Value Versus Trend Following with Michael Covel on Trend Following Radio.
Timur Kuran is an economist, professor of economics and political Science, Gorter Family Professor in Islamic Studies at Duke University and author of “Private Truths, Public Lies: The Social Consequences of Preference Falsification.” His work spans economics, political science, history, and legal studies.
Timur is responsible for coining the term “preference falsification.” So what is preference falsification? It is the act of misrepresenting ones wants because of social pressures. There is a movement going through colleges where students feel they are being suppressed. They don’t feel they can express themselves because of fear they may be called a racist, sexist, etc. Despite America being seen as a country of freedom and self-expression, 90% of students feel they cannot speak freely or engage with professors and other students in lively debate.
What was the a-ha trigger moment that pushed Timur toward working on preference falsification? It happened while he was a PhD student studying economics. While learning about different theories, he looked around the classroom and knew not all of the students agreed or accepted the theories being taught. He felt uncomfortable himself challenging his professor and knew there was more to how he was feeling and how his classmates seemingly felt. This stayed in the back of his mind throughout his PhD program and he decided that after graduation he would start working on his new theory.
Timur uses the 2016 U.S. election between Clinton and Trump as an example of preference falsification. Trump showed he wasn’t afraid to take on the establishment, no matter how high up they may be. He challenged the media, a war hero, and other politicians and made them look like victimizers. Trump understood “the thinkable” and “the unthinkable.” By tapping into unthinkable thoughts that had never been articulated by other politicians, Trump gave hope to millions of people who otherwise may have discounted him. Timur also uses the 2011 Egyptian uprising as well as the caste system in India as other examples.
Aaron Brown is a finance practitioner, expert on risk management and gambling, speaks frequently at professional and academic conferences and author of “Red-Blooded Risk,” “The Poker Face of Wall Street,” and co-author of “A World of Chance.” He was Chief Risk Manager at AQR Capital Management and one of the original developers of value at risk.
At 8 or 9 years old Aaron would read the newspaper everyday just to see the sports and Wall Street numbers. Over time, he started to see patterns in those numbers and felt he might be able to make money off it. He came across a book at his library that mathematically proved he could “beat the house.” At age 14 Aaron knew he could walk into a poker game and walk out with his opponents money. He gambled into his early 20’s until he realized the real money to be made was on Wall Street.
How does Aaron define being a quant? Someone who makes calculations and then bets on those calculations. Clients are drawn to Aaron because he is known for being able to solve problems most cannot. That being said, he only takes on problems where he knows there is a solution. When hired, Aaron disrupts systems mainly because he operates on the opposite side of Wall Street. He unveils flaws in systems – disrupting sales and creating more work for developers.
Michael and Aaron finish up discussing, “What is a black swan event?” It is a low probability, high impact event because it was unexpected. Drawing from Nassim Taleb’s wisdom, “People over estimate the last event happening again and underestimate the next crisis.”
Cyrus Farivar is a Senior Tech Policy Reporter at Ars Technica, radio producer and author of “Habeas Data: Privacy vs. the Rise of Surveillance Tech.” Cyrus sees the privacy battle as an ever winding, never-ending road. Privacy is hard, national security is hard, law enforcement is hard but Cyrus is optimistic we can strike a good balance between all three.
Do we really know the extent to which we are being watched? Probably not. Surveillance technology affects us all – for better or worse. For example, nearly half of Americans are in facial recognition data bases. In addition, most Americans have a drivers license, identification card, or passport – putting just about every adult into a government system.
Does this mean privacy is dead? Not necessarily. Some things will continue to be private. Cyrus lays out some companies that build their whole business model around keeping the information of their clients secure from any outsiders – whether it be a private citizen or the government.
Having heightened security and better technology has it’s advantages and disadvantages. Obvious disadvantage? Loss of privacy. What is one advantage? Law enforcement can not only use surveillance to catch bad guys, but it can also be used to keep themselves in check. Just about every person has a phone with great video technology. Everything is recorded and everything can be seen. Michael and Cyrus end the conversation discussing the controversy around aerial surveillance and private use of drones.
