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Trend Following with Michael Covel

Bestselling author Michael Covel is the host of Trend Following Radio with 4 million listens. Investments, economics, decision-making, human behavior & entrepreneurship--all passionately explored. Guests 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 450+ episodes only at www.trendfollowingradio.com/rss.
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Bestselling author Michael Covel is the host of Trend Following Radio with 4 million listens. Investments, economics, decision-making, human behavior & entrepreneurship--all passionately explored. Guests 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 450+ episodes only at www.trendfollowingradio.com/rss.

Sep 30, 2016

Chris Voss is the author of, “Never Split The Difference: Negotiating As If Your Life Depended On It.” Chris is a former international hostage negotiator for the FBI. He has had an amazing career full of great experience and insights. Chris first entered the FBI in 1983 and has been involved with over 150 kidnapping cases. He started out working on a suicide hotline and quickly realized that his negotiating skills were applicable to all areas of life, not just hostage situations.

Chris starts the conversation off talking about how he begins hostage negotiations. It is about exchanging power and getting the upper hand early on in the negotiations. A lot of people want to think of negotiations as chess. Chris explains why this is not the case. You can make four moves in a row if you want. Not necessarily making one move, then a counter move by the other person. Chris goes on to explain that if you can walk out of any situation you don’t like, then you can win in any situation and you are able to have more fun with negotiating.

Next, Michael asks, “How do you go about negotiating with bat shit crazy people?” Even “bat shit crazy” has it’s patterns. Chris talks about being on Comedy Central and doing a skit on this exact situation. As long as he starts looking at patterns then things become aware to him and he can influence people’s emotions. When people don’t open themselves up to you, that is the first sign of danger. If people won’t talk, this is when you know psychologically they have shut down. 9-11 is an example of people being silent on the other side, shutting down, and leaving no room for negotiation. If you can ask someone “Have you given up on resolving this situation amicably?” Even having someone say “Yes” means they are immediately opening up a little more than they were before. Chris was always taught to go into situations knowing that people are not rational. They are driven by passion and purpose.

Chris also elaborates on “Why, How and Lying three times”. In general, “Why” questions make people feel defensive instantly. “How” questions make the other person feel powerful. People feel in charge when they are asked “How”, but it puts a lot of constraints on their answer. His last rule of negotiations is the “Lying three times” rule. If you get someone to lie three times then they most likely won’t act on that lie.

The podcast wraps up with bonus material of an interview between Michael and Chris recorded on a previous day.

In this episode of Trend Following Radio:

  • Aversion to negotiation
  • Negotiating skills
  • Never pretend people are rational
  • Business negotiations compared to hostage negotiations
  • Lying three times
  • “How” and “Why” questions
Sep 26, 2016

Michael reads some of his favorite quotes circa 1920’s/1930’s from a famed trader. These quotes are timeless bits of wisdom. Michael adds commentary throughout.

In this episode of Trend Following Radio:

  • How is the “price” made?
  • You will never know all the fundamentals
  • Speculation
  • Getting mad at the market gets you nowhere
  • Bull and bear markets
  • Entry and exit signals
  • 1920’s wisdom on numbers
  • Always be ready to catch that unexpected move
  • Follow the price action
Sep 23, 2016

Robert Cialdini is on today’s podcast. He is best known for writing “Influence: The Psychology of Persuasion” published back in 1984. Robert is the “go to man” for understanding effective persuasion. Reciprocity, commitment and consistency, social proof, authority, liking and scarcity are his six key principles of influence that he teaches. His new book, “Pre-Suasion: A Revolutionary Way to Influence and Persuade”, introduces a seventh key principle of influence.

Michael asks “How did you start down this path? What was your ‘A-ha’ moment that got you researching for this new book?” Robert says it was a series of recognitions as he was reading the newest work in behavioral studies that made him realize that creating mindsets in people didn’t involve just six principles. He went back to his notes and looked at what the top people in various professions were doing. He realized that they were acting like gardeners. They were preparing the earth before planting the seed. These professionals were priming a persons mind to perceive their idea more fully.

Next, Michael and Robert talk about anchoring a persons perception of what they are paying or asking for. You start off with a higher number or a grander request before hitting the other person with what you really want. “Are there types of thinkers where pre-suasion is not as effective? Or have you found universally across the populations that pre-suasion is just very effective?” Robert says it seems to be a universal operating procedure that is built into us from birth. He uses a study done with 18 month old babies that proves that this is built into our psyche.

Lastly, Michael asks Robert to elaborate on the idea of unity. Robert shares a story of Warren Buffett and unity taken from his book. Michael finishes up the last 20 minutes of the podcast with a presentation on behavior change and the part that social norms play in creating that change, given by Robert. He focuses on how to make people move more towards a environmentally socially responsible role.

