Eric Chaffee writes:

The Invisible Hand has gripped this book and is ready to smack you wide awake from that fundamentalist delusion called “buy and hold.” Are you ready to be prodded from the hypnosis which the Rancher (“Pay no attention to that man behind the curtain”) of that financial milking machine has strapped onto your gut so you can be stripped of your hard earned savings while you slave away in the matrix barn? Wall Street does not want you to read this book. Your broker, and CNBC will trash-talk all variants of Trend Following. Why? (You’re their cash cow! They have big incentive to keep you docile and content, with your head in the stanchion.)

This book is not a How-To get rich. If you’re looking for TEN “Thou shalt not’s” you’re a fundamentalist. (You need this book more than most.) It contains no recipe to follow, listed in 10 bullets! The rules are presented as insight to be extracted from between the lines, and must be refined by you for internalization and application. “Trust the Force, Luke.” Trust the thrust of the Trend, and you’re ability to notice it — and ride it all the way to the bank. Trust the wisdom of Stop Loss which will save you much grief and regret. The writing is a fresh breeze, perhaps of gale force, which I devoured in a day. I’ve marked it up for frequent review.

The text is littered with delightful graffiti: lyrics, proverbs, quotes, all of which are very stimulating, but they are footnoted instead of being attributed on the page where they appear: Booo! (I hope an editor will fix this before going to press. I got an advance copy which should be improved, please.) The author has done us all a deep favor by gathering these reflections and histories into a single volume. Highly entertaining, and, I suspect, profitable for all who are ready to awaken: you have nothing to lose but your losses! There are even many brief walk-ons which will be sure to amuse: Warren Buffet (as Jason Bourne!); Ben Bernanke, contradicting himself; et al.

Nice.

John Galtier writes:

Tails are not becoming “fatter”, the histogram is just growing to include more events. The author’s personal fear is that this complication of the world is not just rendering modern statistics useless, but the whole approach to modern investing. Money managers have strayed further from fundamentals than in previous thought cycles. Value dislodgements of the severity of the GFC have traditionally pushed investors back to the fundamentals and conservatism that create real wealth. Instead of propping up a failing system, it may be the case that CB’s have sanctioned market timing and speculation as real forms of growth.

If this reckless behavior continues, fundamental investors, the “engine” of growth in a properly functioning economy, may not be given the chance to allocate the patient capital needed to sustain growth and combat unnecessary volatility. The leeches (market timers and speculators) that rely on fundamentalists to maintain the sanity of prices and their movements will control the market and values will truly become baseless. For all the ramblings of Zerohedge prophets and gold stockpiling crazies, values are still relatively attached to fundamentals. Actions of central bankers threaten to give speculators a mandate to create a true fiat system where values and prices are only limited by the availability of ink and paper.

Hmmm…those speculative leeches! Dirty bastards. How dare they play by the rules of the game.

1. Get and stay out of your comfort zone.

I believe that not much happens of any significance when we’re in our comfort zone. I hear people say, “But I’m concerned about security.” My response to that is simple: “Security is for cadavers.”

2. Never give up.

Almost nothing works the first time it’s attempted. Just because what you’re doing does not seem to be working, doesn’t mean it won’t work. It just means that it might not work the way you’re doing it. If it was easy, everyone would be doing it, and you wouldn’t have an opportunity.

3. When you’re ready to quit, you’re closer than you think.

There’s an old Chinese saying that I just love, and I believe it is so true. It goes like this: “The temptation to quit will be greatest just before you are about to succeed.”

4. With regard to whatever worries you, not only accept the worst thing that could happen, but make it a point to quantify what the worst thing could be.

Very seldom will the worst consequence be anywhere near as bad as a cloud of “undefined consequences.” My father would tell me early on, when I was struggling and losing my shirt trying to get Parsons Technology going, “Well, Robert, if it doesn’t work, they can’t eat you.”

5. Focus on what you want to have happen.

Remember that old saying, “As you think, so shall you be.”

6. Take things a day at a time.

No matter how difficult your situation is, you can get through it if you don’t look too far into the future, and focus on the present moment. You can get through anything one day at a time.

7. Always be moving forward.

Never stop investing. Never stop improving. Never stop doing something new. The moment you stop improving your organization, it starts to die. Make it your goal to be better each and every day, in some small way. Remember the Japanese concept of Kaizen. Small daily improvements eventually result in huge advantages.

8. Be quick to decide.

Remember what General George S. Patton said: “A good plan violently executed today is far and away better than a perfect plan tomorrow.”

9. Measure everything of significance.

I swear this is true. Anything that is measured and watched, improves.

