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. 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 440+ episodes only 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. 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 440+ episodes only at www.trendfollowingradio.com/rss.

May 23, 2016

Michael Covel breaks apart Bill Ackman and Valeant Pharmaceuticals. He reads from a MarketWatch article that highlights documents that came from a Senate committee investigating the Valeant scandal, and the various reactions of top people involved. Michael also outlines and comments on various interchanges between Bill Ackman, Warren Buffett, Charlie Munger, and news outlets.

This episode is a “behind the curtain look” at billionaire traders and the seduction of fundamentals.

In this episode of Trend Following Radio:

  • Fundamentals
  • Valeant vs. Enron
  • The Deep State
  • Fixing the media
  • Trading off price
May 20, 2016

Michael Covel talks with Daehee Park and JT Marino. They are the owners and founders of Tuft and Needle, a modern mattress company. They met during college at Penn state, parted ways after college and then met back up in Silicon Valley at a startup tech company.

Two young men, who had never worked at a mattress store and were coming straight out of Silicon Valley, hardly fit the mold of mattress company tycoons. When they first started Tuft and Needle, the majority of questions they received all circled around how and why they came to enter the business of mattresses. The answer was quite simple; JT and Daehee started the company based on horrible personal experiences buying mattresses. After their experiences and talking about them together, the two sat down and wrote out all the painful things associated with shopping for a mattress and discussed how they could eliminate those experiences. They came to find out that their wasn’t any “love” or brand loyalty associated with a mattress or the company. This was something they wanted to change.

Since they started with zero mattress experience, Michael asks the obvious question, “What was the first step you took once realizing you wanted to be in the mattress business?” The first step was building up the list of negative experiences they had encountered with personally buying a mattress. Second step was trying to figure out, “What is a mattress? What is the science involved? What are the root principles? And working backwards from that.” They ripped open one of their own mattresses and figured out the components. After seeing the makeup of the mattress, they called around to manufacturers to figure out what it would cost to build.

Next, Michael asks “What kind of motivation did you have for disrupting the industry?” JT and Daehee only figured out the kind of traction they could gain after about a year. They didn’t know how big of an “old boys club” the mattress industry really was. However, their success has proved that there was definite need for disruption in the industry. The bar was set so low to begin with in the industry that they immediately started disrupting it in all areas: price, technology and service by just by listening to customer feedback. Even with increasing their marketing over the years, the majority of their growth is 70% organic and word of mouth.

In this episode of Trend Following Radio:

  • Marketing a company
  • Growing a startup
  • Product development
  • Importance of customer service
  • Creating art
  • Simplification of products
  • Venture capital
May 16, 2016

Today on Trend Following Radio Michael Covel starts off reading a listener email from someone interested in making 3-4% every month with only 15% drawdowns. Michael gives his personal feedback as well as responses from Facebook after posting the email. The responses were mixed. Some people fully believed these kinds of returns are possible, while Michael and others said that if anyone is telling you they can produce 3-4% returns every month then it is absolutely a scam. Only Long Term Capital Management, Bernie Madoff, and some high frequency traders with insider trading access can tout such returns.

Michael finishes the podcast talking about the upcoming American elections. What is the alternative to Trump and Sanders? Hilary Clinton? Michael says that everything is an act with Clinton and that she’s a bona fide…[fill in the blank].

In this episode of Trend Following Radio:

  • Long Term Capital Management
  • Bernie Madoff
  • Leverage
  • Diversification
  • Indian Stock Market
May 13, 2016

Michael Covel interviews Neil Pasricha. Neil is author of the New York Times best seller, “The Happiness Equation.” He is also author of the popular blog, “1,000 Awesome Things.” Neil brings great insights on finding happiness and staying positive.

Neil starts the podcast sharing how his success started. During his first years of gaining notoriety for teaching about happiness, he actually wasn’t happy himself. He was going through a divorce, hardly sleeping, and still working a full time job at Wal-Mart management. His creative output was nothing. He ended up falling in love with a women and that ended up shifting his thinking. He went from observing awesome things, which he is probably most known for, to the application of integrating those awesome things into your life, such as “How do you live a happier life?” “The Happiness Equation” started as notes to Neil’s unborn son. He essentially wanted to write down everything he wanted him to know about life.

Neil details some of his techniques on how he starts writing a book. He is a huge believer of “the note card system.” For a few years he carried note cards around and wrote down any thoughts or tidbits that he would see during the day that were interesting. This is a great example of placing action before motivation which is critical to reaching goals. Neil says that taking small steps is the key to success. Michael brings the conversation back to Neil’s book and happiness. The first thing that pops up on Google search when you type in “how to be” is “how to be happy.” Everyone wants to be happy but they are struggling, searching, stressed, and looking for balance.

The traditional way of thinking is, “Study hard, get good grades, and you will be happy.” Neil says that you should flip that upside down and work on; being happy, then doing great work, and then you will have big success. All studies show that choosing to be happy above all other things leads to a better life. The healthiest societies in the world do not have retirement. Instead they focus on loving what they do throughout life. People need to have a challenge and a way to stimulate the mind and body. Retirement, for most, tends to put an abrupt halt to those things. Michael ends with taking quotes from Neil’s book and having him elaborate.

In this episode of Trend Following Radio:

  • Happiness
  • Retirement is a lie
  • Loving your work
  • The lottery
  • The note card system
  • Criticism
  • Goals are never ending
  • Having less wants in life
May 9, 2016

Today, Michael Covel interviews Mike Lofgren. Mike’s new book is titled, “The Deep State: The Fall of the Constitution and the Rise of a Shadow Government.” We are in a world where everyone thinks their vote matters and that the next President will fix all of America’s problems.