I Like How @Naval Thinks with Michael Covel on Trend Following Radio.
All fundamental data, insights, and prediction, reduces to price. Price is the foundation for all trading. Michael caught a reminder of this in a recent twitter debate with Elon Musk. A NBC reporter challenged Musk on his insights and wanted him to come by the news room to have an interview and see his “process”. Michael reads the debate between the reporter, Musk and Scott Adams (creator of the Dilbert comic strip). Michael weaves his commentary and insights throughout.
Daniel Klein is a professor of economics at George Mason University and an Associate Fellow of the Swedish Ratio Institute. Much of his research examines public policy questions, libertarian political philosophy, and the sociology of academia. He is the chief editor of Econ Journal Watch.
When did Daniel first embrace the idea “liberty”? He was dissatisfied with the school system for most of his childhood. A friend asked him “Have you ever thought about why school sucks?” His friend explained that students don’t get to choose where they go to school, there is no private ownership, schools don’t have choice in curriculum etc. He quickly saw the system as a socialist operation and suddenly “Why school sucked” all made sense to him. This gave way to him falling into a free economic market, libertarian, and Austrian Economics way of thinking.
Into college he gradually discovered Adam Smith, David Hume, and other 18th century thinkers. Through research he saw that the word “liberal” was not used in a political sense until about the time of Adam Smith. People had thought of ideas associated with liberalism but when Smith came out with “The Wealth of Nations,” he finally put a name to this way of thinking. Regardless of whether people agreed with his politics or not, his ideas spread throughout the world.
To really understand the arc of liberalism throughout the years it is important to learn what happened in the past and see the progression. Today, terms such as “The left”, “Dem”, and “Progressive” are all terms that have been adopted by others to accept liberalism.
Agustín Fuentes is a primatologist and biological anthropologist focusing largely on human and non-human primate interaction, pathogen transfer, communication, cooperation, and human social evolution. His most recent book is “The Creative Spark: How Imagination Made Humans Exceptional.”
How did Agustín begin studying anthropology? From an early age he loved trying to figure out what made people tick. By studying other primates and what human ancestors did, he came to find that we are creative and imaginative in ways people didn’t think we had the capacity for.
Agustín found that through innovation, collaboration and creativity learning happens. What are some examples of innovation from our ancestors? Fire is one of the most basic, yet amazing discoveries of our ancestors. No species on the planet, besides humans, use fire. Use of fire gave humans the opportunity to change the composition of materials to mold utility items, change food composition, and provide the opportunity to break the day and night cycle.
Collaboration can be seen in instances of warfare. Are we inherently violent? Yes. Humans have the capacity for intense violence. However, when studying warfare, it is all about collaboration and putting your life on the line for the greater good of the army – not about who has the most violent army. Collaboration is the bottom line in when it comes to winning a war.
Once people were able to convey information with language, huge advancements were able to happen in creativity. In the last 100,000 years or so art happened, and humans were able to convey imagination. Speech and hearing coincided with art and showcased our capacity for creativity. Michael and Agustín finish the podcast talking diversity. Throughout the ages, diversity has been the norm for humans. When you get outside of your bubble, and explore the world a little, you see first hand the immense differences in advancements and innovation throughout cultures.
Frank Conway is host of the Economic Rockstar podcast. Michael made a recent appearance on Frank’s show and shares it today on his podcast:
Shane Snow is author of “Dream Teams: Working Together Without Falling Apart” and the bestseller, “Smartcuts.” Shane is also an award-winning journalist, celebrated entrepreneur, and co-founder of Contently.
When thinking about great teams we often think of just the best players. Shane uses the success of the Soviet Union’s 1980’s hockey team as an example and sheds light on what made them so uniquely successful. It was not the individuals that defined the success of the team, it was the collective team as a whole. Their team wasn’t about having a guy that could score a lot of points. Each player was dedicated to doing whatever they needed to do to get the hockey puck in the goal.
