From Yahoo comes a description of The Federal Reserve’s technique for cooking the American lobster investor:

“Instead of putting the lobster investor into a pot of boiling water put them in a pot of cold water and bring it a the boil with the lobster investor inside. This way the gradual increase in the lobster investor body temperature is not realized and it will die without being stressed…”

Reason #156 for trend following.

Note: Partially inspired by State sanctioned scum.

What Hath Bell Labs Wrought? The Future

How Titanoboa, the 40-Foot-Long Snake, Was Found

Being Relaxed Makes Us Spend

From ZH:

A reader writes:

I would just like to thank you for all the contributions you have made to trend following. One thing? I hate not being able to somehow contribute back. I cannot provide you with systems, knowledge etc., but I can send you a PDF that I did which I have laminated and have stuck on my trading wall for motivation, psychology and re-assurance while trading every day. I have been in the trading industry for over 8 years and my passion for trading and seeking for more knowledge is craved every single day. I have just added you as a friend on FB which I plan on following any info you have posted. Thank you very much for everything once again and I hope you enjoy the motivational cards (PDF) attached. Timon Rossolimos (South Africa)

Thanks! Nice!

Feedback in:

Hey Mike, this is going to sound crazy, really crazy, but its true. It was your books and research that changed my whole philosophy on life. In fact, 7 years ago, you got me to start thinking about my life situation and I was finally able to leave a cult that I was born and raised in (30+ years). I was always told how college is evil and independent thinking was dangerous. Well, [blank] that! My whole persona is now trend following in nature. Life is much easier and the stress is minimal because the future is unknowable; I’ve grown quite comfortable with that concept. One more thing, your podcast interview with Mike Shell was gold. I never knew there was a trend following trader living here in Knoxville, not too far down the road from me. I emailed him the other day to make some…plans to meet for lunch and talk shop. My best, [name]

Good luck!

An unhappy reader writes:

“I just closed the cover of Michael Covel’s latest Book, “Trend Commandments“…It is full non stop political blah blah blah…The author complains about all the “talking heads” on CNBC, well sir you are right up there with them! On and on and on you go about who said what. Who cares about who said what! We get it! Trend Following Works! Stop trying to argue with people by writing books! Seriously! He quotes numerous examples of people who disagree with him and he counters their opinions and tells them how stupid they are. Michael, save that for chat rooms! You even have a chapter called “Parliament of Whores!” Really? I did not need to read all of that political garbage to know that Trend Following works! If you want to read a book about trend following mechanics look elsewhere! It was quite annoying to read. He is too much into politics for my taste.”

You know what the web is not really good for? Debate. I would love to have these conversations/debates in public with audiences. That would be fun. On the other hand, Godin makes a point.

Fun Note: I did meet P.J. O’Rourke once at a Circuit City. We talked about his book–which clearly inspired my chapter title.

Feedback in:

Hi Michael. Just have to say that I’m loving your podcast episodes. They really keep me focused daily on the things that are important in trend following and honestly the concepts apply to many aspects of life. Keep them coming! Have to mention here that I very much agree with your breakdown of politics in your last podcast. Good to know I’m not the only one that thinks that way. Cracked me up when you said “Orgiastic”. Politics to me is just like world wide wrestling. All these politicians know each other, are friends, meet before a public event or interview and decide what side they’re going to take and how to attack each other, do the event or interview, bashing each other, and then all go out for drinks and [ladies of the night] afterwards! And people believe this is all real. World wide wrestling! Finished your newest book. Got it for Xmas and really enjoyed it. Now re-reading The Complete TurtleTrader. But I have to say…it was your first book Trend Following that really changed my views on trading/investing. So thank you. One question…what are the pros/cons to trend following using futures vs ETFs? Heard the interview with Mike Shell and had never thought about ETFs. Thanks! Josh Wright

Thanks.

Futures v. ETFs? There are of course very obvious instrument differences between futures and ETFs, but beyond those it really narrows down to personal choices. Shell proves that you can do it from the ETF side.

Some reading for contrast, comparison and debate:

Template For Understanding What Is Going On
Do I Feel Lucky?
Kony 2012: How Not to Change the World

The Kony 2012 phenomena has nothing to do with truly transforming Africa. It has everything to do with America’s celebrity fascination, the super strong desire to be part of a group, and demonstrates convincingly why lotteries work. That is not a left or right view, just a parting shot from a wide eyed skeptic–me.

A reader writes:

I invested over $100,000 with a [well known trend following trader]. Two years later my investment is close to breakeven or even down a bit. Very disappointed obviously. I pulled half my money out. Do you have any advise on another trend trading fund I can use?

Why are you disappointed? You are breakeven 2 years later? But in advance of making an investment you stared long and hard at trend following track records to have a feel for the performance movement?

I’m disappointed because I let the professionals at [well known trend following trader], supposed leaders in trend trading, essentially lose me money! I didn’t do any trading on my own! Is there another fund … that you recommend I look at? Thanks in advance.

I just don’t follow your thinking. How could you think trend following is only up without draw down? I can’t recommend you a trader who makes money every month with no down months! Again, you essentially broke even in 2 years with a trend following trader and are unhappy? If that is the case…trend following is not for you. No other way to say it.

Note: I don’t recommend traders, nor did I recommend one to this reader. This was unsolicited feedback that randomly appeared.