In this episode of Trend Following Radio:

  • Establishing trust before asking for anything
  • Rational self interest
  • Anchoring a persons perception
  • Asking for advice rather than an opinion
  • Warren Buffett’s shareholder letter
  • Environmental responsibility
Sep 19, 2016

Michael opens the podcast with an excerpt from “The Fountainhead” about creating, entrepreneurism, and living for one’s self. “The Fountainhead” is one of Michael’s favorite books and encourages all to read it.

Michael dives into an example that dovetails right into “The Fountainhead” excerpt. Recently Michael tweeted a quote from Derek Bok, “If you think education is expensive, try ignorance.” He quickly got a response on Twitter saying he was “bearish”. Michael stresses throughout the conversation that it doesn’t matter if you are liberal or conservative. Trend followers don’t care about politics or media. It is all about price action.

In this episode of Trend Following Radio:

  • Creators vs. parasites
  • Human relationships
  • Altruism
  • The individual vs. The collective
  • Liberal and conservative trading perspectives
  • Price action is paramount
Sep 16, 2016

Jared Dillian is editor of The Daily Dirtnap: A daily market newsletter for investment professionals. Jared is also author of “All the Evil of This World” and “Street Freak”. He gives a behind the scenes look at the good, the bad, and the ugly of Wall Street.

Jared’s interest with Wall Street didn’t start with the idea of making money. It was more academic. He wanted to learn why so many traders were trying to beat the market when all the Wall Street books he was reading said that beating the market was a huge waste of time. He started working at Lehman Brothers and quickly learned the culture within an investment bank was completely different. Everyone working at investment banks were in the business of making money, they are all traders. Jared speaks about the structure of Lehman Brothers and how they changed under the management of Dick Fuld. He then dovetails into detailing the dot-com bubble and the housing bubble, and explains why some firms were able to fail and others were able to survive.

Next, Michael and Jared talk about the “sex drugs and rock and roll” aspect of Wall Street. Jared looks back on what he saw when he worked in the pits of Wall Street and says that, “that culture” doesn’t really exist anymore since the 2008 crash. They finish up talking about the pros of being an entrepreneur rather than working for a big investment bank on Wall Street.

In this episode of Trend Following Radio:

  • Behavioral finance
  • Market psychology
  • Housing bubble
  • Dot com bubble
  • Lehman Brothers
  • Starting your own hedge fund
Sep 12, 2016

If you can’t change the data, then why try and fight it? Listening to people who have spent their lives researching and digging into the data is how we learn and progress. In today’s podcast Michael plays a clip by Richard Dawkins about data. Michael shows that listeners can find insight within the talk that can be applied to their lives–all aspects.

In this episode of Trend Following Radio:

  • Evolution
  • Looking at the data
  • Natural selection
  • Long term macro evolution and short term evolution
  • Fossils do not prove evolution
  • Comparing animal and human bodies
  • Evolutionary arms race
Sep 9, 2016

“What is it about growing up in poverty that leads to so many troubling outcomes? Or to put the question another way, what is it that growing up in influence provides to children that growing up in poverty does not?” This is the question that today’s guest, author Paul Tough, poses in his newest book, “Helping Children Succeed: What Works and Why.” It is a data driven book about how young kids are growing and developing in today’s world.

51% of children in the public school system are below the low income bar set by the government. Paul goes through the psychological issues of children from low income homes starting from birth all the way through high school. Science is very clear that children develop the most during the first three years of their life. He says there are two main things to think about when children are developing: stress, and day-to-day interaction with parents or caregivers. Paul gives examples of the types of stress and interaction that is good and bad during early childhood.

Paul talks about the education system next. He says that development should be looked at as on a continuum rather than separated into segments such as preschool, kindergarten, and so forth. Michael and Paul also speak to the behavioral issues that may come from different socioeconomic backgrounds and what schools can do to improve the outcome of a child. “Grit” and curiosity needs to be taught and encouraged along with standard learning, in and out of the classroom. Intervening more intensely in the first few years is a huge way of creating this motivation and curiosity.

Michael brings up the higher income children who also are having trouble finding “grit and perseverance”. Paul says we aren’t giving children the opportunity to struggle with adversity. The difference between not having grit in a higher income family as opposed to low income is that you can usually get by in life. You can usually find an average job and have food on the table. However, not having drive coming from a low income family, you may not be able to put food on the table and have a roof over your head.

