Trend Following with Michael Covel

Bestselling author Michael Covel is the host of Trend Following Radio with 3.5 million listens. Investments, economics, decision-making, human behavior & entrepreneurship--all passionately explored. 400+ episodes include Nobel Prize winners Robert Aumann, Angus Deaton, Daniel Kahneman, Harry Markowitz & Vernon Smith. Also: James Altucher, Dan Ariely, Jean-Philippe Bouchaud, Kathleen Eisenhardt, Marc Faber, Tim Ferriss, Jason Fried, Gerd Gigerenzer, Larry Hite, Sally Hogshead, Ryan Holiday, Jack Horner, Ewan Kirk, Steven Kotler, Michael Mauboussin, Tucker Max, Barry Ritholtz, Jim Rogers, Jack Schwager, Ed Seykota, Philip Tetlock & Walter Williams. All episodes always at www.trendfollowingradio.com/rss.
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Bestselling author Michael Covel is the host of Trend Following Radio with 3.5 million listens. Investments, economics, decision-making, human behavior & entrepreneurship--all passionately explored. 400+ episodes include Nobel Prize winners Robert Aumann, Angus Deaton, Daniel Kahneman, Harry Markowitz & Vernon Smith. Also: James Altucher, Dan Ariely, Jean-Philippe Bouchaud, Kathleen Eisenhardt, Marc Faber, Tim Ferriss, Jason Fried, Gerd Gigerenzer, Larry Hite, Sally Hogshead, Ryan Holiday, Jack Horner, Ewan Kirk, Steven Kotler, Michael Mauboussin, Tucker Max, Barry Ritholtz, Jim Rogers, Jack Schwager, Ed Seykota, Philip Tetlock & Walter Williams. All episodes always at www.trendfollowingradio.com/rss.

Feb 12, 2016

Today on Trend Following Radio Michael Covel interviews Angus Deaton. Angus is a British American economist. In 2015 he was awarded the Nobel Memorial Prize for his work in economic sciences on his analysis on consumption, poverty and welfare. Those topics go into one of the most hotly discussed issues in America right now, inequality. He brings some great data driven insights and angles to the discussion.

Michael starts the podcast off discussing the benefits of winning a Nobel Prize and how it opens up debate and reshapes topics. Angus agrees that the Nobel Prize does get conversations going and as an academic, it allows him able to reach a broader audience. Michael and Angus move right into discussing inequality. Angus says that in periods where there has been the most innovation, this is typically when there is the most inequality. Angus also quotes a famed economist saying, “Data is like meatballs. I won’t eat them when I’m out because I don’t know what is in them and I won’t eat them when I’m home because I do know what is in them.” When going through data from places like India, where about 1/3 of all global poverty resides, it is hard to tell whether the data is correct. For example, although there is a rapid rate of growth, the poverty level has not raised. Are poverty levels not moving because the aid money is going straight to the 1% or is it because the data is not correct? Angus says the data is easily skewed so it is hard to really get a read on what is going on.

Next, Michael and Angus discuss how arbitrary the idea of “the poverty line” is. It is hard to classify what poverty truly is. Angus likes to look at the subject as if everybody is poor, but some are just much poorer than others. Measuring poverty across time and place is an impossible thing to do. Poverty data can be skewed by various factors such as if the area being studied has government healthcare or public school systems. Michael brings up the emotional side of poverty next. Angus says that it is very possible to be happy and sad at the same time. Emotion isn’t cut and dry. He has found that not having enough money does have a large impact on your happiness. However, most day-to-day emotional happiness comes from having contact with other people and friends, not money. Money starts to affect your day-to-day interactions if you are so poor that you are not able to do certain things that allow you to spend time with friends and family.

In this episode of Trend Following Radio:

  • Unemployment
  • Minimum Wage
  • Poverty
  • Economics
  • Money and happiness
  • The birth lottery
Feb 8, 2016

Today on Trend Following Radio Michael Covel starts off giving listeners perspective on the feedback he receives. Over the years Michael has received thousands of emails that have created insightful and thought provoking give and take discussions. He reads an email that came in recently on a fairly controversial topic. The listener talked about his disagreement with Yaron Brook in episode 183. He disagreed on the shared viewpoint between Yaron and Michael. The listener’s email also touches on unemployment, minimum wage, and government regulations. The email was extensive and Michael gives his feedback as he makes his way through reading it.

Michael furthers the discussion by moving into reading from an article titled, “The Case Against the Minimum Wage” by Daniel Bier. Daniel says that there is much we may not agree on, but when there are topics that economic professionals do agree on, we should take notice. Economists across the board agree that by raising the minimum wage we will actually increase unemployment. The article’s main premise is that the core value a young person gets from their first job is the life experience rather than the monetary gain. Working with a team, punctuality, and taking direction are just a few fundamental skills that can be taken away from a minimum wage job. These jobs create a track record for an individual that lets them move on to other higher paying jobs.

So many people miss the point: It isn’t about the money, it’s about the experience. Having exposure to minimum wage jobs at a early age has long term effects. Daniel Bier says that it is actually more about politicians trying to feel good than actually doing good. Michael finishes with a quote from Nobel laureate James Buchanan further touching on the ramifications of raising minimum wage.

In this episode of Trend Following Radio:

  • Unemployment
  • Minimum Wage
  • Ayn Rand
  • American economics
  • The seen and unseen consequences of a law
  • Libertarianism
Feb 5, 2016

Today on Trend Following Radio Michael Covel speaks with Steve Kamb. Steve is the author of “Level Up Your Life: How to Unlock Adventure and Happiness by Becoming the Hero of Your Own Story” and has built a career in the niche of Nerd Fitness. He gives great insight on how to reach a specific audience and gain a loyal following. He knew he was horribly mismatched in his career and had to make a drastic change. Not wasting much time, Steve moved to Atlanta and took a job making half the money and loved it. It was at this job where he started getting into fitness and creating a website to help others. His company, Nerd Fitness, soon turned into a full time job.

Michael starts the podcast asking, “What is your definition of a nerd?” Steve quotes Wil Wheaton, “A nerd is not what you love but how you love it.” He elaborates saying that you could be a comic book nerd, medical school nerd, Star Wars nerd, etc. Steve’s outlook on fitness is about keeping a healthy lifestyle while keeping your other passions alive. It took Steve years to get his fitness regime down. He knew there had to be more people that were struggling to find the right information when it came to fitness. Steve started writing about sound strategies to build solid plans to get on the right fitness path. He uses movie and comic book references to help get his clients motivated and relate more to what he is teaching.