10. Anything that is not managed will deteriorate.

If you want to uncover problems you don’t know about, take a few moments and look closely at the areas you haven’t examined for a while. I guarantee you problems will be there.

11. Pay attention to your competitors, but pay more attention to what you’re doing.

When you look at your competitors, remember that everything looks perfect at a distance. Even the planet Earth, if you get far enough into space, looks like a peaceful place.

12. Never let anybody push you around.

In our society, with our laws and even playing field, you have just as much right to what you’re doing as anyone else, provided that what you’re doing is legal.

13. Never expect life to be fair.

Life isn’t fair. You make your own breaks. You’ll be doing good if the only meaning fair has to you, is something that you pay when you get on a bus (i.e., fare).

14. Solve your own problems.

You’ll find that by coming up with your own solutions, you’ll develop a competitive edge. Masura Ibuka, the co-founder of SONY, said it best: “You never succeed in technology, business, or anything by following the others.” There’s also an old Asian saying that I remind myself of frequently. It goes like this: “A wise man keeps his own counsel.”

15. Don’t take yourself too seriously.

Lighten up. Often, at least half of what we accomplish is due to luck. None of us are in control as much as we like to think we are.

16. There’s always a reason to smile.

Find it. After all, you’re really lucky just to be alive. Life is short. More and more, I agree with my little brother. He always reminds me: “We’re not here for a long time, we’re here for a good time!

Note: Tip to Perry Jonkheer at www.iasg.com for the list.

You are a value investor? You want to protect against tail risk? Two choices:

James Montier says this.

I say this.

Don’t get me wrong, I like Montier’s behavioral views on markets. There is, however, a better solution to tail risk and it rhymes with …bend wallowing.

Note: Tip to pragcap.com for the Montier paper.

Feedback in a trend following trader:

I suggest Trend Commandments by Michael Covel…The principles in the book apply to investing and other endeavors of life as well (including sailboat racing).

More:

I share [the belief that] your latest book is very hard-hitting and riveting. This is quite the accomplishment considering you have already written about the topic in your prior two books. Sometimes, it is hard to push the ball forward if we have created habits or patterns of behavior. In “my book” you clearly open a new frontier and this tells me a lot about you and your conviction “to dare to be rare”. I see CNBC in a new light now and enjoy it. I also discover lately that trend following principles seem to work well for me in dating and relationships too. Your book simply confirms things for me and inspires me to continue. I thank you!

Thanks.

Caught this recent comment about my book Trend Commandments:

“I’ve found Covel’s previous books interesting, and have re-read ‘Trend Following’ multiple times. The latest book unfortunately does nothing to build on the previous works (for instance, there is still no attempt to deal with survivorship bias in the performance data), but instead loads the pages with random anecdotes and film quotations that tangentially supports his thesis. Disconcertingly, what the book lacks in substance is made up for in ego. If you’re not with him, you’re against him and a moron. Successful value investors? Don’t exist (sorry Mr. Buffet, you made your money through luck and speculating with derivatives). Covel admonishes the world for ‘going with the herd’… ummm… isn’t following a trend exactly that? Too light on science, way too light on humility.”

That is going in verbatim to the chapter titled Honest on next printing. It does make my Sunday morning that a critic calls himself a moron before I can. One definition of survivorship bias?

“Survivorship bias is the logical error of concentrating on the people or things that “survived” some process and inadvertently overlooking those that didn’t because of their lack of visibility.”

Trend Commandments in its entirety addresses this very issue–for those with their eyes wide open. However, for the critics that need to blow off steam an excerpt from the ‘Trend Commandments’ chapter ‘Honest’ may be helpful:

•••

Some will never know and will rip [Trend Commandments] as well. A famed Stanford University psychologist has said that a man with a conviction is a hard man to change. Tell him you disagree and he turns away. Show him facts or figures and he questions your sources. Appeal to logic and he fails to see your point. Now I could very easily avoid criticism, do nothing, say nothing, and be nothing, but quitting is not in my DNA. However, criticism is important and often invigorating for many reasons:

• You are on the right track when a target appears on your back.
• Making a sizable dent in public thought brings detractors and saboteurs. It’s part of doing business.
• Trying to get everyone to like you is mediocrity.
• You are going to be criticized if you play small or play big. Might as well play big. Criticism will come either way.
• History does not remember those who pretend to be neutral. Picking sides, choosing those you want to be associated with, and sticking with your true beliefs is all that counts.
• Speaking out on issues, that others are too afraid to do, will draw criticism.
• Disgruntled people need to release anger. Standing there as an easy outlet for their anger is part of the gig. Criticism always parallels influence.
• It takes courage to see things for what they are, not what you want them to be.
• Poking an inferiority complex brings out vitriol–always.

