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

University of Texas MBA Hedge Fund Organization

March 31, 2006

I moderated a panel yesterday on systematic trading in Austin, Texas. The panel included Salem Abraham. If you ever get the chance to meet Salem or hear him talk, take it. He is easily one of the most interesting people and trend followers you will meet.

This event was put on by The University of Texas MBA Hedge Fund Organization and brings together "names" in the industry every year. This year the keynote was given by Byron Wien the Chief Investment Officer of Pequot Capital Management. Wien is formerly of Morgan Stanley.

Not Rocket Science

March 30, 2006

As I mentioned earlier, my alma mater George Mason is more known for their economics department (one with a certain libertarian flavor) than their sports department. In today's Washington Post, one of their writers ties in Mason's economics team to the current sports run (PDF). An excerpt:

"Think of a basketball game as a vastly simplified proxy for the real world. There are laws that govern behavior (the rulebook), people who enforce those laws (referees), and a way to measure who is succeeding and who isn't (the score). Just as lawmakers can change the way wealth is distributed by changing tax and other rules, changes to the rules of basketball can have sometimes unpredictable effects on what teams score the most, and how. Peter Boettke, a George Mason economist and avid basketball fan, offers an outlandish example: "I can change one rule in basketball and Michael Jordan will no longer be the best basketball player of all time. You could change the rules to require the game be played on stiletto heels. Then Cindy Crawford would be the best player."

Here is a starting point for checking out economics/behavior research at George Mason University.

Volatility, Leverage and Returns

March 29, 2006

Investment banks spend millions upon millions to produce research. J.P. Morgan Securities Ltd. recently produced "Volatility, Leverage and Returns". Read PDF. An excerpt:

"We find, though, that active managers of bond and hedge funds earn lower alpha when volatility rises unexpectedly. This is because many are structurally long risky assets that get hurt when volatility rises. Alpha returns when volatility stops rising and becomes high only when volatility starts falling again."

Of course, much of this report is the opposite of a trend following thought process.

What We Believe but Cannot Prove

I am reading a new book titled "What We Believe but Cannot Prove: Today's Leading Thinkers on Science in the Age of Certainty". Definitely pick it up. Quick read, but thought provoking. One description of the book:

"In this informative and often surprising book, more than 100 notable scientists and scholars answer the question, "What do you believe even though you cannot prove it?" The responses range from the thought-provoking to seemingly trivial (or just plain silly). Professor of cosmology and astrophysics Martin Rees, for example, admits that he believes intelligent life is unique to our world (in sharp contrast to many of his fellow contributors). Alun Anderson, senior consultant to New Scientist magazine, believes cockroaches are conscious. Mathematician and science-fiction novelist Rudy Rucker believes in a multiplicity of universes. Susan Blackmore, who has written widely on the subject of consciousness, appears to believe that she doesn't exist. The contributors touch on a broad spectrum of subjects, from religion to science and many points in between. Although some of the responses are arrogant or nitpicky, the majority are thoughtful, honest, and revelatory of the contributors' own intellectual and philosophical biases. And the book certainly gets us thinking about our own deeply held, if entirely unprovable, beliefs."

Skill Based Trading

March 28, 2006

A recent article of mine on skill-based trading (PDF).

Required Reading

March 27, 2006

I have been very lucky to receive support from numerous banks and hedge funds in the form of bulk book buying. More than a few funds and banks have bought my book as a required text for their traders. Last year one trading firm bought 1000 copies of "Trend Following". I still don't know anything about their firm or anything about their business. Along those lines, feedback from tonight:

"Let me first just say that I work as an energy trader for a large investment bank and have read many books written directly or indirectly about trading and have found your book on trend following to be one of the best I've read on the subject. Furthermore, I may push to have all of our junior traders in the group read it."

Answer from David Harding

A good question that was posed to David Harding of Winton Capital and his answer:

Q: Are you convinced that your investors really do understand the risks that you're taking with their funds?