Steve also started looking at his life, and his clients lives as if they were on their own “hero’s journey.” He calls it the “hero’s call to action.” This journey is cyclical. You go out and come back and it is never ending. He shares stories of superhero’s like Clark Kent/Superman or Indiana Joans/archeology professor. Regular men that go out time and time again on their hero’s journey, only to return back to reality after accomplishing what they set out to do. His book, “Level Up Your Life,” is about re-framing ones life in a hero’s journey type of way. Strength training, yoga, live action role playing, etc. could all be things that motivate you to get off the couch and start your own hero’s journey.

Michael and Steve finish up sharing tips on how to travel smarter. Steve says that when it comes to jet lag, what works best for him is exercising immediately after traveling. Also, buying the cheapest ticket can ruin the first few days of a trip by adding to your jet lag.

In this episode of Trend Following Radio:

  • Traveling domestic and internationally
  • The hero’s journey
  • Marketing yourself
  • Marketing to a niche
  • What is a nerd?
  • Tailoring your fitness needs
Feb 1, 2016

Today on Trend Following Radio Michael Covel discusses three topics: the idea of two Americas, crowds, and his recent Barry Ritholtz interview. Michael starts off reading from an article titled “Two Americas.” The article focuses on people who contribute, and those who do not. People who work and those who do not. The article disagrees with the notion that all incomes should be equal. Different choices lead to different consequences. Those who choose wisely have a greater degree of success and should not have their success taken from them because others chose unwisely. The article goes on to say, “Entitlement has replaced effort in American society.” Just because you went to college doesn’t mean you are entitled to a certain level of income. On the other hand, those that do not have an education or work hard to make something happen are also not entitled to a certain level of income. Achievers do not want a pat on the head or a fake handout. Free money doesn’t work. You need passionate effort for there to be a desirable end result. If the drive is not there then the result is there.

Michael then reads from a blog post by Seth Godin titled “The crowd, your work, and a choice.” Seth dives into crowd mentality. He says that the public would rather, “Watch a movie than read a book, stand in lines for the popular attractions…likes explosions, resolved plots and ample lighting…Crowds only care about fast, easy, cheap, fun, now and simple.” Crowds demand that they are told how much they will make and in what markets. When it comes to investing and trading there are no deadlines. Trends come and go, there is no timeline.

Michael moves on to discuss his recent interview in New York with Barry Ritholtz. He talks about himself and Barry as a piece of media and how media is becoming more individualized with the help of social media. There are so many outlets to get your name out whether it be your blog, podcast, or news column. All these places are just distribution outlets. Places like twitter and Instagram give you a platform to contribute value and feedback to people. It is now easier than ever to build a one man media conglomerate.

In this episode of Trend Following Radio:

  • Two Americas
  • Crowd behavior
  • Marketing yourself
Jan 29, 2016

Today on Trend Following Radio Michael Covel interviews Mebane Faber. Mebane is a noted author, blogger, and portfolio manager with Cambria Investment Management. His new book, “Invest with the House: Hacking the Top Hedge Funds” is out now. This is Mebane’s 4th appearance on Trend Following Radio. Michael and Mebane have a slightly different outlook on trading but they do align. The biggest similarity is that they both come at the markets from a quant way of thinking.

Michael starts the podcast off asking, “Why do some of the big name guys motivate you so much.” Mebane says he always loved investing. In his spare time during college he would explore finance. A fund manager named John Griffin, who was Julian Robertson’s right hand man, taught at Mebane’s school UVA. It was in this class that many famed hedge fund managers provided his first initiation. The managers would give examples of different kinds of research they would do. Mebane knew he would never have the resources to do that type of research, so he turned to studying the numbers instead.

Mebane’s new book is based on mimicking the trades of some of the most successful hedge funds. He says it isn’t too hard to identify the “Michael Jordan’s” of the finance world. The key, however, is to figure out who’s trades you could piggy back off of and be successful. You have to go into this believing markets aren’t efficient. Where do you find the best players? Mebane studied 10-12 managers that friends and colleagues suggested. The most obvious was Warren Buffett. Turns out, you still make amazing returns piggy backing off of Warren Buffett’s trades. You cannot trade futures in this way or trade shorts, you must be long only. Trading with this strategy, as opposed to buying straight into these big hedge funds, gets you away from paying huge fees and large taxes. In Mebane’s latest book he goes much more in depth into this topic.

Michael then goes into Twitter questions posted by listeners. The first question, “My market is too small? What should I do?” Mebane says there is a “home country bias” among people. People like to invest in their own markets. The Asian countries happen to have the worst of this bias. It is a terrible habit to have if you need proper asset allocation in your portfolio. You must look beyond your own country, be agnostic in your trading. Don’t let your emotions or irrationality rule.

In this episode of Trend Following Radio:

  • Home country bias
  • Diversification
  • Different trading strategies
  • Finding the most successful hedge funds
  • Margin of safety
Jan 25, 2016

Today on Trend Following Radio Michael Covel starts off quoting famed trader Stanley Druckenmiller. Stanley shares his views on betting big and diversification. Michael expands on Stanley’s views by stressing how crucial diversification is to a portfolio’s success. You must be open to many markets to handle your risk management. And when markets start to go your way, you have to “bet the ranch.” When one market in your portfolio takes off you need to go big and make the most of it. This is where your profits will come from. Note: Stanley Druckenmiller had two big mentors in his life. One of the two influences was George Soros. The two have been business partners for years now and have made a fortune trading trends. These men do not tout themselves as trend following traders but Michael describes them as “kissing cousins” to trend following.