Michael starts the podcast off reading an excerpt from Lofgren’s new book. The two dig into expectations that people had for George W. Bush. As he failed, the people then voted in Barack Obama. Obama failed to meet people’s expectations as well. Lofgren explains what he describes as a “deep state” phenomenon.

Next, Covel and Lofgren dig into: “Does our vote really matter?” Lofgren says that whoever is elected President matters on the margin. The general vector of who gets what, what the general distribution of income is, and what our general foreign policy is, is going to be pretty much the same no matter who is elected. However, Donald Trump and Bernie Sanders are so far out of the box that they may change those norms because of how out of distribution the system has become. The public knows something is wrong. Trump and Sanders have, at the very least, shaken up the political structure regardless of if they win the election or not.

Lofgren goes into economics and military next. He doesn’t look at economics and military as separate entities. He sees all arms of government as intricately intertwined. When you see a change in the economics of the country, you can see just as large of a shift in the military and vice versa. Michael and Lofgren also discuss Dick Fuld and the Lehman Brother collapse.

Michael moves on to ask, “Why aren’t their more whistle blowers coming out of the government?” Lofgren says that it is largely because people don’t want to go to prison. More people are being charged with espionage in America than within any other government. Michael and Lofgren continue to dig into depth about politics, corruption, and Wall Street for the rest of the podcast. Michael ends asking Lofgren, “Is there really anything on the horizon where this deep state entrenchment goes away?”

In this episode of Trend Following Radio:

  • The deep state phenomenon
  • Military industrial complex
  • Vietnam War
  • National debt
  • Negative interest rates
  • Capitalism in communist countries
  • Does your vote matter?
May 6, 2016

Michael Covel interviews Ben Hunt. Ben is the Chief Risk Officer at Salient Partners and the author of “Epsilon Theory.” This is his second time on Trend Following Radio. He has an interesting way of looking at capital markets–through the lens of game theory.

Michael and Ben start the podcast off talking about buy and hold and why the strategy does so poorly. Ben moves on to break apart monetary policy and domestic politics and how they are intimately intertwined. When you have a world of massive debt, like we do today, then deleveraging naturally should take place. Instead, in today’s world you have the ownership of that debt shifted from private entities taking responsibility of it, to the government.

Central bank policies are always a direct reflection of the politics that are going on in the big four economies that drive the world; U.S., China, Europe, and Japan. The domestic political interactions going on in those countries are what you see in the world’s economics. This leads to cooperation during economic crashes, for example, during the great recession. Countries inflate their economy to get out of economic crashes. Going to a lower or negative interest rate is a perfect way to devalue a countries currency. Right now, we are moving from a positive sum on trade, to a zero sum on trade and Ben says that the outcome is very predictable. He says that we have seen this movie before and it isn’t hard to see how it is going to play out.

Michael brings up Ray Dalio and asks the question, “Why are all these companies putting their money in one place, with one company and with the same model?” Ben notes Ray Dalio’s massive amount of money that he manages and what Bridgewater (his company) has created is an easy process that is implemented in an automated and quantitative system. The whole notion of having a rigorous process and managing clients money within that process is Bridgewater and Dalio’s most widely spread influence. Bottom line, instead of trying to predict what is going to happen we need to try and react quickly to circumstances.

In this episode of Trend Following Radio:

  • Monetary policy
  • What drives the value of currency?
  • Economics in recessions
  • Systematic models
  • Central Banks
  • Policy controlled markets
  • Expectations of the public markets
May 2, 2016

Michael Covel talks political correctness. Americans take regular issues, and blow them up to the extreme. We see it 24/7. In addition, there is massive abundance, arguably a distraction to the freedom to make choices. Is the freedom to make your own choices even real?

Michael reads excerpts from an article by Josh Brown titled, “Abundance.” He makes the case that abundance is now the enemy, which sets our economy apart from every other culture in history. For example, so much entertainment is free these days; movies, video games, apps, dating websites, music, the list goes on. People are taking paid versions of products and producing cheap and free versions. Josh points out that a year ago he was writing about scarcity, now its abundance. We use to have pop culture or a #1 hit TV show or hit band. Now there are 50 different sub cultures and genres.

But abundance is killing us. Josh notes that it would be best if there was a major flush of the system. Capital needs to be exchanged and shifted. The imbalances we are experiencing will inevitably correct and restart, it’s only a matter of when. Michael stresses that you need to have an investment strategy to prepare yourself for that inevitable correction. You need an investment strategy to take advantage of the next crash, as well as save yourself from the next crash.

In this episode of Trend Following Radio:

  • Ego
  • Preparing yourself for the next crash
  • Abundance
  • Downfall of the economy
Apr 29, 2016

Michael Covel interviews Parag Khanna. Parag is an international relations expert, a CNN Global Contributor and Senior Research Fellow at the National University of Singapore. He is also the Managing Partner of Hybrid Reality, a geostrategic advisory firm, and Co-Founder & CEO of Factotum. Parag’s new book, “Connectography: Mapping the Future of Global Civilization” recently came across Michael’s desk. The concept of connectivity does not just relate to mobile phones and Skype. There is a very physical and tangible evolution of connectivity that can be boiled down into three categories; transportation, energies and communications.

Michael and Parag start the podcast off touching on what connectivity is and then dive into the relationship between cities and states. Parag says that there is not one single successful state that is not built upon the stability of their successful cities. We have more mega and viable cities than states in the world. Cities are the drivers of growth. More mayors are sitting heads of states or presidents nowadays than any other time in history and think of themselves as CEO’s rather than politicians.

