Michael Covel

Feedback:

I wrote to you in June ‘07 to thank you for the inspiration received from the Battle at Kruger video clip that you sent with your weekly. This week’s piece on Mark Cuban was good also and obviously these two messages are meshed. I wholeheartedly agree with your comment about reinforcement and inspiration when a person looks at the stories of others who have gone before; I need to keep bathing in the positive atmosphere. When I listened to George Svoboda’s music I was transfixed. Here’s a man that’s in flow. It’s like I’ve been given unspoken validation in pursuing (sticking-to-it) trading success and my dream to take up the guitar again some day. I’ve been encouraged again to keep on the entrepreneurial path in life. One of the keys for me is to focus on how it will be when I get there, rather than what might happen “if” I fail. Words fail many times in describing feeling, but here’s another thank you. Rick R.

Feedback from Jack Zaner:

Re: Rose and her blind spot: I suppose if I wanted to know the temperature outside, I could consult meteorological experts, research climate trends, develop statistical models or I could just look at the damn thermometer (price). Some people would rather be right than rich.

Feedback in from William L. on this post:

Hi Michael, What a strange piece of miscommunication you have on your site! The expression “talking at cross purposes,” applies here, I think. Rose believes that curiosity is important, and why shouldn’t she? But that’s a bit tangential to your message, which only has to do with trading. There, I think, might be the problem. To continue the weather analogue, I do not wish to study meteorology to inform my purchase of a winter coat. Furthermore, judging by the success of television weathermen to accurately predict today’s temperature, I’m not sure it would be worth it. Likewise, when an economist takes their best shot at predicting the price change in a currency pair, I take it with the same grain of salt. I’d rather just trade on price action, because it involves far less effort, is consistent, and its success doesn’t depend on me being clever that day. However, that is not to deny that research in the area of economics isn’t interesting. It can be very interesting, it just doesn’t make me any money. Will

More feedback from Michael H.:

I could very well be wrong but my sense is that for someone like Rose the blind spot will always be there. An epiphany could happen but it likely won’t. I don’t mean this to be derogatory towards Rose. If she has a way to make money with whatever her approach is, then good for her. That said, she appears to be awfully committed to vast amounts information to try and explain cause and effect. I have to admit that her most recent retort was difficult for me to follow and it’s possible I completely misunderstood the point she was trying to make. However, in one passage Rose states:

“Taking your point of view, I should not wonder why it is colder in January as compared to July, not study past weather reports of January in past years, and on that basis not have the useless information regarding the need to buy a winter coat.”

I’m admittedly not the brightest bulb on the tree, but as a life long resident of the mid-west, I have never once consulted past weather reports or other information to ascertain the need for a winter coat. If it’s cold, I wear the damn coat. As it relates to the markets, if price is moving higher, I am probably inclined to buy that market. What are historical weather reports going to tell me about today’s weather that I cannot learn for myself by standing outside on a winter day for about 10 seconds or so? Similarly, what are all of Rose’s sources of information going to tell her about market price that price itself is not already telling her? I’ve re-read what I typed above about 5 times now. I know what I am trying to say but fear that I did not articulate my point very clearly. In summary, Rose’s blind spot will likely always be there. Good luck trying to change her views.

More feedback on that dreaded blind spot:

Regarding “Blind Spot Continues“.

Mike Shell
Shell Wealth Management, LLC

Feedback in:

I just read Rose’s response’s. Most people need/want others to know they are intellectually talented. If you can quantify fundamental crap, then you feel smart. If you can explain it to others, they make you feel smart. The markets can only do two things. Go up or go down. You really don’t need to be super smart to figure this out. I don’t give a S%$# why, or who said what 36 months ago, I just go long or short.

Walter B.

I interviewed Congressman Richard Baker (R) for my film. He is looking at a new job.

Feedback tonight:

I am in the trading department of Norway’s Statoil and observing the behaviour of ‘professional’ traders everyday, I have no doubts that what you wrote in Trend Following and The Complete TurtleTrader holds true. For years I have been pondering on a ‘better’ way to approach the markets and I believe the trend following concept is my ‘holy grail’, albeit one that involves hard work, preparation and stomach churning volatility. You deserve praise for enlightening the world with the concept.

In New York City for two days of shooting now. Six interviews total for this particular two day shoot. Details to follow.

13 days on the road shooting for a film documentary has made regular and interesting posts difficult. We finish shooting at the end of November.

Before I spoke today at an event in Macau (China), I was lucky enough to land a quick interview with legendary Asian investor Mark Mobius. For those with a memory a few years back I am sure Mobius’ commercials will ring a bell. While we only had a few minutes on camera he brought making money back to the basics: psychology. Understanding the market psychology and your own psychology was his message.

In the last 36 hrs I have conducted on camera interviews with Congressman Richard Baker, Congressman Chris Van Hollen and Bill Miller of Legg Mason.

For the film I am producing we did a shoot today at Georgetown University. It was a great opportunity to sit down with nearly 20 students and their professor to learn about what investment strategies are being taught in school.

A question from Hong Kong about my new book:

Dear Michael, I bought your book and noticed that Russell Sands was not included among the Turtles. I was wondering if there was a reason for this? I ask because I have always wondered about the relationship between Russell and Richard Dennis. I loved your book. While trend following is not my cup of tea, the insights you brought on the Turtle mindset was invaluable. Thanks for a great job. All the best, Ray

Before I could answer that Russell Sands is indeed in my book, Ray followed up:

Sorry on re-reading this I realize I was unclear. What I wanted to know was why Russell’s track record was not among those you published?

Sands was only with Dennis for a year, and I don’t have that one year record. In terms of the next 20 yrs he doesn’t have a continuous record. For the book, after the Turtle program ended, I aimed to publish those Turtles with a continuous track record. For trading during the Turtle program I published the records that could be found. There was some interesting discrepancies there.

