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

SmartMoney Comparison

April 30, 2006

'SmartMoney Comparison' from reader:

"I just wanted to send you a quick note thanking you for writing such an insightful and helpful book. I purchased the expanded edition of Trend Following on Tuesday and finished it Saturday. Today, however, I found myself reading a copy of SmartMoney and much to my surprise, I was mentally critiquing the columnist's recommendations based upon the trend following philosophy I had just read about! The columnist was talking about his recent efforts to cleanup his portfolio, including trimming winners, adding to laggards, eliminating stocks that no longer met the original criteria for the initial purchase, and, he even stated that he could not remember why he had purchased some of the stocks! Finally, he stated that some of the stocks would be held for 10 years because that is what he told his readers he would do. I couldn't help but think "gee, what if the stocks are in a downtrend for the last five years? The drawdown is going to hurt!" In short, everything he was saying was 180 degrees off from the philosophy you discuss in your book. Unfortunately for SmartMoney, I have to cancel my subscription because the advice no longer seems to make much sense! Now I need to find something else to read. Finally, I want to thank you for answering a question I have had for the last several months...when to sell my shares in JCPenney. Purchased five years ago at $11.65/share, they are now trading over $65 and I have been thinking about taking the profits off the table. Now I know to take my profits when the trend reverses, and to be prepared to take advantage of the downtrend too. Thanks again for a great book. Best Regards, Steve H."

Common Factors in Trend Following

April 29, 2006

The Center for International Securities and Derivatives Markets (CISDM) at the University of Massachusetts Amherst (mouthful eh?) offers an interesting piece of research on trend following trading (PDF). Don't let perceptions that some of the material is "too" complex deter you. As always in academic works, you are trying to find nuggets of useful information buried in verbose writing!

The Best Stocks for the Long-Term

Jeremy Siegel, Ph.D., the famed professor, recently composed this piece for Yahoo Finance (PDF). Siegel is a very smart man, but his view of the markets is polar opposite to that of a trend follower. I think the real distinction is the trader v. investor mentality. Legg Mason makes the strong case for the "trader" mentality here (PDF).

What's In a Number?

April 27, 2006

Feedback from Chuck Cain about numbers we can believe in:

"Michael: What do fundamental analysts analyze? It doesn't make sense to base an analysis on data containing errors. Example? H&R Block's error in allowance for income taxes was funny, but seriously, think about all the 'restatements' that I'm sure you've seen, some restating several years at a time. It doesn't make sense to base an analysis on numbers which are estimates. Numbers that are 'reserves' are estimates, by definition. Example? Banks can set earnings in quite a wide range by changing this period's addition to 'reserves for loan losses'. Yes, I've spent a lot of years working inside banks. You wouldn't believe what gets done to this poor number when the trial balance bottom line doesn't look good. The IRS won't let banks use this number; the IRS requires actual loan losses, instead. It doesn't make sense to base an analysis on numbers which are made up. Example? Worldcom, Enron, enough said. It doesn't make sense to base an analysis on numbers which have a high margin of error. Example? Most government statistics. Think about all the 'revisions' that I'm sure you've seen in the financial press. I have a friend who used to work with this kind of information inside the Federal Reserve. Some of his work went to Chairman Greenspan, who may understand error ranges, but how many other people who read these things in press releases really understand the confidence level? How useful would it be for a friend to give you a phone number for a dream date without telling you that he's only confident that the area code is correct. How do fundamental analysts know which numbers are wrong, are estimates, have large error margins, or are completely bogus? What is fundamental analysis worth if these numbers aren't screened out? If they are screened out, what's left?"
Chuck Cain

What's left that we can believe in as true? The market price. Thanks Chuck, great piece!

Behavioural Finance Resource

April 26, 2006

A very good web resource outling a wide array of Behavioural Finance resources can be found here. Yes, the list is long winded and in some instances very academic, but there are some great pieces of information there. Go spend some time exploring.

No Money Management?

April 25, 2006

I received feedback from a reader looking to sell his trend following system. He described it:

"[My system] is a trend following system. It promises a systematic methodology for assessing trend or relative strength of an individual trading vehicle. As with all band or channel systems, when the prices do not show trend, they will remain within the band. When prices break though the band, it can be taken as a signal to either buy or sell."

Perhaps there is more, but where is the bet size discussion? Isn't that the most critical aspect? Where is the money management?

SFO May 06 Article

April 24, 2006

I have an article about "Confusing Concepts" in the May 06 issue of Stocks, Futures and Options Magazine.