Michael then reads an article from Josh Brown titled, “Everyone is a closet technician.” In the article, Josh claims everyone is a technician. What is a technician? Josh defines them as, “Someone who cuts right to the chase and studies actual prices and behavior instead of puzzling over the causes of prices and behavior like everyone else.” He says that investors only pay lip service to fundamentals. Technicians find truth and meaning in price and the action that is currently happening. They respect the idea of sentiment. Sentiment is how valuations come to be. Prices change and with that the truth is constantly changing. Technicians do not waste their time with the “Why” question. Hindsight bias is a slippery slope. Josh says, “Fundamentalists will share their reasons with anyone willing to listen. The technicians will take these reasons with stride and focus on what is happening, not ‘why.’ The ‘why’ will always be much more apparent after the fact. After it doesn’t matter.” Price will do its thing regardless of what people predict. Michael doesn’t believe the people on CNBC throwing out predictions are technicians. Trend followers are the only people who fit the mold of what Josh describes in the article.

In this episode of Trend Following Radio:

  • What is a technician?
  • Diversification
  • Risk management
  • Trading off price
Jan 22, 2016

Today on Trend Following Radio Michael Covel interviews Robert Carver. Robert is author of “Systematic Trading: A unique new method for designing trading and investing systems.” He got his start in finance working at AHL. Robert started with AHL in 2001 during his final year of college. It was at this time that he was introduced to quantitative trading and began thinking of finance in a systematic way. He later went back to AHL, working there from 2006-2013.

Robert doesn’t tout systematic trading as the only way to trade. He says there are some great traders out there that aren’t systematic traders. However, the majority of people need a system to be successful. So how does Robert define a system? He says a system must be objective, repeatable, and transferable. If you can’t get the same results using a different person then it is not a true system. The rules must be transferable from one person to another and the results must be objective and repeatable. Most do not have a good understanding of statistics, and they get confused in thinking that the more complicated a system is, the better it must be.

Robert and Michael move on to discuss behavioral finance, prospect theory and the difference between trend following and high frequency trading. A high frequency trading system is harder for traders to meddle with than trend following systems. The trading time frames are much shorter in high frequency trading which lessens the opportunity for human intervention. Most traders fail because of their own meddling. If you can avoid the temptation to change your system then you will be more profitable in the long run.

Working for a company like AHL would have been interesting to see from the inside during 2008. Michael asks, “What were you seeing from the ground in 2008? How did that change you and how you viewed systems?” Robert says it showed him that people truly don’t know what is happening or going to happen. Systematic traders, including himself, were able to make money because their systems saved them. When their systems saw markets going down, stops helped them exit trades and even go short in some cases. This is where all the money was made. Robert does say there are rare times you should intervene with your trading system. For example, he was forced to modify one of his systems when he found out there was going to be a coup in Thailand and the currency was going to be suspended. It’s not that he thought he could forecast what the price was going to do better than the system, but he did know trading that market was going to be impossible. Robert says there has been maybe three other times when he has had to intervene with his system. They are rare and extreme circumstances.

In this episode of Trend Following Radio:

  • Unpredictable risk vs. Predictable risk
  • Systematic trading
  • High frequency trading vs. Trend following trading
  • Black swans
  • When to intervene with your system
  • 2008 crash
Jan 18, 2016

Today on Trend Following Radio Michael Covel talks prediction. He opens with an excerpt from Seth Godin on how he thinks 2016 will unfold. His predictions are based on events that have always happened and will always happen, poking fun at the idea of having a “crystal ball look” into the future.

Michael moves on to market timing and reads an excerpt from The Institutional Investor titled, “Market Timing is Back in the Hunt for Investors.” The article states that market timing can be done correctly if you use a combination of trend following and contrarian views. Michael disagrees with the article stating that you need diversification. You can’t pick one stock and try and predict the top or bottom. Making that kind of bet on one market will bankrupt you. You need a portfolio of diverse markets so your winners can pay for your losses.

Michael then plays three clips from Daniel Kahneman on overconfidence, playing odds, and why we make the choices we do when spending money. Most of what we read in the paper is about overconfidence. People put a lot more weight on negative events then on positive ones. However, many decisions people make are optimistic. Kahneman says it is good that we have a lot of optimism in society. Unfortunately, over confidence and loss aversion seem to work in opposite directions. Most do not know the odds when they take risks. People save and borrow at the same time. Investors tend to view each stock they buy as an individual account rather than part of a bigger picture. These are just a few examples of how society as a whole is generally narrow-minded. Kahneman shows how intricately trading and psychology are linked together throughout the three clips. Michael finishes up the podcast with Ed Seykota singing.

In this episode of Trend Following Radio:

  • Diversification
  • Seth Godin’s 2016 predictions
  • Market timing
  • Understanding psychology in trading
  • Pitfalls of overconfidence
Jan 15, 2016

Today on Trend Following Radio Michael Covel interviews Peter Gray. Peter is an American psychologist who currently occupies the position of research professor of psychology at Boston College. He is also a well known critic of standard learning systems, and calls himself an evolutionary developmental psychologist. He studies why children are the way they are by asking questions like: Why are children so playful? Why are they so willful? Why do children do what they do?

Peter starts the podcast off saying, “There is an issue with the resilience of young people today.” Since the 1950’s there has been an increase of psychological problems among youth. Counselors are being flooded with trivial issues that in earlier years students would have taken care of themselves. Roommate issues, bad grades, breakups, etc. are a few examples of issues students are now deciding they need to see psychotherapists for. It’s not that people are biologically different than previous generations, it’s that our world has become radically different than the past. Children used to spend a lot more time away from adults, where they have to make their own decisions. They used to learn how to deal with bully’s on their own or getting lost and having to find their own way home.

Peter argues that as long as we are overly protective of young people, they will never grow up. Kids need to have the time and opportunity to get out in the world and figure out what they really enjoy. We aren’t letting children experiment, take risks and fail. Even sports have been taken away from the kids. Adult directed sports don’t let kids have creativity to solve their own problems. Children learn the most from playing with other children and taking adults out of the equation. Kids who are “play deprived” have real social consequences. Peter shares an experiment done with young monkeys. One group of monkeys got to play with other monkeys their own age, the other group of monkeys were only around their parents, not other adolescents to play with. The ones who were not able to play were socially incompetent. They would either get overly aggressive or nervous around others their own age. Over the past 50 years there has been a continuous decline of play between young children. Hence, you can see the rapid increase in social and emotional disorders among youth. Michael and Peter finish up discussing ways of implicating free play back into society.

