An email in:

Dear Mr. Covel,

My name is Andrew [Name]. I’m a law student from Ireland and I’m very interested in getting involved in the investment/trading environment. I’ve been an avid follower of everything financial since a young age, but I’ve only come about actually using my own finances in the past while. My problem is I am unsure about what direction to proceed in. As a student I only have limited funds with which to work with. I would appreciate any advice or opinions about how to progress in such a direction.

Also I am interested in a career in finance, particularly in the investment side of things. I would greatly appreciate any input or advice you can offer at this time. I do realise you do preach the trend following system as a main line but I do realise you do keep up to the date with the comings and goings of the financial world. My biggest concern id trying to figure what state the financial world will be come in say four to five years, and I do appreciate ant follow up to my concerns.

Thank you for your time and I hope to hear from you soon.

Thank you again for your time,
Andrew [Name]

Andrew, first steps? And it won’t cost you much at all, have you read my 4 books and seen my film? Also read the book Linchpin by Seth Godin. Our future conversations become much better if I know your foundation.

Feedback in from a reader:

Hi Michael,

I just wanted to congratulate you on your approach to interactions with readers and contributors to trendfollowing.com. No matter what the writer’s opinion, you give them a hearing, even if you disagree with them. Of course, you then demolish them with logic and give them every opportunity to respond, and the exchanges are entertaining and enlightening.

That’s the attitude that makes the Internet great and allows all opinions to be heard. Plus it makes for more interesting reading than the bland wallpaper paste of most sites.

I bring this up because I was visiting a site run by a fund manager (read, fund salesperson) who relies on fundamental and traditional technical analysis. The site is all hoity-toity with quotations from leading economic thinkers and, of course, this money manager’s unassailable opinion on what is causing the bear market, and every up-tick and down-tick along the way. All of the comments to the opinions and articles on the site – and there are only about two comments per week — are glowing endorsements of this fund manager and how intelligent she sounded when interviewed on this show and that show. Based on the flattery and endorsements in the comments, you’d think this was a site dedicated to Mother Teresa.

As you can guess, I disagreed with almost everything she said, so I registered on the site and sent in my comment in support of trend following and slamming fundamentalism. My comments didn’t appear right away. Instead I saw the good old “Your comments are being assessed by the moderator” message.

To make a long story short, my comments never made it to the site and all my subsequent attempts to comment have been blocked with a message that says I am “spam.” Interestingly, the “spam prevention service” says “over 900 spam messages” have been prevented. Hmmm, that’s a lot of negative feedback she’s kept from her site.

I hope those readers, bloggers, and Internet users who visit these money manager sites are able to tell when they’re getting smoke blown up their keesters. This lady’s entire site is a giant edited advertisement for her services, not a forum for discussion. She sells her services to a lot of wealthy individuals (her site says over 200 clients with a minimum net worth of $1 million), but I doubt they realize that a more down-home, good-old-boy, banjo player like Ed Seykota could have given them ten times the returns with half the risk — and no fluff. If the spam prevention service was REALLY working, it’d take down her entire site.

Keep up the good work, Michael. We need someone to educate people on methods that will actually help them keep and grow their capital while taking on all dissenting opinions with logic and evidence…not by shutting them out lest they point out weaknesses in an argument. Intelligent people are swayed by evidence, not by fluff.

Cheers,
[Name]

Thanks!

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Laurence Fletcher of Reuters writes “Black Box” Hedge Funds Profit in Volatile Markets”:

LONDON (Reuters) – Hedge funds run by sophisticated computer programs are profiting from large falls in stock markets and a rocketing gold price this month, even as funds managed by human beings struggle to cope with high market volatility.

Insiders say so-called managed futures funds [read: trend following], which try to latch onto market trends, are making money from declining bond yields and falling equities, as investors seek safe havens amid the eurozone debt crisis and after the U.S.’s credit rating downgrade.

These “black box” funds are up 4.2 percent so far this month, according to Hedge Fund Research’s HFRX index, while the average hedge fund is down 4.0 percent and managers betting on rising and falling stock prices have lost a hefty 7.3 percent on average.

Why does he use the word “black box”? If he was just “reporting” he would not immediately use a pejorative to describe trend followers like Winton. Bottom line, trend following is making a killing because it is sound trading strategy that performs especially well when the rest of the world ***** their pants. Why is THAT still news after all these decades?

Aug 25th Note: I asked Laurence why he used the term. His reply:

Hi Michael, thanks for your email. I’ve used ‘black box’ as a quick way to describe to the man on the street what computer-driven funds do. Why do you ask?

I asked back, “But how does that tell them? Meaning, how does the word black box tell folks what Winton does?” No word yet.

While flipping channels just caught a guy on a finance show utter:

“The markets are extremely rumor driven now.”

On how many different levels is that statement doltish?

Maybe a rumor, maybe not, but how the hell does knowledge of it one way or the other make you money? It doesn’t. However, if you like flipping coins as an investing strategy, I would say his advice is spot on.