You Need the Process Down

April 23, 2006

Feedback today:

"Michael, I'm writing to you for advice. I got myself in a jam and don't know what to do. I recently got long an equity called Rambus. I built five units (10 Leap contracts) over a price from 36 to 38.5. The stock ran up to the mid to upper 40's and within a few weeks I was up around $6k. The company issued earnings last Wednesday after the market closed. The earnings were ok, nothing bad, nothing spectacular. The stock traded off a point or two, no big deal, normal volatility. However, the company is awaiting a verdict on a patent infringement case. Thursday afternoon, rumors were being spread that the verdict was released and it was negative for Rambus. The stock sold off roughly 15 points to hit a low of $29, but closed the day in the high 30s (around 38.5). While all of this was happening, I'm on the golf course playing golf with my dad and two brother-in laws. I had one contract at Ameritrade that got sold for a nominal loss, because I had a trade trigger in place. However the other nine contracts housed at my Fidelity account did not have trade triggers so I still have them. I basically lost $5,400 in one day (all gains) and still have nine contracts with a small profit of $500. Hence the subject title ... easy come easy go. Since this event, the stock has been trading above my exit signal. My question. Technically I should be out of those nine positions, but because I didn't have the trade triggers in I'm still long. Can I ignore the event because the price is back above my exit price? What would a trend follower do? A verdict is due out soon on this case. Many think the verdict will be positive for the company, however, if it is not, the market has given a clear indication that Rambus will be thrown under the bus. I sense you like to avoid answering questions like this, but I thought this was an interesting situation and maybe you can use it for educational purposes. Obviously I would not hold you to any guidance you provide. Best regards, Vinnie"

Some quick thoughts:

1. You are asking me for fundamental opinions to some degree. I don't have them.
2. You need to focus on a portfolio perspective so one market or stock is not the be all and end all.
3. Follow the price. That's all you can do.
4. You need to have precise rules to follow the price. If the rules are not followed, for whatever reason, no one can offer you after the fact "proper" advice.

Pennies on the Dollar

April 22, 2006

Consider from the Wall Street Journal:

"At issue are the ways some Wall Street firms allegedly profited by inflating the prices paid by individual investors for stocks after IPOs were launched, exacerbating losses when the bubble burst. The alleged misconduct includes "laddering," or steering more shares of hot IPOs to investors who signaled plans to buy more shares at higher prices after trading began. This had the effect of increasing their first-day price gains while worsening losses of investors who bought later in the open market. Plaintiffs' lawyers have estimated investors lost a total of as much as $55 billion from the alleged misconduct related to the IPOs, but say recoveries will likely be well short of that amount. Plaintiffs' lawyers could get up to one-third of the $1 billion guarantee -- if that is the only amount recovered. Requests for compensation from the ultimate recoveries need court approval."

If illegal activity took place than damages are due. But given the fact that only pennies on the dollar will be recovered, is there a better way to handle it next time? Yes, consider:

1. Don't use brokers for stock tips.
2. If you are long 'some' stock and it is headed to the moon, know your exit plan. For example, GOOG and CME might be great trends now, but you need an exit plan.

Don't want to do this? Then get ready for the next fleecing sure to come at some future time! And remember, there was for the vast majority of internet stocks...time to exit. The time to exit is always clear if you are following the "price", but fuzzy if you are following "fundamentals".

Busting Baseball Myths

A reader emailed me an article (PDF) tonight titled "Busting Baseball Myths: Scientist Throws Big Curveballs". It quickly reminded me of prior posts closely related:

1. Gerd Gigerenzer: Make Decisions Fast (Includes Video).

2. Simple Heuristics That Make Us Smart.

Not sure how this all relates to trading? It does. Give it some time to marinate.

New Podcast Feed Launched!

April 21, 2006

Up until now my audio clips have not been podcast compliant. My feed is now set for podcasting. Subscribe here:

Michael Covel Podcast

Eclipse Capital: 2004 & 2005

April 20, 2006

An interesting white paper (PDF) from Eclipse Capital that examines trend following performance over 2004 and 2005.

Monkeys Get Lucky

April 19, 2006

Nassim Nicholas Taleb wrote:

"f one puts an infinite number of monkeys in front of (strongly built) typewriters and lets them clap away, there is a certainty that one of them [will] come out with an exact version of the Iliad."

