Michael Covel: News & Info.

From Yahoo:

“Once in college, one in four students at four-year universities must take at least one remedial course to master what they should have learned in high school, government figures show. The most blunt assessment came from Microsoft chief Bill Gates, who has put more than $700 million into reducing the size of high school classes through the foundation formed by him and his wife, Melinda. He said high schools must be redesigned to prepare every student for college, with classes that are rigorous and relevant to kids and with supportive relationships for children. “America’s high schools are obsolete,” Gates said. “By obsolete, I don’t just mean that they’re broken, flawed or underfunded, though a case could be made for every one of those points. By obsolete, I mean our high schools - even when they’re working as designed - cannot teach all our students what they need to know today.”

One could very easily take Gates’ comments on education and apply them specifically to “trading & investing education”. Unfortunately, there is no easy answer to get people to see “right” ways and “wrong” ways when it comes down to money. Usually, the carefully crafted get rich quick scheme secures people’s attention — even though those schemes almost always implode.

I recently finished an interview in the Caribbean with a top trader. He currently manages over $1 billion in client capital using strict mechanical models. His dedication to master his niche over many years (by no means an overnight success) should be an inspiration to all. More to follow in the coming months…

Feedback on Citigroup “firing”:

“Hi Michael, I think it might be important to make the distinction that Citigroup never claims that technical analysis doesn’t work (even though it is likely that the type of predictive analysis they encourage from their hired analysts does not work). The real story here for trend followers is that Citigroup has decided that “it’s public” is not *buying* the technical analysis that Citi is selling. The move to allocate their corporate resources to funnymental analysis indicates that that is what the public wants. What a tremendous relief to trend followers! More evidence that regardless of facts, people like to spend their money on things that, “make good fundamental sense.” You know, like buying stocks that are, “undervalued,” and hanging onto losing trades when there is, “no fundamental reason,” for the decline. Sounds like Citi is preparing to provide some more profits for trend followers. In the words of the President…bring ‘em on!”
Jake Carriker

Some feedback on recent book review:

“The Welling@Weeden review and ensuing discussion on your blog brings to light a paradox of the demonstrable success of trend followers, which is that trend following’s success depends critically upon a market in which there are at least some participants who are NOT trend followers, who buy and sell based on fundamental analysis as served up by the many Weedens of this world, or (in the case of commodities) supply/demand factors. If every market particpant were an unadulterated trend follower, there would be no trend since prices in that case would be truly random. Be careful, when you cite the masses of institutional money apparently adopting trend following, of what you wish for.”
David Peipers

Thanks David, good point.

True it is zero sum game, but with this debate raging:

http://www.michaelcovel.com/archives/000308.html

…do you think it is likely that we will have ALL trend followers?

The debate continues:

Citigroup Eliminates Stock Technical Analysis Group

Trend followers are technical traders. However, unlike the fired group at Citigroup (and so many other banks and hedge funds), trend followers do not “project price trends in stocks”.

This distinction is huge. It is a core issue explained in my book Trend Following. That said, many still don’t get that there is a bogus form of technical analysis aimed at “prediction” and a very valid form of technical analysis aimed at “reaction” (used by trend following traders). Read more from another author missing the distinction:

Technical analysis–you’re fired! Is there any value to this controversial stock picking method?

I don’t know if the good professor Burton Malkiel (author of A Random Walk Down Wall Street) takes a position on technical trend following trading, but we sure hope he doesn’t deny that it works!

A great trend follower Larry Hite once said:

“I have noticed that everyone who ever told me that the markets are efficient is poor.”
Larry Hite
Founder, Mint Investment Management Company

Trend Following just started its largest print run yet. This is the 5th printing since release May 2004.

The recent review of my book “Trend Following” here has generated feedback:

“A couple of observations on your comments re: Kate Welling. To start, your book is a very good read. I have been following you, your site, etc. for some time and agree with your view of trading. Others have and will continue to make money in arbitrage, value investing, etc…The end story of the different methods boils down to understanding your style/method and sticking to it. If it were easy to get rich trading just by learning math, there would be a lot of wealthy former math teachers running around!…Back to Kate, understand that she works for Weeden & Co., a small broker dealer in CT. They have a small research product, trading, banking, etc. And that is what she sells! She works in a sellside shop that makes it’s living selling THEIR advice.”
Reader Feedback February 20, 2005

Welling@Weeden Writer Peter Deoteris Drops the Ball on Trend Following.

I received an email today that said in part:

“…you recently mentioned that you were in London discussing Trend Following with an academic who studies the possibility that the method may work…”
Michael D.

May work?

This professor knows like I do…that it works. You are not proffering that the traders in my book are the byproduct of “luck”?

Perhaps I am being too prickly with his choice of words. Perhaps he did not mean to use the word may.

The soft underbelly of the “trading advice” world opened wide.