Next, Parag elaborates on supply chains. The diversity of products available today is truly global. A product can have digital design from Silicon Valley, assembly in China, and a call center for product customer support in Vietnam. As a business, the combination of infrastructure investment and connecting through supply chains to global markets makes you a real player in the economy. Michael brings up the economical impact that globalization has made, in particular to taxes. Apple is working with Ireland to keep their investments outside the U.S. More and more companies are realizing that they can operate over “the cloud.” Markets are everywhere and sales are everywhere so investments should be able to be everywhere as well. American politicians have been counter productive in trying to capture taxes from some of the biggest companies in America.

Michael brings the conversation back to China and their infrastructure. China has made a global plan to help counties boost their infrastructure. They are spending their own money to help gain trust and also smooth the flow of goods in and out of developing countries by building railways, airports and shipping ports. Most of the world trade growth is happening across the Indian Ocean because of the Chinese.

Next, Michael brings up country borders and the reservations citizens may have about immigrants. No country has gained more from accepting immigrants into their society than America Parag argues. Parag says that unfortunately people are acting more with their hearts rather than acting on the data. There are far more benefits to welcoming immigrants into societies as opposed to shutting them out. People talk about globalization doing us wrong. It is not. It is political governments that are failing. Policies in politics are the problem.

Michael and Parag finish up discussing the booming rise of Dubai, and how the city is a perfect example of infrastructure growing a city. Dubai has thought strategically about all their expansion, from their roads to their buildings to their education system. It’s a place that represents a leap in quality of life for people who are on the move and doing different things.

In this episode of Trend Following Radio:

  • Supply chains
  • Connectivity
  • Cities vs. State
  • Chinese infrastructure growth
  • Trade
  • Trust among China’s neighbors
  • Territory borders
  • Globalization
  • Winners and losers in the 21st century
  • The idea of “not in my backyard”
  • Growth of Dubai
Apr 25, 2016

Michael Covel starts off reading an email from a listener asking, “Do all trend followers use spreadsheets alone to trade? Or do they also use charts for visualization? I am having a hard time trading using a spreadsheet alone and I tend to need to see a chart. It provides the visualization I need.” Michael responds saying “What does the visualization do? Are your trading decisions based on the price or visualization of a chart?” You don’t need charts or multiple monitors streaming at a time. That is not how the best traders trade.

For the remainder of the episode Michael leads with a presentation from Gregg Popovich, the head coach of the San Antonio Spurs basketball team. Gregg talks about organization, discipline, player relationships (between players and the coach and between players and players), and the importance of being comfortable enough in your own skin to take advice from others, among many other subjects. You can’t begin to execute a trading rule until you have sound philosophical grounding. It starts with the right mentality and imagination, and Gregg is a perfect example of this. There are countless lessons to be learned listening to Gregg’s presentation. His outlook is applicable to anything you could want to do in life whether it be starting a business, trading, or running a marathon.

In this episode of Trend Following Radio:

  • Why cultivating your second string is so important
  • Foreign players vs. U.S players
  • Accountability
  • Importance of honesty
  • Having the same standards for everyone
  • Importance of humility
  • Execution
  • A different perspective on goal setting
  • Looking at the big picture
Apr 22, 2016

Michael Covel speaks with Simon Black. Simon is an investor, entrepreneur and the founder of Sovereign Man. He has a travel perspective that has given him unique insights on freedom, making money, keeping as much of it as possible (and protecting it from the government whatever government that may be).

Michael starts off the podcast asking Simon, “I want to know your story. How did you go down this path? How did you start?” Simon’s journey started in the military. He went to West Point. Upon graduation he was commissioned as an Army intelligence officer and stationed in the Middle East around the time Bush was accusing Saddam Hussein of having weapons of mass destruction. As the U.S. was gearing up for war, it became abundantly clear that it was all a lie, and Simon realized that if the president would be willing to go to war over something that was so false, then what else would the government be willing to do?

Simon breaks down the idea of currency. He says that everyone should have physical cash money. There are different forms of money or “legal tender.” One form of currency would be U.S. government bonds which are used by large entities. Another type of money is banking accounts. That is what most of us use. 90% of the money supply is in banking accounts, otherwise known as in digital form. Most people have their money in a computer stored in a windowless building somewhere. Physical cash is another form of money. It is the money you see in your had. Those are three very different forms of money, however they all happen to trade at a 1-1-1 exchange rate. That could change at any point. Simon urges that everyone should have physical money at their disposal in the case that banks shut down our ability to withdraw.

Michael and Simon talk travel next. Modern transport technology has made travel simple and given people a unique opportunity to see different places and cultures. Simon makes the point that freedom is a state of mind, it isn’t necessarily attached to travel. Every country has a unique vantage point such as great health care or education. Simon talks about health care in particular and the cost differences in the U.S compared to certain places in Asia.

The thrust of today’s podcast is to point out that everyone should be responsible for his or her own security and safety. One should be sovereign over his or her own life, experience freedom and live independently. Challenge the status quo. Think outside the box, whether that be choosing your healthcare, profession, or where you want to live. Think differently.

In this episode of Trend Following Radio:

  • Health care
  • Banking system
  • Government
  • Travel
  • Breaking the rules
Apr 18, 2016

Today on Trend Following Radio Michael Covel reads Sam Hinkie’s resignation letter, former general manager of the Philadelphia 76er’s basketball team. His management strategy was stats driven. Sam talks about how critical it is to focus on process and not be fixated on the outcome. Process you can plan out and control, you can’t always control the outcome. The point Michael aims to make by reading the letter is not to show whether Sam was a good or bad GM. His wisdom is something we should all not just consider, but wisdom we should learn from.

