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

Copper Trend

March 31, 2008

This article reminds of the 1990-1992 real estate down turn. I had a relative back then who owned commercial property. They showed up one morning to find the building stripped of all copper guttering and down spouts.

A Review from Orange County, CA

March 30, 2008

A review in today from Ulli G. Niemann a Registered Investment Advisor in Orange County, CA:

Hello Michael, I just wanted to let you know that I featured one of your books on my blog today. The link is [here]. I've enjoyed both of your books, especially since I've been a trend follower, or trend tracker as I call it, since the 1980's. I wanted my 17,000 newsletter readers to share in your findings as I am constantly battling the mindless Buy and Hope syndrome. Thanks for your great work.

For Americans, a Bit of the Swagger Is Gone

March 29, 2008

Read.

Now I Feel Safe

After 9/11 in an effort to do "something" the Department of Homeland Security was created. Now it appears that in the wake of too many people bidding up the prices of homes to unsustainable levels the government will now solve the basic problems with human wiring (read: behavioral finance) by creating a new bureaucracy to stop the next bubble from occurring. What would we do without politicians?

The Government Will Get to the Bottom of It!

From the wires:

March 28 (Bloomberg) -- U.S. regulators are investigating whether traders spread false rumors about Lehman Brothers Holdings Inc.'s financial soundness to profit from a drop in the company's share price, two people familiar with the probe said.

Here is the chart. Now explain to me how "Bobby" badmouthing Lehman Brothers to "Timmy" is responsible for that chart? Are we going to go back in time and figure out how exactly that spike down happened? But isn't the trend right back down again? What a waste of time and money by the government.

Arabic Trend Following Cover

March 28, 2008

Image of Arabic "Trend Following" cover.

The Great Social Security Hoax

March 27, 2008

This is pathetic. A big scam organized and maintained by politicians with the consent of a very ill-informed public. Why does this institution exist again?

From Start, Rodriguez Worked to Be the Best

Practice and more practice.

Hard Reverse

March 25, 2008

Excessive Emails Are A Mental Illness

Uh oh. Does this mean we are all nuts?

The Worst Retirement Plan Ever Conceived

From the AP today:

WASHINGTON (AP) — The trustees of Social Security and Medicare are certain to kick off a fierce round of debate when they release their annual assessment of the fiscal health of the government's two biggest benefit programs. The battle will be waged not only between the Democratic-controlled Congress and President Bush but also in this year's presidential campaign, where the issue is expected to attract a lot of attention in light of the looming retirement of 78 million baby boomers. All sides will try to use Tuesday's report to score political points, but that is probably as far as the debate will go — at least until a new president takes office next year. Bush, who had vowed to make overhauling Social Security a top priority of his second term, will almost certainly leave office with that goal unfulfilled given that Treasury Secretary Henry Paulson, his point person on the issue, has not made any headway with Democrats in Congress in finding a compromise to resolve the pension program's fiscal problems. Democrats contend that Bush lost valuable time after his 2004 re-election pushing a plan to allow younger workers to direct their payroll tax contributions into private accounts, an idea that went nowhere in Congress. The new report is expected to make only small changes in the estimates made last year for when both trust funds will be depleted. Last year's report put the date for when Social Security would exhaust its trust fund resources at 2041 with the same date for Medicare put much sooner at 2019. Medicare is facing much more imminent problems because of soaring health care costs.

Why does a so-called retirement plan, an investment fund, exist when it generates 1.2% return? In the real world a trader with that return would be fired.

Art of the Start

March 23, 2008

A nice overview from the owner of the Dallas Mavericks: dos and don't dos on startups.

The Odds of Dying From...

March 22, 2008

An interesting chart listing the odds of dying. I could not help but think of lottery odds when I saw that chart.

Recent Review

Review on Daily Speculations.

