Michael Covel returns for his first podcast since going abroad in Southeast Asia. Currently in Thailand, Covel catches us up on where he’s been so far. He notes the history of past conflicts in the area and his thoughts from a mountain view six-thousand feet above the ground looking onto the landscape below. Since leaving the US Covel has especially enjoyed not paying attention to the news coming from America. The idea of noise is after all pointless from a trend following perspective. If you can get away from it, either physically (like Covel) or mentally, it’s a good idea to eliminate it in your life. Along the lines of what’s needed and not needed, Covel plays a video called “What Do Prices Know That You Don’t?”, a clip from a Duke professor that discusses relying on price to make decisions. Even though the video doesn’t come from a direct trend following perspective, it illustrates the danger of too much information. It’s easy to play the game of waiting for one more news report, watching one more episode of Bill O’Reilly, or trusting the promises of one last politician. That’s where we are right now: we’re in a game. So, if you are in a game, how do you navigate it? What do you do? What decisions do you make? And what happens when the game doesn’t go the way the government has said? So, what lies ahead? Covel reads a piece of writing from Transtrend’s newsletter regarding the role of the government and what you can expect, followed by a piece from John Hussman. Both readings seem to agree on one thing: something will happen at some point. Are you prepared? Or do you just want to just trust that the government will forever be able to prop up the market? Hussman makes the point to not follow prices, which Covel disagrees with–if the Chinese stock market is going up, you want to be long. The issue isn’t what to do in a market that’s going up; the issue is having an exit strategy. Covel’s view is to be long and be happy in a rising market, but have an exit strategy. That’s the solution. If you can’t wrap your arms around that you might think about getting out of the markets completely. Even if you don’t ultimately adopt a trend following strategy, if you’re going to be trading, it’s of dire importance to understand the concept of trend following. It’s essential to have it in your arsenal of tools. Covel wraps up and shares some other observations about Asia, his upcoming presentations abroad, announces an upcoming audiobook version of The Complete TurtleTrader, and discusses what you can expect from the podcast in the coming months. Want a free trend following DVD? Visit trendfollowing.com/win.
I am not sure who will be receiving this email, but I need to express my gratitude for Michael Covel’s Podcast. I am a newly minted college graduate and I think I have learned more listening to Michael speak than 80% of my college classes. Most importantly, my critical thinking has changed. I am a believer that Trend Following can be applied to everyday living and not just trading (something you probably already know). Please keep up the Podcast!
I am looking to open up an online trading account and I was about to open an account with eTrade. I noticed however (on trendfollowing.com) you recommended TradeStation. Then I noticed the potential of having your Flagship course rebated through TradeStation. I don’t know if this is something I would qualify for, but I would appreciate any information you could give me on this program.
Best regards,
Carson
Thanks Carson! And for all others that are interested in the Tradestation rebate drop me an email.
Good afternoon Michael, I hope you’re enjoying the start of your Asian tour. I wanted to let you know that The Complete TurtleTrader played a big role in a number of significant changes I’ve made in my life over the past two years. I find your writing style and daily podcast very inspirational and helped as a catalyst to move me into my current risk management position helping companies manage revenue and input cost volatility using the futures market. On the speculative side, I trade my own futures account using a trend following approach with roots based on the concepts highlighted in your books. I know part of your philosophy is to empower investors to be independent and trade on their own, but if you are ever approached by Canadian investors looking for a futures broker that is a trend follower and able to help ‘hold their hand”, assist with their models, etc, I would be interested working with them. I’ll keep spreading the trend following message and suggesting your books as great resources.
Feel free to give me call.
Thanks again,
Roger H., CFA | Investment Advisor | RBC Wealth Management | RBC Dominion Securities Inc.
Thanks Roger, but there are no brokers I would recommend as hand holders. Brokers want commissions. Never forget it.
Note: These episodes will all play by clicking on “listen”, but they are large MP3 files. You may want to “save as” and save each MP3 to your desktop. All episodes on iTunes too.
All podcast episodes (Michael Covel Monologues):
Michael Covel Manifesto Episode #53: Listen (NEW!)
Michael Covel Manifesto Episode #52: Listen (NEW!)
Note: These episodes will all play by clicking on “listen”, but they are large MP3 files. You may want to “save as” and save each MP3 to your desktop. All episodes on iTunes too.
