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

Homework Never Ends

November 30, 2005

"Michael, your book Trend Following is outstanding. I have 5 speaking dates in early 2006 and I will give all of the attendees some homework...telling them that [they] must read your book. I thought that homework would end when I got out of school, but I know that doing homework never ends...Thank you for the education. In addition to being a Market Timer I am now a Trend Follower. Your book is a must read for every investor. Well done."
Jim Rohrbach
Founder and President
Investment Models, Inc.

New Cover Jacket

November 28, 2005

Here is the entire book jacket (PDF) for the new and expanded edition of Trend Following released this month.

New Edition of Trend Following Available

The New and Expanded Edition of Trend Following is now available. This edition builds off of the original released in April 2004.

The November 2005 New and Expanded Edition:

1. New Forward by Larry Hite
2. New Afterword
3. New Table of Contents
4. New Acknowledgements
5. New Cover (PDF)
6. Original edition 311 pages. New & expanded edition 420 pages.
7. Beyond new material in "red" listed in the Table of Contents, this edition has an additional 50 side margin quotes throughout.
8. Fixes all typos in the first few printings of original edition.
9. The first printing of Trend Following in April 2004 used a very thin paper. All other printings after used a thicker more durable paper. The new expanded edition for November 2005 uses the much thicker more durable paper also.

Endorsements (More)

"For my staff at Hite Capital, Michael Covel's Trend Following is required reading."
Larry Hite, CEO, Hite Capital Management

"A mandatory reference for anyone serious about alternative investments."
Jon Sundt, President and CEO of Altegris

"Michael Covel does an excellent job of educating his readers about the little-known opportunities available to them through one of the proven best hedge fund strategies. This book is like gold to any smart investor."
Christian Baha, CEO, Superfund

The new edition is available now online and offline at Barnes and Noble and Borders stores.

RealMoney.com?

November 27, 2005

From RealMoney.com comes this excerpt:

"Oh, there is one other number to be on the lookout for. That of course is Dow 11,000. With all the hoopla likely to accompany a move to this level, we should see a pretty good pullback follow the first pop to or through this big round number. Ultimately, Dow 11,000 will likely be taken out. But I look for the first attempt to fail and to be followed by a tradeable decline. Wednesday's high just shy of 10,951 may have been close enough for the moment. A quick 40-point pullback to the 10,910 level followed in the final hour, as apparently there were too many bets already placed on an imminent assault on Dow 11,000. Whether it happens this week or next, odds are good the much heralded pop through Dow 11,000 will happen. But I suspect that when it does, rather than being the sign of a new bull leg beginning, it will be the sign of the last buyer buying."

What are you supposed to do with this commentary? This stuff is all over the web. What in the world is the purpose of it?

Not All There

Feedback received:

Buffett has spent so much time being Soros' puppet to notice people arent buying Coke, BUD, and soon PG+WMT, he wants to bet against america with soros' whose only goal is to get political control...........sorry, i choose america...and therefore i boycott buffett products, i'll miss WMT, but i and my family are loyal americans."

If you think like this, you miss the point of making money in the markets. While I understand this gentleman is trying to promote some type of pro-American view...that kind of talk is silly. The world is global. While this guy is chasing conspiracy theories, the great traders "trade".

Hedgestreet and Prediction Markets

November 25, 2005

An interesting article on Hedgestreet and a conference to be held on prediction markets on December 2, 2005.

Google Trend

November 23, 2005

Yes, I am sitting in Google (GOOG) too. The trend sure is nice. But as a trend follower, you always need to have an exit strategy.