Michael Nystrom Review of "The Complete TurtleTrader"

March 21, 2008

More naked self-promotion from me in the form of an excerpt from Michael Nystrom's review of "The Complete TurtleTrader":

"Buy and hold is dead! The extreme market volatility over the last decade should make this abundantly clear to even casual market watchers, but it is something that good traders have known all along: You trade securities, you don't marry them. Buying a stock is not a commitment "until death do you part." A friend once told me the story of a man he knew who worked at Worldcom during the go-go 90's and had his entire 401(k) invested in the company stock. He was waiting for his account to hit $2 million, and then he was going to cash out. It was almost there - $1.8m, $1.9m - something like that when the stock began its terminal decline. Instead of selling, he held on until the bitter end, until all was lost. Moral of the story: The market is the utlimate authority. It does not listen to you, nor care about your dreams & desires, so you had best learn to listen to it. Stories like the above are not uncommon - just ask the employees of Bear Stearns. These days buy and hold may as well be called buy and hope, which is definitely not a sound strategy. And while there are a near infinite variety of potentially successful trading strategies (as the book Market Wizards shows), some of the most successful strategies have been mechanical trend following systems. You've no doubt heard a bit about Richard Dennis, the trend trading pioneer who discussed his mid-1980's Turtles experiment in Market Wizards. Now, thanks to Michael Covel, we are lucky enough to have access to the whole story. Continue...

Radio Fun

March 20, 2008

Here is an interview (MP3) from the other day where it is easy to see that the trend/systematic message is not readily accepted. Trying to get people to move away from only worrying about "today" is not easy. I don't think the female host of this show was on board with my message.

TD Ameritrade Webcast

I did a TD Ameritrade Webcast yesterday with 300+ people. Will post shortly.

Study Finds Alarming Rise in Narcissism, Self-centeredness in 'Generation Me'

March 18, 2008

From the AP:

NEW YORK - Today's college students are more narcissistic and self-centered than their predecessors, according to a comprehensive new study by five psychologists who worry that the trend could be harmful to personal relationships and American society.

Continue reading Study Finds Alarming Rise in Narcissism, Self-centeredness in 'Generation Me' »

Tacit Liz Cheval Endorsement of "The Complete TurtleTrader"

March 17, 2008

In "The Complete TurtleTrader" one of the two female Turtles elected specifically not to be interviewed. Maybe that interview is closer to reality today as I just noticed that Liz Cheval is paying ad dollars to Google for the term "Michael Covel." That is a nice endorsement of "The Complete TurtleTrader."

MF Global?

Almost every commodity market there is fell out of bed today at about the same time MF Global began its 65% share price plunge. Who will email along to me the real story of another firm and or hedge fund who also met their demise today?

Jim Cramer Says Bear Stearns Is Fine; Don't Be "Silly!"

Lost On Me

If Bear Stearns can go to zero, a stock anyone could buy with no restrictions, tell me again the point of government regulation that limits who can buy a particular hedge fund or not? It seems like the current market situation is proof positive that people should be able to diversify into assets that the government otherwise has prevented them from owning.

Ominous

March 15, 2008

From UK's Telegraph:

Big American finance houses have collapsed before. Continental Illinois required a $4.5bn (£2.25bn) bail-out in 1984 after coming to grief in Texas as the oil boom deflated. The giant hedge fund Long Term Capital Management was saved by a club of banks in 1998 under the guidance New York Federal Reserve. The fund blew up after Russia's default, which ravaged its portfolio of Danish, Italian and Spanish bonds. On both occasions the US economy was in rude good health. The damage was quickly contained. The implosion of Bear Stearns is more dangerous. A host of other banks, broker dealers, and hedge funds have played the same game, deploying massive leverage at the top of the credit bubble to eke out extra yield. Dozens of them are saddled with the same toxic debt - sub-prime property, credit cards, auto loans, and mountains of unsold paper from the merger boom. This time the market for default insurance is flashing bright red warning signals across the entire spectrum of US finance. The swap spreads on Lehman Brothers rocketed to 465 yesterday, mirroring the moves in Bear Stearns debt days before. Fannie Mae and Freddie Mac - the venerable agencies created by Roosevelt that underpin 60pc of the $11 trillion mortgage market - had a heart attack on Monday. Their bonds were in free-fall, threatening to set off another cascade of bank writedowns. These are not sub-prime outfits. They sit at the apex of the US mortgage credit industry. Hence the dramatic move by the Fed this week to offer a $200bn lifeline, agreeing to accept Fannie Mae and Freddie Mac issues as collateral. Had the Fed delayed, many traders believe Wall Street would have plunged through resistance levels risking a full-fledged crash. The 'monoline' bond insurers - MBIA, Ambac, and others - that guarantee most of the $2,600bn market for US municipal bonds have seen their shares collapse by 90pc since the Autumn. They are still battling to raise enough to capital to save their 'AAA' ratings. Should they fail, the insured bonds will be downgraded in lockstep. Pension funds would be forced to liquidate huge holdings. As New York Governor Eliot Spitzer said before his own liquidation, such an outcome is too dreadful to contemplate. You have to go back to the banking crisis of the Great Depression to find a moment when the financial system as a whole seemed so close to the precipice.