Michael, In one of your recent podcasts you pointed out Japanese investors and their risk aversion vs. their market’s performance over the past decades. When you next made the accusation that the same thing was happening among Americans you nailed it! It is exactly what is happening here, and, as you pointed out, it goes far beyond just investing in markets. You certainly know how to connect the dots and express them with clarity and passion. I only discovered your podcast a couple months ago but must say that I enjoy your insights and perspective while, alternately, so many other podcasts are so narrowly focused on what the S&P 500 will do in the next day-week-whatever. I find your thinking about how we engage the world around us similar to my own philosophy and will continue to listen and enjoy. Thank you for sharing. Regards,
Steven R.
Deerfield, IL USA
Synopsis: For the past couple of years many of us have been in love with Apple. Their products, their style, and their stock. It was a great story as long as the stock was going straight up. On today’s podcast Michael Covel talks about all things Apple: the worship; the seemingly romantic love of Apple stock; and the drop down to $450 a share from its peak above $702.10 in September (down 35% from its peak). Covel compares the fundamental viewpoint looking at Apple today to the trend following perspective that is purely based on price action. The Wall Street analysts all seem to insist that they can predict the future, but none of them predicted this. So, what does this mean? Is Apple a “broken company”? Apple had a profit of 13 billion dollars, sold 28% more iPhones and 48% more iPads, and the stock still went down. Covel looks at several articles from Wall Street analysts and notes that none of these people were saying what they’re saying now when the stock was at 700 a share. Covel creatively points out the complete drivel coming from these analysts, and notes how nothing has changed on Apple’s end but the price of their stock. So why is this only being pointed out now? And what is Covel’s ultimate point? Follow the price action. Trend followers don’t have to know anything about what’s going on inside the back room of an Apple store. This is a classic example of a trend: ride the train up, ride the train down. Is the stock cheap now? What if it’s at 350 or 250 next month? Do you buy on the dip? If the market is going down, get out or short it. The price knows more than any Wall Street analyst. There is no way on the planet to attach all fundamental views to the movement of the stock price. If the best traders on the planet don’t have these insights, how can the stock jockeys at CNBC and Bloomberg, for example, have them? Free DVD: www.trendfollowing.com/win.
I’ve read Trend Following and am about to tuck into TurtleTrader,. I’ve been listening to some of the podcast interviews also. I’d just like to say thanks! I spent about 3 years reading as much fundamental data as possible and frying my brain (although The Intelligent Investor was a good read and changed my outlook). There is sooo much data/noise out there these days, it feels like a weight off my mind now I have found my definite objective finally and I can embrace Trend Following and move along the winding, bumpy path to success. Thanks for the inspiration, you do make a difference.
Regards,
Cathal in Madrid, Spain.
p.s. The secret to success? Absolute will to succeed. This is pretty damn impressive (tho nary a mention of steroids!)
I first heard about you when you appeared on Frank Curzio’s podcast in October. Your passion struck a chord with me in that brief interview and I wanted to know more. I subsequently and retroactively listened to every one of your podcasts. You have truly become an inspiration in my every-day life, both personally and professionally, and I wanted to thank you and voice my appreciation.
Just a brief background on me: I am currently a CFO/Trader for a $30M long/short health care hedge fund. My positions previously were in more of a Controller and CFO capacity, as I worked as such for a couple of the Tiger funds (Global and Europe), and [name] Capital more recently. I settled at my current position in January of 2011 and was awarded the opportunity to trade the portfolio as well as run the back/middle office. Outside of trading my personal accounts, I had no prior trading experience, but quickly learned the basics and have done my best with what I have learned. I had heard of the turtles philosophy and had always intended on pursuing further, but had never actually acted until I heard you on Frank’s podcast.
Well, as referenced in one of your podcasts and as Jake eloquently yelped: “I HAVE SEEN THE LIGHT!”
My question now is “what next?” Which trading strategy best suits my fund? You have spoken very little in detail about methodology and trading strategy in podcasts (ATR’s, Entry/Exit), as you admittedly attest. I don’t feel like I have completely robbed you blind for your knowledge and inspiration, as I have purchased and watched your movie Broke. However, I am willing to buy more now. Let me know if there is any more specific information you need to know about my fund in order to come up with a class/system that works best for us.