That 1980’s Soviet hockey team also fostered a diverse set of minds. Historically we reduce classifications to what we can see. Having a diverse team doesn’t just mean having people of a different race, gender, sexual orientation, etc. If you want a group to be smarter than its smartest member, you need a team of people who all think differently. This is where cognitive diversity is important – the best ideas often come from a round-table of minds debating. However, it can be easy to go too far when building a diverse team and end up with a group of people trying to destroy each other rather than cultivating innovative ideas.
What is the leading cause of failure in business and relationships? Communication. Combining various perspectives from people are what often adds up to one great new innovation. Looking at new angles is the only way to break new ground. Unfortunately, a lot of what we think is crazy gets shut out. Those crazy ideas are what need to be heard the most.
Matthew Walker is Professor of Neuroscience and Psychology at the University of California, Berkeley, and Founder and Director of the Center for Human Sleep Science. His new book is “Why We Sleep.” Matthew’s mission is to reunite humanity with sleep.
How did Matthew begin studying sleep? He learned insufficient sleep is linked to ALL of the top killers in civilized countries. The average adult only sleeps 6 hours and 31 minutes. The disease and suffering that is present because of lack of sleep has become his motivator to instill change. So how much sleep do we need? If you are not getting at least 7-9 hours of sleep a day, you are not acting at optimal performance. Most who think they can operate at full capacity with 6 hours of sleep have become numb to the state they live in. They have forgotten, or perhaps have never known, what their optimal performance looks and feels like.
Insufficient sleep is shown to lead to disease, cancer, mutating your DNA, and Alzheimer’s. Not only does lack of sleep hurt you in the long-term, it also has many short-term effects as well. When you are sleep deprived your brain is 40% less able to retain information. Some have legitimate sleep disorders, however 90-95% of people can change their sleep habits.
How can we help change our quality of sleep? Turn off the technology at night. Lights from the T.V., iPad, phone, etc. sends all the wrong signals to your brain. Melatonin does not get released at the time it should get released. Any kind of light is problematic within the last hour or so of when you should be getting ready for bed. Light, sleep procrastination and anticipatory anxiety are the three biggest problems related to too much technology before bed.
Aiding sleep with drugs or alcohol is a common misnomer. When you sleep with the aid of alcohol or sleeping pills they inhibit your ability to hit your REM cycle. The same is true for marijuana. These are methods of sedation, not actual sleep. Studies show that sleeping pills are associated with death and cancer. More specifically, you are 3-4 times more likely to die across a 2 ½ year period when taking sleeping pills, than those who do not taking sleeping pills. Michael and Matthew end the conversation breaking apart start times of schools and how crucial starting an hour or two later is to a student and their quality of learning.
Philip Maymin is an Associate Professor of Analytics and Finance at the University of Bridgeport Trefz School of Business. He is the managing editor of Algorithmic Finance and the co-editor-in-chief of the Journal of Sports Analytics. He has been an analytics consultant with several NBA teams and is the Chief Analytics Officer for Vantage Sports.
Philip brings the perspective of “Moneyball” to basketball. The Celtics, for example, have done a great job of putting players in positions that play to their strengths. They do this by analyzing the data of their players better than most other teams. High frequency data is in sports now, not just in trading. There are cameras in every professional basketball arena that produce play by play data showing summary statistics that coaching staff and in some instances, the public, can see.
Teams are producing models for how each player moves in combination with the other players on the court. The two most basic questions you ask of a player is “What does he do really well?” And “What does he do often?” Sometimes what players do often, doesn’t correlate to what they do well. Philip also discusses outlier players like Marcus Smart. He doesn’t have amazing scoring stats, blocking stats or anything else particularly extraordinary, yet when he is on the court, his team has a dramatically higher chance of winning.
How could we start going down the path of using data to create and put a team together? The myth is that GM’s are brilliant and have foresight on who to draft. If that were the case wouldn’t they be making dramatically more money? Also, how are they making decisions? GM’s mostly rely on their gut. Philip believes that EVERYTHING should be put in a system. If you take scouts opinions, analytics, GM’s opinions, etc. and put it all in a soup then you are just trading off your gut. You have essentially de-systematized the system.