In this episode of Trend Following Radio:

  • Hunter gatherer cultures
  • Self-reliance
  • Evolution of development in youth
  • Pros and cons of video games
  • Ways of implicating free play back into society
Jan 11, 2016

Today on Trend Following Radio Michael Covel starts off talking about goal setting for 2016. He reads a 100 day fitness regimen for 2016. The challenge clearly lays out what is expected, and has concrete rules in place. In contrast, he plays a clip form CNBC with a headline that reads, “Stocks to buy and hold for 50 Years.” Michael tears their predictions apart. He says betting on others “current flavor of the day” stock picks are not how you want to plan your next 50 years.

“Top Stock Picks from 2016” is the next article Michael reads from. “Pro Michael Farr shares his best bets for the market next year including oil stocks, healthcare and consumer staples.” Farr starts off by giving an overwhelming amount of fundamental data to back up his stock picks. In the middle of giving his fundamental data however, he acknowledges that he does not have a crystal ball (and is guessing). He then goes on to guess oil prices will be higher rather than lower three years from now. Michael uses his statement as an example of prediction without foundation.

Michael moves on to diversification. If you trade in the direction of the stock pickers he brought on today, then where is your diversification? Research has shown that you need diversification. If you put all your money into Facebook or Chevron, as his market guru examples have told you to do, then where will you be in 10 years if those companies go the wrong way? Put together a diversified portfolio with rules for entering and exiting. Know how much you are going to trade. Have a plan in place so you can be successful.

In this episode of Trend Following Radio:

  • Diversification
  • Goal setting for 2016
  • Crystal ball prediction
  • The importance of rules in goal setting
Jan 8, 2016

Today on Trend Following Radio Michael Covel interviews Ron Friedman. Ron is an award winning social psychologist that specializes in human motivation. He is author of “The Best Place to Work: The Art and Science of Creating an Extraordinary Work Place.” His book consists of over 1,000 academic studies that have been boiled down.

Michael and Ron start talking about factors that contribute to employee dissatisfaction. Ron says there are three main needs that we, as humans, need fulfilled: Competence, relatedness, and autonomy. There is clear evidence showing that when you have happy workers, you have a much more productive company. Free snacks and coffee, for example, make workers feel more at ease and productive in their workplace. Michael then asks, “How do you define a ‘workplace’.” Ron says that work use to be just confined to an office. Now a workplace could be anywhere you have a cellphone connection. Michael then asks, “How do you create success in the workplace?” Giving employees the opportunity to fail is one way to create success. However, it is the risk taking chances that are encouraged, not failure due to incompetence or laziness. Failure helps you learn and to improve for the next time. That is how you get a creative and innovative team. Getting in the habit of physically writing down what you learned from your failures is a great exercise to help you move forward and grow.

Michael and Ron then move on to the idea of flow in the workplace. Flow is the moment where you are so enthralled with the work you are doing that you forget time. Flow is more common in work then we realize. Video games are a great example of providing a flow experience. Video games give us immediate feedback, immediate recognition, and they provide progressive difficulty. Unfortunately most work environments are structured opposite of this thinking. 80% of people are not engaged at their work. Not being properly challenged is one reason for lack of engagement.

Michael and Ron talk about actionable steps to make a workplace better. Ron says that our physical surroundings affect our mindset greatly. Ceiling height affects your level of creativity, and personalizing your work space makes you more comfortable. He discovered that employees that sit by a window focus better and do better at their job. You can predict how satisfied employees are by the amount of daylight they are exposed to. Afternoon naps are another great tool. We have a biological need for rest that is just as pressing as our need for food or water. If we re-stock our brains with a 20 minute nap, it increases productivity. On the same note, the food you take in and how much you exercise affects how you think. It puts you in a better mood, helps you collaborate better with others, and go home feeling more satisfied. This is critical to employees long-term engagement. Michael and Ron finish up asking “How do you see the workplace unfolding into the future?”

In this episode of Trend Following Radio:

  • Flow in the Workplace
  • Creating a good work space
  • Disconnecting from work after hours
  • Creating balance in your life
  • Importance of exercise and naps
Jan 4, 2016

Today on Trend Following Radio Michael Covel begins with a clip from the creator of the psychological concept of flow, Mihaly Csikszentmihalyi. The first question Mihaly asks is, “What is the meaning of happiness? If each one of us is responsible and in control of our happiness, then how do you obtain happiness?” People feel the most happy when they are able to express who they really are. When people express their strengths, they are able to say, “Yes, this is who I am.” It makes life suddenly matter and creates happiness. Mihaly came up with the term “flow” from people he would interview and study. When they would describe being truly happy, they would describe the feeling as being carried by a current and floating along.

Mihaly brings up a personal experience from fighting in WWII. He said when people lost their property and personal belongings, most would crumble. This is when he became interested in the differences between people who were able to be strong internally as opposed to those who needed to lean on society and what it could provide for them. He says, “Everyone is the master of their own destiny and should not allow themselves to be pulled by the strings of fortune or fame.”

Mihaly then goes into how to gain flow in your own life. The first step is to be totally focused on an intention. How can you organize your life so you can have that focus everyday? Flow rarely just happens. You have to work at it and prepare yourself mentally, but you can get to the point where you don’t have to think about what you are doing. It just flows naturally. Mihaly uses surgeons and rock climbers as examples. Both disciplines require great concentration and muscle coordination. Once you are in the zone, you aren’t aware of anything else such as being a father, husband or what you are having for dinner. You are there simply as a surgeon or rock climber, present in the moment, flowing from one task to another in order to accomplish the end goal.

Michael then goes on to play another clip from Csikszentmihalyi where he talks about the “struggling artist.” He makes the point that you don’t have to be tortured to be creative. He goes into a study he did that showed extraordinary people mostly come from lower class or upper class families. He found that people who came from a fairly comfortable childhood didn’t seem to find the need to stretch and challenge themselves. Michael brings it all together with a thought provoking excerpt from Alan Watts.

In this episode of Trend Following Radio:

  • What is flow
  • How does flow happen
  • Dealing with worry
  • Addiction to thoughts
  • How to obtain happiness
Jan 1, 2016

Today on Trend Following Radio Michael Covel interviews Dr. Jason Williams. Jason is author of “The Mental Edge in Trading.” While going to medical school Jason fell in love with the brain and psychiatry. He was fascinated with figuring out all the different ways the brain worked. While finishing his psychiatry degree at John Hopkins he started working on a research project giving psychology tests to traders. The goal was to see if they could find any common themes among traders and how they think during trading. There are many similarities and he has built up a side business helping traders get in touch with their mental game.