In this episode of Trend Following Radio:

  • Early childhood development
  • Creating the right environment for children
  • Childhood poverty
  • Serve and return parenting
  • Teaching grit and curiosity
  • The accountability movement
  • What motivates us?
  • Education as a national problem
Sep 5, 2016

There are back-to-back monologues on today’s episode. The two episodes consist of the same material, just said a little different. The first take Michael was told was too aggressive with too many F bombs, so he re-recorded but still left it up on the tail end of the podcast. The double header podcast today was inspired by a film Michael recently re-watched called, “Boom Bust Boom”.

Michael talks about Hyman Minsky’s “financial instability hypothesis”. Minsky said that there is instability in capitalism and if capitalism was eliminated, that would help eliminate bubbles. Minsky believed that offsetting the economy is how you eliminate instability. This is where the government came up with zero interest rates, and in some places, negative interest rates. Due to the Minsky mentality, economists think they can control the markets and stop human nature from happening.

Michael ties his documentary film into the discussion and describes the insight he got during ’08 when he happened to be filming. Trend following strategies and behavioral economics have these characteristics in common: 1. People will never be rational. 2. Markets will always trend up, down and sideways. 3. You can’t predict trends. 4. There are ways to make money even though numbers 1-3 are set in stone and will not change.

In this episode of Trend Following Radio:

  • The tulip bubble
  • March 2000
  • Fall of 2008
  • Financial instability hypothesis
  • Trend following philosophy
  • Behavioral economics
Sep 2, 2016

Chris Zook is co-author of “The Founder’s Mentality: How to Overcome the Predictable Crises of Growth.” The work leading to “the founder’s mentality” started for Chris about 5 years ago. It is predicated on, “What are the deep root causes that allow some companies to stay young, stay energetic, and be sustainable in their performance over time?”

Only 1 in 10 companies sustain a modest level of growth over a decade. Chris, and his co-author James Allen, found that when the founder of a company was still evolved and their presence was still looming, companies had about three times higher performance than other companies where the founder had stepped away. Chris elaborates on their research process and the steps he and James took in writing “The Founder’s Mentality”.

A deep sense of insurgency, frontline obsession, and an owner’s mindset are the three characteristics that make up the founder’s mentality. Keeping an open mind at all times and willingness to adapt to your company’s growth is key. When companies fail to be open minded, they become short term minded. Chris has found a great response from this way of thinking. He has now written 5 books over the last 12 years on this topic and all have been extremely well received, especially his latest work, “The Founder’s Mentality”.

People are searching for happiness in their work and Chris is helping outline how to get there. He helps people own the customer service experience in their company. Chris and Michael use Nokia as a great example of an industry leader that failed to adapt. Nokia was the first to use email on phones, they were huge in cameras, and had the first smart phone but they failed to be innovative enough and became institutionally closed minded. Ultimately what looked like a tech company that could not have died, ended up committing suicide.

Chris uses Starbucks as another example of a company that started something special, but as soon as the company moved away from what Howard Schultz, the founder, had started they began to crumble. After profits started to take a hit, Howard Schultz was asked to come out of retirement and revive the company. Starbucks was self inflicting wounds that were unraveling the core of the Starbucks experience. Michael and Chris wrap up the podcast giving a few more examples of companies that caught what he calls the “founders disease” or lost the owners mindset.

In this episode of Trend Following Radio:

  • The founder’s 100
  • What keeps millennials in their jobs
  • Frontline obsession
  • Sense of insurgency
  • Owners mindset
  • Founders disease
  • Meritocracies
Aug 29, 2016

“What is the goal? What does it take to get to the goal? What is the most efficient path to get to the goal? And is the goal obtainable?” Michael starts the podcast off asking these critical questions and relates them back to the explosion of social media in today’s culture. Social media is constantly being thrown in everyone’s face, and subsequently you need an efficient tool kit under your belt to be able to gain any type of real achievement in today’s world.

There is an epidemic of 20 to 30 year old men who cannot think. There is also a feminization of men that is taking over the younger generation. They seem to only be attached to their feelings. Men have traditionally had a more analytical view on things and women have a greater capacity to think with emotion. The analytical side of men is starting to get edged away.

Michael then poses the question, “How do you end the dominance of the 1%?” Michael says you either take their money, or kill them. If you do not act on one of those two things, then how else do you strip away their dominance? Once you walk through how you are going to “take care of the 1%” then you realize the statement is a sham. It just doesn’t work.

Michael moves on to poverty and unemployment next. 50% of Americans do not have $1 in the bank. 50% of Americans are also on welfare. Looking at the overall health of the American economy, things look a little messy, however the stock market is at all time highs. Although nobody can predict exactly when a black swan will hit, the economy is sure looking like it is ready for one.

In this episode of Trend Following Radio:

  • Donald Trump politics
  • The 1%
  • Generation snowflake
  • Efficiency in your thinking
Aug 26, 2016

Zen DeBrucke is on today’s podcast. She is the author of “Your Inner GPS: Follow your Internal Guidance to Optimal Health, Happiness and Satisfaction.” Her goal is to help clients find a stress free and happy existence by getting in touch with their inner voice.

