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

Boone Pickens Interview

May 12, 2008

I had the opportunity to interview Boone Pickens in person about 18 months ago. A nice recent interview (video) with him from Bloomberg.

Uphill Battles Are Fun

May 11, 2008

Sometimes it feels like an uphill battle to fight against the drumbeat of fundamental predictions and gurus predicting this or that after the fact, but then I am reminded (article) why I like to take the vantage I do. That Yahoo article will be read by tens of thousands, but how many will pause and realize at immediate first thought that it is useless?

How High Will It Go?

May 09, 2008

From the AP:

NEW YORK (AP) -- Oil rose above $126 a barrel for the first time Friday, bringing its advance this week to nearly $10, as investors questioned whether a possible confrontation between the U.S. and Venezuela could cut exports from the OPEC member. Gas prices, meanwhile, rose above an average $3.67 a gallon at the pump, following oil's recent path higher.

How high will it go? Any one who says they know is not exactly truthful. Why is it going up exactly? Ditto.

Taking the Shot

May 08, 2008

An excerpt I like from this article:

"When I need investing inspiration, I turn to "The Great One" -- but I don't mean Warren Buffett, Peter Lynch, or Benjamin Graham. And I definitely don't mean Jim Cramer. You've probably heard The Great One's name dozens of times, but you may not know just how wise he is. Nonetheless, he's said some very smart things. For instance ... "You miss 100% of the shots you never take" That's but one of the many pearls of wisdom The Great One has dropped over the years. And while it might seem obvious, or even trite, it's a truth we often take for granted. Just think of the person you never asked to the dance, or the job you never applied for, or the novel you never finished ... or the stock you never purchased. It happens to all of us. We get nervous, or doubtful, or busy, or ... you name it. And that might end up costing us the person of our dreams, or the job we've always wanted, or our only shot at fame. But in the case of investing, it will definitely cost us a fortune."

Nobel Laureate Explains Intuition

A reminder that never goes out of style.

Oil Speculation; No Kidding

May 07, 2008

Did they just figure out markets rarely ever match the pure fundamentals?

The Politics of Happiness

An interesting piece from the Freakonomics blog.

"F---wits"

May 05, 2008

A question and answer from a recent Trader Monthly interview with David Harding:

Q: Do you have strong opinions about the differences between money managers educated in mathematics versus those with liberal-arts degrees?

David Harding: Investment management has been, for years, run by arts graduates. That has been the tradition. We’re on the cusp now of it being run by science graduates. For a long time in the investment-banking business in England, you needed to go to one of the top WASPy, blue-chip institutions to find your way into the money world. This was equivalent to your Ivy League in the U.S. But George Soros went to England after the war, looked around after getting a job in banking and asked, “Who are these f---wits?” before heading to America. In America, he found a small number of clever people in finance, and that’s why he started a hedge fund there. I don’t know if America is better overall than England, necessarily, but it certainly is more meritocratic.

Todd Sullivan Review

A recent review of "The Complete TurtleTrader".

Homer Simpson Moment

May 03, 2008

From a reader:

Mr. Covel, I read both Trend Following and TurtleTrader and loved them both - they were truly eye-opening books for me. May I humbly suggest that you proof-listen to your podcasts before you post them? You mention social security as earning 1.23% "per month" at least twice in the podcast. While I understand it to be a slip of the tongue, others may not. I believe the figure you mentioned initially was correct - returns of 1.23% per year. Best, Charles C.

Opps!

More Buffett Spin

I found an article titled "Warren Buffett: A Legend Who Actually Lives Up To the Hype" on Yahoo Finance tonight. An excerpt:

Buffett's genius is that beneath the homespun wisdom and self-effacing personality is an incredible intellect with an astute understanding of how to value stocks, which he learned from the legendary Benjamin Graham. Buffett is far from infallible, but this is one investor who deserves the accolades.

How does that jive with this? Do all the people who show up in Omaha really understand the derivative prowess of Buffett? More power to Buffett. He is a legend and deservedly so. I just have a gripe with the folksy-simple -investing-Ben-Graham-nonsense when it is clear he trades in ways that most of his audience of true believers could never comprehend.