Trend following has more in common with Jeff Bezos, blackjack or horseracing than Elliot Wave or Gann. Michael uses a dating example to show the edge gained in dating when approaching total strangers and the correlation to trading random markets. If you play the system right and stick with it, odds are, you will come out on top. Is this the way to play the game? It doesn’t sound romantic, but the playing field is messy whether it be in seduction, black jack or venture capital – you have to play it different.
In this episode of Trend Following Radio:
Roy Baumeister is a social psychologist known for his work on the self, social rejection, belongingness, sexuality, sex differences, self-control, self-esteem, self-defeating behaviors, motivation, aggression, consciousness, and free will. Roy has also authored over 20 books throughout his career. He likes to start his research with the premise that he doesn’t know the right answer–trying to have an open mind and clean slate.
Roy started his career studying the idea of self-control. He looked at some of the major crutches people deal with–dieting, quitting smoking, controlling emotions. Roy found that everyone has a limited amount of energy and using that energy toward will power had a limited source of regulation. When people used their energy toward gaining self control in one area, they lost it in another. One way Roy found to boost energy and restore self control in patients was to give a patient glucose. It seemed to restore self-control in the patient, giving them a boost of energy.
Roy also has studied differences in people with high self-esteem as opposed to those with lower self-esteem. Improving self esteem didn’t seem to help make life better or lead to later success but improving self control did. Working on self control was shown to be more important for success than IQ or self esteem. Asian countries, for example, have much more discipline built into their culture than American culture. Roy’s studies have shown that Asians therefore require a lower IQ to be successful because their self control overpowers other inhibitors.
Michael and Roy finish their conversation talking sex. Is it more nature or nurture? Roy has found that female sexuality is more cultural and male sexuality is more nature. Do sex norms change based on female to male ratios? Yes. When you look at populations where there is an un-equal amount of men to women and visa versa the desire for one sex to acquire the attention of the other sex is shifted. Standards are lowered/heightened. Michael includes a 30 minute bonus presentation from Roy expanding on the topics discussed on today’s podcast.
No Real Magic with Michael Covel on Trend Following Radio.
Alexander Elder has written some of the most popular trading books of the last 30 years. He grew up in Estonia among a successful family of doctors. Alexander followed in his family’s footsteps, becoming a doctor and making his way on a cargo ship. He ran from his ship to a U.S. Embassy, escaping from his country. His decision to jump ship was literally the best decision of his life. He is author of Trading for a Living, considered a modern classic among traders, an international best-seller, translated into 16 languages, and recently newly revised and released under the title, The New Trading for a Living. This is his second appearance on the show.
How is Alexander’s trading different? Alexander is motivated by creating quality. He has a sense and intuition for it. Someone who is losing money looks at their situation “like a rabbit running from a snake.” Alexander thinks differently. He trades by way of systems. He has his orders set for the day, goes skiing, then comes back to the computer to watch the last hour of trading to see if he needs to make any adjustments. He learns from his mistakes and makes sure his systems are the highest quality they can be.
What was the pivotal moment that broke Alexander into the trading direction he is in? There was not one moment, but many losing ones. He hates to lose. He overcame his losing over time with persistence and stubbornness. He studied his systems and trades vigorously until he had a winning system.
Another motivation? Knowing that failure was not an option. Alexander grew up in a successful family with money – If he failed in his home country, he would have been taken care of. However, now that he was in the United States, he knew if he failed he would be on the street. There would be nobody to take care of him. Do you hit rock bottom and paddle up? Or do you stay there and become a bum? Alexander chose to paddle up.
Asymmetric Information and Entrepreneurship with Michael Covel on Trend Following Radio.
