Michael Covel: News & Info.

It is always good news to get a book into the Universities - they are tough nuts to crack. This feedback in from a noted professor at the University of Virginia:

“I enjoyed reading your book [Trend Following] especially chapters 2, 5, 6 and 8. In fact, I added your book in 2005 to a list of suggested readings for students in my Financial Trading class.”

From Fast Company an excerpt worth considering:

Execution will always be more important than strategy. Actions speak louder than words. A fair-to-middling strategy exceptionally executed will almost always yield better bottom-line results than a great strategy poorly executed. A great strategy never executed — and it happens a lot more than any of us would like to admit — is a lame exercise in futility. [For example] John McKay had a track record as the highly successful coach of the USC Trojans [and had moved on to coach in the NFL]. A sportswriter caught McKay right after a particularly ugly loss:

He responded: “I’m in favor of it.”

Just do it was McKay’s message. No excuses.

I found this article about Man Financial (PDF) from a few years back interesting.

Janice Dorn sent in this piece tonight:

“Emails from traders and investors of every ilk come to me on a daily basis. I am grateful, and urge you to keep them coming, as you inspire me, challenge me and force me to think. Everyone has a different way of being in the world and…as a logical corollary… in the markets. I get charts, graphs, opinions, links to articles, and more opinions. So much lately has been what the Fed will or will not do and how it will affect the precious metals and the dollar. I work hard every day to prevent my head from spinning, keep it attached firmly to the neck area and to attempt to filter out the signal:noise ratio.”

(more…)

I have an article in the August issue of Futures Magazine. Drop me a line with feedback. I welcome feedback from all comers, ranging from the super smart out there to those crazy ones still living in mom’s basement.

I posted a quote from Paul Tudor Jones the other day. But after thinking about it, I wanted to add some more comment to it.

I often hear the cry, “trend following returns have decreased!” In many instances they have, but for a simple reason: the client wanted it that way. To make more money you apply more juice (see leverage). Great trading, any great trading, will always require more risk and result in greater drawdown if you want to make big money. Many clients today, many of the institutional investors are plain happy with 10-15%. That’s all they want for an assortment of reasons, i.e. peer pressure (no incentive due to competing with benchmarks), or even just not that smart about the benefits of absolute returns. Paul Tudor Jones, while not technically a trend follower, has traded futures from a macro perspective for decades. He says it clearly:

“Our returns have definitely flattened out since the ’80’s. But if you look at my risk adjusted returns, they’re very similar and I’m probably the same exact trader as I was 15 years ago. What’s different has been my own personal appetite for risk and volatility. I think that probably happens with a lot of people as they get older. Everything is a function of leverage, how much of a draw down are you willing to tolerate, how much leverage do you want to put on. When I was younger, I had much greater draw downs, much greater draw down frequency, much greater leverage. So again, I’m probably the exact same trader as I was 15 years ago, it’s just less risk, less return.”

From the NY Times today:

“Thousands of young financial workers stream into Grand Central Terminal every weekday morning. But many are not on their way to offices on Wall Street or in Midtown. Instead, they are crowded into trains for Greenwich, Conn., which has emerged as the home of the ballooning hedge fund industry. The center of power in finance has shifted in recent years, and in one sense that shift is geographical. Some of the most powerful traders in the market can be found miles away from Wall Street, in Greenwich, Stamford, and Westport, Conn. ‘If you look up and down the train line in Connecticut you will see all the hedge funds concentrated right along the line,’ said Thomas Torelli, a corporate real estate agent in Greenwich. Those funds are there because their founders and top managers live nearby. But thousands of their employees do not and as result do what to the rest of Wall Street is a reverse commute. The trains leaving Grand Central between 7 and 8:30 a.m. are packed. Most seats are taken and conversation is sparse. Unlike Wall Street commuters, many are not wearing suits. Yet like the Wall Street crowd, some are working furiously on their BlackBerrys and laptops. A little less than an hour later, when the train rolls into Greenwich, workers stream out of the train and walk to their nearby offices. ‘Greenwich is quiet, peaceful and clean,’ said a young hedge fund employee on the train who lives in Manhattan. ‘But I am 24 and single - I couldn’t imagine living in Greenwich.’ He spoke on the condition that he and his firm not be named because he was not authorized by the hedge fund to speak to reporters. Many other commuters declined to comment for the same reason. Hedge funds are notoriously secretive organizations. They will not disclose who their employees or investors are, much less their strategies. Now, apparently, how their employees commute is off limits, as well.”

Au contraire, strategies are only so unknowable. The performance data of whatever hedge fund always offers a big clue…

If talent is THE key to success, then explain, for example, Enron:

“Enron was the ultimate “talent” company bringing in a steady stream of the very best college and MBA graduates to stock the company with talent. During the nineties, Enron was bringing in two hundred and fifty newly minted MBAs a year. Once at Enron, the top performers were rewarded inordinately, and promoted without regard for seniority or experience. Enron was a star system. “The only thing that differentiates Enron from our competitors is our people, our talent,” said Ken Lay, Enron’s former chairman and C.E.O. As another senior Enron executive put it, “Creative Destruction - We hire very smart people and we pay them more than they think they are worth.”

The Turtles, for example, were not all about ‘talent’ either. Talent, like at Enron, insures nothing. There is always something ‘more’ to success. If IQ was the determining factor, then every Harvard MBA would be super rich.

From Yahoo Finance today:

Technically speaking, a “Penny Stock” is any stock that trades at less than five dollars a share. Many retail investors shy away from this market not knowing that there are many high quality companies that fall into this category. “We really like the opportunities in the small cap stock market,” said William McKinley, President of Investing Systems. “When traders are looking to get into stocks that can deliver hundreds, or even thousands of percent return, they have to look at penny stocks.”

That last line kills me. Fantasy Island would be my response. No ONE can consistently deliver thousands of percent return.

A few pieces of Paul Tudor Jones’ insights. First on school:

“In 1976 I started working on the floor as a clerk and then I became a broker for E.F. Hutton. In 1980 I went strictly on my own as what they called a local and did that for about two and a half years and had two and a half wonderfully profitable years, but I really got bored. I applied to Harvard Business School, got accepted and was about to go. I literally was packed up to go and then I thought, ‘this is crazy’, because for what I’m doing here, they’re not going to teach me anything. This skill set is not something that they teach in business school. So I didn’t go, I stayed, but I was really bored because there wasn’t the personal interaction that was something that I craved and having colleagues and being in a clean atmosphere and that was when I started my fund. All through growing up I’ve been involved in team sports and fraternities and in school I was involved in a whole variety of activities all of which were team oriented and when I was on my own I was printing money every month, but I wasn’t getting the psychic satisfaction from it.”

On the ups and downs:

“He was the toughest son of a bitch [Eli Tullis] I ever knew. He taught me that trading is very competitive and you have to be able to handle getting your butt kicked. No matter how you cut it, there are enormous emotional ups and downs involved.”