China Leaves Small Investors Behind on Road To Capitalism

From the Washington Post:

By Ariana Eunjung Cha
Washington Post Foreign Service
Saturday, May 3, 2008; A01

SHANGHAI -- When emergency workers found Wang sprawled unconscious after having downed two bags of insecticide, he was still clutching the PDA he had been using to check stock prices.

Like a number of other small investors in China, Wang had bet -- and lost -- his life savings, about $15,000, on the Chinese stock market. The propaganda office and doctors at the hospital where he was treated said the 36-year-old factory worker had been preparing to get married and that he had hoped to use the money to buy an apartment for his fiancee.

Wang's attempted suicide and those of other investors are a heartbreaking consequence of China's great experiment in capitalism.

In February, Li, a 25-year-old engineer, jumped from the seventh floor of the building where he worked in the city of Chengdu. His company said he had lost a huge amount on the stock market. On March 30, a 39-year-old former ice cream shop owner, also named Li, leapt to his death from his apartment building in the inland province of Shandong after losing a third of the $4,500 he had invested.

As China's stock markets crashed over the past six months, the Communist government reacted in a way most consumer investors like Wang did not anticipate: It watched from the sidelines. It wasn't until last week, after the Shanghai benchmark index's fall to a symbolic milestone, below 50 percent of its peak in October, that Beijing finally stepped in.

Its announcements that it would slash a tax on stock transactions and control volatility by requiring some big block trades to take place off the regular stock market pushed the market up 14 percent. It has fallen again since then, however.

But given that the Chinese government has the power and money to do much more, some say the fact that its help arrived so late and is so limited means it is sending a message to shareholders that they should no longer expect a government bailout in such situations.

The former shop owner's sister, Li Chunyan, 34, said she understands that those who lost everything have only themselves to blame for risking so much. But because the stock market is "damaging common people's lives this much, there should be policies" to help them. She said even the U.S. government is doing more to help its investors: "I heard about the U.S. lowering interest rates to save the market," she said. "Well, different countries are different."

In online bulletin board postings, small-time retail investors -- who, unlike in U.S. markets, make up the vast majority of those who hold money in China's exchanges -- have vented their anger at the government. "China's stock market is piled up with investors' tears and blood," wrote one shareholder.

Institutional investors, fund managers and analysts who follow the Chinese stock markets are less sympathetic, saying that the suffering of consumers who lost money is a necessary step on the road to capitalism.

"You lose money, you jump out the window, too bad. It's your problem," said Vincent Chan, head of China research for Credit Suisse. "For any market to grow, this is something the government should realize: At the end of the day it's the investors who bear the responsibility of the investment, not other people."

The nosedive of the Shanghai stock market and its sister exchange in the southern city of Shenzhen has been humbling for Chinese investors who had once believed the only direction share prices could go was up.

Analysts say they were overdue for a correction. Despite the fact that the earnings of many companies were weak and corruption was rampant, the Shanghai composite index quadrupled in value from 2002 to 2007.

Briefly in November, PetroChina became the world's first $1 trillion company by some measures of its market value. But by the end of April, shares of PetroChina had plummeted to below its IPO price for the first time.

Andy Xie, a former chief economist for Morgan Stanley Asia Pacific and now an independent analyst, said the challenge for the Chinese public is that "generally speaking, retail investors bought stocks at a high point. They listened to their relatives, friends and heard propaganda.

"When the stocks fall, they are unwilling to sell off and they sit there waiting for the government to save the markets," he said. "This is not rational."

Psychologists across the country say that in recent months they have seen more patients seeking treatment for addiction to gambling.

Li Ning, director of the Psychological Rehabilitation Department at the No. 102 People's Liberation Army Hospital in Changzhou, said that investing in the stock market should be different from gambling but that many "speculate on stocks with a gambling mentality."

He said some patients he has treated are emotionally unstable when it comes to the stock market.