Jason uses a test called the NEO PI-R. He explains the differences between the NEO PI-R and other personality tests such as Myers Briggs. He says that if you take Myers Briggs, and take it again a week later, the results are different 50% of the time. Myers Briggs gives extreme generalizations. It simply says if you are an extrovert or introvert and doesn’t go much deeper. Jason brings up horse jockeys and basketball players as examples. You can be tall, but not tall enough to be a pro basketball player. On the same note, you can be short, but not short enough to be a horse jockey. Looking at the extremes is critical. You need to look at not just if you are tall or short, but actually ask, “How tall are you? How short are you?”

“Once I know my personality, then what?” Jason says you need to ask yourself: What are my traits? Where am I on the scale? How can I use these to my advantage? How are they getting in my way? The NEO is a 5 factor model; neuroticism, extroversion, openness, agreeableness, and consciousness. Each trait has six sub-traits. Jason goes into depth with examples for all of the personality traits. For the most part, everyone has a personality and is unique. Sometimes the test will show you some “A-ha” surprise moments that give you a little more self-awareness. However, most people are in the middle of a personality trait scale. According to the laws of evolutionary psychology you don’t want to be too high or too low on the scales. It could drown out the logical or rational side of the brain.

One common thread Jason found between traders was that most have very low anxiety levels. Knowing when you are feeling anxious in the markets but not having the anxiety be so overwhelming that you are not executing correctly is important. Anxiety is what pushes you on and is somewhat of a barometer. The successful traders are able to adapt a trading strategy to their personality. He says it took his father, Larry Williams, some time to realize that it was better to create systems himself and let others execute. Sometimes it is better to adapt to your personality than try and change it.

In this episode of Trend Following Radio:

  • Using your personality to your advantage
  • Psychology of trading
  • What is the NEO PI-R test?
  • Why anxiety is important in trading
  • Commonalities among traders
Dec 28, 2015

On today’s episode of Trend Following Radio Michael starts off discussing his travel. One of his stops in early December was New York City to meet up with a few legends, one of them being Larry Hite. He talks a bit about their lunch conversation and how Larry has climbed the ladder of success. Larry paints the picture that he was just an average Joe from Brooklyn, and his success is fully obtainable if the right desire and drive is there.

Today's subject on Trend Following Radio goes along the lines of the rest of his conversation with Larry Hite. It’s all about the data. Michael makes it clear that his career would not exist if he did not have the opportunity to dig into the trend following data. You see all types of trend following traders up in the same months and down in the same months–that means something. Doesn’t matter why it happened, just that it happened. Further, many make the mistake of not caring about the psychological. You can have the best system under the sun, but if you don’t have the psychological toughness to carry it out then the system does not matter.

Michael goes on to read from an article out of The Washington Post titled, “Jeff Samardzija just proved athletes would be foolish to pick NFL over MLB.” America’s favorite sport is football, hands down. The dream of just about every father in America is for his son to play professional football. However, all data says to stop right now and turn your focus to baseball. The article states, “The top 30 contracts in the history of team sports – ranked by total compensation – all went to baseball players.” When you compare average players in the MLB with top players in the NFL, the MLB still comes out on top. “Through this season, [Calvin] Johnson will have collected $113,816,086 in earnings, making him one of the wealthiest non-quarterbacks in league history. Samardzija, by virtue of the five-year contract he just signed with the San Francisco Giants, is guaranteed to have earnings of $122,725,000 – and have another chance to dip into the till in 2021, when he’ll turn 36.” Mike pulls the article back to trend following showing that trend following numbers have made it and persevered through ups and downs. It may not be the most widely known strategy, but the data is real.

In this episode of Trend Following Radio:

  • The success of Larry Hite
  • Baseball vs. Football
  • Trusting the data
Dec 25, 2015

Today on Trend Following Radio Michael Covel interviews Thomas Sterner, author of “The Practicing Mind.” Tom was in the same career for over 30 years when he decided to make a switch. He self published the first edition of “The Practicing Mind,” and as it snowballed into a phenomenon, publishers started knocking at his door for wider distribution.

This is about practicing focus and learning to calm your mind. Not an easy task in today’s world with media constantly telling us we are incomplete in what we are doing. People incessantly crave closure, but closure is not always the answer. Tom says that immersing yourself in something that is ongoing puts you in a place of “being.” People are always trying to complete the next level, but being in a state of constant expansion is the best state to be in. He says that even the process of writing books does not have a beginning and an end. He looks at it as an ongoing process. When one book ends, then you can move on from saying what you needed to say and move onto the next phase of what you want to be said. Tom shares a personal story about becoming a musician. For years he had felt inadequate as a musician. It took some time but eventually he figured out that he had accomplished many milestones throughout his career but because he had a limitless ability to expand and grow as a musician, he would never reach the state of perfection he envisioned. Almost in an instant, his frustration and negative thoughts about his accomplishments washed away.

The importance of repetition is Michael and Tom’s next topic. Your brain responds to repeated action best. This can vary from swinging a golf club over and over again, to how you meet people and interact with them. Tom says, “Attention combined with intention is the goal.” Your process and repeated practice is what makes achieving a goal feel so good. Anything you can snap your fingers and have doesn’t feel nearly as rewarding. He says that “Your perception of what good is and how good you can get is ever changing.”

Lastly, Michael and Tom discuss multitasking and living in the moment of now. Tom says that the way we envision multitasking doesn’t exist. When you think you are doing a bunch of different things simultaneously, you are not. The brain is operating at higher speeds but we are not letting our brains concentrate in one area for a long amount of time so in consequence, our brain is atrophying. We are losing that part of our mental game. Slowing your mind down brings clarity and thought. Secondly it connects your mind to what you are doing. If you are just reacting to whatever your mind is creating than you have no control over what you are doing. Mindfulness is not something that can be mastered. You have to constantly work at it just like you would never say “I have mastered fitness so I don’t need to work out anymore.” It is a constant practice. The moment you catch your mind running off is when you start training your brain. If you can recognize yourself chasing your mind then that is being aware of where it is going. Mike says, “It is like an organized treadmill that everyone is on. There is this lack of awareness among people that they are not in control.”