In this episode of Trend Following Radio:

  • Thinking about thinking
  • The importance of intellectual humility
  • The necessity of innovation
  • The longest view in the room
  • A contrarian mindset
  • A tolerance of uncertainty
  • Be long science
  • A healthy respect for tradition
  • A reverence for disruption
Apr 15, 2016

Michael Covel interviews Jesse Lawler. Jesse is the host of Smart Drug Smarts, a podcast that is centered around supplements people can take to augment brain function. He has an out of the box perspective on health, fitness and enhancing cognitive performance.

Michael and Jesse start the conversation off with the question, “What is healthy?” Some athletes that can perform amazing feats are actually destroying their bodies to get there, so are they really healthy? Mind and body can be at total odds when it comes to health. Jesse breaks open the idea of cognitive performance and where a good starting point is when trying to increase your performance. He says your brain is meant to do everything. It is a universal machine that does things that we are, and are not aware of. To improve performance of the brain, there are a variety of things one can do. He breaks it down into four categories: Mood, focus, creativity, and anxiety. Jesse goes in depth on different supplements you can take to improve your focus (in particular) such as increasing your dopamine.

Jesse and Michael talk about how Jesse rode his bike from the west coast to the east coast in about 5 ½ weeks. Michael asks “Why do you think you are constantly experimenting?” Jesse says there are a lot of things that you can’t get the gist of without going through the experience. He wants to continue to understand, and maintain his brains capabilities to keep up with the evolving world.

Jesse moves on to explaining what nootropic drugs are and the cognitive effects of them. He is not a doctor but has given himself an education over the last few years by immersing himself in these subjects and talking with field specialists such as doctors or pharmacists a couple times a week. Michael asks about jet lag and how to beat it with different techniques. Jesse says that one of the best ways to beat jet lag is by fasting until it is dinner time at your new destination. Overdosing on tea or coffee can be a good way to stave off the hunger if you choose to use this method. Another trick to help beat jet lag is taking particular weight loss drugs to help you stay awake until it is bedtime at your new destination. Lastly, Jesse talks about some of the more popular drugs on the market such as marijuana and ecstasy and his views on them.

In this episode of Trend Following Radio:

  • Cognitive performance
  • Effects of caffeine
  • Augmenting brain function
  • Dealing with mood, focus, creativity, and anxiety
Apr 11, 2016

Today on Trend Following Radio Michael Covel talks about personal responsibility. Michael brings in basketball references from the Boston Celtics and their head coach Brad Stevens. He goes into the accomplishments of Stevens as a coach and as a quant. Stevens coaching is all about numbers and probabilities.

Michael plays a clip from Chris Mannix of the Vertical Podcast with Brad Stevens. Stevens explains how he uses statistical analysis in his coaching and how the “best of the best” like to be coached. Most don’t care about a numbers to numbers speech but everybody wants to know how they can best play and attack situations. Michael circles the conversation back to trading markets and trading on the numbers. Mannix then asks Stevens if coaching is just coaching being on an NBA sideline as opposed to other sidelines? He says that the longer he has been a coach the more he has been able to take emotion out of the game and it has become a job. By the time a game nears the end he isn’t even thinking of the game, he is thinking of the next practice, and how he can make the team better.

Michael ends with reading interview questions that were asked to Stevens; “Is your calm demeanor a part of your coaching philosophy?” He says that his philosophy is doing 99% percent of the work behind the scenes and hopefully that is enough to prepare him for the next game. He is always thinking about the next play, therefore you will not see him doing cartwheels on the sidelines very often. Stevens is also asked, “How is the style of play at the professional level evolving?” He says the game use to be about height and weight as opposed to skill. The game is now being flipped around.

In this episode of Trend Following Radio:

  • Process vs. outcome
  • Sports and trading analogies
  • Statistical thinking
Apr 8, 2016

Michael Covel interviews Cole Wilcox. Cole is the CEO of Longboard Asset Management and has appeared on the show many times. Cole and his business partner Eric Crittenden are featured in Michael’s book, “The Little Book of Trading.” Eric and Cole started their firm from the ground up. They pushed hard and now have hundreds of millions of dollars AUM.

Michael and Cole start off talking about the recent volatility in the markets; crude oil in particular. Cole is a trend follower through and through. He says that there will always be fluctuations in the markets, but with the right tools and rules, you can ride those waves out successfully. He stresses that diversification is the only “free lunch” that exists. His firm focuses on building multi asset portfolios that provide diversification. “When you are in 130 markets around the world, you can’t know all the fundamentals about those markets, the only thing you have to guide you is the price,” says Cole. Focus on what those price trends are doing, positive or negative.

Michael moves on to ask, “Do you think of you and your firm as more offensive minded or defensive minded?” Cole says they are definitely more defensive minded. Any successful trader or sports coach knows that you will ultimately get ahead and compound your success by making sure you cover you bases on the defensive. Having an unemotional approach to the markets is key. Cole then shows a unique differentiation between trend following managers in regards to their amount of AUM. The way a trend following firm trades it’s money can vary greatly depending on how much AUM they have. The larger firms aren’t able to move into some of the smaller markets where big money can be made.

Cole speaks to the business thought process Longboard is built on, particularly what made him want to start his firm. He says there are three core components: Having a dream or vision about what you are doing, the people you surround yourself with to execute that dream, and the principles/operating rules of the game. When you get those three things to line up inside an organization you can create something magical. Michael asks how he has won people over and gotten them away from the “buy and hold” mentality. Cole says the trend of alternative investments is starting to grow rapidly. His firm takes a different approach in how they interact with clients. They focus highly on their communication process and willingness to be open.

NOTE: On this episode Cole recommends favorite business books. Here is the list.