Michael and Zen start off talking about the inner GPS. Zen believes that everyone is born with this inner voice guiding them, but most lose sight of that influence. Buddhism and Daoism have strong beliefs in the use of meditation to help people use their minds as a tool rather than an operating system. The more people realize there is a flow within their body, the more they can train their mind to get into this energy. Once someone gets into that flow, they are able to understand their thoughts and emotions clearer.

Neuroplasticity is the next. Zen says she has a tool kit to make people’s minds move in different directions. Zen teaches practices that help move their brain into a different domain when they have a block or feel trapped. She uses an example about her and her father’s relationship as well as a coaching session she had with Van Jones.

Zen describes how each person’s internal guidance system is linked in with their destiny. This internal GPS is trying to help use the mind to move towards a persons optimal life. Zen uses an example about the owner of Cliff Bar, as well as a personal example of an experience she had at the Denver airport. Her experience, in short, lead her to catching a plane ride that she would have never been able to catch had she not listened to her internal GPS. Michael also shares a personal example he had about listening to his internal GPS which lead to a great business opportunity. All these examples show the constant battle between what your gut is telling you to do, and what your head is telling you to do.

Michael and Zen wrap the podcast up discussing the meaning of ones “life purpose”. We have thousands of life purposes rather than just one. True fulfillment comes from giving and contributing. You don’t get that feeling when you are too focused on on one item. Michael says that one of his life purposes is doing the splits.

In this episode of Trend Following Radio:

  • Your inner GPS
  • Your inner flow
  • Emotional experiences
  • Neuroplasticity
  • The breadcrumb approach
  • The relationship between stress and disease
Aug 22, 2016

“We all avoid reality non-stop. We don’t know where it starts and where it ends. We don’t like to look at facts. We don’t like new information. We have biases that are non-stop.” Michael goes down a reality tour of market prices today. He talks about past prices in the market and the present all time highs we are experiencing right now. He makes listeners think about prices and how they move rather than voices at Bloomberg and CNBC. Michael says, “Just focus on price action and look at markets from a ‘desert island approach’.” Trading price is the only information you can trust. He gives examples from the past including the dot-com bubble, housing crisis, 1989 NIKKEI crash, Gold in the 1970’s, and possible current bubbles.

Michael emphasizes to put away all the noise and just look at the numbers. He is not saying when there will be the next market crash, just that there will be another one. Historically we are due for a significant decline. What are the odds that the S&P losses 50%? If you are going to retire soon, or are in retirement and the S&P drops, how will your life be? Will you be able to ride it out? Do you have an alternative strategy? Big questions.

In this episode of Trend Following Radio:

  • Black Swans
  • Anti-fragile
  • Market Crashes
  • Price action analysis
  • Shutting out the noise
  • Island trading
  • Price distribution
  • No free lunch
Aug 19, 2016

Morgan Wright is an internationally recognized expert on cyber security strategy, cyber terrorism, identity theft and privacy. He brings vast knowledge and insight into the space of cyber activity.

Michael and Morgan start the podcast off talking about cyber footprints. People don’t realize that there are countless ways to steal personal identities. You don’t even need to be present anymore to become a criminal. The Chinese hacking US government databases is just one of a few examples used by Morgan to illustrate the point. Morgan says that there is no accountability in the government, which is a major contributor to why some of these hacks are able to take place.

Email is the next topic. How safe is it? Email is one of the best ways to attack someone. Companies are being hacked and having money stolen in the millions of dollars through email. Scams can come in all forms, from flat out asking for money to relationship scams. Glitches in security and technology are sometimes even known, it just comes down to if the cost to repair is worth the reward.

Michael brings the conversation back to security and asks Morgan to elaborate on healthcare.gov. Morgan was tasked with confronting Congress and explaining the lack of security within that particular government website. He went before congress to prove how ill secure the website system was. When talking about the hearings and committee for setting up the new healthcare system Morgan said, “There was nobody really in charge, there was lack of control, and oversight… It was built for failure from the very beginning.”

In this episode of Trend Following Radio:

  • Snowden effect
  • Milton Friedman and Michael Moore
  • Teaching at the NSA
  • Manipulating human behavior
  • Combining the legal system and mental health system
  • Lack of accountability in government
  • Government using yesterday’s technology
Aug 15, 2016

Michael starts the podcast off with excerpts from an interview with Clint Eastwood. Clint answers the question, “What is the pussy generation?” He also goes on to give his take on what is wrong with the US presidential election, unemployment and free education. Michael sums up the interview saying, “I do love that this 86 year old tough guy is telling us…”

Michael uses Eastwood to lay the foundation for the rest of the podcast as he talks about “Trend Following Commandments.” Michael goes in depth about some of these fundamental trend following principles.