Academia

March 14, 2008

Alex Spiroglou sent me this article noting this passage:

Legendary MIT economics professor Paul Samuelson is a big shareholder. To his students, Samuelson preached the efficient market theory of investing, which says it's just about impossible to beat the market. In his own investing, however, Samuelson picked a market-beater [Warren Buffett].

Says much about what you learn in business school about money and markets!

Bear Sterns: The Price Didn't Lie About Direction

The chart shows that the "price" was indicating a problem long before we got to today.

Film Update

The film I am producing is done shooting. We are in editing. What a process! Time consuming as !@#$.

Trading Systems Success

March 13, 2008

An email in tonight:

Michael, I was reading an article in March 2008 SFO magazine page 71, titled "FX Trading on cruise control". The article referenced Richard Dennis and the Turtle Traders, when one portion jumped off the page: "Overall, the use of trading systems has been central to the success of many, if not a majority of, top performing traders." ...my first thought which was........ "well, duh."

True.

Everyone Gets What They Want

March 12, 2008

An article of mine published on TradingMarkets.com yesterday.

The AP Has It Figured Out!

March 11, 2008

From the Associated Press today comes the headline:

Fed Offers $200 Billion to Prop Up Lenders; Wall Street Responds With Huge Rally

And an except from the article:

WASHINGTON (AP) -- Staring at spreading financial dangers, the Federal Reserve announced a rescue package Tuesday that would pour as much as $200 billion into banks and investment houses and allow them to put up risky home-loan packages as collateral. Wall Street rebounded with its biggest rally since 2002 -- and hoped the Fed had even more cards to play.

Let's assume that this article is correct. Let's assume they have correctly stated why the US equity markets went up big today. What do you as an investor do? Wait for the next unexpected Fed announcement with the hope that you will be able to quickly jump on board? Don't bother with the retort of "buy and hold". The Nasdaq is still down 50% eight years after the March 2000 meltdown.

Big Monitor Productivity

This seems to be something known before the research was done!

Ain't Socialism Grand?

Nice comment from The Big Picture.

Drudge Spin

March 10, 2008

Today the Drudge Report has this as a headline:

Question. What is the real difference between 102 or 103 or 104 compared to 107? Drudge is a nice source of quick news, no doubt, but he seems to be trying to scare people. What action does he want them to take now that oil is 107? What action are you taking?

Browse Inside The Complete TurtleTrader

March 09, 2008

Michael Carr: The Turtle 'Writer'

March 08, 2008

Michael Carr was an original Turtle. Before being hired as a Turtle by Richard Dennis he was a writer and game designer known for writing Fight in the Skies and Don't Give Up the Ship! (I am not familiar with these, but clearly there is a following!). Carr later joined Dungeons & Dragons and wrote In Search of the Unknown. Today, Carr writes for American Snowmobiler Magazine while residing in Wisconsin. Why post this? It just reinforces the diversity of Turtles selected.

Don't Ask Why

An excerpt from A Million Years of Logic, the End of Economics, and the Sociological Future:

What’s the point? It’s this: Economics, as understood for hundreds of years, has played out. The major problems of econ 101 have been solved. We know about supply and demand, marginal utility, choice under uncertainty, and budget constraints. We have a wide variety of tools, ranging from game theory to econometrics, that help us identify these processes in situations ranging from war, to car sales, to dating. We are also seeing how these processes plug into classic macroeconomic issues, such as growth and international trade. However, the market system itself, as indicated by Tim’s concluding chapter, depends on population, innovation, and liberal economic institutions. These, in turn, depend on psychology, group culture, and networks, the domain of sociologists, psychologists, historians, and anthropologists. Economists have shown how the market system processes the inputs, but there’s still much, much more to be said about where the inputs come from. That’s what’s going to be exciting in the decades to come, and I can’t wait to see it.

Trying to figure out where they come from is one option. Trying to profit from them is another.