David Harding: Investors, as I said before, are all different. Some have a greater appreciation and some a lesser appreciation. I think all of the investors are aware in theory of the risks that we are taking. But I think that when it comes to actual losses, loss-making periods, losing months, often that theoretical understanding dissolves into a not instinctive understanding. Every investor that has been through our offices, or has seen one of our sales representatives, will have been shown a chart that shows that we have a semi-variance of daily returns of 1.35 per cent. That translates to about 22-23 per cent a year; the same level of risk, roughly, as the UK stock market or the US stock market. Nobody expects the UK or US stock market to go up day after day after day, or month after month after month. Everybody expects there will be bull markets. There will be periods, sometimes long periods, where the market goes sideways.

Bruce Kovner

March 26, 2006

An article about famed trader Bruce Kovner (PDF) worth reading. Kovner was heavily influenced by Michael Marcus who in turn was influenced by Ed Seykota. These connections are all made in Market Wizards. The trading community is a very small group...

George Mason Final Four

My school George Mason just beat UConn to advance to the Final Four. That has to be one of the biggest upsets in NCAA history.

Reminiscences of a Stock Operator

March 25, 2006

An excerpt from Reminiscences of a Stock Operator:

"My losses have taught me that I must not begin to advance until I am sure I shall not have to retreat. But if I cannot advance I do not move at all. I do not mean by this that a man should not limit his losses when he is wrong. He should. But that should not breed indecision. All my life I have made mistakes, but in losing money I have gained experience and accumulated a lot of valuable don'ts. I have been flat broke several times, but my loss has never been a total loss. Otherwise, I wouldn't be here now. I always knew I would have another chance and that I would not make the same mistake a second time. I believed in myself. A man must believe in himself and his judgment if he expects to make a living at this game. That is why I don't believe in tips. If I buy stocks on Smith's tip I must sell those same stocks on Smith's tip. I am depending on him. Suppose Smith is away on a holiday when the selling time comes around? No, sir, nobody can make big money on what someone else tells him to do. I know from experience that nobody can give me a tip or a series of tips that will make more money for me than my own judgment. It took me five years to learn to play the game intelligently enough to make big money when I was right."

George Mason Elite Eight

March 24, 2006

My alma mater George Mason beat Wichita State to advance to the Elite 8. Final Four next? Playing UConn now is going to be tough! George Mason is no basketball factory - this is miracle stuff.

Oracle Stuck in Neutral?

Ryan Fuhrmann has a story today at Yahoo! Finance titled "Oracle Stuck in Neutral?" An excerpt:

"Like many other formerly high-flying stocks, Oracle continues to post solid growth, but it's been watching its price stagnate following the bursting of the tech bubble. Investors have increasingly begun to monitor this baffling trend at companies such as Microsoft, Cisco, Wal-Mart, and Home Depot. Businesses that traded at more than 50 times EPS have seen earnings continue to grow at a healthy pace, but their stocks have been virtually unchanged over the past 60 months. In Oracle's recently announced third-quarter earnings, results were strong, but a bit difficult to discern because of the just-closed Siebel acquisition. It is apparent, however, that the company throws off prodigious amounts of free cash flow...Oracle appears to have it all. So why is the stock down over the past five years?"

Isn't this author's description of Oracle's "great numbers" actually a refutation of the usefulness of his "fundamental" expertise? Doesn't he show that all the fundamental expertise in the world doesn't mean a stock will trend or not trend?

A Twit

I have always thought Michael Kinsley was a twit. His editorial today titled "Why Be A Billionaire?" (PDF) doesn't help his cause. I get the point that Kinsley thinks some people have too much money. But in his zeal to redistribute other people's money, how would he do it exactly? Does the government decide what is too much? Who decides what toys we can buy? The government again? Notice how Kinsley forgets to note that the majority of these people are self-made? This kind of writing is aimed straight at creating class warfare and petty jealousies.

Ten Rules for Position Sizing

March 22, 2006

Ed Seykota was recently asked:

"If you could give me ten rules to consider with respect to position sizing what would they be?"

He responded:

"Ten rules for position sizing:

1. Bet high enough to make meaningful profits when you win.
2. Bet low enough so you are ok financially and psychologically when you lose.
3. If (1) and (2) don't overlap, don't trade.
4. Don't go adding a bunch of rules that don't work, just so you have ten rules."

Of course, Seykota and others will use detailed rules for risk management, that's not the point with his answer. I liked his #4 answer.

