Michael Covel is the author of the internationally bestselling book Trend Following

Hede Fund Basics

June 30, 2005

Hedge Fund basics: Read (Powerpoint).

Paul Mulvaney

June 28, 2005

A good Q&A with trend follower Paul Mulvaney: Read (PDF).

Face to Face Interviews

June 27, 2005

Face to Face Interviews - Audio Insights (MP3).

Success and Motivation Part 2

June 25, 2005

I also liked this second take from Mark Cuban on success and motivation (PDF).

Alternative Investments Conference

June 24, 2005

The 5th Annual Alternative Investments for Institutional Investors Conference (PDF).

1000 Trend Following Book Order

June 23, 2005

One buyer bought 1000 copies of Trend Following recently. This particular buyer has specialized in the managed money arena for 16 years. While tens of thousands of copies of Trend Following have been sold so far, this is the single largest purchase from a private buyer.

The Oil Factor

Crude oil is again trending. How high or low it will go is unknown, but the books targeting "oil profits" abound. One called The Oil Factor: Protect Yourself and Profit from the Coming Energy Crisis states that:

• In 1960, when oil was selling for $2 per barrel and the U.S. produced 70% of its own domestic consumption needs, a little-noticed group formed. It was called OPEC.
• Today, almost 70% of U.S. oil comes from other nations. The U.S. is heavily dependent on other countries in this area.
• Oil is central to the U.S. economy, so an oil price increase has a very negative effect.
• World oil production is expected to peak around 2010; thereafter, growing demand will exceed shrinking supply.
• China's expanding economy and thirst for oil increase the risk of oil shortages.
• Rising oil prices will spark inflation. The Fed will be unable to raise interests rates to counter it. Oil will surpass $100 per barrel, and high infl ation will be a way of life.
• U.S. debt, as a percentage of GNP, is approaching its Depression-era peak.
• During an inflation, buy investments that adapt to increasing energy prices. Do not use a buy-and-hold strategy.
• Energy and defense industry stocks, gold, silver, platinum, real estate, alternative sources of energy and Berkshire Hathaway will be good inflation shelters.
• In an inflation, most blue chips will not earn enough to maintain their stock prices.

The author is correct that buy and hold is not wise, but the rest of his insights are simply his predictions. Relying on his or anyone else's predictions is fool's gold. You need a plan to trade whichever way the market goes. You need to know when you will get out and when you will get in. You need to know how much you will bet each trade. If you have $100,000 how much do you bet? 100% of it? 10% of it? Predictions don't help to answer these questions.

Hedge Fund v. CTA

June 22, 2005

An email arrived today:

"I am just wondering, what is the difference between a hedge fund and a commodity trading advisor?"

Good question. Take a read of a prior blog entry.

Reuters Misses the Point

June 20, 2005

From Reuters:

"SINGAPORE, June 20 (Reuters) - Oil prices soared to a new record high over $59 a barrel on Monday, extending last week's surge as a threat against Western consulates in OPEC member Nigeria jolted traders already worried about tight supplies. Oil prices climbed more than 9 percent, or nearly $5, last week, drawing additional buying interest from trend-following hedge funds as they surpassed the previous early April high."

Trend followers are not pushing the market to $60. They are following a trend.

Art of War

June 19, 2005

The entire text of Art of War is available for free at Project Gutenberg.

The Way We Live Now; See a Bubble?

June 18, 2005

Roger Lowenstein, who wrote the must read book When Genius Failed: The Rise and Fall of Long-Term Capital Management, offers some recent insight:

"In limiting risk, people also limit the opportunity for gain. It is common, today, for investors to own six or eight mutual funds, each of which is likely to be invested in hundreds of stocks. This will, they hope, assure that no little bump, no little meltdown, overly upsets their portfolios. But since when was investing about avoiding the bumps? Anyone investing for the longer term can safely ignore them."
The Way We Live Now See a Bubble?
Roger Lowenstein
June 5, 2005

Avoiding the bumps is exactly what trend followers do NOT do. They accept the bumps. Lowenstein continues:

Continue reading The Way We Live Now; See a Bubble? »

Success and Motivation

June 17, 2005

Success and Motivation - You only have to be right once!

Excerpt:

"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."
Mark Cuban

The Trend Following Book Reach

June 16, 2005

The book "Trend Following" continues to strike a chord with traders, investors and funds across the globe. Some recent feedback from a fund managing over $1B USD:

"Michael thought you would like to know we are ordering 20 copies of the book today and sending it out to all our management team around the world."

Another fund based in the UK, managing over $2B USD, told me the book Trend Following is mandatory reading for all staff.

Yet another firm managing over $300M USD wrote to say:

"Nice work with the book. I [have] purchased about 40 copies [for clients and friends] so far."