In this episode of Trend Following Radio:

  • Defensive trading vs. Offensive trading
  • Risk management
  • How to help people understand trend following
  • Diversification is the only free lunch
  • Price trends
Apr 4, 2016

Today on Trend Following Radio Michael Covel discusses scams and what can be learned from them. Any scam that takes place today, we have seen before. In the early 2000’s Enron was at the height of its game. Turns out they had a fake trading floor set up just to convince Wall Street they were real. At Enron’s peak, their company was trading at $90 a share. When it crashed, their stock traded around $0.50 a share. And that story brings us up to current day with the latest Enron.

Michael continues to read more feedback, but this time from a listener of his podcast seguing him into the current blowup of the pharmaceutical company, Valeant. Valeant’s share prices went from $250 to $30 in short order. Even as the stock was crashing people were buying the hype and false fundamental information. Michael reads from sources such as Jim Cramer, Morgan Stanley, and Valeant themselves. He then connects articles from Enron’s press releases back in 2001 before their crash and press releases from Valeant in 2016. Quotes from both companies CEO’s have strikingly similar comments on their companies as events led up to their falling apart.

Bottom line, if you are in a stock that goes from $250 to $30…You screwed up. There is no reason for that except you. When the numbers say exit, you exit. Ego must be left out of your trading. Michael ends with excerpts by Steve Sjuggerud. Check your ego at the door, have a stop loss, and stick to your plan.

In this episode of Trend Following Radio:

  • Ponzi schemes and scams
  • The Enron scandal
  • Valeant meltdown
  • Ego in trading
Apr 1, 2016

Michael Covel interviews Anders Ericsson. His new book is “Peak: Secrets from the New Science of Expertise.” Starting around high school, Anders became interested in how he could best improve himself. When he got to college he studied how people could achieve above average performance. He did a study showing the number of digits average people could repeat back correctly. The average number was about 5-7 digits. After an hour of practice they were able to repeat about 20 digits correctly. With even more training one student was able to get 70 digits in a row. This showed Anders that the mind can improve with the right kind of practice. Performance is trainable and purposeful practice is key. One major component of successful practice is immediate feedback on whether you are accurate or not.

Michael moves onto a study Anders did on taxi drivers in London. They have to go through extensive training to drive the streets of London. They are average people, but train for many years to be able to pass this taxi driving test. After learning over 10,000 streets and different connections there brains actually changed. He compared bus drivers in London, who did not have to go through the same training, to the taxi drivers. The same changes did not occur in bus drivers brains like the taxi drivers. They did not have to master all the streets but rather just master certain routes. Michael asks, “If they stop their taxi driving profession, does the brain regress?” Anders says that yes, without practice your mind will revert back to the old state.

Next, Michael and Anders use Mozart as an example of nature vs. nurture. His father was a musician and taught young children how to play instruments. Mozart was able to learn many of the musical distinctions that he was famed for because he started so early, around age 3-4. Any child at that age is able to learn the things Mozart learned, however it is virtually impossible as an adult. This moves into the idea of brain plasticity. It is important to realize that you can’t push your child to learn longer than they want to learn for. About 30 minutes is their limit. Beyond that, they lose their capability for deliberate practice. Deliberate practice helps raise the bar and get you better than you were before.

The next example of extraordinary talent brought up are master chess players. They don’t look at pieces individually, but rather base their actions on pattern recognition. They see structure and see where attacks may be successful. Grandmaster chess players are able to play blindfolded and against 25 or so people simultaneously. These are skills that are acquired and practiced. Stephan Curry is also used as another great example of an extraordinary achiever. If you understand the practice an individual does then you can see their improvement over time. Michael asks, “Has anyone said that their improvement was easy?” Anders said that he has been studying this subject for over 30 years and about 50 people have said that improvement came easy, but after talking for a few hours, their answers change. Michael then asks about the validity of the idea that 10,000 hours makes you an expert. Anders says he hasn’t seen that 10,000 hours is a magical number. You need a lot of practice, but there are no magical boundaries. When people count the number of hours that they have done something, and it happens to add up to 10,000 hours, then that doesn’t make you an expert. For example, if you have driven 10,000 hours, that doesn’t make you an expert.

Lastly, Michael circles back to the importance of deliberate practice asking about the difference between youngsters and older people seeing the benefits of deliberate practice. Anders says that unfortunately most younger people that are so focused as a child in their performance don’t go on to have careers in the field they were pushed into. Those who chose and want to be in the sport they are in usually go on to continued success. Deliberate practice alone doesn’t make you successful. You need to have a sincere desire for what you are doing.

In this episode of Trend Following Radio:

  • Discipline and practice
  • Solo and group practice
  • Flow state
  • Social Motivation
  • The late birthday rule
  • 10,000 hours of practice
  • Nature vs. nurture
  • Brain plasticity
Mar 28, 2016

Michael Covel interviews Tom Bilyeu. Tom is the co-founder and president of Quest Nutrition. He is the consummate entrepreneur who went from running a successful tech company to starting all over and developing Quest Nutrition. He has created his own narrative for entrepreneurial greatness.

Tom started out as what he would describe as a “good employee,” with never questioning the system. He didn’t take high school seriously but when he started college he buckled down. He heard that the brain doesn’t stop developing until the age of 25 and that helped shape a large part of his 20’s. Watching ‘The Matrix” at age 22, he realize that he wanted to be in control of his own life. Around age 26 he met his business partners with whom he would start his first company.

In 2012 his tech company was named the 42nd fastest growing tech company in North America. Soon after that, he had a talk with his partners letting them know he wasn’t happy, wasn’t having fun anymore, and wanted out. His partners felt the same way, and they proceeded to sell their company at the height of their success. Quest Nutrition came out of the folding of their prior company. They chose to go into the nutrition business by asking themselves “How can we deliver value to people.” Tom and his partners were told over and over again by factories that they were not able to produce the product they wanted to make, and the factories were right. They ended up buying their own equipment and re-engineering it to produce a nutrition bar unlike any other on the market.