Trillion Dollar Bet Redux

Watch video about things ceasing to be "normal" in excerpt from 'Trillion Dollar Bet':

You can order full video from Amazon.

Degree in Math?

March 21, 2006

A reader wants confirmation on pursuing a math degree for trading success:

"Mike, I have a feeling you're going to throw a dozen eggs at me for this question. I'm considering applying to Columbia's Master of Arts Degree in Mathematics with Specialization in The Mathematics of Finance. Will this give me more success in trading or can I do without it? Do many of the top traders have degrees in Mathematics? Regards, V."

I have no idea if a degree in math will help you or not. Trading is trading, math is math. There are plenty of great traders without math degrees and plenty of great traders with math degrees. I will not throw any eggs at you, but I did have a pretty strong throwing arm. That said, much more fun to throw a baseball than an egg!

End of Day Data Feedback

Max Corder sent in this feedback:

"Michael, Nine months ago I started down the trend-following pathway. Your book was one of the first of more than a dozen I've read and is certainly one of the few that I keep on my bedside table and/or desk to constantly check some info or to refer to insights from the traders you interviewed. The others are the two Market Wizards books, Ed Seykota's Trading Tribe, and of course 'Reminiscences', perhaps the greatest of them all. Reading and re-reading always leads to new 'ah-ha's'. I can report to you that everything you and the others say is, of course, true. My greatest enemy has always been impatience and not having a detailed plan. The two issues go hand in hand. Impatience breeds frustration/indecision and indecision comes from not knowing exactly what to do and how to measure and understand the probabilities of the various outcomes of one's actions. Your book, and others such as Van Tharp's, told me in no uncertain terms that unless I could develop a testable systematic approach to trading, I could not trade with any confidence, which would lead me back to impatience and frustration. I began to get the picture, and committed to working with software that I considered appropriate for my style of trading. I completed enough testing by mid-October to have the confidence to invest real money with my system. My timing worked out, as a new up-trend began in my preferred market (US stocks) at about that time. I just received and have started reading your updated version of 'Trend Following'. My college-student son was home for the Christmas Holidays and took the original version back to school with him! We talk about trading once or twice a week now and he tracks the family portfolio on line. We're working with gotomypc.com and he's learning the system so that he can run it from school in the evenings (we use end-of-day data) if I am traveling and not able to access the computer. It takes no more than 30 minutes to update our system in the evening and enter any trades necessary. No need to watch the market during the day. Thanks for your excellent book and websites. My study of trend following and system development has given me the confidence I needed to believe that really superior returns are possible. Max Corder"

I posted this feedback to further reinforce the idea of using end of day data for trading decisions.

What is Austrian Economics?

March 20, 2006

From the Ludwig von Mises Institute, take a read of a white paper that answers the question: What is Austrian Economics? (PDF)

George Mason Sweet 16

My alma mater George Mason University beat defending National Champion North Carolina yesterday to advance to the Sweet 16 of the NCAA Tournament. George Mason still has more Nobel Prize winners (2) over Sweet 16 appearances (1)!

Vernon L. Smith of George Mason University and Daniel Kahneman (Prospect Theory fame) split the 2002 Nobel Prize. Smith is intimately involved with The Interdisciplinary Center for Economic Science (ICES) at George Mason University. The ICES is a research center and laboratory specializing in experimental economics.

ROBTv Feedback

March 19, 2006

Feedback from a reader about my recent interview on ROBTv:

"I wrote to ROBTv earlier this year asking them to invite you on the show. ROBTv is replete with fundamental analysts and value fund managers whose favorite strategy is to buy stocks on a pull-back. To convince them to put you on the air, I wanted to tell them that trend following is as refreshing to ROBTv as a white Christmas is to Los Angeles. But I just told them to read your website, and form their own opinion. I'm glad they took my recommendation."

If it was your feedback that brought the invite, thanks!

Why Skepticism Is Rare

Two white papers from James Montier: 'Why Skepticism Is Rare' (PDF) and 'Applied Behavioural Finance: Insights into Irrational Minds and Markets' (PDF). Both of these obscure PDFs were pulled from Google.