In this episode of Trend Following Radio:

  • Political correctness
  • Pussy generation
  • Absolute returns
  • Inefficient markets
  • Market bubbles
  • Fundamentals are religion
  • The market is never wrong
  • Cutting your losses
  • Learn to love your losses
  • Price action
  • Betting the markets properly
  • Failure is the secret to success
Aug 12, 2016

Chase Jarvis is an award winning photographer, director, artist and entrepreneur. He is co-founder of Creative Live, a live educational platform. There is much to learn from his entrepreneurial ventures and how he made it in the photography world.

Michael and Chase start the podcast talking about basketball, and Golden State in particular. Chase goes to a lot of games and has had the opportunity to sit up close and personal with the players. He says the best part about going is seeing the infectious energy and passion among the players. Steph Curry is his favorite to watch and compares his confidence, energy, and talent to Michael Jordan.

Next, Michael asks about how Chase got involved with photography, and how his career has evolved into what it is today. Sports were a huge factor in his success as a photographer as well as becoming an entrepreneur. Teamwork, hardship, success, disappointment all gave relevance to his professional career development. His first photography shots were of skateboarding, snowboarding, etc. things that he knew well. He also had some professional friends in those sports that he could take pictures of which consequently helped jump start his career.

Chase moves into talking about his most recent venture, Creative Live. Creative Live is the world’s largest live educational platform. It is focused specifically on creative education and the ability to make a life out of that creative field. A few years ago Chase started to shift from just taking photos, to sharing his experiences with others as a photographer. He turned his photo studio into a bit of an incubator and launched the first app that could upload photo’s directly into social media outlets.

Chase shares with listeners how he flushes out his creative blocks with adventure. Adventure has always been an ignition to be propel him into a new head space. He gives a couple examples such as traveling to Europe for 6 months and traveling across New Zealand. Chase also shares simpler ways to travel and get your feet on the ground. Chase quotes a friend by saying there are two things you have to ask yourself if you think you are ready to make a change in your life: 1. Is this working? 2. Do I still believe in it? If the answer is no to both, then it is time to get out of what you are doing.

If you are interested in pursuing classes via Creative Live, Chase has provided a special discount for Trend Following listeners. Go here: https://www.creativelive.com/trend.

In this episode of Trend Following Radio:

  • Gaining freedom in your life
  • Entrepreneurship
  • There is no overnight success story
Aug 8, 2016

Michael takes the podcast back to the 1960’s with a talk from Milton Friedman. Throughout the presentation Friedman outlines the role of government in a free society. He emphasizes the different variations of “free”. The first is freedom with the absence of coercion. The second is free in the sense of a “free lunch”. They have two very different very different meanings and Friedman goes in depth on the two.

Michael wraps the podcast up summarizing Friedman’s talk with a slightly more pessimistic view. Michael thinks that politics and government will never be straightened out. He loves Friedman’s thinking but has a hard time thinking that human nature will ever change. “I have a hard time imagining, with the irrationality of human nature, that anything will ever change. As long as we keep dying and keep replenishing with a whole new group of useful idiots and sheep…we can have our fantastic view of change, but…” Michael stresses that the key thing that’s important is building capital and the only person you can count on is yourself.

In this episode of Trend Following Radio:

  • Unanimity in government vs. Majority rule
  • Principles vs. Expedients
  • Government conformity
  • Government autonomy
  • The meaning of property
  • Responsible individuals vs. Irresponsible individuals
  • Human rights
  • Freedom of speech
  • Government failure on a large scale
  • Market failures
  • 3rd party benefits for society
  • Government failure vs. Market failure
Aug 5, 2016

Michael talks with Christopher Lochhead. Christopher is co-author of “Play Bigger: How Pirates, Dreamers, and Innovators Create and Dominate Markets”.

Michael and Christopher start the podcast talking about the commonalities between most innovators and entrepreneurs. The legendary innovators that make their companies into a success focus on three main points: product design, company design, and category design. Category design is about inventing a whole new space in the world for their product. Legendary innovators are just as thoughtful about their category design as they are of product and company design.

Christopher and his co-authors went back and looked at every start up company founded in the United States dating back to 2000. They asked, “What percentage of the market cap in the category goes to the category king or leader?” On average the category king captured 76% of the markets profits. Category design is a secret “black art” in Silicon Valley. Only about 10% of companies are thinking about teaching the world to accept their new innovation. If you do not teach your consumers, then you are leaving your company up to chance, waiting to see if people will figure your company out on their own. Christopher stresses that when you create a product that fits into an existing category, you are by definition playing someone else’s game. And you are fighting for essentially only 25% of the market. He uses Microsoft as an example.

