, “Venus”, the man from Omaha. Even though his fourth quarter profit rose 49% on gains tied to derivatives–derivatives that he once called “weapons of mass destruction”–it’s no matter to his worshipers. Covel gives him all the credit in the world for amassing his great fortune; he’s one of the greatest capitalists of all time. However, it’s the disingenuous, manipulative nonsense of telling people not to trade derivatives but then doing it himself that really gets to Covel. Venus (read: Buffett) pretends that his words don’t matter. Want a free trend following DVD? Go to trendfollowing.com/win.
May 11th, 2013
How does JPM make money 63 days in a row?
Pete Townshend sang about it back in the day:
Ever since I was a young boy,
I’ve played the silver ball.
From Soho down to Brighton
I must have played them all.
But I ain’t seen nothing like him
In any amusement hall…
That deaf dumb and blind kid
Sure plays a mean pin ball!
He stands like a statue,
Becomes part of the machine.
Feeling all the bumpers
Always playing clean.
He plays by intuition,
The digit counters fall.
That deaf dumb and blind kid
Sure plays a mean pin ball!
He’s a pin ball wizard
There has got to be a twist.
A pin ball wizard,
S’got such a supple wrist.
‘How do you think he does it? I don’t know!
What makes him so good?’
He ain’t got no distractions
Can’t hear those buzzers and bells,
Don’t see lights a flashin’
Plays by sense of smell.
Always has a replay,
‘n’ never tilts at all…
That deaf dumb and blind kid
Sure plays a mean pin ball.
I thought I was
The Bally table king.
But I just handed
My pin ball crown to him.
Even on my favorite table
He can beat my best.
His disciples lead him in
And he just does the rest.
He’s got crazy flipper fingers
Never seen him fall…
That deaf dumb and blind kind
Sure plays a mean pin ball!