Keep up the great work and the great rants. The Lunatic is on the Grass is probably my personal favorite. Ritholtz interview is obviously another favorite.
Thanks for your time.
[name]
Chief Financial Officer
xxx Capital Management
xxx Fifth Avenue, Suite xxx
New York, NY
Thanks for the great feedback!
My best first option for new clients to my world? See: www.trendfollowing.com. Those are the best options for initially working with me and my firm. Those include systems + support for your unique questions.
Synopsis: Inspired by a blog post by Barry Ritholtz Michael Covel goes over his own list of “Things I Don’t Care About”. You can have the intravenous drip straight into your arm, but what does all that commentary do for you? Ultimately, if you’re a trend following trader or any type of investor you need a process. You need a set of rules that tells you where to enter, where to exit, and how much to bet of your limited capital at all times. Regardless of account size, volatility, etc. You need a process that determines that for you. If you have that then eliminating all other stuff is paramount. And it’s not just for trading reasons; it’s for life reasons. Covel goes through Ritholtz’s list and compares it to his own. On the flipside Covel also goes through a list of the things he does care about: Knowing how the “behind-the-scenes” action really works; the traders that he has learned from in his books; having honest interactions with people; Alan Watts; Ken Tropin’s white papers; The Winton Papers; the Zen Habits blog; and Seth Godin’s website. Covel relates several stories from traders such as Salem Abraham and David Harding which taught him some valuable lessons. Covel explains that if you want to be good at anything you have to be passionate about it. You have to care, you have to get inside it, and you have to own it. In the next segment Covel talks about the idea of the efficient market hypothesis, which is one of the foundational pillars for academics. They claim to have mathematical formulas which can predict the future, even though the underlying assumptions are false. Life is much easier for a professor who can fall back on beautiful mathematics. Unfortunately, many people have been sold up the river using investment products based on efficient markets. Covel quotes Charlie Munger of Berkshire Hathaway regarding extreme proponents of the efficient market hypothesis. Munger, even though he’s a value investing guy, knows there are outliers and black swans. He knows that markets aren’t efficient. Munger notes that mistaken professors were “too much influenced by rational man-models of human behaviors from economics, and too little by foolish man-models from psychology and real world experience.” How can there be rational man when Jersey Shore gets high ratings? There’s no such thing as rational today. Even if there was markets still might go in a completely different direction from what rational is even deemed to be. Free DVD: www.trendfollowing.com/win.
Synopsis: Michael Covel talks to Eric Crittenden. Crittenden is a Founding Partner responsible for managing all research, risk quantification and trading operations at Longboard Asset Management (formerly Blackstar Funds, LLC). He’s also been featured in Covel’s own Little Book of Trading. Covel and Crittenden talk about Crittenden’s beginnings, coming from a medical background and switching majors to economics. Crittenden got to see the world from two different perspectives: one from a biostatistics and natural sciences perspective, and also from a business school perspective. Eventually, he found himself in Arizona, where he met Cole Wilcox. Since then (2001), he’s worked with Wilcox, and Crittenden talks about the characteristics that his partner has that balance their relationship. Crittenden is a little different than some of his counterparts in the industry in that he focuses more on “why?” than “what?”. Covel and Crittenden talk about sustainability vs. short term inefficiencies; being “ultra long term trend followers” and some of the reasons why he believes it to be the most robust approach; Crittenden’s peers and influences–particularly Tom Basso; the start of Longboard Asset Management; why Wilcox and Crittenden decided on a “trend following mutual fund” model, and the benefits to that model; looking at performance data and understanding when trend following (or the media perception of it) falls “below average”; diversification and the markets Crittenden chooses to trade; risk control at Longboard; who can buy into Longboard and the minimum investment required; whether most of the large liquid markets work within the robust structure Crittenden has developed for trading–and the one (only, single) market that long term trend following would have produced a loss on within the last forty years. Crittenden also gives an explanation on the source of trend following returns that might be one of the clearest explanations of the topic that Covel has heard to date. Free DVD: www.trendfollowing.com/win.