Michael asks Christopher to go into the idea of “disrupting the marketplace” with new ideas. Christopher says that “disrupting” is actually the wrong way to go about looking at things. Elvis did not disrupt Jazz, he just created a new genre that we now know as rock and roll. And in the same way, Les Paul created the electric guitar. He did not ruin the acoustic guitar; they just sit side by side now.

“When someone comes up with a new category, how do you determine pricing?” Christopher says that the category king has pricing power. You get to decide what the pricing is if you create the category. And in order to become a category king, the CEO needs to spend at least half of his/her time articulating the problem that has been solved with their product to the customer. Christopher goes into detail and uses Pixar as an example of this concept.

The category king dynamic is not geographically bound. There tends to be different kinds of technology that breaks through in different parts of the world, but that is really the only difference. In many parts of the developing world there is even more of a focus on getting the “product, company and design” right.

In this episode of Trend Following Radio:

  • Disrupting the marketplace
  • Product marketing
  • Teaching consumers about your product
  • Creating new market categories
  • The anchoring effect
  • Thunder lizards
  • Category kings
  • The Innovator’s Dilemma
  • Category design
Aug 1, 2016

Today, Michael dives into silence. An excerpt from Daniel Gross: “In the mid 20th century, epidemiologists discovered correlations between high blood pressure and chronic noise sources like highways and airports. Later research seemed to link noise to increased rates of sleep loss, heart disease, and tinnitus. (It’s this line of research that hatched the 1960s-era notion of “noise pollution,” a name that implicitly refashions transitory noises as toxic and long-lasting.)”

“Silence” science is leading the way with awesome new insights: “The growth of new cells in the brain doesn’t always have health benefits. But in this case, cells [generated from silence] seemed to become functioning neurons. “We saw that silence is really helping the new generated cells to differentiate into neurons, and integrate into the system.”

Michael weaves this narrative right back into his wheelhouse: day trading v. trend following. Lessons for traders, lessons for life. Enjoy the silence!

In this episode of Trend Following Radio:

  • Peace and quiet is all about the noise in your head.
  • Correlations between high blood pressure and chronic noise sources.
  • Possible therapeutic uses for silence.
  • Trend following.
Jul 29, 2016

Emma Seppala is today’s guest. She is author of “The Happiness Track: How to Apply the Science of Happiness to Accelerate Your Success.” She is the Associate Director for the Center of Compassion at Stanford University. Emma’s work isn’t based on theories or common knowledge, there is a tremendous amount of neuroscience backing her work.

Emma starts the podcast off stating that being happy is a very subjective experience. With that in mind, in general, happiness is divided into two main categories; hedonic and eudemonic. Hedonic happiness doesn’t last long and is more associated with short burst of excitement such as sex and food. Eudemonic is much longer lasting and is more associated with self-fulfillment. Emma goes into depth explaining and giving example of both forms of happiness.

Michael asks Emma to talk about the myth of success next. Emma says Americans are over stimulating themselves, and believing that running on adrenaline is the best way to get things done. Chronic stress is actually what we are embracing and it starts to deplete our immune system. Emma acknowledges that you may not be able to control the world around you, but you can control your state of mind. Working on Stanford’s campus, Emma has seen first hand the severe epidemic of students buying into myths of happiness, especially on higher achieving campuses. They believe the only way to be successful is to burn themselves into the ground and of course, this notion is completely false. Unplugging and taking more vacations is the best way for us to reach our maximum potential. Creativity and happiness in the workplace depends on it.

Next, Emma discusses the impact breathing has on our emotions. There are different breathing practices that help out with stress and anxiety. Nurturing more calmness in our life helps us manage our energy much more. There was a study done at Harvard that showed our brains wonder 50% of the time. However, science shows that we are never happier than when we are in the moment of now. With technology constantly at our fingertips, it is getting harder and harder to be in the present moment. But when we are in the moment, it boosts our charisma and happiness. People are drawn toward others that are satisfied being in the present moment with them. Michael and Emma turn the conversation to negative emotions. These emotions make us more focused on ourselves and selfish. When the focus shifts to positivity, authenticity is created. Others crave authentic people they can connect to. They finish on talking about creativity and how to best tap into the creative parts of your brain. Just by making small changes in the way you work can really make a huge difference in the way your feel and your brain works.