Feedback on White Paper

Feedback on Blackstar Funds white paper posted yesterday:

"Hi Michael! Thank you for your informative blog - I read it every time you place a new entry. I particularly enjoyed your recent post titled "Trend Following on Stocks". However, at the very end of the publication the author makes a trading slip. It's what I call the 'stock split bias'. In the article the author ends by mentioning that they filtered stocks that traded below an absolute dollar figure of $15 - to filter out undesirable trades/stocks. While the logic seems sound on face value, in back testing it filters out stocks without taking into consideration the stock splits. As an example, take Microsoft. With its current stock split history it doesn't trade above $15 until around mid 1997, however, back in 1997 Microsoft was actually trading around $120! Therefore, neglecting MSFT prior to 1997 because of its current stock split history would not accurately reflect the performance of the system back in 1997 (where it would have traded MSFT). Of course if the back-testing incorporated stock split data this problem could be circumvented, however, using absolute dollar figures on price should not be used in back-testing if incorporating stock splits cannot be used. Thanks for your time and I look forward to reading more great trend following material (loved your book too!). From an avid reader and trader, Ryan"

The author Cole Wilcox wrote me back to clarify:

"He is smart to recognize this, however if he re-reads Appendix 4 he will see that we have accounted for this by maintaining 2 sets of data. Our minimum price filter is based on the actual prices that hit the tape, not the split adjusted data."

Trend Following on Stocks

November 22, 2005

Cole Wilcox and Eric Crittenden of Blackstar Funds, LLC authored a white paper titled Does Trend Following Work on Stocks? This paper is being released exclusively first on my collection of sites.

Q. How did you get started?
A. When I was 19 I got hired on by a brokerage firm without really knowing what to expect. I quickly realized that that a broker was a sales job that involved a lot more cold calling than critical thinking. I was much more interested in making investment decisions than sales calls so I focused my business on profitably trading a handful of client's accounts and eventually my own account. This led to a good run during the technology bubble of the late 90's. In February of 2000 I was fortunate enough to recognize that my trading success was mostly a function of market environment. My intuition said that the low hanging fruit had been picked. I mostly went to cash and began to return client capital. My business partner Eric Crittenden and I met in summer of 01'. I was interested in transforming from a discretionary trading approach to a more systematic and sustainable process. Eric had the experience and skills required to tackle this project. He had been working on the development of trading models and risk management systems for a proprietary trading firm. He educated me on topics such as computer programming, statistics & systematic risk management. We work well as a team because we have distinctly different skill sets of equal importance and share a common vision. This has led to a successful partnership that resulted in the founding of our firm Blackstar Funds.

Q. Tell me about Blackstar?
A. Blackstar Funds was founded in 2003 to develop a multi manager fund with a focus on investing with systematic trading managers in the equity, commodity & financial futures markets. Our initial business plan was able to attract venture capital & board membership from retired hedge fund manager Tom Basso (Market Wizard's). During our research and construction of the fund we were not able to find equity managers who we felt were systematic enough to meet our investment criteria. This led us to ask the question: Why can't we find a systematic equity trend following fund?

Q. What was the answer?
A. We asked a number of large CTA's and fund managers why they had not developed an equity product. The answers ranged from ambivalence and not wanting to get distracted from their work in futures all the way to statements that it simply does not work on stocks. One multi billion dollar firm went as far as saying "there's nothing there". We took this as an opportunity to do our own empirical research on the topic which has led the publishing of our findings and seeding of the Blackstar Diversified Equity Fund.

Q. Why did your research paper focus on a long only portfolio?
A. We wanted to show apples to apples comparison of an equity trend following strategy vs. a stock market index. We felt that including short selling would have distorted the comparison. Another big factor to consider is that the expectancy on short selling stocks in severely stunted relative to long positions because you are capped at making a maximum gain of 100% on your best trades. Long positions have no cap and can make gains well in excess of 100%. While there may be merit in further research into short selling it fell outside the scope of the paper.

Q. Renaissance Technologies of Medallion Fund fame has generated a lot of press recently with the launch of a new systematic equity fund. Is your strategy similar to theirs?
A. Our multi manager portfolio is actually an investor in this new fund. Although their strategy is "black box" with limited transparency we feel their fund's overall strategy is probably a closer cousin to systematic trading based on price and volatility than bottom up fundamental value investing. That being said, only Jim Simons and his research team know the exact answer.

Complex Chinese Jacket

The full high-resolution book jacket for the Complex Chinese version of Trend Following (8MG).

