Feedback in:

“Hi Michael, I found it a nice surprise to see that you added me on Facebook since I recently came across your books and also viewed your film. I am a tremendous fan of your views on finance, trading, and government intervention in the markets. I am also a system trader at SAC Capital, and see first hand all the time the herd mentality that exists (along with institutional garbage thinking, etc). I probably do not share a lot of the views of my peers because of my computer background and the fact I studied history…If you are currently or ever up in the New York City area, I would love to meet with you to swap information and views over dinner or even a weekend lunch. Regards, [name]“

I don’t usually have much discussion about it, but there are several resources and or books that have influenced how I launched and still run my business. For those of you out there with an entrepreneur buried inside just bursting to break about, consider (in alphabetical order):

Atlas Shrugged
The Benefits of Pissing People Off
Blue Ocean Strategy Presentation and (PDF)
Bright House
Crush It!
The Economy of Ideas
The Experience Economy
The Fountainhead
The Lexus and the Olive Tree
Long Tail
Made to Stick
Management Secrets of the Grateful Dead
Rules for Revolutionaries and (PDF)
Turning Goals into Results: The Power of Catalytic Mechanisms (PDF)
Unlimited Power
The World Is Flat

To the trend following skeptics who have whined up a storm here in the last week, I offer a quotation from Paul Arden:

“Nearly all rich and powerful people are not notably talented, educated, charming, or good-looking. They become rich and powerful by wanting to be rich and powerful. Your vision of where or who you want to be is the greatest asset you have. Without a goal it’s difficult to score.”

I bet there are some people who have arguments why that is not true!

Let me take it a step further with controversial Mark Cuban:

“With every effort, I learned a lot. With every mistake and failure, not only mine, but of those around me, I learned what not to do. I also got to study the success of those I did business with as well. I had more than a healthy dose of fear, and an unlimited amount of hope, and more importantly, no limit on time and effort…The point of all this is that it doesn’t matter how many times you fail. It doesn’t matter how many times you almost get it right. No one is going to know or care about your failures, and either should you. All you have to do is learn from them and those around you because all that matters in business is that you get it right once. Then everyone can tell you how lucky you are.”

Larry Hite extends:

“Most of the Ivy League guys I know are so used to being ‘right’ they get very uncomfortable dealing with uncertainty – when there is no right answer. Their ego often makes them so afraid of being ‘wrong’, that they’re unable to make good bets. They are not comfortable with the idea of risk, because they don’t know how to assess it or measure it. [They have been] taught to absorb knowledge, not what to do with it.”

And Hite takes brings it home with even more clarity:

“There are just four kinds of bets. There are good bets, bad bets, bets that you win, and bets that you lose. Winning a bad bet can be the most dangerous outcome of all, because a success of that kind can encourage you to take more bad bets in the future. You can also lose a good bet, but if you keep placing good bets, over time, the law of averages will be working for you.”

Lots of fear and confusion in posts recently. I am reminded of some great philosophical standards:

***

A man with one watch knows what time it is; a man with two watches is never quite sure.
– Lee Segall

Begin at the beginning and go on till you come to the end; then stop.
– Lewis Carrol, Alice in Wonderland

There’s more to the truth than just the facts.
– Author Unknown

The obscure we see eventually. The completely obvious, it seems, takes longer.
– Edward R. Murrow

When the student is ready, the master appears.
– Buddhist Proverb

Before enlightenment – chop wood, carry water. After enlightenment – chop wood, carry water.
– Zen Buddhist Proverb

I tell you everything that is really nothing, and nothing of what is everything, do not be fooled by what I am saying. Please listen carefully and try to hear what I am not saying.
– Charles C. Finn

Don’t miss the donut by looking through the hole.
– Author Unknown

You can’t wake a person who is pretending to be asleep.
– Navajo Proverb

Alice came to a fork in the road. “Which road do I take?” she asked.
“Where do you want to go?” responded the Cheshire cat.
“I don’t know,” Alice answered.
“Then,” said the cat, “it doesn’t matter.”
– Lewis Carroll, Alice in Wonderland

If you chase two rabbits, you will not catch either one.
– Russian Proverb

Sometimes the questions are complicated and the answers are simple.
– Dr Seuss

When the pain is great enough, we will let anyone be doctor.
– Mignon McLaughlin, The Neurotic’s Notebook

A reader writes:

“Hi Michael, First off, I wanted to thank you for your outstanding books (I have read and own both) and your site and regular newsletters and podcasts. I really am a big fan, and appreciate the knowledge that you’ve dedicated yourself to sharing with us all! I’m hoping to get my hands on a copy of ‘Broke’ next time I’m in the US (I live in South Africa, but travel extensively internationally on business). Though I have a huge interest in trading, and I trade a small account of my own capital, I work in the information security field, and my day job entails leading a team of penetration testers – essentially, ethical hackers. We get paid to assess security controls in networks and applications, among other things. So I’m paid to find holes and break stuff. After many years in this industry, as a leader (I’ve spoken at many international conferences, and provided hands on training to Fortune 500′s, government, military), I see us getting worse, not better. I believe the fundamental issue is a similar one to that affecting investors and traders – a very poor understanding of risk, and a tendency to want to over-complicate and obfuscate everything, and an overflow of false “experts”. Without getting into too much detail in this email, I recently gave a 20 minute keynote at a local information security conference, discussing the psychology of risk and why we are inherently wired to fail. In this talk, called “Getting Punched In The Face” I drew parallels from my experience with competitive combat sports, gambling, trading and finally, information security, to demonstrate why many of our natural inclinations and assumptions are flawed. You may be interested in this talk. I’d be interested in your thoughts – as a keynote it was very high level and for the 20 minute slot I couldn’t delve into much, but the talk was fun.”