I have seen others take that thought and apply it to trend following creatively:

"...[all trend following performance from all trend followers] means nothing primarily due to survivorship bias and the effects of randomness. If you can show me statistical evidence of trend following working in any time frame, my hats off to you."

I don't get that comment. All trend following performance is just luck? And the lucky few survivors (apparently all of the trend followers in my book) are left over from an apparently long list of failed trend followers? That's the logic to explain away their performance results?

Another reader added to the discussion:

"The ultimate question is not about "survivorship," it's a question of suitability and adaptability. The track record of trend followers isn't just a record of survivorship - it's a record of adaptability under varying conditions. No one can get to their destination simply by theorizing about the nature of the destination - that's linear thinking. These folks do not get the journey (the process), so they focus on the surviving trend followers. They obviously have no clue how to get lucky. The key questions they ought to be asking are "how did these trend followers get to survive? ... how did they get to be 'lucky'?"

Trends on the Move

April 18, 2006

Some recent large trends in Gold, Silver, Copper, Crude and Unleaded Gas are padding pockets. Of course, interest rates have been moving too. All of this has been reflected in the performance of trend following money managers.

Texas Trading with Salem Abraham

Salem Abraham has been at the trading game for many years now. His track record exceeds 18+ years (PDF). While his performance consistently grows, client restlessness never stops. Clients typically, and this is by no means unique to Abraham, panic at the "bottom" often missing the new equity highs. Study Abraham's performance. There are key lessons there for all. More on Abraham here (PDF).

Zero-Sum Again

I was asked this morning a question from a reader of Trend Following:

"Do you have any references that discuss why the zero-sum concept is critical? The zero-sum concept is interesting theoretically, but seems to have no practical use or meaning. Thanks, John "

I am not sure how you say that after reading every last word of chapters 3 and 4 of my book Trend Following? It is spelled out....especially pages 109-111. I am up for any debate, but not following your foundation here. Hit me back and explain?

Gold Roars

April 17, 2006

From today:

"TOKYO (Reuters) - Gold surged to a new 25-year high on Monday, buoyed by concerns over Iran's nuclear ambitions and surges in oil prices, while silver powered to its highest since May 1983 on hopes for the first silver exchange-traded fund. Hedge funds and operators investing in the short term were anxious about shifting their funds into gold and silver for the purpose to diversify and to raise higher returns. Spot gold rose as high as $606.10 an ounce -- the highest since December 1980, while silver rose to $13.33 per ounce, its loftiest since May 1983. Surges of gold and silver futures on the Tokyo Commodity Exchange spilled to bolster dollar-based spot prices as both London and New York markets were closed for Easter holidays on Friday. "We all know both gold and silver prices are too high, but no long holders are willing to sell, while short holders were getting heavily squeezed," said Takashi Ogura, risk management section manager at Kanetsu Asset Management. "People don't want to go against the present bullish trend, so prices are surging," Ogura added."

This all SOUNDS good, but this commentary means zilch. Gold is going straight up. It's a monster trend. No explaining it. No fundamentals will cut it. Did the fundamental guys see the trend in advance? No. All you can do is have a plan to get in and get out. Have the entry/exit plan down and know how much to bet each time. That's the most important thing to know about Gold or any other market.

David Druz: Robustness

April 16, 2006

David Druz, a trend follower with a lengthy track record, offered this tidbit on his web site:

"The robustness of a trading system is proportional to its volatility. This is the no-free-lunch part. A robust system is one which works and is stable over many types of market conditions and over many timeframes. It works in German Bund futures and it works in Wheat. It works when tested over 1950-1960 or over 1990-2000. Robust systems tend to be designed around successful trading tactics (origin of our "Tactical" name), classical money management techniques, and universal principles of market behavior. These systems are not designed around specific types of markets or market action. And here is the amazing thing about robust systems: The more robust a system, the more volatile it tends to be! This is because robust systems are not optimized to particular markets or market conditions. The converse is also true. You can design systems with excellent returns and low volatility on historical testing, but which work only for given periods in given markets. These systems tend to be curve-fit or market-fit and are not robust. For a system to have the highest odds of profitability over time and markets, the inescapable tradeoff is volatility. Diversification is used of course, but it will only dampen the volatility so much."

Trend followers put out publicly available documents listing their backgrounds and performance. These are usually interesting to read even if not making an investment with that particular trader. These "disclosure documents" are freely available from the government via Freedom of Information requests and or directly from the trader. Here is one from David Druz.