Synopsis: Michael Covel opens up with some Johnny Cash. Like most of Cash’s music it’s a simple song. It’s powerful, but it works. And its simplicity is exactly why it works. Covel dedicates today’s episode to the topics of simplicity, prediction, and risk, and presents three articles revolving around each of these ideas. First, Covel mentions an article that appeared in Business Week regarding how Japan’s fear of risk is getting dangerous. For those not aware the Japanese stock market is down 76% still from its 1989 high. That would have to be an entire generation–an entire country–that no longer believes in the stock market. That’s not the reason Covel brings up the article; rather, it’s the “play it safe” mentality. He goes on to discuss the tendency to focus on downsides rather than opportunities. The attitude of risk-aversion in Japan explains why few Japanese students choose to study abroad, why regulators hold up vaccinations, and why 844 trillion yen (almost twice the country’s yearly economic output) sits idle in cash at home and in savings accounts earning 0.02% interest. We’re not far away from this attitude coming to America, but with that comes an opportunity for you to profit. Covel isn’t picking on Japan; it’s just a useful example of the risk-averse attitude that seems to be spreading. Covel moves onto an article from Golf Digest called “What Predictions Say About Us”. Predictions are about pretending to know. Covel points out one particularly compelling quote: “Human beings are wired to predict. In ancient times, predictions served as a psychological counterweight to the extreme uncertainty of life. As we’ve gained more control over this daily existence, predictions help encourage the illusion that we’re in charge of our own destiny. The more that is unknown, the greater the urge to predict.” Somehow we’ve come to think that we can predict almost everything. It’s hard-wired into us. If you can understand that so many people are destined to predict (and continually predict incorrectly) it can put you in the position to profit–if you’ve got a strategy that’s predicated on *not* predicting, i.e. trend following. Covel moves on to discuss simplicity quoting an article called “One Trick Pony”. The article talks about Peyton Manning and Tom Moore, who teamed up with a NFL strategy that they used with great success. Their strategy was based on running the fewest play concepts of any offense in the league. It’s not about trying to surprise the opponent, but in mastering a strategy that works. That’s trend following, too. It’s relatively simple, it’s robust, it’s big, and there aren’t a lot of moving parts. It is what it is–which is a great opportunity for profit. Free DVD: www.trendfollowing.com/win.
Synopsis: Michael Covel sets the tone for today’s propaganda-themed show with two clips: A Rod Serling monologue from “The Twilight Zone” and the infamous Apple “1984″ commercial. Covel goes on to discuss an article about David Harding of Winton Capital–a trader who has become one of the major faces in trend following trading due to his track record in the last decade. The article notes Harding’s -3.5% 2012, calls his success a “blip”, and generally presents criticism without any foundational understanding of Harding’s techniques. Covel tears the article apart point-by-point. It’s a perfect representation of how the media misrepresents the facts. Covel’s isn’t motivated to critique this particular article because he’s a David Harding fanboy–rather, his goal is to point out the intellectual dishonesty put on display so often in the media. Covel questions the motives of the writers; dispels the myth that massive computational power is needed to be a trend following trader; and questions how one 3.5% down year can possibly be considered a “plunge” or “blip” in the larger context of Harding’s track record. The authors state that Harding was “blindsided by market uncertainty”, but trend following is built on accepting the fact that a black swan can appear in at any moment–a fundamental concept that the authors clearly don’t understand. Next, Covel discusses Dave Ramsey and Ric Edelman; radio hosts who both are convinced that you can’t make money trading. So, they convince you to buy and hold mutual funds (perhaps some of which they’ve helped create) and leave you hoping for the best. Covel takes both of them on and dispels their claims that no one in the Forbes 400 makes their money trading. So, why do Ramsey and Edelman persist in putting out such information? Because they have something to sell. Covel has something to sell too, but he gives both sides of the story. He lays out the buy and hold strategies and compares them to systematic trend following. It’s just clear who the winner is when you see the whole picture. Ramsey and Edelman neglect to talk about trading successfully; it’s all part of the propaganda machine. Think critically. Don’t be a sheep. If you want to obtain something more than average, you’ve got to keep your eyes wide open and look for the propaganda. Free DVD: www.trendfollowing.com/win.
Note: These episodes will all play by clicking on “listen”, but they are large MP3 files. You may want to “save as” and save each MP3 to your desktop. All episodes on iTunes too.
All podcast episodes (Michael Covel Monologues):
Michael Covel Manifesto Episode #49: Listen (NEW!)
Michael Covel Manifesto Episode #48: Listen (NEW!)
Note: These episodes will all play by clicking on “listen”, but they are large MP3 files. You may want to “save as” and save each MP3 to your desktop. All episodes on iTunes too.