A reader of mine, Oswaldo, sent along this excerpt from The History of Greed:

“Now, be honest. If you have ever bought a stock, why did you buy it and not one of 10,000 others? Of course, you expected the price to go up. But why did you expect that the price would move up? Did you receive a hot tip from your brother-in-law? Did your broker want to reward you as a (supposedly) favored customer? Did you read something in an obscure place? Whatever your reason, somehow you thought that you had the inside track on that stock, and that you knew something the market didn’t. You thought you had an edge, and you wanted to take advantage of your special knowledge. So then you too have a bit (or a lot) of larceny in your heart, and you too want your unfair share of the market. You and I then have something in common; we’re human.”

My reader Oswaldo writes:

“Again and again, people don’t get it. They should read Trend Following.”

Good point!

An excerpt from here:

When markets become tumultuous, which is often, lots of people pop up to explain what’s going to happen next. Many of their arguments are highly plausible. Sometimes they’re well written. Occasionally they’re both. Unfortunately, unless physics is completely wrong and time travel is actually possible they’re all engaged in an activity we usually call ‘guessing’.

Although this is often entertaining, spending a lot of time reading this stuff is pretty much a waste of time when it comes to investment. After all, in 1939 markets completely failed to take account of the possibility that Hitler might run amok in Europe despite small hints like the invasions of the Rhineland, Austria and Czechoslovakia. As we saw in Why Markets Crash they didn’t spot the First World War either: so a perfect record when it comes to global conflagrations, then.

Meanwhile, in 1987 stock markets collapsed for reasons no one has yet been able to agree upon, let alone figure out how to predict (see Black Swan Down). In fact, if anything, if you and I can see a crash coming there’s a reasonable chance even the buffoons that run the world’s finances might manage to avoid it.

Although it’d be best not to count on it.

The ultimate tonic to all of these predictions that lead nowhere? The ultimate non-guessing investment strategy? Trend following. Read one of my four books. Tell me where I am wrong. After you do that–tell me how your old way is still better.

Hat tip to @ritholtz for article find.

Mebane Faber, who was kind enough to offer positive praise for my new book Trend Commandments, takes a look at outliers here (PDF). Take a read–worth your time.

From accounts:

ENGLEWOOD CLIFFS, NJ–Citing a need to provide quality programming 24 hours a day, CNBC has extended an invitation to anyone who owns a suit to drop by the financial news network and be a guest expert, cohost a show with Larry Kudlow, or do whatever. “Don’t worry about what kind of shape your suit is in,” said CNBC president Mark Hoffman, who explained that his network’s studio has an iron and some old phone books that people can press their jackets on. “Just come on down, run a comb through your hair, and if you’re here by 8 a.m., we’ll have you on Squawk Box at 8:15 making stock picks. But don’t forget your suit!” Hoffman added that men of ruddy complexion with neck sizes exceeding 19 inches are not required to wear a tie.

p. 161 of Trend Commandments…shows this to be closer to truth over parody.

Just received an invite to a seminar (cost $2695) that promises I will “Gain vital insight as we discuss such topics as”:

• Making Money in 2011-2012: What to Invest in Next
• Investment Styles and Strategies-Next generation default investment options for DC plans
• Protecting purchasing power: The case for multi-strategy currency investing
• Identifying Emerging Talent- Identifying Strategies for Changing Markets
• New governance rules on Investing in Alternatives: Fiduciary Control and Client Demands
• SPACs As a Re-Emerging Asset Class: Principal Protection with Equity Upside
• Emerging Markets: The Next BRIC Thing
• Private Equity: Is it Time to Increase your Allocation?
• Managed Futures; the Past or the Future for Hedge Fund Investing?
• Successful Real Estate Investment Strategies in Today’s Time
• Alternative Asset Allocation Models for Institutional Portfolios in Times of Academic Re-orientation
• Socially Responsible Investing

Well, they did toss in managed futures–which could be trend following!

From The New York Times:

When the government announced in April that the economy had grown at a moderate annual pace of 1.8 percent in the first quarter, politicians and investors saw evidence that the nation was continuing its recovery from the depths of the financial crisis. The White House called the news “encouraging” and the stock market extended its bull run. Three months later, the government announced a small change. The economy, it said, actually had expanded at a pace of only 0.4 percent in the first quarter. Instead of chugging along in reasonable health, the United States had been hovering on the brink of a double-dip recession. How can such an important number change so drastically? The answer in this case is surprisingly simple: the Bureau of Economic Analysis, charged with crunching the numbers, concluded that it had underestimated the value of vehicles sitting at dealerships and the nation’s spending on imported oil.

The real reason? America and many of its leaders:

1. Either live in Alice’s Wonderland or…
2. are incompetent.

There you go. Ready to pony up your hard earned capital and bet off government stats still?

Irving Kahn, age 105, is among the world’s oldest working investment bankers. He was working during the Great Depression and says now that “there are a lot of opportunities out there, and one shouldn’t complain, unless you don’t have good health.” More.

Maybe he is right, maybe he is wrong, but his is just another prediction…