From a reader:

Mr. Covel: I certainly agree with your comments that everyone should be able to participate in hedge funds; after all why should the hedge fund managers, companies, the well-to-do be the only ones to have the opportunity to lose their royal ass. Democracy means equal access to losses. I was looking at the last two issues of Barrons at the listing of the hedge fund returns over the last year, five years, etc etc; abysmal! A few exceptions. I don’t understand why the funds that see their drawdowns terrifically high don’t just use some discretion and get out. I realize this would be counter to the systematic approach that these funds espouse, but it would seem like it might make sense to sacrifice principle for policy; even Hitler was smart enough to pull back from Leningrad after Germany had lost over 250,000 personnel.

I have known Dave Goodboy for a few years. He is not a trend following trader and has not been afraid of dropping criticism my way, but he did have a very nice comment on my new book:

“A historic romp into the minds, motivations and methods of the legendary turtles and the men who created them. Covel has written the definitive guide to the often misunderstood world of the turtles. Even as a turtle skeptic, i enjoyed Covel’s book greatly, it should be required reading for all market participants”
Dave Goodboy
Eagle’s View Asset Management, LLC

We are looking for diverse range of families and singles of all ages in Washington, D.C. Metropolitan area to tell their stories on camera. You must be available for two days October 1-15 for videotaping in home/or other local location. Please email 4-5 sentences about who you are, how you invest, why you’d like to be in the film and how you can be contacted. I am not averse to participants from other locations, but you would need to travel to DC area. Contact.

Barry Ritholtz offers some insights on Cramer’s call for the Fed to cut. Here is a clip worth watching all the way through:

Feedback in:

About the feedback you received on auctions from Marc, I think it’s fascinating that he starts out with “tremendous controversy about the ‘true’ value of these paintings” with the word true in quotes, a quotation mark usage I agree with, but then goes on to say “everything from obscure low-value art, up to Picasso works” without acknowledging that the worth of a Picasso is just as much a “true” value, arbitrary and determined solely by how much a buyer is willing to pay, as that of so-called “low-value art,” yet he places no quotation marks around the phrase low-value art. It’s fascinating because he probably did this unconsciously, not aware of the glaring contradiction.

Good day,
Neil

Feedback in:

Michael - some feedback for you. I’ve been in the “startup” mode in my trading business for a year and a half now. This seems a far cry from the “spend a couple of months getting going” plan I started with. Yes, I too fell for the quick and easy, fast buck, this trading game is a cinch, fairy tale of the ignorant masses. I had the misfortune of making 3 months’ earnings in one and a half days early in the game; this was followed by a 1 months’ earnings overnight trade soon after. Do you suppose I was a wee bit heavy on those two? Now, after watching a near 90% drawdown last year and a much more docile 10% drawdown so far this year, I find the need to replenish my trading equity and salvage a few remaining strands of gray, albeit short, hair. Why did I tell you this? Because in the midst of the blood, sweat, and tears, you send out the Battle at Kruger video clip. I would say I can identify most with the calf - never give up. So, with the nauseating prospect of going back to a wage to bolster the old equity and put food on the table, I had to chuckle at the allegory of the calf and my struggle to succeed at this game. I also realized how much I look forward to your “f’morn f’mation” audio clips and the great reference material. Thanks for the inspiration. Keep up the great work! Rick R.

I should have posted a note earlier, but if you live or work in Tokyo, drop me a line. I am in town for a few days for a speaking engagement and will have time to get an interview or two in for print and or video.

A reminder to new readers, you can find my regular podcasts here.

Sad situation at Virginia Tech today. Only a few hours from my home. I have many relatives who are graduates of Tech. It is the State University specializing in engineering, but now the school will forever be remembered for something horrific.

An email came in:

I think there is a problem here with naive trend following using the daily data. Even if crude goes to the moon, say $100, and you capture the $50 by trend following, one would need a million dollar account to ride one contract very comfortably on daily data. On the other hand, if one wasn’t so concerned about big picture direction and trend followed shorter duration moves long and short in the hourly data, one could comfortably trend follow crude oil with a much smaller account (or larger position with the big account).

Of course it is not impossible to be a short term trader. There are simply trade-offs. Transactions costs are a big issue. Trying to be Jim Simons is an issue. Mean reversion is worth considering too.

Chuck Cain sent in A Graphical Inquiry into Trend Following (PDF).

Feedback in from the other day:

One advantage I sincerely admire in Trend Following is its simplicity and elegance. Rather than using chart patterns and the like and making many trades during one day or a week… it simply follows the trend, and I truly believe thats where the real money is made. But I have one question I am sure you have received from other traders: Don’t trends occur in all time frames? I believe a trader that is using technical analysis and chart patterns to identify an edge where a trend will begin to unfold or carry on, and captures this trend, whether it be over a one day period, or a one month period can be said to be trend following. I know you have spoken and wrote about “short-term” trading… but at the least in theory, it tries to achieve maximum efficiency. Only being in a trend that is currently moving, exiting near the short-term break of a trend, and buying near support of the trend… Is this not a common sense way of maximizing gains? Some trend followers stay in trends that do carry on for months and years but have major corrections where they would have been suited to take profits sooner and sit out the major correction or consolidation and/or look to buy near the support of a trend. I am currently using a swing-trading approach and a intermediate-term trend following approach.

Transaction costs are a big argument against very short term trading. In terms of some of your terms used, it would be wise to define exactly what you mean by ‘technical analysis’, ‘chart patterns’, ‘maximum efficiency’, ’support of the trend’, ‘take profits sooner’, ‘major correction’, ‘consolidation’ and ’swing-trading’. Those terms can mean anything.