You see if every day: distraction. The distraction that goes on during 2011 daily life is off the charts.

Trend following does not care.

Trend following wants to make the most money possible.

Trend following is still the legal and ethical way to get rich.

Trend following at its core is the greatest strategy available to compound absolute returns.

And compounding absolute returns, whether trader, entrepreneur, or businessman, is the way to major wealth.

From USA Today:

Death — rather than poor performance, misconduct or layoffs — is the primary threat to job security at the Environmental Protection Agency, the Small Business Administration, the Department of Housing and Urban Development, the Office of Management and Budget and a dozen other federal operations.

The federal government fired 0.55% of its workers in the budget year that ended Sept. 30 — 11,668 employees in its 2.1 million workforce. Research shows that the private sector fires about 3% of workers annually for poor performance, says John Palguta, former research chief at the federal Merit Systems Protection Board, which handles federal firing disputes.

Matthew Craft, AP Business Writer, writes Tuesday:

NEW YORK (AP) — Strong profits and a bipartisan plan to lift the U.S. debt limit drove a stock market rebound Tuesday. Stock indexes rose after Coca-Cola, IBM and other companies reported better second-quarter earnings. The indexes added to their gains in the afternoon after President Barack Obama backed a proposal by six senators that would cut debt by $3.7 trillion over the next decade and raise the country’s $14.3 trillion debt ceiling.

I wonder how he knows that is the reason for stocks going up Tuesday? His Linkedin profile doesn’t shed any light on how he knows those are the reasons. Maybe it is just a mystery? There is no way he could have just made it up is there? Or perhaps merda taurorum animas conturbit?

Barry Ritlholtz argues here:

“Investors, it looks like you are on your own this time.”

I argue in Trend Commandments that investors have always been on their own and always will be (even though Ritholtz is a good guy!). And that’s the way it should be.

This is not the trend following day:

A top trend following office resembles that of an attorney, CPA or insurance salesman–no busy types glued to screens pretending to be masters of the universe. Trend following is an intellectual game, not a software/screen/juice game.

Note: Before someone screams bloody murder, of course for some multi-billion dollar fund there might need to be more daily execution issues, but the trend following itself is not about being connected to a screen 24/7.

D. Buxman writes about Trend Commandments:

“What was missing for me was a philosophical matrix within which I could construct more meaningful rules upon which I could base my personal Trend Following system.”

I like that descriptor–philosophical matrix.

Guest Article written by Robert Kramer

Smile Robbie, or it might never happen, my grandmother used to say to me. Which usually only pissed me off and made me not want to smile, ever, at anyone. Why should I have to smile if I didn’t want to? It wasn’t like I was sitting alone in the back yard, crying, screaming, jamming sticks into my eyes. I wasn’t doing anything to hurt myself or anyone, so why was it so important that I walk around everywhere I went, lips parsed, baring teeth? It has been my experience in life that people who walk around smiling all the time are either supremely well-adjusted (though not usually), or hiding some form of deep suicidal depression. The point, though, is that I was just being who I was. As a kid I used to think a lot, daydream a lot, and ask a lot of questions. And if I wasn’t smiling it usually meant I wasn’t thinking about anything particularly funny.  Imagine that. But if something was funny or amusing, then guess what - I would smile.  At least a little.

Now I am thirty-four, and am still constantly amazed how so many people I talk to have this underlying belief or attitude that their way in the world is the way in the world.  It may sound like a semantic argument, but there can be significant real-world consequences that come from this rigid type of thinking. Granted, there are many people out there who have the education, experience and ability to understand the difference between an opinion and a fact. But it is disheartening to see how many people speak in absolute truths about different subjects without acknowledging that what they are really talking about are their beliefs. The old saying goes, you are entitled to your own opinions [beliefs], but not your own facts.  Know the difference.

For the purpose of this discussion, a fact is something that exists that can be touched, viewed, heard, measured and verified by others. We can save the Master’s Thesis for later, but many people accept their opinions as facts, and an opinion is not a fact. Someone’s opinion might be their truth, but it is not a fact. I will give you an example. I have a friend who said to me, “We are the only life in the universe – someone has to be at the top of the food chain.” I know I should probably keep better company, and I did attempt to offer some perspective to his statement. I talked about the trillions of other stars that exist and the statistical possibility that some of the planets that orbit those stars might be suitable for some form of life. But those possibilities were immediately rejected. In his mind there were no other perspectives. His belief was his truth, unsupported by any facts (or reason). My response (supporting the possibility for extra-terrestrial life) was also a belief, but at least I acknowledged it as such, presented facts to support my view, and was receptive to further information. To me, there was a definite difference in the quality of thinking in that exchange. As the other adage goes: his mind was made up, don’t confuse him with facts.