Tom says that the combination of unbelievably good tasting food coupled with horrific ingredients makes for the worst kind of drug. Sugar affects the brain just like dopamine. Evolution has instilled a need for sugar in our brains and has brought us where we are now. Tom spent a long time learning about, from a metabolic state, what is nutritious for your body. The “auto pilot thought process” is one thing that Tom really works with people on. He works with people to focus on what their subconscious is telling them to do, and decipher what is right from wrong.

Michael asks Tom to go into international regulations. He says that dealing with all the different regulations can make a person go crazy. He doesn’t think that we should legislate sugar or saturated fat out of people’s diets. People should be able to have free choice. Tom’s life has been based on mastering one baby step after another and accomplishing everything with discipline and practice. Whether you are trying to get better in leadership, finance, or in relationships, everything is a learning experience. The more you attack something the more it continues to get better.

Lastly, Tom talks about letting go of the need to be right. He got to a point where he built his self esteem around being right. He soon realized that, that was actually helping him move further away from his goals. He switched his belief system over to focusing on identifying the right answer faster than anyone. There are so many that just want to protect their ego with being right, but as soon as they learn to let that go, a whole world opens up.

In this episode of Trend Following Radio:

  • Discipline and practice
  • The Quest belief system
  • Escaping the Matrix
  • Tom Bilyeu’s ultimate reading list
  • Being authentic
  • Obesity
  • Autopilot thought process
  • Letting go of being right
  • Reaching your true fans
Mar 25, 2016

Michael Covel interviews Steven Pinker. Steven is a Canadian-born American cognitive scientist, psychologist, linguist, and popular science author. He is Johnstone Family Professor in the Department of Psychology at Harvard University, and is known for his advocacy of evolutionary psychology and the computational theory of mind. He covers phenomena that have traditionally not been looked at scientifically such as: visual perception, war and peace, and differences in writing styles. He has authored numerous books with his most recent being, “The Sense of Style.”

Steven knew he was an atheist from the age of 13. He never had a big revelation because God was never a real part of his consciousness. However, his religious awareness as a young man helped to guide his career into using science, and science only in his research. He puts science as the decider of “what is.”

Michael asks, “How has human behavior been shaped by evolution.” Steven based his book, “The Blank Slate” around the idea that humans aren’t born with a blank slate. He says that to have the ability to analyze speech and comprehend speech you have to have something there at birth. If the mind has a built in structure, where did it come from? Steven argues it comes from evolution and natural selection. He uses a combination of cognitive science and evolutionary psychology to back up his theories. He also covers why there has been so much controversy surrounding the idea that we are not born with a blank slate and why our common sense so often clashes with our political conviction. One reason he offers is because many think the idea of equality means that we should be indistinguishable, essentially like clones. He argues that fairness should not be based on sameness.

Michael goes back to the blank slate concept and asks, “Are we born good or bad? And explain what you have learned throughout your career about the evolution of language.” Steven says we have some good and some bad. The brain is massively complex and layered. There is so much going on in the brain when someone speaks and when someone listens and retains the information. Eggs and sperm have about 70 mutations. That is how we have natural selection that makes someone run faster, see better, think faster, etc.

Next, Michael and Steven dive into the history of violence, where it came from and where we stand today. Steven says you can’t get an accurate view of violence from the news. They find the worst violence and promote it. The rate of homicides have plummeted over the years. There are far less wars going on now than in the 60’s, 70’s, 80’s and so on. Since the end of WWII there has been a steady decline. Civil wars have still occurred but they are far less plentiful than they use to be and death rates are also less than they use to be. Steven’s next book, due to be published in 2017, is a defense of science, reason and humanism as a source of aiding in morality.

In this episode of Trend Following Radio:

  • Evolution
  • Natural selection
  • War statistics
  • Cognitive science
  • Evolutionary psychology
Mar 21, 2016

Michael Covel brings a different perspective to countries and cultures. He starts off reading an article by Simon Black, “Việt Nam will become one of the top expat destinations in the world.” Due to China’s growth in the last 10 years they can’t compete making cheap goods like they have in the past. That business is moving to Việt Nam. The lifestyle that you can achieve in Việt Nam for a moderate amount of money is amazing. They have high quality at an inexpensive price. They are making it easier for locals to earn more money and thrive. Things began changing in the late 1980’s when the communist government opened up and encouraged private business.

Michael moves on to talk about his recent trip to Myanmar (formerly Burma). It was colonized by the British, but in 1948 Myanmar declared their independence. Their borders were closed off for about 50 years after that. Around 2011 they opened the borders to foreigners again, and in 2015 they held their first elections. There are 50 million people currently living in Myanmar. Now, there is a buzz about the country that shows they are clearly moving forward. The ethnic diversity is immediately apparent, and the hustle for commerce is everywhere. People there are beautiful, friendly and energized. The lessons for all of us are there staring back at us.

Michael encourages everyone listening to get on a plane and go. Go travel. Capitalization in America has made starting anything nearly impossible. People and commerce in other countries have more drive and ambition to make something happen. Don’t let the system control you. The system is rigged. Michael ends with a clip from comedian George Carlin on government control.

In this episode of Trend Following Radio:

  • Capitalization
  • George Carlin clip on “The American Dream”
  • History of Myanmar
  • Growth of Việt Nam
Mar 18, 2016

Michael Covel interviews Catherine Stott. Catherine is author of, “Hypnotrading: A practical guide to using hypnosis and NLP to improve your trading performance: Self-hypnosis and psychotherapeutic techniques for traders.” Catherine believes that hypnotherapy and neuro-lingustic programing can help traders defeat inner challenges and become more successful. She got started working with traders after helping a friend, who happened to be a trader. He helped her understand the world of trading a bit more throughout their sessions and this ignited her interest deeper. She has been helping traders for years but didn’t start HypnoTrading until 2014.