Disclaimer: I have no business relationship with Druz. I write about what interests me. If you have a good idea for a blog entry here, drop me an email.

Robert Kiyosaki: Outside the Box Thinking

April 15, 2006

I came across this piece of writing from well-known author Robert Kiyosaki:

A few weeks ago, I was at a financial conference giving an investing talk. A hand from the audience shot up as I talked about returns on investments of 50 percent, 1,000 percent, and infinite returns. "That's a load of rubbish," shouted the person attached to the hand waving in the air.

"Because I don't invest in those investments," was my reply.

Kiyosaki went on to explain some real estate projects where he is making really good returns. The issue isn't what Kiyosaki is making his money in; the issue is the defeatist attitude of that financial advisor waving his hand. The man had no creativity. His only experience or understanding was to accept what the "averages" were giving him in terms of stocks and bonds. Great traders, great entrepreneurs make things happen. They don't just sit around and accept the "average".

Clarification on Systems Trading

April 13, 2006

Feedback on Trend Following:

"A frequent (and valid) criticism of the book Trend Following is that its author often says the word "trend following" when in fact what he means is "mechanical systems trading" in general -- forgetting that there [are] several major classes of mechanical systems, only one of which is trend following."

No, that's not what I mean. The book Trend Following is about long-term trend following trading. It lays out with detail the men who trade this way. Most trend followers are systematic, but the decision to systematically trade comes only after making the decision to trade as a trend follower. Trend following trading is a style. It is a method based on a philosophy. On the other hand, "systems trading" means nothing in the abstract unless you define what kind of system it is.

Alternative Investment Survey

A survey forwarded to me:

"Deutsche Bank's 2005 Alternative Investment Survey is the largest comprehensive hedge fund investor survey in the industry. This year we polled over 1000 representatives from 650 different investment firms. These 650 investors represent $645 billion dollars in direct hedge fund assets which we estimate is nearly two-thirds of the trillion dollars invested in the hedge fund industry."

Read now (PDF).

Yes or No?

An excerpt from an email forwarded to me today:

"The market over the past 2 weeks has begun to show some weakness in the face of higher interest rates and energy prices. All of the major indices on an intermediate term basis are now close to breaking their respective uptrend lines which have been in place since last Fall. If these lines are breached and the Bulls cannot regain control soon investors will have to consider decreasing their market exposure. This is especially so since the decline we have experienced has occurred across the majority of market sectors. At this point the Bulls still have a slight edge as the uptrend lines remain intact; however, the market action is beginning to look suspect. Within the next several weeks we should know whether the bull market remains in force. In the meantime there is no compelling reason to run headlong into this market."

"Stories", whether technically based or fundamentally based, don't cut it. I know this sounds like a broken record from me, but until the "stories" slow down on Wall Street, slamming 'em for an educational contrast now and then is useful.

Oprah on Wealth

April 12, 2006

From news reports:

Oprah Winfrey is a rich woman - and she's got no problem with that. Speaking in Baltimore on Monday at a fundraiser for Beth Tfiloh Dahan Community School, Winfrey told the audience, "I have lots of things, like all these Manolo Blahniks. I have all that and I think it's great. I'm not one of those people like, 'Well, we must renounce ourselves.' No, I have a closet full of shoes and it's a good thing." Winfrey, 52, who is reportedly worth more than $1 billion, said she doesn't feel guilty about her wealth. "I was coming back from Africa on one of my trips," she said. "I had taken one of my wealthy friends with me. She said, 'Don't you just feel guilty? Don't you just feel terrible?' I said, 'No, I don't. I do not know how me being destitute is going to help them.' Then I said when we got home, 'I'm going home to sleep on my Pratesi sheets right now and I'll feel good about it.'"

This bit on Oprah reminded me of a similar, but much more eloquently worded sentiment here. And yes, there are a good many people who fail in the markets (or any other entrepreneurial endeavor for that matter) just because they think they don't deserve it.

The Pedigree

April 11, 2006

I was at a local function today near where I live. An older gentleman walked in with a copy of Burton G. Malkiel's A Random Walk Down Wall Street. For a quick refresher, here is the Publishers Weekly review of Malkiel's book:

The eternal truth of this updated investment classic, originally published in 1973, is simple: you can't beat the market. Well, technically, you can beat the market, but not profitably, because the transaction costs of your brilliant trading will eat up the extra returns. You can also beat the market by pure luck-but you can't deliberately beat the market, because you can't predict future stock prices. You can't predict them by divining Wall Street's crowd psychology; or by charting trends in stock prices; or by doing lots of research on companies' business prospects. You can't predict them from hemlines (though there's been "some evidence" for correlation between skirt length and market prices in the past, Malkiel poo-poos future possibilities) or Super Bowl winners (this, he says, makes "no sense"). In fact, according to the efficient market theory, which states that all knowable information about a stock's value is already reflected in its share price, you can't predict them at all.