Investing vs. Speculating

March 17, 2006

Good feedback:

"This e-mail is in response to postings regarding investing vs. speculating. Morningstar and most fundamental investors brag about relying on discounted cash flow models, looking for 'good' companies with predictable cash flow and earnings, etc., which is considered 'investing'. Talk about fools gold. The only way the DCF model works is if one can predict future cash flow. It is nearly impossible for companies to accurately predict free cash flow for the current year let alone five or ten years into the future. This leaves the analyst to make an assumption of compounded annual growth such as 5%, 10% or more. They might use a statistical basis, such as the company's previous five year annual growth figure, but as we all know past performance is not an indication of future results. Another wild card is that free cash flow is affected by a company's capital expenditures. Depending on the economic climate, capital expenditures exhibit swings from year to year that make predicting free cash flow impossible. Recent examples of this bad approach are all of the analysts who relied upon discounted cash flow models in 1998 and 1999 for their favorite dot com 'investment' - how do those models look now? The real speculators are those who believe in their own 'rightness' and their ability to predict the future. Those who believe them will end up getting what they deserve."
Sincerely,
Bruce Broussely

Austin Airport Reading w/ Paul Scrivens of 9rules Network

March 16, 2006

Paul Scrivens, a design expert whose firm is responsible for the look and feel here, just emailed me this snapshot while waiting at the Austin, TX airport:

Oh, for those out there thinking, "that guy can't be a web pro!". Think again. The best ones are not sitting around in suits. The '9rules Network' is Paul's core focus.

As a side, you can't imagine what a pain in the ass it is to get a new book into the stores. Even though mine has sold very well, making it into retail shops takes severe and constant pressure. I would be curious to other airport stockings of my book. If anyone else has a picture of the book at a unique location, send it along!

ROBTv.com Interview

March 15, 2006

I did a quick 6 minute live interview today at 2:50EST for Report on Business Television, the Canadian version of CNBC.

I did not get the feeling the interviewer was familiar with trend following trading completely, but I appreciated the opportunity to defend the strategy. I will try to put the video online here, but you can listen to the MP3 of the interview here.

On a side note, the remote location's lights, where this was filmed in Washington, DC, are not good on the eyes!

Podcast Feedback

Feedback today from Germany:

"...[I am] just starting as an investor [and] wasn't sure where to turn for REAL information. There are a bazillion people out there selling books and newsletters and assorted other crap and they ALL claim to have the "secret" to investing success. I don't know if one human lifespan is long enough to thoroughly evaluate all of them, but I know that I didn't have the time. So, I decided that I would make use of my driving time and listen to some investing info. in the car on my way to work each day. I downloaded all your podcasts and transferred them to a CD, but then I decided that I'd let them play at night while I was sleeping to make use of that time as well. So, for the last several weeks, I have listened to all of your podcasts in sequence each night. All I really wanted to do was absorb whatever good info. I could from you, but I think it went deeper than expected. As I continued my sifting through the loads of investing "advice" on the Internet, I started finding that more and more of it fell into the "crap" category, but I didn't know why. I just knew that now it somehow sounded "fishy". It finally dawned on me what I had done when I happened to turn on the TV and saw some of those MSNBC "talking heads" giving their stock tips. When I saw their suits, the ticker running across the screen, it [all] just clicked. I automatically thought, "If I did buy what you recommend, how much would I buy?" "When would I sell?" "What's my exit strategy?" That's when I realized that YOU were still talking in my head! I went to Amazon today and bought your book...It's kind of scary to think that investing ideas are influencing my decisions on some kind of subconscious level and I haven't even read your book yet. Well, I sure hope that whatever else I absorbed is good stuff because I don't know how to undo this. Hopefully, I won't have to."
Best regards,
David R.
Schweinfurt, Germany

Thanks for the feedback David. I can't speak to the usefullness of my podcasts while you are sleeping. I am willing to bet there would be healthy debate as to the efficacy of listening while asleep! In all seriousness though, I am sure there are some people out there quite tired of my podcasts. They most likely want something snappier or flashier. They probably want "tips" to "quick riches" and miss the larger point you make. There is a certain subtly to trend following. Many walk right past it and never know it.