Catherine was working as a psychologist when a friend referred her to see a hypnotherapist. She started to see the hypnotherapist for stress relief in her work and personal life. She was intrigued by the therapy so much that she switched career paths and sought training as a hypnotherapist. Hypnosis is essentially being in a deeply relaxed state of mind. It is an open state of consciousness, but you are fully in control of your thoughts. The first time Catherine experienced hypnosis she found it incredibly relaxing, and thought “I can’t believe that just happened, why haven’t I done this before?” Catherine dives deeper in the different steps she goes through in her sessions to get people in that relaxed state.

When Catherine trained as a hypnotherapist, part of the training was in NLP. Hypnotherapy and NLP are two different practices buy when used together they can be very powerful. An example of using the two fields together would be to associate pain with a color or a shape. It gives the client a way to view pain in a tangible way. They are able to think about that pain as an object that can be picked up and taken out of their body.

Michael moves on to asking, “How do different trading styles play into how you treat patients?” Catherine explains that there are certain universal techniques in hypnotherapy. When it comes to traders, the goal is to find the right trading style that works for them. There are many methods of trading and people should find the one that fits their personality. For example, some people are not built to use a strategy with precise rules and vice versa, some are not cut out for the fast pace of day trading.

Lastly, Michael and Catherine dive into the idea of modeling and goal setting. Modeling is a process of looking at other people and what they do, and essentially modeling that. One way to change yourself for the better is to mimic others who are successful in the field you are trying to master. It is a way of seeing what your results will look like. Modeling helps refocus. The majority of people may not have the chance to get next to a great trader, but everybody can get close to those insights through the written word or videos online. Find people that reflect your values and the style of trading that you want to achieve. There are thousands of trading books out there; you need to weed out what will work for you. Break down what you want to achieve and how you are going to achieve it. Defining your goals and how you want to achieve them is key.

In this episode of Trend Following Radio:

  • Stress vs. anxiety
  • Meditation vs. hypnosis
  • Being in a relaxed state
  • Negative self talk
  • Fear of success
  • Modeling
  • P-A-C-E-R
  • Luck and expectation
  • Defining goal setting
Mar 14, 2016

Michael Covel talks about shaking up the establishment, referring to Trump and the presidential race. He sees hope that the political establishment could take a hit and just maybe a dent in the political health of America could happen. He isn’t saying that he would get great legislation through, or solve world peace, but he might shake up the political arena and detour the agendas of some special interest groups.

Next, Michael leads into discussion of the lottery, banks, and government. The lottery has become one of the biggest cons by government directed at the lower to middle class. They have convinced people that playing the lottery is a form of investing for their retirement. Michael plays a clip from the Virginia state lottery. They found a Jim Cramer look alike to get people to think of investing as they talk about playing the lottery and saving for the future.

Michael moves into reading an article by Barry Ritholtz that was written in January of 2016 when the Powerball prize was around 1.5 billion dollars. He makes the point that Americans spend 70 billion dollars a year on the lottery which is more than they spent on sports tickets, books, video games, movie tickets, and music plus all types of apps, games and programs bought from Apple’s iTunes app store combined last year. Barry then asks the question, “Is investing gambling?” His short answer, “Your goal as an investor should be to eliminate as much of the element of chance from your process and like the house, stack the odds in your favor… How do you become the house? You understand the nature of risk, are comfortable with the idea of uncertainty, rely on long-term measures of valuation, use mean reversion as a guideline to unknown future outcomes, allow time to work in your favor, understand the impact of leverage, recognize the folly of relying on forecasts, consider all possible outcomes; including extremely rare black-swan events, and accept that some losses are inevitable.” Above all, he makes the point that even though you have full control over how you invest, you do not have complete control over the outcome.

Michael ends with the nonsensical idea of government achievement. He says that we need someone who leads by example rather than telling us what the next government hand out will be.

In this episode of Trend Following Radio:

  • Trump as President
  • Lottery and Powerball
  • Changing American politics
  • Getting something for nothing
Mar 11, 2016

Michael Covel interviews Bill Bonner. Bill is author of “Hormegeddon: How Too Much Of A Good Thing Leads To Disaster.” He has made a career out of skepticism. That skepticism started right out of college as he helped a friend start a grassroots organization, The National Tax Payers Union. There, he was able to get an inside look at government. It was during his lobbying for this grassroots organization that he saw the true motivations of politicians.

Bill and Michael start the conversation off talking about having too much of something, good or bad. Everything in the world, when you get too much of it, it is bad. Bill uses Germany as an example: When Hitler first got into power, his message to the people was more security. As Hitler kept gaining more power, the government took more control and things began to fall apart rapidly from there.

Next they talk about negative interest rates. There is a social contract being broken by the use of negative interest rates. Bill says the whole idea of work leading to output, leading to money, leading to investment, which leads to further output all falls apart with negative interest rates. Negative interest rates don’t stimulate the economy, they actually lead to people hunkering down and saving more money. This segues into the next topic of myth and reality. Myth plays a large part in society. Our conception of government is based on myth, and our idea of how government operates is far different than the reality of how it is actually run.

Michael and Bill move into discussing how internet has connected people and put information at everyone’s fingertips. However, it has proven too difficult for people to sift through all the information and find the wisdom inside it rather than the noise. Bill brings up a poll that was done by the National Constitution Center. The poll said that 41% of Americans are not aware that there are three branches of government. 62% of them cannot name what the three branches of government are, and 33% of them cannot name a single one of the branches. Americans can’t be shocked that a government doesn’t work the way it “should” work when they don’t even know how it “should” work in the first place.