Pushing the Lion

November 21, 2005

In the last 24 hours I posted an article that mentioned a book titled Taming the Lion by Richard Farleigh. I have not had a chance to read the book yet, but found the article interesting. I also noticed that since the book was mentioned here it has gone from #200,000 on Amazon's sales rank of all books to #954. Richard you owe me lunch!

Ed Seykota's Book

Ed Seykota's first publicly available book is here for purchase. The book is only available at this time directly from Seykota's offices.

Taming the Lion

An interesting article by Tom Stevenson from The Daily Telegraph:

"You've probably heard the market adage 'the trend is your friend'. It's been around so long and sounds so corny that, if you're anything like me, you've not given it much deeper thought. That's a pity because it is more profound than it sounds. This realisation hit me in a senior moment at the weekend while reading an excellent investment book, Taming the Lion by Richard Farleigh (published by Harriman House). Farleigh deserves a moment of your time because, despite an unpromising start to life (his early years were spent in the back of a pick-up truck driving round Australia with his itinerant, alcoholic father), he had made enough money by the age of 34 to retire to Monaco."

Continue reading Taming the Lion »

The Incredible Rising Dollar

November 20, 2005

From the wires:

"Remember all those predictions last winter that the greenback was certain to be crushed in 2005 under massive U.S. trade deficits? Oops! The dollar has levitated about 15% against both the euro and the yen this year, though the fearsome deficits turned out even bigger than expected. On Nov. 16 the dollar reached a 27-month high against the yen and a 24-month high against the euro. Dollar bear Warren Buffett said on Nov. 4 that his firm, Berkshire Hathaway (BRK), had lost about $900 million through September on currency bets."

I am curious why the major press was not curious about what technqiue Buffett used to take his initial short position in the Dollar? He built his reputation off going "long only" or off "buying and holding". Shorting the dollar seems quite different than those strategies. Lastly, what prompted the exit of a substantial part of that short position in recent months? I am curious.

China & Copper Futures Bet

November 18, 2005

Trading is a zero sum game. It takes 'losers' to give 'winners' their profits. For example from Yahoo! Finance:

"China stands to lose at least 100 million US dollars on the London Metal Exchange after a bet by a state commodities trader went spectacularly wrong, a press report says. Citing a source close to China's State Reserve Bureau (SRB), the South China Morning Post reported that SRB copper futures trader Liu Qibing took short positions equal to about 130,000 metric tonnes of copper in July and August. At the time, Liu paid about 3,300 dollars a tonne, expecting the price of copper to decline. Copper prices for delivery in three months' time are now about 4,119 dollars a tonne, the paper said. "Liu disappeared from the market in early October and that week the bureau recovered about 50,000 tonnes of short positions on the London Metal Exchange, which pushed prices up to about 3,800 dollars a tonne," the source said. "He has been singled out by the bureau as a scapegoat, but he was only acting according to bureau regulations and procedures."

Continue reading China & Copper Futures Bet »

Jake Carriker: Trend Follower

November 17, 2005

Jake Carriker manages money for clients. He is a trader. He forwarded me an exchange he had recently with someone who had sent him an email. This individual wanted to know Jake's "opinion" on the stock CNC. Jake's response:

"First, the tiresome explanation of my logic, then the bottom line. Much of my analysis of securities prices is based on rather blunt, possibly inappropriate, application of some principles from Newtonian physics to the markets. Objects (and if you buy what I am selling, stocks) in motion tend to stay in motion until they encounter an opposing force of sufficient magnitude to slow or reverse the current momentum. Keep in mind that much of the time there is an absence of momentum and stocks just kind of drift aimlessly sideways until some force kicks them off high-center. That's the "objects at rest" part of that little ditty."

Continue reading Jake Carriker: Trend Follower »

Diversification

November 16, 2005

The great traders trade everything. This white paper from the Center for International Securities and Derivatives Markets is good reading. Also, this brochure from the hedge fund Superfund adds more to the topic.

Complex Chinese Book Cover

November 15, 2005

View full Complex Chinese book jacket here.