Cat Food Scare Tactic

March 13, 2006

I like Ben Stein. He is a funny guy. But his "all old people will eat cat food scare tactic (PDF)" is short-sighted. An excerpt:

"What will it be like to live in the horrible new dog-eat-dog world, with no one caring whether you live or die -- and have no money? What will it be like on that crowded freeway? You don't want to find out...But be very scared -- and start doing something about it now. Tomorrow is too late. Do it now."

The world has always been dog eat dog. That's life. But being "scared" into doing "something" is not the best plan exactly. There is no need to be scared of the future. The first step is education. The last step is education. Fear for the sake of fear never helps anyone.

Bird Brains

March 12, 2006

A reader, Ken Keeling, writes:

"Most investors would be better off if they had a bird's brain. Consider a flock of Canadian geese flying in formation overhead. Flying in V formation allows them to fly faster than they could if they were all trying to fly home independent of one another. Aerodynamics explains it, but how many birds made it through a university? Then how the heck do they do it? After all a bird's brain is pretty small. Turns out complexity theorists have show that the V pattern can be explained by three simple rules:

Apparently birds' brains can handle these rules. Now it seems to me that trend trading's simple rules are like the bird's simple rules. However, humans get into trouble because they have the belief that simple rules must be wrong, or that we can 'do better' if we develop more complex rules. Too bad, because that is where many traders go wrong."

I like the example. The advantage of simple rules can never be stated enough!

Lust for Sex v. Money

March 11, 2006

The lust for sex and money is the same. Listen to interview (MP3) with Stanford Professor from Bloomberg.com.

Speaking Engagement at Imperial Hofburg Palace

March 10, 2006

I just returned from a trip to Vienna, Austria. Christian Baha, CEO of the trend following firm Superfund, afforded me the opportunity to speak about trend following at his firm's 10-year anniversary. The anniversary gala was held at Imperial Hofburg Palace and was keynoted by the former German Chancellor Gerhard Schroeder.

If I have the chance to provide trend following education to 800 people, Hofburg Palace or anywhere else, I will take it every time. Baha deserves credit for letting me speak on the subject of trend following - unscripted.

For those of you wondering, Superfund is not featured within my book, nor was this a paid speaking engagement. It says something about Baha's confidence in his firm's product that he is willing to promote a book, when it in turn could be seen as profiling his competitors. Why do this? I believe he has a keen interest in raising educational awareness regarding trend following trading.

I also spoke to a crowd of around 500 on Tuesday at the Fonds-Kongress 2006 held at the Neues Congress Center in Vienna.

High resoultion view of Imperial Hofburg Palace.

Practical Wisdom

March 09, 2006

The other day someone sent in an email complaining about recent feedback from other readers on my blog as extraneous. They missed the point. I welcome input. I relish the opportunity to have other people say something in a different way or offer their experience. We all learn from each other! It's also helpful to see, from my perspective, so many people around the world arriving at similar conclusions. That said, here is good feedback from a reader at a well known bank offering practical wisdom:

"Michael, I simply could not put away your book the other night and was hoping it wouldn't end. I read vast amounts of technical books and material for my job and passion -- volatility management -- and was relieved that such a simple concept could be so enjoyable. I am a trained statistician, quant, and former Air Force war-gamer who has seen a lot of cracked bell curves over the years. Any time thinking-humans have direct influence in probabilistic outcomes, traditional statistics crumbles. XXX, my former employer, is right when he states that real assets must converge to replacement value. Yet, in the spirit of Keynes, price momentum remains a priced risk factor when markets behave irrationally longer than most investors remain solvent."
All the Best,
XXX, CFA
Credit Suisse VOLARIS

I bolded his line above that struck me. Simple and to the point.

Speculation Speech

March 08, 2006

Feedback about speculation:

"I read your site all the time, and anxiously await updates. While browsing the internet, I stumbled upon a speech that my grandfather gave in 1955. Growing up, I knew that my grandfather was a successful trader and member of the Chicago Board of Trade, but I always thought he was just a 'pit' trader. I was shocked to read this. I learned more information about his trading than I ever did from his children (my mom, aunt and uncle). He talks about an ever changing world, limiting losses & following trends. His statement "I believe that in our desire for security and in making our adjustments to changes, we all end up being speculators", really floored me and gave insight into my own trading. As you say, trend following is nothing new."
Tim Skarecky

You can read the PDF Tim refers to here (PDF).

