Michael Covel: Trend Following News

An article with gentle reminders sent in by a blog reader.

Chimps choose more rationally than humans. Not sure what that means exactly!

This article lists many answers to the question: What’s the most important psychology experiment that’s never been done…? One I like: Why is learning slow?

From Slate: Why European banks were the big losers in the U.S. subprime meltdown.

Michael J. Mauboussin of Legg Mason posits an answer (PDF) to the question of “Was Harry Potter Inevitable?” as he investigates “Cumulative Advantage, Counterfactuals, and the Halo Effect”.

A short course in thinking about thinking on Edge.org is worth reading. This might not help with your buys and sells, but it sure adds perspective to the “mind” part of the game.

Hot-headed investors are better? Hmm…something seems amiss.

Funny (and relevant) cartoon.

There could not be a better time than August of 2007 to interview sheep!

An interesting article on overconfidence. It sounds very much like what was written during the summer of 1998 following LTCM.

Feedback in from a reader…

Hello Michael,

The recent market turmoil reminds me Shakespeare’s plays :

Be not afeard. The isle is full of noises,
Sounds and sweet airs that give delight and hurt not.
Sometimes a thousand twangling instruments
Will hum about mine ears ; and sometime voices
That, if I then had wak’d after long sleep,
Will make me sleep again ; and then, in dreaming,
The clouds methought would open and show riches
Ready to drop upon me, that, when I wak’d,
I cried to dream again.

The Tempest. Act III, scene 2.

I saw this “looking for bright news” headline this morning:

“The Nasdaq is 5.5% off of a 6 1/2 year high.”

Or my way to look at it?

“The Nasdaq is still down 49% from it’s high nearly 7 1/2 years ago.”

I caught a nice excerpt from a Money Magazine article:

Am I acting on reason or emotion? While at my gym last week, I was watching one of the cable TV financial shows as the market was in the midst of a steep decline. Based on the frenzied rapid-fire report of the correspondent on the trading floor, you could easily get the impression that you’d better quickly dump your stocks before you get caught in a bloodbath. Of course, just weeks before, the same show was so upbeat when the market was hitting new highs that you could have gotten the impression you were an idiot if you didn’t take out a home equity loan and plow the proceeds into the market. All of which is to say that you’ve got to be careful about getting caught up in undue pessimism during bad times and irrational exuberance when things are going swimmingly. It’s almost always a mistake to invest in the heat of the moment. Better to step back, calm down a bit, even let a day or two go by and then make sure that you’re making a decision that reflects a long-term strategy, not some passing passion.

Forget for a moment “strategy”, the author’s overall philosophical stance is on target.

Nice bit of motivation…

C.E.O. Libraries Reveal Keys to Success.

Mark Cuban gave a great little story recently:

When I was about 23, I was in Vegas playing blackjack for the first time. I was at the $5 table and asked the dealer if I should double down. He told me, ‘No balls, no babies.’ Sometimes you just have to go for it.”

The business brain close up.

A good read on IQ and success.

Feedback in about this recent post:

I can’t help but think of trend followers as that wise old bear you see in the documentaries sitting on a rock in the middle of a river catching fish. He just sits there and sooner or later a fish swims by and he catches it and eats it. I never see him sitting on the sidelines talking to another bear about “why” the fish swims by, or if one rock is better than another, or even if it’s better to sit on the shoreline versus a rock in the middle of the river. He just knows that if he puts out the effort, sooner or later he catches a fish! Which mean is the best? Is the market efficient or not? Is a bubble a bubble or can you quantify the beginning of a trend…oh never mind, I’d rather go fishing!

–David M.
Sugar Hill, GA

Dave Goodboy sent me this link on swarm theory from National Geographic.

Reason Bran is good for you.

A nice little article on channeling your inner millionaire.

So true. So true.

Barry Ritholtz writes at his blog:

…this video clip from the South African jungle. It is utterly fascinating — I can guarantee you’ve never seen anything like this before. Perhaps there are some lessons in it for life.

He is right, this video of the “wild” is teaching a lesson for many aspects of human life.