A Really Good Scientist

November 14, 2005

A great quote from Carl Safina:

"An observant person sees things overlooked by others. A scientist sees things going on and then asks how these goings-on array themselves into patterns, patterns that are reliable and predictable. A really good scientist--or a really good artist for that matter, anyone whose mind and soul are capable of some extension--sees what is going on, sees the patterns, and asks, 'Why?' What underlying forces are at work? How are those forces exerting themselves? How may we understand? Once pried from the universe by a great mind or a discerning heart, the hard-won understanding may then be conveyed and conferred upon humanity at large. A painting is nothing more than light reflected from the surface of a pigment-covered canvas. But a great painter can make you see the depth, make you feel the underlying emotion, make you sense the larger world. That, too, is the power of science: to sense and convey the depth and dimensionality of nature, to glance at the surface and to divine the shape of the universe around us."

Will Santa Arrive for Wall Street?

November 13, 2005

From Yahoo! Finance:

"With oil prices well below $60 per barrel for the first time in months, inflation and fourth-quarter retail sales remain Wall Street's major preoccupations. High inflation means the Federal Reserve will continue raising interest rates which, while keeping prices in check, makes economic expansion far more difficult. But if the Labor Department's latest pricing data shows modest inflation, that means consumer prices will remain low. And while the consumer is certainly bound to wrestle with high energy prices this winter, there's a chance people will spend enough money this holiday season to keep the economy growing briskly. A lot of things have to come together for Wall Street to enjoy its traditional end-of-year Santa Claus rally: low inflation, lower energy prices, strong retail sales and bullish earnings forecasts from major companies."

With this reporting, how do you know when to enter and or exit?

No Tricks

November 12, 2005

Feedback today:

"Hi Michael, I read your book and loved it. I'm planning on rereading it next week while on a business trip (no kidding) to Las Vegas. I've traded the markets for a few years and my experience, along with numerous of those I've talked to, is that trend following is the hardest thing in trading to do. Most people, almost all, would rather trade "tricks" (technical indicators). We have this overriding desire to buy markets trending lower and sell markets going higher. The idea of bottom fishing has got to be the number one pastime amongst traders. A friend of mine who is a successful trend follower told me something a few years back that I had not heard before or since. He said, "Whatever price you see, in any market you trade, you have to understand that the price it is currently trading can double or go in half. Until you can believe that, you will never take the trades your system is giving." I'm still working on that. Thanks for your book. Jim V."

Peter Borish: Twinfields Capital Management

November 11, 2005

I have had the opportunity over the years to spend time with Peter Borish. He is truly one of the straight-shooters on Wall Street. A comment from his firm's marketing materials:

"We don't have a bias. In our view, the market is always right. So we remain flexible. Our approach is to analyze the data, pour over the stats, and call the plays to Joe [Joe Niciforo, Chairman of Twinfields Capital] - but it's Joe who makes the final trading decision in light of his experience and read of the market. Unlike chess, in trading there's no one right move. There's an element of uncertainty. In that way trading is more like backgammon - highly unpredictable. But notice one thing: the same top players always compete in the big tournaments. That speaks to experience. Models are crucial to what we do as traders. We couldn't work without them. But if you don't have an experienced person making decisions in what is often an uncertain environment, you'll lose. Joe represents experience and decisiveness in a cool head. He has the maturity to know when to follow our themes and when to ignore our calls and follow his instincts."
Peter Borish, Chief Executive Officer
Twinfields Capital Management

Buffett, Currencies and Trouble

From the Wall Street Journal yesterday:

"In the early 1920s, John Maynard Keynes attempted to apply his economic views to speculation in the foreign-exchange markets. Though Mr. Keynes was nearly bankrupted by this experience, he learned a valuable lesson: It is difficult to earn money in forex markets from taking positions based on fundamental economic analysis. Recent losses from shorting the dollar suggest Warren Buffett is receiving a similar lesson. For several years, the Berkshire Hathaway boss has been bearish on the greenback. His views on the subject are quite conventional: he believes that the growing trade deficit and rising foreign claims on dollar assets are bad news for the world's reserve currency. Since 2002, Mr. Buffett has taken a massive bet, exceeding $20 billion at times, against the dollar. As the buck declined in recent years, this position proved profitable, earning more than $2 billion. This year the bet turned sour. Berkshire Hathaway has lost nearly $900 million from its foreign-currency forward contracts in the first nine months. Mr. Buffett reduced his dollar short position by $5 billion in recent months. He should get out of the position entirely. Mr. Buffett has no competitive advantage in the currency business. Like the chastened Mr. Keynes, Mr. Buffett used to eschew making investments based on macroeconomic forecasts. He had no special insights into these trends, Mr. Buffett used to say. Moreover, no market is trickier to play on macro views than currencies, which are influenced by a vast number of factors. This year the dollar has strengthened for myriad reasons: rising U.S. interest rates, U.S. corporations' repatriation of foreign profits, strong economic growth, and so forth. Mr. Buffett didn't anticipate these factors and got burnt. Forex is a trading, not a buy-and-hold, game. Yet Mr. Buffett is no trader. He takes positions and holds them. While Mr. Buffett's bet can be seen as a partial hedge against Berkshire Hathaway's huge cash and dollar bond investments, it is also a speculation that the world's best-known investor has neither the training nor the aptitude to take."
Simon Nixon, Mike Verdin and Edward Chancellor

My earlier comments on this subject.

Market Wizard Thoughts

November 10, 2005

I spoke with a gentleman today originally profiled in Jack Schwager's Market Wizards book (not Ed Seykota for those guessing). He wanted to talk about risk management. He made the point that as long as you have "great risk management" your entries could be "random". His firm, for example, makes money from random entries. For all those "technical traders" out there relying on the next great "predictive technical indicator", his point should cause pause.

James O. Rohrbach Update

James O. Rohrbach sends out regular emails regarding his trend trading model. His wisdom today while simple sounding takes discipline:

"I know there is an urge to anticipate a Signal and act before the actual Signal occurs. I also know that anticipating can be costly and in the whole scheme of things, one day does not matter. An example just occurred with the NYSE Buy Signal. It was issued on 11-7-05 after the close, so the first time we could buy in was 11-8-05. In this instance the market dropped slightly on 11-8-05 making prices slightly lower than they were the day before. So it worked out to our advantage. Try not to get too excited about jumping the gun. In the long run it doesn't pay. You have to become a relaxed investor and just become automatic about getting in and getting out of the stock market. Easier said than done, but you will reach the final stage of investment maturity when you strip your emotions out of your decision process. I don't even give it a second thought. When I get a buy signal, I buy and when I get a sell signal, I sell. That's what I mean when I say Keep It Simple. Emotions are what makes investing difficult for most people."

James O. Rohrbach

Paul Mulvaney: Trend Follower

November 09, 2005

From Investments and Pensions Europe, Paul Mulvaney notes that his trend following approach is totally systematic:

"The essence of trading comes down to psychological factors. What's really difficult is keeping emotions out of the equation. A completely systematic approach does that automatically...When really big trends happen they can go on for years...The way to beat the market is to have a longer time frame because psychologically participants seem to be too focused on the short term, and the shorter term the action the more chance that it is an aberration - just noise as opposed to true 'trendiness'."

The big picture rules of Mulvaney's trading strategy are easy to grasp:

"If you take our initial position and its starts to generate positive returns then we'll increase it. If it starts to hurt the portfolio then we'll reduce it and ultimately exit."

Mulvaney also notes that conventional measures of risk-adjusted returns (i.e. Sharpe ratio) miss the boat:

"Implicitly using the standard devia-tion assumes that the returns are normally distributed. But in fact our returns stream is very positively skewed, and highly asymmetrical. Our standard deviation is extremely high but this is because of the positive outliers. The standard deviation involves squaring the deviations from the mean and the outliers are what really push it up. So a very strong case can be made that CTAs' performance is severely penalised by the Sharpe ratio."

Traders Await Data?

