Michael Covel’s Official Site

From the July 18th Businessweek:

“You once had to have big bucks and bigger connections to get into a hedge fund. Now you can walk into a retail office in Manhattan across from the New York Public Library main branch. That’s where Superfund Asset Management, the U.S. division of a Monaco-based hedge fund, has opened its Superfund Investment Center to “educate people about this asset class,” says Managing Director Aaron Smith. The storefront is one of the unusually public ways in which Superfund is marketing its two managed futures funds, a type of hedge fund that invests in stock, bond, currency and commodity futures. It has run a commercial on CNBC. It also hired former President Bill Clinton to speak at the office’s March opening — although he pulled out, citing his recuperation from lung surgery. Because the funds are registered with the Securities & Exchange Commission, you can generally get in with a net worth of $150,000, Smith says. The minimum investment is $5,000. How is performance? The B shares rose 27.7% in 2003 and 16.82% in 2004, but are down 17.3% this year. B share fees are a superpricey 10.63% — though after 2 1/2 years they fall to 6.63%. Hey, rent is high in midtown Manhattan.”
Anne Tergesen
Businessweek

Eclipse Capital Management, a prominent trend follower, recently authored a white paper addressing performance. Their key conclusion was a nice academic way of saying, “stay in for the long term and don’t get out at the bottom!”

Their comment:

“By increasing one’s holding period, the investor reduces the probability of GMP [Global Monetary Program - a trend following fund] underperformance to a point where it is a minimal risk, while at the same time having the potential to participate in periods of substantial outperformance. This very attractive pattern is similar, but not identical, to that of call option - where the risk is limited and the upside unlimited.”
Eclipse Capital Management

Trend Following was ranked this morning #377 of all books available at Amazon.com. Thanks for the continued interest 15 months after release!

Always understand the risk/reward of the trade as it now stands, not as it existed when you put the position on. Some people say, "I was only playing with the market’s money." That’s the most ridiculous thing I ever heard.
-Bill Lipschutz

(more…)

A good read from a sports betting standpoint (PDF).

I recently saw the following comment regarding money management:

“Every system in our report uses very simple money management: Trade one contract per trading signal in the markets specified by the vendor with no pyramiding.”
Trading Guru

This is NOT money management. If you ever see anyone declare the above as money management walk away fast as you are about to be conned. Money management is not some set amount of shares or contracts picked out of thin air. Money management answers the question of “how much?” At all times, given the risk you are taking, the money you have, and the volatility of the market — you must know the optimal number of shares or contracts to be long or short.

It is getting harder for hedge-fund managers to generate above-average returns when their funds grow too big, right? Tell that to James Simons (PDF).

Where do profits from trend following trading come from? One source of profit comes from the mistakes of other market players.

For example, read this recent article from the New York Times.

Ed Seykota was recently asked:

“I’ve got Excel on my computer…is it possible to make a good trading system on Excel or do I need to purchase…[a] sophisticated software program?”

Seykota Answered:

“A trading system is an agreement you make between yourself and the markets. You can use a number of ways to test the agreement before you make it. Excel has the advantage that you can see everything the system does. Other software has an advantage of speed and ease of use. You might consider starting off with Excel until you get a feel for system trading, and then move on to more specific software for comprehensive testing. You might also consider auditing a few runs of your testing software with Excel, to make sure you have accurate coding.”

Visit Seykota.com here.

Making big decisions?

An excerpt from Fortune Magazine:

“When you see a trader panic, you can be pretty sure that for the next few hours, he’s going to lose money. All the base instincts in your brain–what I call “caveman brain,” the sort of fight-or-flight feeling of emotion that is designed to stop you from being eaten by a sabertooth tiger–takes over your decision-making. You start trading scared, taking smaller positions on good ideas and cutting profits too quickly.”

Read Fortune Magazine Article