Society’s insatiable push to discredit those who rock the boat, coupled with digital printing presses cataloging it all, has allowed village idiots and Nobel Prize winners to effectively share the same stage. In this environment, for many, the truth has ceased to matter.

•••

Other views:

“An outstanding book [Trend Commandments] for anyone who wants to become rich by trading markets. Today, government regulations and fiscal and monetary policies are badly distorting financial markets. Covel accurately explains why, in this ‘manipulated’ financial environment, you should never expect markets to move as you wish or expect. Rather, disregard your fundamental beliefs and simply follow the trend. Highly recommended!”
Marc Faber
Managing Director, Marc Faber Ltd.
Editor, ‘Gloom Boom & Doom Report’

“If you are even thinking of a career in trading, put down all the other books. Buy this one [Trend Commandments]. Read it. Now you can start your career.”
James Altucher
Managing Director, Formula Capital

“Fire up the barbecue. Michael Covel skewers the sacred cows of Wall Street with tasty bite-sized bits of the truth about what it really takes to succeed in trading and life. Wide-ranging, irreverent, revealing, eminently quotable, and right on the money.”
Charles Faulkner
Market Wizard Trading Coach

“A rapidly moving, non-technical, and outside-the-box effort that smartly captures the essentials of trend following.”
Peter Borish
Chairman and CEO, Computer Trading Corp

“Michael Covel’s Trend Commandments is full of practical wisdom in bite-size portions on the benefits of trend trading–written in a straightforward storytelling format. It’s definitely one to add to your financial bookshelf.”
David Stendahl
Signal Financial Group

“Michael Covel is the very best at explaining the concepts of successful trend following in plain English. I’m certain you’ll be a successful trader if you follow the ideas he outlines in Trend Commandments. This book (and his previous two!) are required reading for new employees in my office.”
Steve Sjuggerud
DailyWealth

“Investors have experienced two bear markets in the last decade. This has led to rising volatility, uncertainty, and investor angst. For some it has been a lost decade, but for trend traders it has been a decade of opportunity. Trend Commandments helps you focus on what matters most: the trend of the markets, whether up or down. You can profit from either. Trend Commandments is essential reading for those who have the desire to thrive and survive in an era of fast-paced trending markets.”
Jim Puplava
CEO, Chief Investment Strategist, PFS Group

“Buy and hold has been a difficult investment system for investors for a decade. In Trend Commandments, Covel challenges readers to think differently and question their beliefs about market ‘truths’ ingrained in them for years. Forewarned, you just may never see the world the same way again.”
Mebane Faber
Cambria Investment Management

“Covel’s Trend Commandments offers a breezy rumination on what is right about trend following and what is wrong about conventional trading approaches.”
Jack Schwager
Author of Market Wizards and Schwager on Futures series

Feedback in:

Mike, I finally got to teach my first class on trading earlier this month (albeit a small group). And to tell you the truth, I don’t care much for teaching. I think it went ok, but I didn’t realize how many people actually like to refute trend following although I show them proof even with my own systems and financials. Some reasons I noticed were: the fact they think trend trading is boring since they are trying to pay their daily bills with the market right from the start, they don’t like holding positions overnight and they can’t seem to wrap their head around the fact that even though they make 300%+ gross annual gains day trading they still don’t show a net profit. I show them basic money management techniques as well as the costs of trading, but they still won’t consider it and think its all about fixing their intra-day entries and exits. I’m glad you never gave up on teaching. I would probably never have “gotten it” if you did. Kudos to you for being a good teacher. –Michael

Thanks.

A nice line:

“Have you resigned yourself to a life of compromises, Plan Bs, and a spirit-crushing daily grind? If you’re stuck, it may help to take a page from the book of those who have done it. They often share key traits: talent, passion, drive, and discipline. But they share another characteristic often overlooked: courage. You have to shield your dreams from the haters and naysayers. Such people may seem like the voice of reason, but they are emotional impediments.”

So straightforward…

Someone from Man Investments posted this today:

“As an employee of one of the largest CTAs I can catagorically [sic] state that we do change our models. This is, amongst other things, what us researchers are employed to do. I think that the assumption that all major CTAs run the same or similar models is also fairly amusing. Not all CTAs using EWMAs for example. At our shop we use four types of models to determine the level of momentum from markets, EWMAs being just one.”

Later in the day the same person posted:

“I agree that they are not changed every day but it is not as black and white as you appear to be making it.”

So you have a system that changes the system at Man?

Isn’t that a system?

Larry Hite, Ed Seykota & Michael Covel June 21 panel in Chicago:

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