I have always thought Michael Kinsley was a twit. His editorial today titled “Why Be A Billionaire?” (PDF) doesn’t help his cause. I get the point that Kinsley thinks some people have too much money. But in his zeal to redistribute other people’s money, how would he do it exactly? Does the government decide what is too much? Who decides what toys we can buy? The government again? Notice how Kinsley forgets to note that the majority of these people are self-made? This kind of writing is aimed straight at creating class warfare and petty jealousies.

Ed Seykota was recently asked:

“If you could give me ten rules to consider with respect to position sizing what would they be?”

He responded:

“Ten rules for position sizing:

1. Bet high enough to make meaningful profits when you win.
2. Bet low enough so you are ok financially and psychologically when you lose.
3. If (1) and (2) don’t overlap, don’t trade.
4. Don’t go adding a bunch of rules that don’t work, just so you have ten rules.”

Of course, Seykota and others will use detailed rules for risk management, that’s not the point with his answer. I liked his #4 answer.

Watch video about things ceasing to be “normal” in excerpt from ‘Trillion Dollar Bet’:

You can order full video from Amazon.

A reader wants confirmation on pursuing a math degree for trading success:

“Mike, I have a feeling you’re going to throw a dozen eggs at me for this question. I’m considering applying to Columbia’s Master of Arts Degree in Mathematics with Specialization in The Mathematics of Finance. Will this give me more success in trading or can I do without it? Do many of the top traders have degrees in Mathematics? Regards, V.”

I have no idea if a degree in math will help you or not. Trading is trading, math is math. There are plenty of great traders without math degrees and plenty of great traders with math degrees. I will not throw any eggs at you, but I did have a pretty strong throwing arm. That said, much more fun to throw a baseball than an egg!

Max Corder sent in this feedback:

“Michael, Nine months ago I started down the trend-following pathway. Your book was one of the first of more than a dozen I’ve read and is certainly one of the few that I keep on my bedside table and/or desk to constantly check some info or to refer to insights from the traders you interviewed. The others are the two Market Wizards books, Ed Seykota’s Trading Tribe, and of course ‘Reminiscences‘, perhaps the greatest of them all. Reading and re-reading always leads to new ‘ah-ha’s’. I can report to you that everything you and the others say is, of course, true. My greatest enemy has always been impatience and not having a detailed plan. The two issues go hand in hand. Impatience breeds frustration/indecision and indecision comes from not knowing exactly what to do and how to measure and understand the probabilities of the various outcomes of one’s actions. Your book, and others such as Van Tharp’s, told me in no uncertain terms that unless I could develop a testable systematic approach to trading, I could not trade with any confidence, which would lead me back to impatience and frustration. I began to get the picture, and committed to working with software that I considered appropriate for my style of trading. I completed enough testing by mid-October to have the confidence to invest real money with my system. My timing worked out, as a new up-trend began in my preferred market (US stocks) at about that time. I just received and have started reading your updated version of ‘Trend Following’. My college-student son was home for the Christmas Holidays and took the original version back to school with him! We talk about trading once or twice a week now and he tracks the family portfolio on line. We’re working with gotomypc.com and he’s learning the system so that he can run it from school in the evenings (we use end-of-day data) if I am traveling and not able to access the computer. It takes no more than 30 minutes to update our system in the evening and enter any trades necessary. No need to watch the market during the day. Thanks for your excellent book and websites. My study of trend following and system development has given me the confidence I needed to believe that really superior returns are possible. Max Corder”

I posted this feedback to further reinforce the idea of using end of day data for trading decisions.

From the Ludwig von Mises Institute, take a read of a white paper that answers the question: What is Austrian Economics? (PDF)

My alma mater George Mason University beat defending National Champion North Carolina yesterday to advance to the Sweet 16 of the NCAA Tournament. George Mason still has more Nobel Prize winners (2) over Sweet 16 appearances (1)!

Vernon L. Smith of George Mason University and Daniel Kahneman (Prospect Theory fame) split the 2002 Nobel Prize. Smith is intimately involved with The Interdisciplinary Center for Economic Science (ICES) at George Mason University. The ICES is a research center and laboratory specializing in experimental economics.

Feedback from a reader about my recent interview on ROBTv:

“I wrote to ROBTv earlier this year asking them to invite you on the show. ROBTv is replete with fundamental analysts and value fund managers whose favorite strategy is to buy stocks on a pull-back. To convince them to put you on the air, I wanted to tell them that trend following is as refreshing to ROBTv as a white Christmas is to Los Angeles. But I just told them to read your website, and form their own opinion. I’m glad they took my recommendation.”

If it was your feedback that brought the invite, thanks!

Two white papers from James Montier: ‘Why Skepticism Is Rare’ (PDF) and ‘Applied Behavioural Finance: Insights into Irrational Minds and Markets’ (PDF). Both of these obscure PDFs were pulled from Google.

Good feedback:

“This e-mail is in response to postings regarding investing vs. speculating. Morningstar and most fundamental investors brag about relying on discounted cash flow models, looking for ‘good’ companies with predictable cash flow and earnings, etc., which is considered ‘investing’. Talk about fools gold. The only way the DCF model works is if one can predict future cash flow. It is nearly impossible for companies to accurately predict free cash flow for the current year let alone five or ten years into the future. This leaves the analyst to make an assumption of compounded annual growth such as 5%, 10% or more. They might use a statistical basis, such as the company’s previous five year annual growth figure, but as we all know past performance is not an indication of future results. Another wild card is that free cash flow is affected by a company’s capital expenditures. Depending on the economic climate, capital expenditures exhibit swings from year to year that make predicting free cash flow impossible. Recent examples of this bad approach are all of the analysts who relied upon discounted cash flow models in 1998 and 1999 for their favorite dot com ‘investment’ – how do those models look now? The real speculators are those who believe in their own ‘rightness’ and their ability to predict the future. Those who believe them will end up getting what they deserve.”
Sincerely,
Bruce Broussely

Paul Scrivens, a design expert whose firm is responsible for the look and feel here, just emailed me this snapshot while waiting at the Austin, TX airport:

Oh, for those out there thinking, “that guy can’t be a web pro!”. Think again. The best ones are not sitting around in suits. The ’9rules Network’ is Paul’s core focus.

As a side, you can’t imagine what a pain in the ass it is to get a new book into the stores. Even though mine has sold very well, making it into retail shops takes severe and constant pressure. I would be curious to other airport stockings of my book. If anyone else has a picture of the book at a unique location, send it along!

I did a quick 6 minute live interview today at 2:50EST for Report on Business Television, the Canadian version of CNBC.

I did not get the feeling the interviewer was familiar with trend following trading completely, but I appreciated the opportunity to defend the strategy. I will try to put the video online here, but you can listen to the MP3 of the interview here.

On a side note, the remote location’s lights, where this was filmed in Washington, DC, are not good on the eyes!