Behaving Badly

March 07, 2006

From James Montier an excerpt from his "Behaving Badly":

"None of us are immune to behavioural biases. Those who have attended my teach-ins on the subject have had a short test inflicted upon them. This note provides both a copy of the test (for you to try) and an analysis of the results from our sample of 300 fund managers. I will say no more to avoid influencing your answers. But my faith in behavioural finance is stronger than ever!"

Read full paper "Behaving badly" (PDF)

French Feedback

Feedback:

"Dear Michael, Nice to see that the French version of your excellent book will soon available. I work for a money management firm in Paris, and I specialize in "dynamic hedging", in the sense that I sell futures contracts on indexes, bonds or currencies, whenever my methodology tells me to do so. In fact, I am possibly a trend follower, as I mainly use breakouts in the current trend, put my stop loss, and ride the trend as soon as I can without any care for the fundamentals or brokers' bla bla. Although I know you are not fond of day trading, I do it myself (because I am not authorized to hold positions overnight), and can tell you that trends in smaller time frames do exist. Anyway, thanks for the good work, and I enjoy reading your daily blog."
Best regards,
Gwen A.
Paris

It's not that I am against "day trading", I just don't know how you can really compete with the Jim Simons of the world. On a side note, it is puzzling that so many restrictions are placed on "overnight" trading especially since that is where the big money is made.

Alpha to Commodities

March 06, 2006

Three articles from the Futures Industry Association:

1. Portable Alpha and Hedge Funds (PDF)
2. Commodity Investing: A Pension Fund Perspective (PDF)
3. Going Long on Commodities (PDF)

I don't post these as primers on "strategy", but rather for perspective on the opportunities that so many markets present for trend following traders.

Discretionary Trend Following?

March 05, 2006

I received some feedback from a gentleman who had nothing but nice words to say for my writing. We exchanged several emails, but I am not sure he completely got trend following. He said:

"I cannot automate, as in use a computer, the discretionary entry and exit rules I have. There is no doubt about that. At the same time, if you were to look at my past trades, there is an obvious uniformity to them. In essence I have two entry rules: a breakout of a clearly-defined price pattern (mostly Bull/Bear Flags and Triangles), OR a support/resistance bounce off of a Fibonacci retracement level which is occurring within a defined price pattern (flags tend to pull back to a 38% fib level before running higher/lower). Thus these rules are repeatable...I have consistently found that these entry 'rules' are more clearly defined as entry 'methods', which can be taught to and repeated by others."

If a rule is repeatable and teachable, why can't it be programmed or made systematic? Additionally, I am unclear as to what Fibonacci retracement means exactly. He continued:

"Keep in mind that I am not championing a discretionary entry/exit method as better than a systematic one. I am simply trying to give it its due. In my classes I will bring up a stock and ask the class to write down where they see support and resistance and invariably there are as many answers as there are students (though sometimes there is a general consensus too). How do I deal with this variance? Well, to explain that I need to explain some core beliefs to you. I believe that not everyone can follow a set system. Me, for instance. I am the type of person who loves creativity, I thrive on it. I throw away the directions on how to put together my computer desk as soon as the package is opened and go at it on my own. Others LOVE systems and can follow them. They are less creative, and more into clearly defined rules. It is kind of akin to the left vs. right-brained argument. Yet both personality types can be successful traders. The point is HOW each type will trade. We can split traders into two types: fundamental and technical. I am simply making the argument that those categories can be further split, and I am really only interested in technical trading. But next technical trading can be split into two further camps: discretionary vs. system. Dan Zanger is the shining example of a successful discretionary trader, and your book highlights the shining examples of system traders. Just as fundamental traders criticize and mock technical traders and vice versa (Victor Niederhoffer's criticisms of your book come to mind), I notice that discretionary and systems traders have a similar attitude toward one another. Yet both make money! My point is that a genuine artist would go crazy trying to do a paint by number (a discretionary type has trouble following systematic rules) yet an builder could never build a building with plans by an architect who adds 'just wing it' to his plans (a systematic type relies on clearly defined rules). I know that the performance of my fund is too short to really make the case. I defer to Dan Zanger (and I think Paul Tudor Jones is largely discretionary as well). As such, its funny because as much as I admire Zanger, he is WAY TOO discretionary for my tastes! He uses discretion in his position size, which I do not condone. I only use discretion with my entry and profit exits. Everything else is purely systematic...I hope this is somewhat clear. I got the impression that you would enjoy this sort of debate."