In this episode of Trend Following Radio:

  • Benefits of happiness
  • Stresses in life
  • Controlling your mind
  • Happiness in college
  • Cultivating resilience
  • Tapping into the opposite of fight or flight response
  • Impact of different breathing techniques
  • Living in the moment of now
  • Authenticity
  • The flow state
  • Activating creativity
Jul 25, 2016

Michael takes the podcast back to 1959 with an interview between Mike Wallace and Ayn Rand. Wallace and Rand focus on her ‘revolutionary’ view on the world. Rand capsulizes her views as a philosophy based on objective reality. She expands on a new code of morality centered around mans life as a standard of value. This means that a mans highest moral purpose is the achievement of his own happiness and each man must follow his own rational self interest.

Atlas Shrugged demonstrates Ayn Rand’s philosophy in human terms. Rand and Wallace briefly touch on many subjects such as; self sacrifice, love, altruism, the democratic system, and welfare.

Michael wraps up the podcast by summarizing the interview and comparing it to life in 2016. He talks about the importance of leaving his own impact on the world and how necessary logic and reasoning is to being successful.

In this episode of Trend Following Radio:

  • Man’s morality
  • Altruism
  • Self sacrifice
  • Free and unregulated economies
  • Capitalism with government help
  • Welfare
  • Depressions due to government interference
  • Strategic decision making
Jul 22, 2016

Laura Roeder is a serial entrepreneur and her newest company is Edgar, a social media application. She started working for herself creating websites for people when she was 22 living in Chicago. It spread to optimizing traffic and online marketing for her clients. In 2014 she launched her social media software business, Edgar. They haven’t taken any money from investors and have grown to 2.8 million annual revenue.

Twitter, Facebook, and LinkedIn are the biggest social media platforms today. Many entrepreneurs get overwhelmed by the scope of content creation and posting needed to be successful. They tend to give up before they have even begun. Laura goes into the advantages of recycling content, notes that small percentages of your audience will ever see your content, and that the nature of the internet is all about repeated content.

The questions to ask yourself are, “How much traffic are you driving back to your website? How many people are buying off of that traffic?” There needs to be a balance between providing worthy content to your social media followers and not just pushing ads at followers. Michael then asks, “How important is it to be authentic?”

Don’t worry about people who want to un-follow or unsubscribe to your email. If they don’t want to follow you, then you don’t want them anyway. The extreme side of un-followers are critics. Laura and Michael talk about critics and how to cut them loose. They finish up talking about Edgar and how it works to make social media easier by automation, along with how Laura has carved out her space as a entrepreneurial woman in the tech space.

In this episode of Trend Following Radio:

  • Social media
  • Business competitors
  • Success of Dropbox
  • Keeping up a great reputation
  • Be aware that competitors can access everything
  • Women in the entrepreneurial space
Jul 18, 2016

Michael starts off explaining how Trend Following Radio has morphed into the diverse podcast it is today. He started Trend Following Radio in 2012. It originally was all about trading, but with a Vernon Smith interview, then Gerd Gigerenzer and Dan Ariely interviews, he realized he could take it in a different direction. With those three interviews under the belt, he was able to secure Daniel Kahneman on the podcast which he believes was the real tipping point for the podcast.

For the rest of the episode Michael plays curated clips from the men mentioned above: Vernon Smith, Gerd Gigerenzer, Dan Ariely and Daniel Kahneman. He wraps up by playing a short clip from another brilliant mind in behavior finance, Nassim Taleb. The clips exemplify the spirit of behavioral finance. They range from helping people understand their behavior at a fundamental level to behavior in markets and what drives the average person to make particular risky moves in life and in their trading.

Michael finishes up talking about the enormous amount of misinformation in news and media. You need to do the reading and educate yourself. Absorb wisdom from the right people, do your homework and put in the work to get ahead. It will not just come intuitively or from “for profit” media outlets.

In this episode of Trend Following Radio:

  • Law of demand
  • Behavioral economics
  • Experimental economics
  • How do you make bubbles go away
  • Using algorithms over emotions
  • Noise reduction
  • Statistical thinking
  • Understanding the difference between risk and uncertainty
  • Probability theory
  • Risk Communication
  • Unconscious things that make us fearful
Jul 15, 2016

Michael and David Burkus start off talking about Fredrick Winslow Taylor. Fredrick’s claim to fame is discovering that it isn’t about innovating a product, but rather about innovating the factory. He looked into factory processes and what it took to make a product most effectively. The downside of his work was that he believed management should be operated scientifically as well. He thought that management was smart and factory workers were dumb. His values helped people focus on how to make a product most efficiently not how to make people sustainable, prolific and healthy. He took a lot of the emotion out of it. Most of his work has shifted from the United States and moved to other more factory driven places such as China.

The new form of work that we are seeing in most countries is creative work. Employees are required to make decisions or make collective designs with people in their company. Michael asks, “Isn’t this about making employees feel like entrepreneurs in their company or organization?” David uses tech start-ups as examples; Even as they get big they aim to make their companies continue to feel like a start-up and train their employees to think like solo entrepreneurs. This is how trust and intellect gets built within a company.