In this episode of Trend Following Radio:

  • Attention combined with intention
  • Non-judgment
  • Perils of multitasking
  • Controlling your mind
  • Constant media chatter
Dec 21, 2015

On today’s episode of Trend Following Radio Michael Covel starts off with a short clip from Star Wars. Michael notes that Yoda and the force have unexpected connections with trend following. He then recounts a story that happened to him a few weeks ago where he feels “the force” was involved. While he was waiting to take a red eye to Tokyo with his parents a man asked if he could share the power outlet he was using. That man happened to be one of the world’s most famous computing pioneers. Michael agreed to share the outlet if he could take a selfie with him. It was a weird serendipitous moment that Michael attached “the force.”

Michael goes on to read from an article titled, “Meet David Harding: The Man Behind Models that Beat the Market,” published in The Australian Financial Review. The article highlights Harding’s accomplishments and views on trading. Harding stresses in the article that the only reason systematic trading has gotten big over the years is because it works. Harding’s company, Winton Capital Management, goes completely against the efficient market hypothesis and he has actually made massive money going against the theory. David goes on to say that investment management is an internal psychological war with yourself. You constantly doubt yourself but the challenge is rising above that self doubt and sticking with your system. If you allow every emotion to be built into your system then you do not have a system at all.

“Over-fitting and It’s Impact on the Investor” by the Man AHL Academic Advisory Board is Michael’s next interest. Over-fitting is finding patterns that aren’t actually there. It is a common phenomenon in science as well as trading and other fields of study. Analyzing a companies culture is a good way to produce less over-fitting results. Michael quotes different view points regarding the concept of over-fitting, finishing up with inspirational quotes by NBA player Kevin Garnett and Christopher Hitchens focused on “making it happen.”

In this episode of Trend Following Radio:

  • Star Wars and “The Force“
  • Efficient Market Hypothesis
  • Over-fitting in trading
  • Rising above self doubt
Dec 18, 2015

Today on Trend Following Radio Michael interviews Dave Huss. Dave discusses his transition from marketing consultant to entrepreneur. Formerly Dave did consulting work for paid advertising and now has transitioned into t-shirt design and sales (Michael notes that famed trader Salem Abraham had considered the t-shirt business before trading). He has been able to grow his business quickly due to a website called www.teespring.com. This website allows him to order shirts on-demand without any out of pocket expenses.

Dave comes at t-shirt sales in a trend following manor. One out of every ten shirts that he puts out will be a big winner. He makes it clear that it is very important he has a system. He limits his cost to $20 per shirt for advertising. If he doesn’t get a positive response from his $20 advertising push then he stops. He lets the market decide which t-shirt designs are worth pursuing. He has put out 500+ designs just this year. Six out of ten times he sells zero shirts. Three out of ten of those shirts sell 20 or 30 units and he breaks even, but one out of ten shirts will sell over 1,000 units. He never knows which will be the home run and which designs are going to be the duds.

Dave stresses how online marketing has become more and more a part of our lives. You have to participate in online marketing if you are going to have any kind of business these days. You find your most passionate fans in your business and hit them at the right time. You can’t put your head in the sand and think your business is going to make it.

In this episode of Trend Following Radio:

  • Contract work vs. Entrepreneur
  • Niche markets
  • Online marketing
  • Importance of a system
  • Survivorship bias
Dec 14, 2015

On today’s episode of Trend Following Radio Michael Covel features Larry Hite. Larry is unquestionably one of the founding fathers of systematic trend following. In 1981 he founded Mint Investments and by 1990 it was one of the largest trend following funds in the world. At the same time he formed partnership at Man group, which became wildly successful as well. In 2000 he decided to go another direction, focusing on proprietary trading and research, founding Hite Capital Management. Currently, Larry is partnered at ISAM with his long time colleague Stanley Fink.

Throughout today’s podcast Michael pulls quotes and excerpts straight from Larry’s chapter in “The Little Book of Trading.” Quotes range from probability advice to compound interest and one or all of them are certain to spark certain “Ah-ha” moments. Michael starts with Larry giving advice on the notion of being wrong. Larry stresses that being wrong is ok. He was wrong often and always built the possibility of being wrong into his models. He would ask himself, “How much can I afford to lose?” And work his risk in from there. Hite found that even having perfect knowledge of an end of year price wouldn’t guarantee riches. His research proved that you could only bet with 3:1 leverage on a stock, even if you had absolute knowledge of the stocks year end price, because you can’t predict the path a market might take getting there. Respecting leverage is key. Michael then brings up a dating story Larry shared about probabilities.

Michael then goes into Larry’s risk management. He stresses, “Make sure you are as prepared as possible. You can’t know everything but you can certainly be prepared.” Larry always starts from an assumed position of ignorance. You have to know what you don’t know. If you know what the worst possible outcome can be from the outset then you are starting with a great advantage. Mike finishes with one last excerpt from Larry taken from a paper titled “Life is a Bet.” In this excerpt Larry outlines why life is just a serious of bets. Some are large and some are small. Some seem trivial and some seem to have far greater impact on our lives. However, those trivial bets can quickly become paramount. Never discount a decision. It could be the one that makes or breaks you.

In this episode of Trend Following Radio:

  • Respecting leverage
  • Thinking in terms of odds
  • Being wrong is OK
  • Getting the odds on your side
  • Risk management
  • Life is a series of bets
Dec 11, 2015

On today’s episode of Trend Following Radio Michael Covel interviews Didier Sornette. He is Professor on the Chair of Entrepreneurial Risks at Swiss Federal Institute of Technology Zurich. He is also a professor of the Swiss Finance Institute, associated with both the department of Physics and the department of Earth Sciences at ETH Zurich. He has worked on the King effect, a theory used to predict economic bubbles. Didier also set up the Financial Crisis Observatory in October of 2008. He brings an interesting perspective to financial crisis’s, and bubbles.

Didier first realized his fascination with financial bubbles back in 1989. He received a grant to try and solve the equation of prediction. Didier goes on to discuss the different theories that stemmed from his research. A few years later, when the housing crisis hit the U.S., he founded The Financial Crisis Observatory. He founded it as a psychological response to the discourse he had with the markets. People didn’t have a clear view of what was happening. Nobody seemed to know how it happened, but to Didier it was so obvious and natural that the crisis occurred. He wanted to help inform people better with his observatory by showing concrete steps that lead to the housing collapse and other crashes that came before it.

