Michael Covel: News & Info.

I just received the full cover of the Korean translation of Trend Following. You can view the cover here. The publisher is TheNan Publishing Co. and the ISBN is 8984053244.

At Ed Seykota’s FAQ he was recently asked:

“I notice the stock currently trading around 360, down from about 435 overnight, down from about about 475 earlier this month. How can an earnings report cause such a big sell-off?”

Ed responded:

“In the Causal Model, disappointing earnings “cause” a 20% sell-off in the stock price. In the System Model, you look for evidence of a shift in the intention of the culture, such as buying toys, turning the job of keeping the corporate ethics over to management and compromising the company motto. In the Trend Following Model, you simply notice the long-term trend is still up and the short-term trend is sideways to down and you follow your system.”

I like the way Ed Seykota thinks.

Feedback from a reader the other day:

“I just listened to one of your audio comments [about] getting on trends when they are already fully developed. Would this be the case with the Sugar trend at the moment? I understand it hit much higher highs in 1974 and 1981.”

That is part of the idea, yes. But I am not saying don’t get on, I am saying have a plan. He responded:

“Thanks Michael, briefly how do you see this trend in comparison to 1974 and 1981?”

What do you mean? He responded:

“I just put Sugar charts [from] 1974 and 1981 on the window against each other up to the sun. They are virtually the same price formation. You never can tell, but the 2006 chart seems only to be in the early stages of the super spike trend as you call it. The same type of fundamentals are here: ethanol, oil. I read Jim Rogers ‘Hot Commodities’. He believes we are in a secular commodities bull. Hard to disagree. I am late, but I think in reality it is only just the beginning. Managing price corrections and stops the name of the day. What do you think?”

You already told me you read my book, but you are asking for a fundamental opinion? I have no idea what will happen in the future. Follow the trend with rules is the best strategy I can offer.

If you want to purchase an Asian translation of Trend Following simply cut and paste the ISBN number below into Google. This will show all international book stores selling translations of Trend Following.

1. Japanese ISBN: 4775970461 (Publisher: Pan Rolling)
2. Korean ISBN: 8984053244 (Publisher: TheNan Publishing Co.)
3. Chinese-Traditional ISBN: 9861542035 (Publisher: Pearson Education Taiwan)

ISBN: International Standard Book Number; a unique ten digit number assigned to every printed book.

An article (PDF) of mine recently appeared in the Superfund Magazine Of course, the content is not new to those familiar with my web sites, but their presentation sure is better!

I received this email today from a prominent portfolio manager:

“Attached is an internal Smith Barney memo dated March 2002 (a full two years after the peak of the NASDAQ) that shows the job of the Wall Street research analyst was to support the investment banking function. We all knew that things like that went on - it’s just scary to see it so vividly explained in writing. No wonder most mutual fund managers underperform - they still lean way too heavily on Street research.”

You can read memo here (PDF).

There is a very good article (PDF) on Nassim Nicholas Taleb in the just out issue of Active Trader magazine. I don’t subscribe, it just comes to me, but this one article was very good. The link above is, however, an abbreviated version of the print version. Taleb is another trader, like trend followers, chasing ‘fat tails’.

More Taleb? Here is a Fortune article (PDF) on Taleb and his class syllabus (PDF).

The Japanese version of my book had a sleeve (image) over the lower half of the book. I learned tonight from my Japanese publisher that this is an “obi”:

“Obi” literally means a band or belt you wear with a kimono. I am not sure whether such a thing exists in your country or not. It is slid over the lower part of the book cover. Usually “catch phrases” are written on it.”

Ok. Maybe useless trivia!

Feedback from Fidelity employee:

“If every market participant were a trend follower fixated on price alone then the markets would never move. The participants that place a value on a financial instrument provide the opportunity for trend followers to participate in the game. They get the ball rolling so to speak.”

Maybe, but it would also depend on what lengths of trend were traded. But realistically, how could we ever have everyone trading as a trend follower? The psychology behind it all is not what some people will want in their lives. Most people want the easy road even if the perceived easy road is not so easy.

The follow-up question came next:

“Is it possible market volatility may some day be measured as a function of the number of trend followers in a market?”

How do you ever know who exactly is in a given market?

That Which Cannot Be Said (PDF) from Dr. Brett Steenbarger is good reading. An excerpt:

“The role of a good psychologist is to comfort the afflicted and afflict the comfortable. If you’re comfortable in bed while your market is in its peak period of opportunity, you shouldn’t be comfortable. I told the trader he didn’t deserve to succeed for the same reason I’m writing this article: to create a test. I wanted to put a mirror in front of his trading so that he would either close his eyes or squarely face what he saw.”