Next, Michael and David discuss the effectiveness of email. Pros: The cost of email is cheap and you can respond on your own schedule. Cons: Constant text and emails have diverted focus and created too much distraction. David stresses that there is no such thing as “multitasking”, there is only task switching. Some studies say it could take up to 15 minutes to get back to the focus you were at before you were interrupted.

Michael and David move the discussion back to the importance of keeping your employees happy. Having outstanding customer satisfaction comes down to putting employees first. Sometimes that means siding with your employees over your customers. You need to be able to tell some customers that your company or product simply may not be right for them. Also, creating the right work environment is key. Open work environments as opposed to more closed work environments have been becoming the norm. In an open office environment the idea is that working together is easy and creates a better collaborative environment. However there are negative effects such as increased sick days (perhaps because they do not want to see certain co-workers) and more distraction.

Michael and David finish talking about non-compete clauses and the counter productiveness of them. There is a difference between a non-compete and a non-disclosure. Apple and Google have two totally different views on this. Google is 100% fluid and open. Apple is very closed off and believes in the non-compete clause. When people migrate from one company to another, it has been shown in studies that both companies actually win from the intellectual knowledge transferred and gained from each other. Non-compete environments benefit everyone in the long term. Also, on a societal level you can see a huge benefit when non-competes are not allowed.

In this episode of Trend Following Radio:

  • Re-designing the factory
  • Physical labor vs. Intellectual labor
  • Machines vs. Man
  • Multitasking = Task switching
  • “The customer is always right” mentality
  • Confirmation bias
  • Introverts and extroverts
  • Customer service
  • Non-compete clauses
Jul 11, 2016

Michael starts an email from a listener that starts with praise, then turns around and claims that a top trend following trader has 400 employees and “super computers” to carry out trades, and that is why he is so successful. Michael uses this listener as just one example of how millions think. They are confused by what a computer does, and simply don’t understand what trend following is all about. The trader he refers to is on record saying that he trades off of Excel spreadsheets. For the remainder of the podcast, Michael expands on his response to the listeners email, and breaks apart algorithmic trading.

Michael next reads an excerpt from “Intuition Pumps and Other Tools for Thinking”, by Daniel Dennett. The excerpt breaks down algorithms in depth. Michael’s point is to show that a computer doesn’t make a great trader, it is the algorithms programed in the computer that creates the success. Where do the algorithms come from? Humans. Trend following is all about having the brilliance to come up with a strategy, but the execution is straightforward.

In this episode of Trend Following Radio:

  • “Super computers”
  • Systematic trading
  • Creating algorithms
  • Coding
  • Machines replacing humans
  • Breaking down the use of software
Jul 8, 2016

Jason Gerlach and Chris Stanton are the CEO and CIO of Sunrise Capital Partners. Sunrise Capital is a systematic firm located in San Diego. They were featured in The Little Book of Trading. Sunrise has been in business for four decades trading. Their goal is to invest in an intellectual way by taking human emotion out of their decision-making.

Michael opens the conversation up with Brexit and how Sunrise Capital reacted. There are foreseeable events and unforeseeable events. Brexit was a foreseeable event. Jason and Chris breakdown the weeks before Brexit, and how Sunrise has been positioning their portfolios in contrast to other firms. Jason and Chris say that in the systematic world there have been two different camps of thought in how to approach Brexit.

Michael moves the conversation from Brexit to Oil dropping in 2014. Jason and Chris say that these events are not just moneymaking events, they are also risk management events. People live in the middle of a bell curve and never think of the tail events in life. They trade and invest for the non-random times and are always shocked when events tend to go further than expected. Sunrise does the opposite and uses technology to curb our human irrationality.

Michael and Chris dive deeper into risk management and the importance of diversification. Sunrise has five systems that operate differently in all market situations. Chris explains risk adjusted return and how setting the “heat” is really the heart of leverage. “What kind of return is optimal for you?” The higher expected rate of return, the more drawdown you may have. When you look at someone’s rate of return, you have to look at what their drawdowns are like. Leverage is a reality in strategies; you just need to be responsible with that leverage and cater it to each individual investors needs.

Michael moves on to ask, “Has Brexit opened up Pandora’s box?” Chris and Jason say Sunrise believes that price distribution has changed since 2013. Intraday volatility has changed and prices now make huge jumps in smaller time-frames than they ever have before.

In this episode of Trend Following Radio:

  • Brexit and systematic trading
  • Price distribution
  • Price action
  • Directional betting on a coin flip event
  • Preparing for black swan events
  • Are computers good or bad?
  • MAR ratio
  • Diversification
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