Michael and Didier then go into discussing black swans. Didier does not believe in black swans because they relate to “surprise events.” He says that crisis’s are actually not surprise events at all. They can be expected and are human related. Instead, Didier believes in a notion he calls “Dragon Kings.” His theory is called Dragon Kings because a King is a special person in a country, and dragon means of unique origin. Dragon Kings is how he describes his version of, “surprise events.” Michael and Didier move onto talking about how the world is out of equilibrium. The world is consistently battered with surprises therefore the equilibrium is always off. A lot of economists refuse to acknowledge this and policy makers are not well educated on the subject. Lastly they talk about Didier’s financial bubble experiment. Didier then goes into his background in physics saying it gave him tools to look at things outside the box. Nature doesn’t function in disciplines just like our minds do not work in silos or disciples.

In this episode of Trend Following Radio:

  • The adaptive market hypothesis
  • Dragon Kings vs. Black Swans
  • New economy syndrome
  • Predictive markets
  • Finite singularity
  • Equilibrium of the world
Dec 7, 2015

Michael starts today’s podcast reading the biography of bestselling author Napoleon Hill. Napoleon was born in 1883 and died in 1970. He is most known for paving the way for the new thought and personal success movement with his book, “Think and Grow Rich,” which has become one of the best selling books of all time. Its premise is to help people realize they have the power to create success within themselves by way of conscious and unconscious thought. His message is straightforward, pragmatic and clear.

For the remainder of the podcast Michael plays a presentation by Napoleon. The presentation is centered on making a goal and how to use certain tools to achieve that goal. Napoleon starts off by explaining the power of motives. He says you have no right to ask yourself or anyone to do something unless you give an adequate motive. If you give someone a good enough motive to buy something from you or give yourself a a worthwhile reason to achieve a goal you can sell or accomplish anything. You can also trick your mind to believe anything by repetitive action. If you have faith in what you want to accomplish you will accomplish it. On the same note, faith without action is dead and faith without believing is dead. Napoleon believed that 98%-100% of people sell themselves short because they do not believe in themselves. He says, “The power of thought is the only thing humans have absolute control over.” By repetition, thought, and action you can educate your brain to pick up only the vibrations related to what you want. He stresses that you must make sure your subconscious mind knows you are the boss.

The power of motives, thought, and faith in yourself all goes into being able to create and carry out a plan successfully. Napoleon says to write out your major objective in life and give it a timeline. Make sure it is clear and precise. Keep your major purpose to yourself. Your actions speak for themselves, and the envy of mankind can slow you down. Also, leave your plan flexible. Nobody can put limitations on you except for yourself. With that being said, acknowledge your weaknesses but don’t let them overtake you. If you keep your mind positive, it becomes greater than all the negatives.

In this episode of Trend Following Radio:

  • Conditioning your unconscious mind
  • Setting goals
  • Laws of nature
  • Vibrations of thought
  • Using your greatest asset
  • Individual power
Dec 4, 2015

On today’s episode of Trend Following Radio Michael Covel interviews Barbara Fredrickson. Barbara is a professor at the University of North Carolina at Chapel Hill. She is the Kenan Distinguished Professor of Psychology, and the Principal Investigator of the Positive Emotions and Psychophysiology Lab at the University of North Carolina. She is a social psychologist that conducts research in emotions and positive psychology. Her main work is related to her Broaden-and-Build Theory of Positive Emotions which suggests that positive emotions lead to novel, expansive or exploratory behavior, and that over time these actions lead to meaningful long term resources such as knowledge and social relationships.

The podcast starts with Michael asking, “When did this fascination start with you?” Barbara explains that she has had a curiosity with emotional behavior all her life, but it was in college when she realized that almost all research was centered around negative emotions. She began being influenced by evolutionary science, neurosciences, and behavioral changes that occur with emotions. She sees her job as figuring out why positive emotions matter, and why they are important. All emotions have specific action tendencies whether negative or positive. She believes that positive emotions broaden our horizons and negative emotions have values that are much more narrow and specific. Positive emotions bring awareness. They help us become better versions of ourselves. Barbara goes on to explain that it’s not the intensity of positive emotions that are important, it’s the frequency. They are like waves, they arrive and then dissipate. Positive emotions don’t typically have as powerful of moments as negative emotions and that is why Barbara believes they have eluded the interest of scientists for so long.

Michael then brings up Barbara’s work with “the undoing effect.” Barbara expands on this hypothesis by saying, “It first started when other scientists looked at the physiological signature of emotions.” The undoing effect counters the current notion that negative emotions have a signature and positive ones do not. The study showed that positive emotions actually act as reset buttons to your negative emotions. Lastly, Barbara helps listeners look at love through the lens of an emotions scientist. She explains that when we share positive emotions with multiple people it is more effective than when we experience that same emotion individually. She also points out that love is made up of micro moments of positive experiences rather than long lasting ongoing experiences.

In this episode of Trend Following Radio:

  • Inner-experiences and well being
  • The undoing effect
  • Positive negative ratio
  • The body’s definition of love
  • Depression
  • The idea of soul mates
  • Emotional connections
Nov 30, 2015

On today’s episode of Trend Following Radio Michael Covel features a presentation by Charles Faulkner. Charles is a trader, mentor and author who has been featured in Jack Schwager’s “Market Wizards” series. Faulkner is an international expert on modeling the knowledge and performance of exceptional individuals, teams and organizations, and applying the latest research in cognitive neuro-science and linguistics. He has appeared on this podcast five times and has received more positive feedback than any other guest.

Today, Charles’ message is about goals. It is about setting large goals that are above and beyond your everyday concerns. Goals that give your life purpose. Charles comes at this topic in a pragmatic and scientific way. He breaks down how our brains function best, making goals easier to obtain. The first example he gives is a “monkey see, monkey do” experiment. The experiment showed that when you do something repetitively in the correct form, you have a much higher success rate than if you were to be sitting in the stands watching or doing a variety of the same act, but only occasionally doing it right. Charles then moves onto a study centered on the idea of taking internal dialogue and externalizing it. When you write down a goal and draw out what that goal means to you, that is externalizing your inner-dialogue. In addition to writing out your goals, it is important to talk them out. Charles has his students ask each other: “What are you going to do to achieve your goals?” “What will you see, what will you feel?” “Where will you be and who will be there?” Asking these questions vivify your goal. On the flip side, it is important to ask about the downsides. The more important the goal, the more negatives it’s likely to have.