VH1 Carries TurtleTrader; Now That Is Much Cooler than Amazon

March 07, 2008

I just stumbled upon the fact that the music channel VH1 now carries "The Complete TurtleTrader". Positioned right there next to KISS. Awesome.

Complex Chinese Version of "The Complete TurtleTrader"

Order here (ISBN: 978-986-7204-46-2).

High resolution front cover and marketing from publisher.

-42% Down in No Time

March 06, 2008

Ouch.

Systematic Trend Trader Sampling

Some performance food for thought:

Month by Month Data

Month by Month Data

Month by Month Data

Month by Month Data

Month by Month Data

Month by Month Data

What Causes Trends

An email in this morning:

"...but am basically trying to understand what creates a trend. My point is that deep fundamentals create a trend, as these guys are putting their capital to work. My grandfather ran a family farm in Louisiana for 60 yrs, and would take me to the Cotton Exchange in Memphis to trade cotton. He had a few guys he trusted over the years there. I always recall him asking what abc and xyz (large institutional cotton buyers) were doing every time we were there. I finally asked him why. He said that these guys get 500 calls a week from cotton detectives/analysts all over the U.S. and world, and therefore knew infinitely more about the demand and supply of cotton than he ever could sitting in Winnsboro, Louisiana reading the WSJ. and of course, he always traded along with the big guys. He knew to ride the wave, but the wave in his mind was created by deep fundamental research. Well, don't know if I have a point - maybe just an axiomatic observation that deep fundamental research causes trends. Fair?

I don't know that understanding what causes trends is important to making money from them. As to "what causes?", my best guess is that every link on this page goes a long way toward answering that question.

Trend Traders Up Nice

March 05, 2008

Dunn Capital, featured in my first book "Trend Following", plays hard. They take on volatility many can't fathom, but their results are in black and white (PDF). Others tearing up the first two months of 2008? Turtle Jerry Parker up +20% first 60 days of 2008, Turtle Paul Rabar up +15% first 60 days of 2008 and Winton Capital up +12% first 60 days of 2008. Once more returns come in will post them.

The Complete TurtleTrader Translations

March 04, 2008

"The Complete TurtleTrader" has already been released in German in Complex Chinese. Korean, Japanese, and Russian versions are underway.

Free Lunches Come with Strings

Human behavior on display in the cafeterias of our schools.

Trend Traders Rocking

I will post some performance numbers soon, but most systematic trend traders have made unreal returns over the first 60 days of 2008.

Damn Dollars!

March 03, 2008

A great comic noticed on The Big Picture.

Its Not My Fault

From Bloomberg:

Feb. 29 (Bloomberg) -- Peloton Partners LLP, the London- based hedge-fund manager being forced to liquidate a $1.8 billion asset-backed fund, said it's a victim of the lending drought on Wall Street. "Credit providers have been severely tightening terms without regard to the creditworthiness or track record of individual firms, which has compounded our difficulties and made it impossible to meet margin calls," Peloton co-founders Ron Beller and Geoff Grant said in a letter yesterday to clients.

More.

By the Numbers

This bit of research reminds me of Michael Lewis' Moneyball except this time it is the NBA receiving a "by the numbers" statistical analysis. The lesson? Count, count, count.

Old Pro Insight

March 02, 2008

From a trader who has been at it for a long time:

I am reading your Turtle book for the second time. It's a marvelous human interest story from my perspective about a group of individuals from diverse backgrounds overcoming the odds and winning in a game that most find an overwhelming challenge. With proper mentoring these unique individuals became winners in a game where statistically 95% of the players are losers overall. As a zero sum game 5% of the players win 95% of the money provided by the unconscious incompetents on the other side of the bets less commissions and fees etc. It's just a great game. After 30 plus years I feel what separates winning traders from losing traders is not how winning traders approach trading from a method or system point of view. Many successful traders do quite the opposite styles of trading from their competition. Some traders are great trendfollowers and other traders are great trend "faders". At the end of the day they might both win overall. I believe what separates winners from losers is not how they trade but rather how they THINK about trading while they are trading. Ed Seykota talks about "bet sizing". Bet of course carries the connotation of gambling. Actually trading is significantly more dangerous than pulling the arm on a slot machine. When the wheel stops the game is over. In trading the game does not stop until the market has gutted many traders. An example was mentioned Wednesday or Thursday on your blog. $141 Million. Now that's a big number...Richard Dennis mentioned years ago "with a good money management system a trader can make money flipping a coin. Of course a good trading edge simply increases the returns of good money management". That's perhaps not a direct quote but I understood where he was coming from. So yesterday my business partner flew in from xxx and brought a friend along. The friend is the CEO of a major corporation traded on the NYSE. He has a mid-range eight figure net worth. Just a wonderful people person type guy. Our guest wanted to view some of my work and learn more about my trading method. Perhaps if I ever go public he might want to invest with me. I showed him a few of my charts. I am a 100% technical trader. Awhile back there was a post on your site regarding technical analysis. The bottom line of the post was "technical trading is dead" or something along those lines. I was shocked to learn that. It makes me wonder what I am doing making money most months with my technical system. I will do some more research. Maybe the money in our account is really a mirage or perhaps just a "loan" from the markets? I told our guest a method is certainly important and I feel it is if it's properly executed. I went on to tell him I felt that how I now thought about trading was more important than how I actually traded. I had spent most of that 30 years looking for something that does not exist-a Holy Grail if you will. I mentioned Rich's quote in THE MARKET WIZARDS. His eyes rolled. So then I said "Would you like to see what Rich meant?" Would you like for me to help you design a little trading system in say the Mini ES on say a 5 MIN time frame? We took maybe 15 minutes. All we needed was E-signal and a coin. Of course we have a trading platform with real money. This was going to be real combat with live ammo. The goal for me on some level was to prove to myself what I already know. Trading is a game of probabilities and pattern recognition. Would you like the live fire trading results form yesterday? They are pretty amazing even for this former skeptic. Obviously one day's data flipping a coin as to whether we buy or sell proves nothing. However money management placed on top of the coin flip significantly diminishes the risk of major loss in any a game. If you choose to post any of this please delete my name. I fear someone might send the guys in the white coats after me. The experiment was just one day's results and "Past performance is no guarantee of future results".

Clarification that came in Sunday:

Hey Michael, I failed to mention a very important footnote in my coin flip experiment. I had the option of declaring NO BET within 40 seconds of the flip. For example had the initial flip come up tails thus a SELL I would have had no bet. In fact it came up HEADS and I saw an opportunity for a low risk buy in fact. During the four hours we ran the experiment their were six tosses and four live bets. I am afraid perhaps I was conveying another message in my email. For the fun of it I had a friend help me run the experiment in the replay mode yesterday after lunch. There was zero input regarding a set up and essentially if the coin came up tails we sold and heads we bought with no regards to any chart picture. There were five losers in a row and then two break-even trades and then there more losers. It goes without saying simply flipping the coin with no regard to method would be disastrous. Also had the coin landed in reverse there were several nice winning trades which I suppose makes sense. The two break-even trades were in fact losers had the coin toss been heads instead of tails. Anyway it was a fun experiment that to me at least proves a method is part of the picture for success but overall money management is the real key to trading success.

Unfair Fast

As a Florida State grad I have always enjoyed their football team (even with the downturn of the last 5 years). And arguably their best player ever was Deion Sanders. This morning I read that at his pro tryouts in the late 80s "Primetime" ran a 4.57 40-yard dash backwards. For anyone who has ever been timed running a 40 yard dash...isn't that number just not fair? PS. I believe back in the day I was timed at a 4.8 not running backwards.

New Fund Feedback

March 01, 2008

Feedback in tonight:

"Michael, First and foremost, I recently finished reading "The Complete TurtleTrader" and really enjoyed it from start to finish. Your style of writing and insights on what makes these traders great is inspiring. In fact, if you're looking for direct evidence of the impact of your writing, then check out the RL Capital Managed Account Program on www.rlcap.com. My buddy and I began the process of building a trend following system shortly after he got me to read your first book. We have now been managing client funds for 14 months and are pleased at how we have progressed thus far. We have completed many hours of research to build and maintain our system, but the inspiration and knowledge gained from your books has been an integral part of our edge."

Thanks for the feedback, glad you enjoyed my books.

The Advantages of Closing a Few Doors

From the New York Times:

"The next time you’re juggling options — which friend to see, which house to buy, which career to pursue — try asking yourself this question: What would Xiang Yu do?"