Back to my story. I said to him in a very pleasant way, "There are some problems with your book." He was surprised I recognized it or knew anything about it. He wanted to chat. He then told me of his background. Taught at Princeton. Graduate School at University of Chicago and a career at the Federal Reserve. Impressive background. We kept talking. I mentioned that my book laid out contradictory information to Malkiel's long-time bestseller. Guess what happened? Nothing. He did not want any debate. No new information was desired that might upset his long held view and he got away from me fast. However, I did find his address in the phone book and sent him a copy of Trend Following.

Superfund March Commentary

Insightful reading for those interested in trend following: March 2006 Superfund Report. Superfund is Christian Baha's trend following trading firm based out of Monaco.

Christian Baha

Cramer on Google

April 10, 2006

Chris Masse emailed in this blurb from Jim Cramer's web site. Cramer's advice for Google (GOOG):

December 20.....Hold.....$429.74 (sell at $446)
January 3..........Buy.......$435.23 (going to $500)
January 4..........Buy.......$445.24 (going to $500)
January 13........Buy.......$466.25 (going to $600)
January 23........Buy.......$427.50
January 25........Buy.......$433.00 (take profits)
February 2........Buy.......$396.04
February 6........Sell.......$385.10 (sell at $400)
February 14......Buy.......$343.32
February 27......Buy.......$390.38 (going to $500)
March 6.............Sell.......$368.10 (going down $15)
March 7.............Buy.......$364.45
March 13...........Sell.......$337.06
March 21...........Sell.......$339.92
March 23...........Buy.......$341.89
March 29...........Sell.......$394.98

Did anyone else's head just explode?

Exchange Growth

April 08, 2006

An interesting article on global exchange growth (PDF). No slow down in volume.

Lee Ainslie of Maverick

April 07, 2006

Lee Ainslie of Maverick Capital in a recent interview (PDF).

Q: What makes you say, "Yes, we want to invest" or "No, we don't"?

Ainslie: First and foremost, we're trying to understand the business. How sustainable is growth?...

Ainslie has made a ton of money. Can't argue with that. His view of the markets, however, is much different than trend following.

Give Me a Story! Cramer & Altucher Banter

April 06, 2006

Jim Cramer tells stories. Lot of stories. For example, watch Jim Cramer and James Altucher. Trend followers don't talk or think like this. Trend followers do not spend their days attempting to know or analyze vast quantities of fundamental data. I can't name one trend follower who has attempted to divine gold direction via an analysis of Hugo Chavez.

Jim Cramer and James Altucher

Classic SNL Broker Skit

April 05, 2006

Straight Talk About Today's Markets

Basketball and Economics

Of course, I am biased toward my alma mater George Mason, but their recent Final Four run in the NCAA tournament brought forward some interesting analogies - wholly relevant to my typical writings. Consider this story from GMU.edu:

"Economics at Mason a Lot Like Basketball The success of the men's basketball team has allowed many of Mason's academic departments to explore their own achievements. Recently, in an article on Slate.com, economic professors Alexander Tabarrok and Peter Boettke compared the Patriots to their department's own surprising successes. "The George Mason economics department - which didn't even award PhDs until 1983 - has two Nobel Prize winners on its faculty. What's remarkable is that Mason's freewheeling basketball team and its free-market academic teams owe their successes to very similar, market-beating strategies," they wrote. "George Mason University has excelled on the court and in the classroom by daring to be different. Its basketball team and academic programs began with the (correct) assumption that they couldn't hope to compete against the top schools in their fields - say, Harvard Law School or the Duke Blue Devils - by directly imitating their methods." The professors say Mason's free-market-oriented economics department got started "with a heretical premise: The academic market is inefficient, so how can we exploit it? George Mason University knew it couldn't afford to be a first-class MIT and didn't want to be a second-class MIT, so successive chairs of the department, backed by entrepreneurial university presidents George Johnson and Alan Merten, looked for unexploited opportunities." Some of those opportunities included recruiting world-class, but unconventional, academics. "James Buchanan, George Mason University's first Nobel Prize winner, has never had an Ivy League position ... Gordon Tullock, a potential future Nobelist, has no degree in economics and took only one class in the subject. [Nobel Prize winner] Vernon Smith, who moved his team from the University of Arizona (again, no Harvard) to George Mason University in 2001, had to fight to get people to treat experimental economics as more than a cute parlor game." The professors concluded, "The odds are still against George Mason University on the court and in classrooms ... Building with the odds stacked against you is difficult, but George Mason University proves it can be done. Look for undervalued assets, eschew political correctness and take the long view..."