His video:

ZaCon09 – Getting Punched in the Face – Nick Arvanitis from ZaCon on Vimeo.

Books come and go. There is an ebb and flow. That said, my three editions of ‘Trend Following’ started almost six years ago! Today?

Of all books carried at Amazon ‘Trend Following’ is #5,724.

In specific investment categories it is:

In Stocks category: #16
In Futures category: #8
In Commodities category: #3

Thanks for the support! BTW, there are only (6) books ahead of me in the ‘stocks’ category that are worth reading! I call it like I see it! Lots of garbage out there!

From Matt Taibbi:

“The nation’s six largest banks set aside a whopping $140 billion for executive compensation last year, a sum only slightly less than the $164 billion they paid themselves in the pre-crash year of 2007. The question everyone should be asking, as one bailout recipient after another posts massive profits — Goldman reported $13.4 billion in profits last year, after paying out that $16.2 billion in bonuses and compensation — is this: In an economy as horrible as ours, with every factory town between New York and Los Angeles looking like those hollowed-out ghost ships we see on History Channel documentaries like Shipwrecks of the Great Lakes, where in the hell did Wall Street’s eye-popping profits come from, exactly? Did Goldman go from bailout city to $13.4 billion in the black because, as Blankfein suggests, its ‘performance’ was just that awesome? A year and a half after they were minutes away from bankruptcy, how are these assholes not only back on their feet again, but hauling in bonuses at the same rate they were during the bubble? The answer to that question is basically twofold: They raped the taxpayer, and they raped their clients.”

Shout to Ritholtz.

My trend following education started with the Turtle story, but my breakthrough, my Aha! moment, was seeing professional trend following traders’ performance data. When you see big events unfold in society, the events where the TV people are screaming and crying (basically chapter 4 of my book Trend Following), and then you see how trend followers prevailed in the face of that uncertainty, that’s the real news. One of the best illustrations of trend following performance in my opinion? Trend following trader Bill Dunn and his 35+ year track record:

Click to see larger image.

Click to see larger image.

Those performance numbers are AFTER management/incentive fees have been removed. If we want to actually talk about the efficacy of the strategy, how much it has really made, not accounting for fee removal is odd to me. The real performance: what % has Dunn produced in his personal account — where he doesn’t charge himself fees! Well over 20%? The compounding is silly.

P.S. I am no agent for Dunn, nor his marketing person. Want to invest with him or not invest with him, not my business. I just happen to think that this performance data, these two charts by themselves, would be more instructive than 99% of the finance texts/courses in every university on the planet. Just my opinion, but I tend to think it is a damn well reasoned opinion. Think about those charts. Apply a ‘secret decoder ring’ — and it’s all right there.

P.P.S. Dunn’s performance is proof positive why looking at 1 year of trend following performance in isolation is 100% pointless. In terms of ‘edgy’, the Nasdaq is down over 50% 10 years after it burst. For whatever reason long only stock performance is not viewed as risky. Funny how that is. Trend followers need a better lobby to compete with the ‘all-American’ mutual fund lobby in D.C.!

Why do governments have to stop recessions? That’s not even getting to the question of whether it is even really doable.

Flashback to 08-31-2007 — THE US economy, bogged by its subprime mortgage crisis, is heading for an economic slowdown warned economist Professor Joseph E.Stiglitz. “The most likely outcome is that it will be a rather long slowdown but not a recession,” the Economics Nobel laureate told a media briefing in Kuala Lumpur yesterday. Let’s see…fall 2007 and he could not predict a recession, but today he knows how to fix it?

There’s no earthly way of knowing /
Which direction we are going /
There’s no knowing where we’re rowing /
Or which way the river’s flowing /
Is it raining? /
Is it snowing? /
Is a hurricane a-blowing? /
Not a speck of light is showing /
So the danger must be growing /
Are the fires of hell a-glowing? /
Is the grisly reaper mowing? /
Yes, the danger must be growing /
‘Cause the rowers keep on rowing /
And they’re certainly not showing /
Any signs that they are slowing!

Starting at 1:18:

A few years ago an up and coming trend following firm disappeared. For some this may have been fodder to yell, “see, we knew trend following would die!” Not so fast.

Here is some feedback on that trend following trader who went south:

“The once touted [name] and [trained by name] has personally collapsed the once promising firm of [name]. [Name] went full discretion and completely went against every basic rule [of] trend following…[name] is actually the opposite of trend following…[good trend following] is supposed to remove the drama/emotion out trading and personal decisions and [name] is 100% emotion. Making decisions based on nothing more then a tick up or down in the market…From a man on the front lines of the entire ride. Truly great reading drama.”

This story reminded me of another incident. Do any of the old timers remember ‘Colorado Commodities’?