You may be asking, who cares about your random geek-level discussion about extra-terrestrial life, or Star Trek, or any other topic? Well, it is not about extra-terrestrial life or Star Trek per se, it is about the process by which people come to conclusions, and the decisions they make based on those conclusions. In the life exists, no it doesn’t discussion, there were no practical, real-world consequences to our beliefs. There were no decisions that had to be made, so our reasoning skills and conclusions were not important. But if you apply my friend’s same rigid, belief-oriented way of thinking to say, government or religious problems, or investment decisions, or any other person or group who has the power to effect real-world change, then all of a sudden those thinking and decision-making processes become very important.  Why you believe something becomes extremely important. What if The Church (using the term generally) believed again that some women are witches and returned to a policy of burning them alive? That’s a pretty real consequence to an unsubstantiated, poorly-reasoned belief. No, of course we don’t burn ‘witches’ (anymore!), but rigid, unsubstantiated, belief-oriented thinking is still everywhere: Jesus is the son of God, gays shouldn’t marry, aliens do or do not exist, democracy is the best form of government, stock markets are or are not efficient, etc. Examples abound. And there are many people who are either unaware of, or do not care about, how much of their world-view is based on this type of thinking – until they find themselves on the detrimental side of it. On an individual basis, someone’s beliefs may not impact me directly. But cumulatively, our thought processes and beliefs are what we call culture, and culture has a massive impact on the world and how we fit into it.

Speaking of culture, if I may digress for a moment, I actually rather like Star Trek, and the character Spock in particular. For those that do not know, Spock is a Vulcan, a race of ‘people’ who are extremely logical and keep their emotions under tight control. I like him not because he lacks emotion, but because I identify with his approach. There is a logical receptiveness to everything he does. I know logic is not an end-all be-all way for every situation, because a person’s logic can be and often is a product of their individual education and experience. I also know emotion and belief are both necessary, healthy, vital parts of the human condition. Beliefs help create value and structure, and give meaning to people’s lives (believing in a higher power, for example, can be a catalyst for positive change in someone’s life, or it can bring strength in times of need). I just think the process of how you come to your beliefs can be equally as important as what your beliefs are. Process matters.

The point I am making is that I didn’t smile at my grandmother simply because she was my grandmother and she told me to.  From my grandmother’s perspective, kids who didn’t smile were considered not well-adjusted.  Those were her experiences and beliefs, learned or taught to her over her eighty-plus years of life. I was only five or six, but even at that age I knew I didn’t want someone telling me what to do, at least not without offering me (what I considered) good reasons for why they were telling me what they were telling me. I never accepted people’s rules “just because.”  Just because why? Because you are my mother/father/grandmother? Because that’s the way it is? Because that is what you were told? Who told you?  What if you are wrong? What if they are wrong? I don’t understand.  I’m not doing it. At which point I was usually threatened with having my video games taken away.  I believe it is necessary for people to evaluate where their beliefs come from and why are they accepted.  This is a learning process which is important. Your beliefs will impact everything you do.

So the question that follows is: do you know where your beliefs come from (assuming you know what they are) and how they impact the decisions that you make? What decisions are you trying to make?  Are you trying to get a job, start a business or go back to school? Maybe marry that girl or guy you’ve had your eye on. But why are you wanting to start that business or marry that girl or guy? These are all questions with real-life consequences. Please tell me that your attitude, opinions, processes and beliefs are yours — that when you speak (like my friend did) and make choices, your words and actions are not simply the noxious, regurgitated by-products of someone else’s bad ideas. No, not everyone is as feeble as that last sentence makes it sound.  But enough are. And I’m just saying that people are people.  Some are good and some are bad and some are well-intentioned and some are misinformed. Pay attention and make your own decisions, that’s all.

It is better to grasp the Universe as it really is, than to persist in delusion, however gratifying or reassuring.

Carl Sagan said that, and I believe it.  It is my truth. It’s just not a fact. Imagine that.

Joe Capone writes:

“You say that you put books out to ignite conversation. Well, I just finished reading Atlas Shrugged today, at your recommendation. What are your thoughts about this great novel, in relation to trend following and trading? I am curious to hear your thoughts. Thanks Michael.”

Ed Seykota first told me to read Atlas 10 years ago–as a condition to our initial conversation! I have since found that so many top traders look to Rand’s work. For example, David Harding also brought up Atlas Shrugged in conversation as a major influence.

