Michael Covel: News & Info.

Trend Following is available now at Amazon.com.

Amazon has shipped their initial orders. Other retailers will also have the book. The publisher has started the second printing, but unfortunately the publishing world’s “just-in-time-inventory” doesn’t work great when there is strong demand!

If your local bookstore is out of stock of Trend Following, please do not hesitate to ask them to re-order. Most stores are extremely responsive in this regard. A swift kick may be needed for the less than helpful!

Ponder the statement:

“Statistics alone can never prove causality, but it can show you where to look.”

True trend following traders, if trading similar markets, will typically have very similar winning months and very similar losing months. A good historical example is the summer of 1998 (when Long Term Capital Management went bust). During August and September 1998 most trend followers had winning months. Interestingly, July 1998 was a losing month for most trend followers. Comparing monthly performance numbers of trend followers is best done through correlation analysis. Correlation, however, does not prove causality. It tells us where to begin the investigation. So when looking at correlations among trend followers, especially very large monthly gains or losses, it makes sense to look for the other side of the trade to better understand “why”.

Consider a recent media report:

“During 2002 we entered the foreign currency market for the first time in my life…In 2003, we enlarged our position, as I became increasingly bearish on the dollar.” Buffett made clear that he’s not entirely comfortable — personally or professionally — making currency bets. “The cemetary for seers has a huge section set aside for macro forecasters,” he quipped. He explained that the trade deficit has him spooked. “In recent years our country’s trade deficit has been force-feeding huge amounts of claims on, and ownership in, America to the rest of the world,” he said. “Late in 2002, however, the world started choking on this diet, and the dollar’s value began to slide against major currencies.” He noted that at yearend, Berkshire held approximately $12 billion in foreign exchange contracts, within five (unspecified) currencies. He also said Berkshire owns about $1 billion worth of high-yield bonds denominated in euros.”
CNN/Money
March 8, 2004

Now consider today’s media headline:

“Buffett called hedge funds a “fad” that was more about Wall Street marketing than sound investing. People that are now investing in hedge funds in aggregate are going to be disappointed,” Buffett, who is known as the “Oracle of Omaha,” said. The fees that hedge fund managers charge were unfair, he said.”
Reuters
May 1, 2004

Hedge funds trade currencies. Buffett trades currencies. Contradiction here?