November 08, 2005

From the Associated Pres today an article titled "Traders Await Data":

"Crude futures ended higher Tuesday, reversing course from an early selloff after traders were unable to keep oil prices below $59 a barrel. Warmer-than-usual temperatures in the U.S. Northeast and Midwest has temporarily eased concerns about home-heating supplies this winter, bringing oil prices well off their late August highs above $70 a barrel. However, brokers are wary of going too far, too fast and putting themselves in a vulnerable spot if the weather turns or if there's a sudden supply disruption. Prices briefly dipped below $59 a barrel, but when the action dried up, traders who had expected that prices would fall even further had to cover their bets, sending prices in the opposite direction."

How in the world does this type of reporting help the average investor? The intent of this writing seems to be designed to demonstrate the broad depth of experience this writer has in understanding daily volatility and to demonstrate his knowledge of oil market fundamentals. He also seems to have a subtle desire to make the average investor feel inadequate for not having the same experience. I wonder if this reporter realizes that the great traders have little if any experience in these matters?

Bottom line, there is no objective use for this reporting in my humble opinion. This reporter should have answered these 5 questions in his writing:

* How do you determine what market to buy or sell at any time?
* How much of a market do you buy or sell at any time?
* How do you determine when you buy or sell a market?
* How do you determine when you get out of a losing position?
* How do you determine when you get out of a winning position?

Of course, to regular readers my critique might sound familiar. It is.

Schwab Core Equity Fund

The following language is from the Schwab Core Equity Fund prospectus:

"Schwab Core Equity Fund: To pursue its goal, the fund invests primarily in U.S. stocks. Under normal circumstances, the fund pursues its goal by investing at least 80% of its net assets in equity securities of U.S. companies. The fund will notify its shareholders at least 60 days before changing this policy. The fund expects to hold the common stocks of U.S. companies that have market values of approximately $500 million or more. The fund seeks to assemble a portfolio with long-term performance that will exceed that of the S&P 500 Index. The fund uses Schwab Equity Ratings - to aid its stock selection. Schwab Equity Ratings represents Schwab's point-of-view on the 12-month performance outlook for approximately 3,000 U.S.-headquartered stocks. Schwab rates stocks "A" to "D" and "F", where "A"-rated stocks, on average, are expected to strongly outperform and "F"-rated stocks, on average, are expected to strongly underperform the equities market over the next 12 months."

Continue reading Schwab Core Equity Fund »

Merrill Lynch Feedback

"On page 56 of your book there is a quote from Van Tharp on Seykota in which Seykota tells him about teaching a course about trading and talking about Donchian's 5 & 20. Where can I get info on 5 & 20? By the way, this is the third time I read your book and it has changed the way I invest. What a difference your book makes. After 15 years of investing for myself and for my clients as a Merrill Lynch financial advisor I can tell you that we were absolutely wrong about the buy and hope bullshit. The only way to go is to follow the trend. Thanks for your book."

I feel like my "you know what" is being kissed here. I am glad that some brokers might get "it" now, but there is large doubt as to whether much has changed in the industry.

Avoid IRA Restrictions

November 05, 2005

A reader incorrectly states the restrictions of "what" you can trade in a retirement account:

"...trading within an IRA has governmental restrictions on short selling, futures contracts and a few others...by using mutual funds I can get around a number of these restrictions. The obvious one is using "bear" funds to overcome the shorting restriction."

There are not universal limits on shorting, futures, etc. in retirement accounts. It all depends on the setup of your particular retirement structure. For example, Fiserv Trust Company (as but one example) offers retirement vehicles that allow trading in:

- Real Estate
- Futures
- Promissory Notes
- Private Offerings
- Tax Liens
- Trust Deeds/Mortgages

If you accept a basic IRA as your lot in life, you'll miss the real opportunities.

Mutual Funds and Trends

November 04, 2005

A question from this morning:

"Dears Sirs, I am interested in trading mutual funds in my IRA's via trend following. In particular, I am interested in trading the Profunds group and the Rydex group of funds. Does [trend following] cover trading mutual funds? Thanks, S.M."