“Goals are a way of directing your attention” says Charles. He goes on, “You don’t set one big goal, you set interim goals so you get rewarded along the way.” Charles goes on to talk about the importance of having milestones so you don’t get discouraged when your goal is not met immediately. People become attached to a certain outcome but they don’t think about why that outcome is important. He asks the question, “What is important about making a million dollars?” When you break down the reasoning behind your goal, it may uncover layers you had never thought about.

In this episode of Trend Following Radio:

  • How to set goals
  • How to achieve your goals
  • Externalizing your inner-dialogue
  • The importance of milestones
Nov 27, 2015

On today’s episode of Trend Following Radio Michael Covel interviews Ben Carlson. Ben is the Director of Institutional Asset Management at Ritholtz Wealth Management. He first gained fame with his blog, “A Wealth of Common Sense.” Following his blog success Ben wrote the book, “A Wealth of Common Sense: Why Simplicity Trumps Complexity in Any Investment Plan.”

“A Wealth of Common Sense” is geared toward helping investors gain a simpler decision making process and developing a clearer way of thinking. This is where Michael and Ben take the conversation on today’s podcast. Ben says that people usually become their worst enemy while trading. Cycle to cycle or fad-to-fad is how so many plan their investing rather than building their trading off a solid foundation. Studying the emotional side of trading is a relatively new concept that has sprung up in the last couple decades, which causes people to overlook the necessity of its study in their trading. Ben says, “Envy is the worst of all sins because nobody enjoys doing it.” People are constantly tempted to follow what others do. With the amount of information and “noise” thrown around today we are more informed than ever but most aren’t putting that information in the right context.

Ben uses the documentary, “Jiro Dreams of Sushi” as a great example of having faith in a system matched with an extraordinary amount of discipline. There is nothing fancy about Jiro and his sushi. It is his discipline over the years to perfect his craft that has made him arguably the best sushi chef in the world. Whether it is creating the perfect meal or creating the perfect system, you have to give it time to work. Ben says that discipline is just not there for most people. Constantly asking, “Does this still work? Why should I continue to follow it?” Lastly Mike brings up the phrase “Market timing.” On a daily basis there is someone on T.V. predicting what will happen. The two talk about lack of understanding among investors, relating investment advisors as shrinks to their clients. They are not managers of money but managers of people.

In this episode of Trend Following Radio:

  • Diversification
  • The purpose of a long only commodities investment
  • Speculation
  • Index funds
  • Having a plan
  • Risk and Reward
  • Saying no
Nov 23, 2015

Today marks 400 episodes on Trend Following radio. To celebrate Michael has put together a compilation of Tom Basso interviews. Tom has been on Trend Following Radio four times and his interviews have been among the most popular episodes airing on the show. Michael plays the interviews back to back and throws in a bonus interview at the beginning. The bonus excerpt is a Tom Basso presentation from the early to mid 1990s.

Tom Basso is most famously known as “Mr. Serenity” in Jack Schwager’s “The New Market Wizards”. Now retired from managing client money, Tom was president and founder of Trendstat Capital Management. He became a registered investment advisor in 1980, a registered commodities advisor in 1984, and was elected to the board of the National Futures Association in 1998.

Throughout this 4 1/2 hour podcast Michael and Tom cover a broad range of topics including: Tom’s background and how he got into trading, speculation, emotional rushes, emotional devastation, catastrophic events, separating trading from politics, behavioral economics, advice to newcomers entering the CTA industry, location independence, time management, stoicism, black swans, and the importance of routine.

Michael and Tom also go through listener questions spanning topics including: trading regrets, money management vs. trading, tinkering with current systems, drawdowns, one-system vs. multiple systems, thoughts on Alan Watts, emotions during both losing and winning periods, exit strategies, practice trading vs. live trading, money management, risk control, how to handle skeptics, serenity, John W. Henry, coin flip entry method, percent betting, comfort with uncertainty, initial capital at risk vs. unrealized gains, and fighting against your gut reaction. This podcast includes a wealth of knowledge worth listening to over and over again.

Nov 20, 2015

On today’s episode of Trend Following Radio Michael Covel interviews Brett Steenbarger. This is his 2nd appearance on Trend Following Radio. He is a Clinical Associate Professor of Psychiatry at New York State University, author of “The Daily Trading Coach,” “The Psychology of Trading,” and “Enhancing Trader Performance.” His newest work is “Trading Psychology 2.0: From Best Practices to Best Processes.”

Michael and Brett start the podcast off by asking the question, “Do people really have that burning desire to succeed?” Brett says he does believe traders are drawn to trading for the money outcome, but also for the allure of not working a 9-5 job or the dream of scoring easy riches. Brett breaks it apart further by explaining the motivations for different traders: Practice and process are essential. He says, “You hear traders talk about finding your edge and sticking to your edge.” Finding your edge is a continual process because the markets are forever changing. You must adapt.

Brett goes on to discuss the importance of back-testing and how valuable it is to your strategy. He gives the example that elite performers spend more time in preparation than in performance. That preparation helps develop a strategy and prepare the performer mentally. It pushes the performer to develop the best of what they are doing. Brett then details the difference between repeated performance and deliberate practice.

Creativity is the next big topic discussed. Brett says it’s an individual’s creativity that breaks them away from the herd. A trader that has the creativity to diversify and test new strategies. Brett then touches on what it means to “trade your personality,” how paramount it is to have the right trading mentor, and the advantages of creating a checklist to bring out your best practices and make them routine. Lastly, Michael and Brett dig into the necessity of eating, sleeping, physical exercise, and yoga to help fuel a positive emotional experience in life and in trading. If you have been having trouble with the psychological aspects of your trading, this episode is for you.

In this episode of Trend Following Radio:

  • The emotional “buy in”
  • Checklists
  • Finding a smooth equity curve
  • Repeated performance vs. deliberate practice
  • The role of fitness and health in trading
  • The moment of now
  • Systems trading vs. discretionary trader
  • Relationship between volatility and volume
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