Tyler writes:

Mr. Covel I am in need of your assistance. You seem very active in the investing world and you may know someone who may be compatible with I’ve developed. We’ve all heard that if something sounds to good to be true then it probably is but that is not a truth only an opinion. I have developed a trend following system unlike anything else in the world and I know it’s value. If I showed you how it works it is only “logical” that it’s for real. I have showed this to two seasoned investors and they pretty much offered me everything they had for it but they both turned out to be untrustworthy and a deal was never reached. This system has the ability to pull trillions (to good to be true?) out of the market over time. When I get big enough I can follow every asset with a quoted price globally and develop software to automatically initiate trades. I can diagnose the entire history of any stock and indicate when it would of been bought or sold for maximum gains. This is for real. The average gain is 65% and the average holding period is 13 weeks. I ran diagnostics on [name] and over the last 10 years if you followed what the system advised it would of returned 74,500% based on the rules I developed for the system. YOU CANNOT LOSE. It is illogical once you learn how the system works. You will have small losses but the rules help you minimize losses and maximize gains. I have corresponded with many Wall Street “alleged” gurus to no avail. All someone has to do is see what I have. My issue is capital I have very little and very little time to successfully utilize the system. I’m looking for someone that would be interested in starting me with a small stake and seeing what I can do. There is a pattern that every stock forms indicating the future trend and I have mastered this pattern. It may sound like crap but like I said all someone has to do is look at it and they will see how logical the system is. A 5th grader would see how easy and accurate it is. In history all top performers were overlooked many time before someone gave them a chance, took a risk and was rewarded handsomely. I am one of those people, eventually someone will take the time to see what I have and their world will be forever changed.

You don’t have losing months?

His response:

No, every time the pattern manifests it’s usually correct. However, sometimes it could consolidate after a signal. If the market is waiting on a news event or other short term economic indicator stocks consolidate for awhile and don’t really do anything.

So there are no losing months? Can you understand the points you are making don’t sound like trend following?

His response:

Well, like I said it’s unbelievable until you actually see how it works. No, losses are not sustainable because of how the equities are purchased. I put in a 2.75% stop on every trade so sometimes you can have the stock slide back and trigger your stop but the key is to continue following the stock and keep buying the higher price until it really does take off. There ;are] no losing months, but sometimes it can take time for signals to develop. Based on my research it’s right 100% percent of the time, once you see the way I record prices it becomes very easy to understand, you saw the trades right?

I don’t think we are a match here, but I wish you luck!

His response:

Don’t you understand this is the most sophisticated and accurate trend following system in existence? When I think about it, I don’t understand how others are able to capitalize in the market. When the big hedge funds come out with their recently acquired positions most of their purchases are in sustained downtrends.

Trend following doesn’t fixate on accuracy, but best of luck.

His response:

Like I said this is new & infallible.

I try to bring a different perspective. Dig in:

Why Buy and Hold Doesn’t Work Anymore

EXCERPT: Buy-and-hold doesn’t work anymore. The volatility is too significant. Almost any asset can suddenly become much more risky. Buying into a mutual fund and holding it for 10 years is no longer going to deliver the same kind of expected return that we saw over the course of the last seven decades, simply because of the nature of financial markets and how complex it’s gotten.

Failed Fed Policies Prolong the Agony

EXCERPT: What baffles me even more is that two decades after the collapse of Soviet planning and decades more since the US and economists purportedly rejected the idea of price setting, we find nothing wrong with the Fed setting the price of money. We all agree it is a bad idea to have a board saying the price of wheat should be $250 a ton today, or carpenters’ wages should be $25 an hour until the end of 2014. But we are perfectly comfortable with having a board set the price of one half of every transaction in our economy. And our markets are supposedly free.

How to Build a Speech-Jamming Gun

EXCERPT: The idea is simple. Psychologists have known for some years that it is almost impossible to speak when your words are replayed to you with a delay of a fraction of a second.

How to Build the Muscle of Change

EXCERPT: Imagine trying to lift a barbell with 350 lbs. of weights on it. Even lifting it 6 inches off the ground would be a nearly impossible feat for people who haven’t trained their muscles to lift heavy loads. You’d struggle and nearly burst a vein, but you wouldn’t budge the barbell. But … if you started with just the barbell (no weights on it) and began lifting that, you’d be much more likely to succeed. Then add 5-10 lbs. on each side, and your muscles will grow stronger. Keep adding a little at a time, and soon you’ll be able to lift the 350-lb. loaded barbell that once seemed impossible.

Also, from TED:

My Charles Faulkner interview podcast has brought in nice feedback:

Dear Mike, I just had to drop you a quick note “thanking you profusely” for the Faulkner interview on the podcast. This was by far my favorite podcast you did. It was such a easy going conversation. I’m sure you could’ve gone on for another hour. Please have him on again soon. Sincerely, James Cerniglia

More:

Hey Mike, just had a listen to the interview you did with Charles Faulkner…very nice indeed. I am a big proponent of how this methodology helps your trading and just your overall attitude and perspective on life in general. I do have on thing I would like to ask you though, I often here you refer to the herd or sheep behavior with trading, so my question is: do we use this behavior to our advantage, so we can jump on the bandwagon for trend following, but go against it in our conventional way of investing (buy and hold)?

Trend following follows trends. Just like the herd, it will follow the group, the trend. The difference? Trend followers have exit strategies as they know markets eventually reverse. They plan for this. That’s how you take advantage of herd behavior.

Note: Listen here.

Check out my recent interview with long time systematic trader Mike Dever:

• Listen: iTunes
• Listen: libysn

Check out Mike’s new book Jackass Investing too.