Trend Following is blind to the market traded. A question though: why have you pre-selected and limited yourself to these instruments alone? One Turtle has said:

"I think another mistake we made was defining ourselves as managed futures, where we immediately limit our universe. Is our expertise in that, or is our expertise in systematic trend following, or model development. So maybe we trend follow with Chinese porcelain. Maybe we trend follow with gold and silver, or stock futures, or whatever the client needs. It's called managed futures because that was the profit center at the FCMs. We're trading these great systems, and testing, and making sure what we do has worked in the past. And being disciplined, and unemotional, and applying our methods to the futures markets. But limiting our trading to this one group of markets. We need to look at the investment world globally and communicate our expertise of systematic trading. You have Big Blue beating the world chess champion, and everybody saying yeah, that makes sense, I can understand that. We've not been able to maximize our opportunities with systematic trading. People look at systematic and computerized trading with too much skepticism. But a day will come when people will see that systematic trend following is one of the best ways to limit risk, and create a portfolio that has some reasonable expectation of making money. We've got to be there and ready to take advantage of the opportunity. I think we've miscommunicated to our clients what our expertise really is. Systematic trading is going to be better for everyone in the long run. Our methods will work on lots of different markets. The ones that are hot today, the ones that are not hot today. We don't want to pigeon-hole ourselves as managed futures or commodities."
Excerpts from Managed Account Reports

It's all markets, that's the point.

November Buy?

From USAToday.com comes this tidbit:

"Forget corporate profits. Forget interest rates. Forget price-earnings ratios. Right now on Wall Street, it's all about November. In the pecking order of catalysts with the power to propel stock prices higher, flipping the calendar from October to November rarely gets top billing. But history suggests it deserves to be near the top, alongside key drivers such as the economy and monetary policy. Why? November kicks off a seasonal sweet spot for stocks, a time of year when bullish forces emerge from hibernation and jump-start moneymaking rallies. November marks the end of the often-brutish October, called the "jinx month" because of crashes in 1929 and 1987. November marks the start of the best three-month span for stocks and the best six-month period for stocks, and, with its 1.7% average gain since 1950, is tied with December for the best month for stocks."

If my memory holds true November 1994 was a kick start too. It was a great time to "buy" as the great bull then roared forward all the way until Spring 2000. But isn't there a rather simple problem with the "November" time-to-buy-logic? Let's say you believe November is a great time to buy...when do you ever sell?

Place Your Bets!

November 03, 2005

Using financial markets to hedge and or speculate on everything will soon be a reality for everyone. TIME magazine offers another take (PDF) on the topic. Hedgestreet, mentioned in the TIME article, continues to lead the pack in creating awareness for these new markets.

Ursula Burger, HedgeStreet

Hurricane Katrina and Funds

November 02, 2005

An excerpt to consider:

"(CNN/Money) - Hurricane Katrina wreaked havoc on New Orleans, but it sent some investment portfolios sky high. Trend-following hedge funds, which trade systematically based on mathematical models, profited handsomely from the spike in oil. Many of these funds had long positions in oil - meaning they were betting prices would continue to rise - before Hurricane Katrina touched down in Louisiana."

While this is all true, it is also true that many gains were hurt in the ensuing volatility and oil price drops. But that is the life of a trend follower: starts and stops and then boom the big trend that pays for all of the up and down movement.

Kirkus Reviews

November 01, 2005

From Kirkus Reviews:

"Covel says that you can get rich, no matter what the markets are doing, by 'Trend Following'...Covel's secrets include the counterintuitive practice of buying high and selling low, and going short as often as you go long. Trend followers focus on absolute returns, rather than constantly comparing their performance to, say, the S&P 500. Perhaps the most useful section is Covel's dismissal of several 'holy grails' of investing. For example, most of us have been taught to hold stocks even as they dip, believing that if we are patient enough, we'll eventually earn our money back. Covel notes that the most successful businesses eschew this buy-and-hold philosophy, and personal investors should too. There's also a problem with investors' tendency to follow stock tips: the tips only tell us when to buy, and buying a hot stock is only smart if you also know when to sell. Whether you have $1000 or $10,000,000 to invest, this provocative guide will help you take your portfolio to new heights."