With all due respect, I just don't really understand your debate. The trend followers I write about all have performance data to examine. Decades of it. Where are these 'technical discretion' traders? Where is their data to make comparisons? Check out data in my expanded edition of my book (Nov 05). Where is this type data for the traders/style you mention? I am always up for a debate, sure, but where is the data?

Futures Industry Association

March 04, 2006

At a recent Futures Industry Association event panel, insights regarding managed futures and trend following were offered. You can listen to the 1 hour long audio presentation here. You will need the free RealPlayer to listen to this audio.

French Trend Following

March 03, 2006

Here is the cover of the French translation of my book Trend Following. It will be available around March 20th and in bookstores starting early April. I am still not sure why the cover changes for every translation, but they sure do, and I have no input.

Nobel Inspiration

Feedback today:

"Dear Michael: I have been convert and believer in trend following for nearly a decade now. Read your book a couple of years ago and visit your site regularly. Thank you for giving us a wealth of information and perspectives. Recently while, researching, I came across a speech by Friedrich August von Hayek, the winner of the 1974 Nobel Prize for economics. In his Nobel Prize Lecture, surprisingly titled The Pretence of Knowledge, the noted economist, philosopher and neuroscientist, Friedrich August von Hayek spoke at length about limitations in human cognitive processes. In the area of social sciences, we have to deal with what he called the 'phenomena of organized complexity'. He explained organized complexity as the phenomenon whereby the nature of units are determined not only by the individual elements of which they are composed, and the relative frequency with which they occur, but also on the manner in which the individual elements are connected to one another. Therefore we cannot draw any general inferences and make specific predictions about the units without having complete information about each element. Since such complete information is unattainable, the best we can achieve is 'pattern predictions' that limit itself to general attributes about the units but not specific predictions about the individual elements that make up the unit. This is something worth bearing in mind when choosing an investment process. Any reliance solely on specific predictions about the various factors that are in play in the financial markets may prove to be unreliable. It is much safer to rely on pattern predictions. With a healthy dose of risk management of course something like a systematic trend following model perhaps."
Kind regards, XXX Investment Manager,
XXX Partners Asset Management,
London

Evolution of Hedge Funds

March 02, 2006

At the Managed Funds Association's conference on Feb. 6, 2006, Ginger Szala of Futures Magazine hosted a panel including Bruce Cleland, President and CEO of Campbell & Co., John Kelly, President and CEO of Man Investments Inc., Mark Rosenberg, Chairman and CIO of SSARIS Advisors and Mark Rzepczynski, CEO of JWH & Co. This informative PowerPoint (PPT) was included in the presentation titled "Evolution of Hedge Funds."

Tom Willis and Bob Jenkins

March 01, 2006

Years back Tom Willis (a friend of Richard Dennis') and Bob Jenkins, running a hedge fund, offered answers about "price" during an interview. An excerpt:

Bob Jenkins: "Everything known is reflected in the price. It makes inherent sense. I could never hope to compete with Cargill that has soybean agents scouring the globe knowing everything there is to know about soybeans and funneling the information up to Lake Minnetonka, their trading headquarters. Unless I have a friend at Cargill, I can only get this information one way: I can infer it technically. We have friends who have made millions trading fundamentally, but their problems are (a) they can rarely know as much as the commercials [i.e. Cargill]; and (b) they are limited to trading their [one market] specialty. They don't know anything about bonds; they don't know anything about the currencies. I don't either, but I've made a lot of money trading them. Every picture's worth a thousand words."

Tom Willis: "They're just numbers. Corn is a little different than bonds, but not different enough that I'd have to trade them differently-not different enough that I would have to have a different system."

Bob Jenkins: "Some of these guys I read about have a different system for each [market]. That's absurd. We're trading mob psychology. We're trading numbers. We're not trading corn, soybeans or S&Ps."

I hope everyone catches the nuance of Bob Jenkins' last statement? Some great succinct language about what "it" takes. Taken from an interview 20 years ago...