David Burkus is author of “Friend of a Friend: Understanding the Hidden Networks That Can Transform Your Life and Your Career.” David has delivered keynotes to leaders of Fortune 500 companies and future leaders of the United States Naval Academy. His TED talk has been viewed almost 2 million times and he is a regular contributor to Harvard Business Review. What if the advice we have all heard about networking is wrong? David outlines the right way to network in the modern age.
How do you meet people? How do you meet the right people? Once you meet those people, what do you do with the relationship? Maybe you haven’t talked to someone for a few years but you could still call him or her up and have a personal talk with them. This is an example of one of the most useful networking ties, known as a “dormant tie.” David uses UFC founders, Dana White and Lorenzo Lamas, as an example. They went to high school together, hadn’t talked for years, both had a passion for fighting, but lived in different spheres of the fighting community. After reconnecting at a high school get together they realized they had some aligning career aspirations. They ended up buying the UFC and made it the fastest growing sport in history.
When you start taking chances on meeting people and putting yourself out there, that is when your network really expands. David shares another example of a movie producer who got his foot in the door by getting creative, taking some risks, and reaching out to the right people for conversations. Who do you know? Who do your friends know? Where do you know them from? These are basic questions that can get the ball rolling when trying to expand your network.
Knowing a ton of people is not necessary to be successful, you just need to know the right people to give yourself credibility. Shared activities and hobbies are ways to draw in a set of diverse people to build deep relationships. Networking events have become a thing of the past (thank goodness).
In this episode of Trend Following Radio:
"What Is and Might Be" with Michael Covel on Trend Following Radio is the new weekly view direct from Michael Covel.
From IMDB: “An unsettling and eye-opening Wall Street horror story about Chinese companies, the American stock market, and the opportunistic greed behind the biggest heist you’ve never heard of.” That’s the opening description for a new documentary titled “The China Hustle” (2017).
Today, Michael talks with Director Jed Rothstein about the backstory for his film and the complexity of fairly describing a modern China. Whether you know something about China or not–this conversation will stimulate your China understanding.
Academy Award-nominated and Emmy-winning filmmaker Jed Rothstein specializes in hard-to-get stories from around the world that help people understand one another better. Whether seeking out heavy metal musicians who become Arab-Spring revolutionaries (PBS’s Before the Spring After the Fall); pioneering doctors (HBO’s Coma and Pandemic); Al Qaeda terrorists (The Oscar-nominated HBO documentary Killing in the Name); defenders of free speech (The 2009 Sundance film Shouting Fire); journalists on the front lines (Independent Lens’ Democracy on Deadline)–Rothstein works with people to help them tell their own stories in their own words. His films and television programs have played in festivals around the world, enjoyed special screenings at the United Nations, and been broadcast on HBO, PBS, National Geographic, Amazon Prime, The Discovery Channel, IFC, Channel 4, the BBC, CNN and elsewhere.
Michael reaches back in time to explore a mega episode with three of his favorite guests: Salem Abraham, Walter Williams and Emanuel Derman.
Salem Andrew Abraham (born 1966) is an American investor, hedge fund manager, and philanthropist. He is the president and founder of Abraham Trading Company, a futures investment firm based in Canadian, Texas.
Walter Edward Williams (born March 31, 1936) is an American economist, commentator, and academic. He is the John M. Olin Distinguished Professor of Economics at George Mason University, as well as a syndicated columnist and author known for his classical liberal and libertarian conservative views.
Emanuel Derman (born 1945) is a South African-born academic, businessman and writer. He is best known as a quantitative analyst, and author of the book My Life as a Quant: Reflections on Physics and Finance.
Staying within the title of this episode: three clear thinkers.
Brennan Dunn is an expert on optimizing websites, improving user experience and scaling up sales through automation. He knows how to persuade funnel customers to create a peak-buying strategy.
Reading dialogue from Plato has been a big influence on Brennan and his career. Plato had a way of talking to people on an individual basis. Brennan took the observation and has built his business model around just that – personalization. He figures out what level of awareness a customer may have on the subject he is selling and curates a selling strategy off that knowledge. Brennan calls this life cycle marketing. He segregates emails based on how long people have been on his email list, what your interests are, and different skill levels. People buy more often when they feel an offer has been completely catered to them.