Trillion Dollar Bet Video

June 14, 2005

Watch free video excerpt from Trillion Dollar Bet (16M).

Order video from Amazon.

Good Trend Following Article

June 13, 2005

An excerpt from recent SFO magazine article on trend following:

"The objective for any investor who wants to be active in the markets is quite simple. How does one make effective decisions in an uncertain and dynamic world? The problem is finding a generalized approach that will work effectively across a broad set of fast-paced asset markets. A realistic approach to decision-making should involve a methodology that reflects a functional world view or philosophy of how markets operate. This approach also should be replicable and tied closely to a system of management which can be structured in a variety of ways to fit a wide set of opportunities. Trend following is an efficient means of decision-making under conditions of uncertainty that reflects the peculiarities of asset markets that can be tailored to different time frames and risk profiles."

Read full article.

Blackstar Fund

June 12, 2005

Cole Wilcox is the Managing Partner for a fund called the Blackstar Fund, LP. I always find that performance reports and firm overviews provide useful educational insights.

View Blackstar May 2005 Monthly Performance Report

View Blackstar Fund Stats

Hedging Against a Housing Bubble

June 11, 2005

Read PDF article about hedging against a housing bubble.

Ed Seykota Bet Sizing Article

June 10, 2005

A simple, yet classic piece of writing. Take a read of Ed Seykota's bet sizing article.

Hedge Fund Insanity

June 07, 2005

Ok I get it. Hedge funds are fun to write about. Every journalist seems to have some story out about hedge funds. The Economist just ran a piece called "Dead, or just resting?" It says nothing essentially, but it must have felt like another great opportunity to use the phrase 'hedge fund'.

What's my gripe? Hedge fund can mean anything. There are untold numbers of different hedge fund trading strategies. So what purpose does it serve to group all speculative trading pools under one umbrella? It doesn't serve a purpose. It confuses the issue even more.

If the style of trading is not discussed and separations are not drawn across trading styles -- stop reading -- you are wasting your time.

Michael J. Clarke

June 06, 2005

Michael J. Clarke is the president and founder of Clarke Capital Management, Inc. ("CCM"). He has offered the following public comments about his trend following firm:

"In 1989, I decided that I would investigate whether I could apply my computer software development knowledge and previous trading experience in generating computerized systems with which I could make a living trading futures. The development of my current trading philosophy has derived from the research into methods and strategies as well as my actual trading experiences since that investigation began."

Continue reading Michael J. Clarke »

Placing Blame

June 05, 2005

Consider the following excerpt raising the 'odious hedge fund fear':

"Long Term Capital Management wasn't the first hedge fund to get itself into serious strife but it's the one that is always recalled whenever the market turns choppy. A choppy market is one that doesn't seem to make sense and is hungry for direction. The uncertainty it produces invariably causes traders, investors, analysts and everyone else in the money game to start worrying about a downturn. When that happens, people want a bad guy to blame for the doom that might be ahead. Nowadays, when there's no obvious candidate, suspicion tends to fall on hedge funds. Run by outrageously paid managers, these vast pools of exclusive private capital are used for highly leveraged investments and are a major component of today's market. But because hedge funds are largely unregulated and not subject to disclosure rules that apply in other sectors of the market, much of what they do remains a mystery. In unsettled times this makes people nervous."
The Australian
Hedge Funds 'To Blame'
David Nason. May 30, 2005

Keep in mind, great traders (the ones that make the big money) don't sit around during so-called choppy periods looking for someone to "blame". Great traders accept responsibility and aim to control what they can control. For example, you can't control the timing of choppy or trending markets, but you better know how to handle either situation. You can't eliminate uncertainty, but you better have an idea of how you will deal with it. Very little of what hedge funds "do" is a mystery, but if you accept blindly the constant sound bites and "blame the other guy" language of the Wall Street press core, I can imagine it might be very hard to get "it".

EU Jitters

June 04, 2005

The European Union could have us all headed toward some big trends. Read PDF.

Winton Capital May 2005

June 01, 2005

From the Winton Capital commentary for May 2005:

"The Winton Futures Fund gained 6.4% in May to bring the year to date performance to 7.55% and the compound annual average rate of return in 92 months of trading to 20.86%. Solid gains were recorded in equities and bonds this month. Financial futures moved higher as solid US employment and retail sales data confirmed continued growth in the US while stable inflation data and lower oil prices soothed concerns about the pace of Fed rate hikes ahead. Commodity returns were modestly lower with energies posting the largest loss as oil prices slumped to three month lows on the back of rising inventory data. Currency returns were mixed as the dollar regained some of the ground it lost earlier in the year as strong US economic data and France's rejection of the EU constitution supported the greenback."
David Harding
Winton Capital

Of course while David offers the fundamental backdrop, his trading is rooted in non-fundamental trading models.