"They cannot stop thinking of recovering their losses," Li said. "They throw all their money into the stock market and stay without rest in front of the computer reading. They hope they can find some positive news or policy but in vain."

Investors like Wang who came in at or close to the market's peak in October have been hit the hardest.

Wang, who had worked in factories in the southern manufacturing city of Dongguan for more than a decade, began investing in the stock market in September. For the first few weeks, it seemed like luck was on his side, and by October the Shanghai composite index had jumped 14.5 percent. The next month, it began its descent. Whatever stock Wang bought, it seemed, began to crash until, by the end of February, his holdings were valued at almost nothing.

Li Huafu, a doctor who treated Wang at the Wujing Zongdui Hospital in Guangdong province, described him as being in shock: "He was very silent, didn't speak much to others."

Li said Wang, who could not be reached for comment, returned with his mother and brother to their hometown in Shandong province. Phone numbers for Wang that were listed in hospital records had been disconnected.

Some investors like Ma Guocheng, 26 and an officer worker, say they have learned their lessons from the recent stock market plunge. In April and May 2007, Ma invested some 270,000 yuan -- about $38,600 at today's exchange rate -- in stocks. By November, those shares were valued at 440,000. He thought about selling, but then he thought they would climb even higher. Now his holdings are worth 50,000, about $7,000.

"I was greedy," Ma admitted. As a consequence, "I lost more than 80 percent of my total investment."

Researchers Wu Meng and Crissie Ding contributed to this report.

Warren Buffett: "Do As I Say Not As I Do"

In Berkshire Hathaway’s 2002 annual report, Warren Buffet said:

In my view, derivatives are financial weapons of mass destruction, carrying dangers that, while now latent, are potentially lethal.

Today, May 3, 2008 in the AP this headline ran:

Unrealized derivative losses send Berkshire's 1Q profit 64 percent lower

With this article:

OMAHA, Neb. (AP) -- Berkshire Hathaway Inc. said Friday its first-quarter profit fell 64 percent because it recorded an unrealized $1.6 billion pretax loss on its derivative contracts, and its insurance businesses generated lower profits. Berkshire reported net income of $940 million, or $607 per share, in the quarter ended March 31. That's down significantly from the net income of $2.6 billion Berkshire generated a year ago. Berkshire's chairman and CEO Warren Buffett warned shareholders in his annual letter that the derivatives could make the company's earnings volatile. But he predicted the derivatives will ultimately be profitable. The four analysts surveyed by Thomson Financial expected earnings per share of $1,476.99 on average. Including the derivative losses, Berkshire's net investment losses in the quarter totaled $991 million. A year ago, the Omaha-based company recorded a $382 million investment gain. Berkshire's derivatives fit into two major categories. Berkshire will have to pay on some of the contracts if certain U.S. entities default on their credit. Most of the other derivatives will only be paid if the certain stock indices are lower in 15 or 20 years than they were when the contract was written. Berkshire has received $2.9 billion in premiums on the credit-default derivatives and $4.9 billion on the stock index derivatives. Berkshire said its operating earnings are a better measure of how the company is performing in any given period because those figures exclude derivatives and investment gains or losses. Berkshire reported $1.93 billion in operating earnings during the first quarter, which was down from $2.21 billion in operating earnings a year earlier.

Keep that buy and hold long only legend up WB!

Bet the Bedrooms Rock

May 02, 2008

Nice 'crib' eh?

Bubble Talk

I came across a nice piece of writing from Harpers about "bubbles". An excerpt:

"I will use the familiar term “bubble” as a shorthand, but note that it confuses cause with effect. A better, if ungainly, descriptor would be “asset-price hyperinflation”—the huge spike in asset prices that results from a perverse self-reinforcing belief system, a fog that clouds the judgment of all but the most aware participants in the market. Asset hyperinflation starts at a certain stage of market development under just the right conditions. The bubble is the result of that financial madness, seen only when the fog rolls away."

CompareShares.com.au TurtleTrader Article

May 01, 2008

Read.

Turtle Michael Shannon