Trend following is still an undervalued asset!

Le Trading Directionnel

http://www.amazon.fr/exec/obidos/ASIN/2909356507

Stock Market Insurance

"Michael, I found this recent story intriguing, particularly in the way it contrasts with Nassim Taleb's strategy, with which I agree. It will be interesting to watch how this plays out. Buffet has a stellar track record, but I can't help but wonder if he's wandering too far afield."
Carlos Roberts

"NEW YORK (CNNMoney.com) - Billionaire investor Warren Buffett is making a $14 billion bet on global stock markets, according to an article Tuesday. Buffett's Berkshire Hathaway has sold clients insurance protection against a drop in four equity indices, the Financial Times reported. If the indices, three of which are outside the U.S., fall by 30 percent over the 15-20-year life of the contracts, Berkshire would incur a pre-tax loss of about $900 million. It has a maximum exposure of $14 billion, according to the report. Analysts told the paper that the purchasers of the index contracts were probably pension funds that wanted to increase their potential long-term returns by holding more equities but needed protection in case of a stock market meltdown. In a filing, Berkshire Hathaway did not disclose any more detail about the contracts, including the premiums it would receive or the level the indices must fall below before it made a pay-out, the paper said."

Buffett often makes his money in a much different fashion than buy and hold.

Pulling It Together

April 04, 2006

"Michael, thought you might like to read what one of my subscribers has to say about your book. I recommend it to everyone I speak to at Money Shows and to my subscribers. I really love your book. At 75 I guess I am not too old to learn."
Jim Rohrbach

"Jim, after your recommendations and quotes from Covel's book 'Trend Following', I decided to take a look for myself. I bought the new extended edition and have finished the main portion of the book and started in on the appendices. The book really pulls everything together for me - I thought it was great. Should be required reading for all subscribers. I am sure I will have to read it several times to glean everything I can from it. It is packed with information and subtle tidbits. I think it will really help me with my investing in that I will sit down and develop a discipline and then stick to it...Keep up the good work and remember what Covel said - we the need some non-believers because if everyone was a trend follower it wouldn't work anymore!"

Risk and Volatility

Risk and Volatility are often confused. I have long had an article here about the subject. Adam Mann contributes this piece (PDF) about the subject too.

102 Months

April 03, 2006

From the most recent Winton Capital newsletter:

"The Winton Futures Fund gained an estimated 4.01% in March to bring the compound annual average rate of return in 102 months of trading to 19.68%."

I still regularly hear that this kind of trend following performance is "luck". I don't get that logic.

Pequot Capital

At his keynote last week in Austin, Byron Wien of Pequot Capital laid out his 10 'surprises' for 2006:

1. Crude goes to $80, but inflation stays low.
2. S&P declines 5%.
3. Fed funds moves to 5%, but US treasury yields stay at 4.5%.
4. Large cap stocks fail to gain ground.
5. Price of gold declines to $425.
6. Dollar gains another 10% against yen and euro.
7. International markets correct.
8. China keeps their currency undervalued.
9. Stock markets are sent reeling by pandemic or another US terrorist attack.
10. Mitt Romney is 2008 GOP candidate and Hillary is 2008 Democrat.

Wien said that he usually predicts 6-7 correct every year going back 20 years. His speech was engaging, but even if he gets 6-7 right we all still need a precise trading plan. If you follow his fundamental advice, you still need these answers before you ever enter a market:

1. How do you determine what market to buy or sell at any time?
2. How much of a market should you buy or sell at any time?
3. How do you determine when you enter a market?
4. How do you determine when you exit a losing position?
5. How do you determine when you exit a winning position?

While Wien's economic advice might be very plausible, he doesn't offer an exact trading prescription for entry, exit, bet size, etc.

Parable of Three Clients

April 02, 2006

Adam Mann sent in a trend following parable about three clients. Read his (PDF) synopsis on the patience needed to make money.