Robert Robbins (everTrend Global) writes:

In Trend Commandments, Michael Covel shines the beacon of truth on conventional investment strategies and their reliance on hope and the narrative fallacy. He succeeds in shattering the Wall Street fable of “buy and hope” and offers a better way – a way to harness the power of global diversification, disciplined risk control and staying in tune with the underlying trends in markets. Trend following is a way out, a way to retake control over your investments when traditional methods have clearly failed. Just as importantly, the work emphasizes self reliance and the courage to strike out and use the greatest asset we all have – our minds!

Thanks. And for some balance? A negative view.

Tom Friedman writes:

The rise in the unemployment rate last month to 9.2 percent has Democrats and Republicans reliably falling back on their respective cure-alls. It is evidence for liberals that we need more stimulus and for conservatives that we need more tax cuts to increase demand. I am sure there is truth in both, but I do not believe they are the whole story. I think something else, something new — something that will require our kids not so much to find their next job as to invent their next job — is also influencing today’s job market more than people realize.

Look at the news these days from the most dynamic sector of the U.S. economy — Silicon Valley. Facebook is now valued near $100 billion, Twitter at $8 billion, Groupon at $30 billion, Zynga at $20 billion and LinkedIn at $8 billion. These are the fastest-growing Internet/social networking companies in the world, and here’s what’s scary: You could easily fit all their employees together into the 20,000 seats in Madison Square Garden, and still have room for grandma. They just don’t employ a lot of people, relative to their valuations, and while they’re all hiring today, they are largely looking for talented engineers.

Indeed, what is most striking when you talk to employers today is how many of them have used the pressure of the recession to become even more productive by deploying more automation technologies, software, outsourcing, robotics — anything they can use to make better products with reduced head count and health care and pension liabilities. That is not going to change. And while many of them are hiring, they are increasingly picky. They are all looking for the same kind of people — people who not only have the critical thinking skills to do the value-adding jobs that technology can’t, but also people who can invent, adapt and reinvent their jobs every day, in a market that changes faster than ever.

Today’s college grads need to be aware that the rising trend in Silicon Valley is to evaluate employees every quarter, not annually. Because the merger of globalization and the I.T. revolution means new products are being phased in and out so fast that companies cannot afford to wait until the end of the year to figure out whether a team leader is doing a good job.

Whatever you may be thinking when you apply for a job today, you can be sure the employer is asking this: Can this person add value every hour, every day — more than a worker in India, a robot or a computer? Can he or she help my company adapt by not only doing the job today but also reinventing the job for tomorrow? And can he or she adapt with all the change, so my company can adapt and export more into the fastest-growing global markets? In today’s hyperconnected world, more and more companies cannot and will not hire people who don’t fulfill those criteria.

But you would never know that from listening to the debate in Washington, where some Democrats still tend to talk about job creation as if it’s the 1960s and some Republicans as if it’s the 1980s. But this is not your parents’ job market.

This is precisely why LinkedIn’s founder, Reid Garrett Hoffman, one of the premier starter-uppers in Silicon Valley — besides co-founding LinkedIn, he is on the board of Zynga, was an early investor in Facebook and sits on the board of Mozilla — has a book coming out after New Year called “The Start-Up of You,” co-authored with Ben Casnocha. Its subtitle could easily be: “Hey, recent graduates! Hey, 35-year-old midcareer professional! Here’s how you build your career today.”

Hoffman argues that professionals need an entirely new mind-set and skill set to compete. “The old paradigm of climb up a stable career ladder is dead and gone,” he said to me. “No career is a sure thing anymore. The uncertain, rapidly changing conditions in which entrepreneurs start companies is what it’s now like for all of us fashioning a career. Therefore you should approach career strategy the same way an entrepreneur approaches starting a business.”

To begin with, Hoffman says, that means ditching a grand life plan. Entrepreneurs don’t write a 100-page business plan and execute it one time; they’re always experimenting and adapting based on what they learn.

It also means using your network to pull in information and intelligence about where the growth opportunities are — and then investing in yourself to build skills that will allow you to take advantage of those opportunities. Hoffman adds: “You can’t just say, ‘I have a college degree, I have a right to a job, now someone else should figure out how to hire and train me.’ ” You have to know which industries are working and what is happening inside them and then “find a way to add value in a way no one else can. For entrepreneurs it’s differentiate or die — that now goes for all of us.”

Finally, you have to strengthen the muscles of resilience. “You may have seen the news that [the] online radio service Pandora went public the other week,” Hoffman said. “What’s lesser known is that in the early days [the founder] pitched his idea more than 300 times to V.C.’s with no luck.”

Least overhead of all start-ups to pursue? Trading.

Our firm can help.

Hat tip to Jim Byers for the article lead.

I put books out to ignite discussion. Books are the first shot across the bow. No interest in being a stationary target. It’s a fight.

Three reviews to ponder:

Amazon Review

Kirkus Reviews

Seeking Alpha

Thanks!