How does Brennan write such effective copy? He starts with someone’s pain and shows them he knows where they are in life, where they want to be, and what their dreams are. Nobody cares much about what the product is, they care about how it will help them get to their dream. Copywriting is more about curating that creating.
What is the best way to get your message or product out to people? What is the most effective platform of communication today? Email. Brennan has launched products through Twitter as opposed to email and the results are nowhere near the same. Email reaches a greater number of people and is not owned by one company – it is a decentralized platform. Michael and Brennan end the conversation talking website development and the importance of usability and simplicity in a website.
In this episode of Trend Following Radio:
Life cycle marketing
Predictive technical analysis is chart/pattern reading. Trend following, on the other hand, is reactive technical analysis – a diversified portfolio perspective of markets using momentum indicators. You never know what will happen in one market so you use diversification to hedge your bets. Predictive technical analysis has no evidence of success. Reactive technical analysis has decades of proof behind it. How do you find this proof? Seek out the track records of traders using trend following. You can see trend followers making and losing money over long periods of time.
Michael reads a review from a critic who is a fan of predictive technical analysis. Michael uses this review to further make his point – there is no chart that can be studied long enough that will tell you which way a market will move. Trading in this way is a recipe for failure. As Ed Seykota famously said, “Everyone gets what they want out of the markets.” When you trade as though you can predict the future, you will most certainly get what you want from the markets – failure.
Tarra Mitchell’s new book is “The Yoga of Leadership: A Practical Guide to Health, Happiness, And Inspiring Total Team Engagement.” Her work digs deep into the psychological benefits of practicing yoga and the benefits it provides for overall life wellness.
Tarra made a pivot in her career after the 2008 financial crisis. She was working to raise money for a fund of funds and decided she wanted to set off on her own – become an entrepreneur. Her new business was set to get off the ground just as the 2008 crisis was unfolding – tanking her new business opportunity. Tarra then set off on different ventures, eventually leading her to yoga. Yoga quickly became a part of her weekly routine. She decided to go through yoga teacher training, not to become a teacher, but rather to learn more about the practice. Through that experience, she realized she wanted to give back to the world by bringing the benefits of yoga into the finance industry.
Stress, loneliness, happiness, depression – it’s all contagious. Tarra saw yoga as a great way to counter some of the negativity in everyday life. Breathing and moving on a yoga mat settles the nervous system and helps quiet the mind. Yoga also helps bring students to an ongoing place of greater consciousness. Waking up each morning and doing an assessment of what’s needed for the day helps give the mind balance and power over the senses. With Tarra’s previous ties to the finance world, she quickly saw how valuable it could be to the industry.
Tarra not only see’s yoga as a way to settle the mind, but also as a healing agent. Too often, people turn to drugs and alcohol as coping mechanisms. They turn to pills for anxiety, depression, or other ailments rather than trying to develop real skills to help. Tarra teaches her students how to strengthen the mind through practice and gives students a sense of community.
When everything is going great in the market, that’s when it is time to make sure that you have a plan for when it all goes downhill. Michael reads a piece from Ben Hunt titled, “The Icarus Moment,” adding commentary throughout. Michael and Ben may have differing views on trading styles, but philosophically they are aligned.
Everyone, on some level, is stuck on a wheel. People are literally baring their souls on a daily basis. Do you want to hear everyone’s daily fears? Their daily drama? Who we are and what we do has become completely separated. What can we do about all this? Start asking the “why.” Trust your biases. Wisdom comes from the ability to think critically. Think of the why, and not just the what.
Michael ends the podcast with a bonus interview with Anders Ericsson author of “Peak: Secrets from the New Science of Expertise.” Ericsson is a psychologist and Conradi Eminent Scholar and Professor of Psychology at Florida State University. He is an internationally recognized researcher in the psychological nature of expertise and human performance. He studies cognitive ability, personality, interests, and other factors that help researchers understand and predict deliberate practice and expert performance.