Synopsis: The first monologue of the new year! Covel goes on to review four things that have recently hit his desk that highlight the misinterpretations of trend following and trading in general. The first, regarding a speaking gig in Beijing, concerns itself with distinguishing between reality and unreality. The second comes from Teller, of Penn and Teller fame. Covel goes on to discuss whether a trading system should be specifically designed to suit your personality–something Covel doesn’t necessarily agree with. He gives examples of the Turtles, AHL of London, Larry Hite, Ken Tropin–all traders who have different personalities but are similar in their systematic approaches. It’s not about whether trend following trading “fits” your personality–it’s about the fact that it works and there is performance data that proves it. The third example comes from a listener, and Covel discusses time decay and “choppy markets”. The fourth comes from Jim Rohrbach, who put a piece out in late December in which he caught a radio show that stated “the stock market is always right”. Paraphrasing Rohrbach, Covel notes that the market does what it wants to do. When the market doesn’t do what a trader thinks it should do, they insist the market is wrong. We may not like or agree what the market is doing any any particular time, but it’s futile to say the market is wrong or to invest opposite the market. It’s as simple as being long when the market is going up, and being short when it’s going down. Of course, you need rules to deal with that: choppy markets, knowing when to exit, and keeping losses to a minimum–that’s what Covel teaches. Free DVD: www.trendfollowing.com/win.
Michael Covel speaks with traders Chris Kacher and Gil Morales, authors of the new book “In The Trading Cockpit with the O’Neil Disciples: Strategies that Made Us 18,000% in the Stock Market“. Their book is a step-by-step instruction guide to implementing Morales and Kacher’s trading methods. Covel starts off by asking Kacher and Morales about the “fiscal cliff”, why quantitative easing is not the answer to economic growth, and why all of this isn’t necessarily relevant to making money. None of it matters if the Dow ultimately goes from 13,000 to 26,000. Regardless of your political views you shouldn’t be sitting on the sidelines if that happens. Ultimately, the trend is your friend. In a pure trading mindset, all this news, the fiscal cliff, the debt limits–they aren’t necessarily relevant to making money. Covel, Kacher, and Morales go on to talk about their new book, “In The Trading Cockpit with the O’Neil Disciples”; the “O.W.L.” ethos, and the story behind it; reversion to the mean mentality, and how it can often be the kiss of death for traders and investors; trading psychology, the idea that “you must lose to win”, how the least important statistic is your percentage of gains v. losses in your trading account; dealing with emotionalism and why clients often want to hear something that will make them feel better; teaching people to let go of the news and simply watch the price action; why people think that “this time is different”, put their trust in the central economy, and why trend following will survive into the future; understanding that investing is always a process of changing along the way; and what mental clutter in the way of fears, biases, concerns and more can build up in the mind and get in the way of clear and decisive decision-making. Dig in! Free DVD: www.trendfollowing.com/win.
Synopsis: Today on the podcast Michael Covel speaks with Tushar Chande. Chande is a trader, author, and the co-founder and head of research at Rho Asset Management in Switzerland. Chande has had a long and distinguished career in technical analysis; he brings a unique perspective on how to look at the markets as a trend following trader. Chande was born in India and began his career intending to become an engineer. He came to America and earned his Ph.D. in metallurgical engineering from the University of Illinois in 1984; however, when he came to the end of his Ph.D. studies he started look outside his chosen career path and found the world of finance. Chande’s research skills as an engineer were easily transported to analyzing numbers in finance which gave him a leg up in his early trading days. Covel and Chande discuss Chande’s other early influences, and chart the journey from his days as an engineering student to his accomplishments as a systematic trend following trader. Covel and Chande also talk about the analogy between sports and trading, how the best sportsmen rely on having a stable and predictable environment (unlike the markets); evaluating performance within the context of the market; discretionary trading v. systematic trading; learning through “trial and terror”; the Rho Trend Barometer and the ability to quantify the environment; the problem of indexes; the Sharpe ratio; the importance of market movement to trend following trading; “the black box disease”; trusting your system; cognitive biases; the benefit of the “black swan” and outlier events and why these events are so beneficial to a trend following system; and whether “one-hundred Ph.D.’s are better than one”. Free trend following DVD: www.trendfollowing.com/win.