Lastly, Michael and Bill talk about prediction and crashes. Since 1970 there has been seven recessions. Economists were able to predict none of them. Even in early 2008 when everything was crashing, not a single economist thought we were heading into a recession. This just shows how little the government basis their studies on facts but rather on human judgement. Bill says that unemployment is a great example. Unemployment rates aren’t subject to scientific analysis, they are subject to human analysis. The GDP growth rate is made up of the same kind of fictitious numbers and based on human judgment. It is more a measure of how quick people are going into debt not if they are better off in life.

In this episode of Trend Following Radio:

  • Declining marginal utility
  • Unemployment
  • Negative interest rates
  • Myth vs. Reality
  • Government polling
Mar 7, 2016

Michael Covel starts the discussion off with Mark Zuckerberg and the virtual reality realm we are entering. There is now an infamous picture of Mark Zuckerberg walking down an aisle with a huge audience behind him hooked up to helmets. All audience members are in a virtual reality. Michael bridges the gap between speculative follies of the past, with the virtual reality bubble we are about to embark on.

David Harding and James Holmes wrote a book titled, “The Pit and the Pendulum: A Menagerie of Speculative Follies.” Michael reads an excerpt from the book, giving a historical narrative about how people have behaved over the centuries. People always get excited about something new, and that “something new” historically always seems to crater and crash. The chapter Michael reads from is titled “Basking in an Indian Summer: The Bombay Share Mania of 1865.” The excerpt relates to cotton exports during the American Civil War. Bombay saw massive profits in cotton and silver due to cotton exports being halted in America during the war. Due to the boom in the economy Bombay saw huge expansion in their commercial sectors. Investors were only focused on the short term rather than long term.

When the American Civil War ended the Indian economy hit depression. Banks went bankrupt and the housing market crashed. The Bombay commercial world went totally bust. This is only one of many speculative examples that are in “The Pit and The Pendulum.” History always repeats itself. All speculative follies go down the same path. The only difference is the name or market caught up in the mania. Whether it be technology, cotton, or tulips, it’s all the same. How do you protect yourself from the next big mania? Educate yourself and have a strategy in place.

In this episode of Trend Following Radio:

  • Bombay cotton market 1865
  • Bubbles and mania
  • Profiting from the speculation
  • Having a plan in place
Mar 4, 2016

Today on Trend Following Radio Michael Covel interviews Jim Rogers. Jim is a famed American investor based in Singapore. He was co-founder of the Quantum Fund, and has authored numerous books. Today’s conversation is geared toward the central banking system and the direction Michael and Jim think the world’s economy is headed.

Michael starts the podcast off talking about negative interest rates and if that is a possibility in the U.S. Jim brings up a study published in 2007 that said, “We have the Federal Reserve, we have 1,000 of the most brilliant economists in the world how can we be wrong? How can people say that we are wrong?” Jim says that for the last 30 years the Fed has done just that. They have gotten just about everything wrong. Janet Yellen has been getting everything wrong since before she was even head of the Fed. She blames her blunders on the market being wrong or the public being wrong. According to Jim, every head of the Fed has been an academic and political hack.

Michael posits, “Everyone should be able to imagine another stock crash, we have had enough of them.” Jim says that the debt is staggering right now so when we have a crash it is going to be utter chaos. When we have extreme economic problems a war usually follows as well as someone coming in on a white horse to save the day. That white horse person will also cause more debt and make things even worse. This is the first time in history that government is actually out to destroy the people who have saved and set away for retirement. The middle and saving class has been destroyed before, but that was because of war or inflation. Jim says that it is mind boggling that the government’s solution to clearing up debt is to create more debt.

Next, Michael asks, “How do you see China right now?” Jim says that when they had their big market crash they chose to invest in the future with money they had saved. In America, we did the opposite. We chose to bail out the bureaucrats and make sure the rich didn’t go poor. The European and Japanese central banks have come out saying that they will practice unlimited QE funding. They will print unlimited amounts of money to solve their economic problems. Most do not question this because most people have no idea who or want the central bank is.

Lastly, Michael asks Jim what the best way is to prepare for potential problems that may unfold in the future. Jim says the first thing is to not listen to the news or what you may read on the internet. Stay with what you know and if you don’t think you know something, do nothing..

In this episode of Trend Following Radio:

  • Negative interest rates
  • Central banking systems
  • Market crashes
  • The impact of unintended consequences
  • Preparing for the future
Feb 29, 2016

Michael Covel speaks to the timelessness of being a contrarian. He starts off sharing a recent email received. The email suggested Michael tone down the trend following talk and work with people to help find their calling in life. This email dovetails into an excerpt Michael plays of high school football coach, Kevin Kelley.

Coach Kelley is a contrarian thinking football coach. He is known for never punting and onside kicks after every touchdown. Coach Kelley ran the numbers and figured out the probability of winning with punting as opposed to going for it. He has had tremendous success from doing things differently and creating his own answers on the field.

Next Michael reads an article from Andy Staples, “The power of not punting: Why a college coach should adopt Kevin Kelley’s unconventional philosophy.” Andy Staples, a writer for Sports Illustrated, was curious about Coach Kelly and his unconventional coaching, so he visited one of Coach Kelley’s games. During that game, Coach Kelley had to give in and punt on one of his fourth downs. Andy asked, “How hard was it for you to do that?” Coach Kelley replied, “I didn’t really hate it at all. It is what it is if the situation dictates it is something that we have to do. It’s all about winning. It’s never been about anything else.” Coach Kelley’s players don’t win because they never punt and always onside kick, they win because the offense plays as if they are always going to lose. He turns the psychological tables on his opponents, and bases everything off of mathematical statistics. The math indicates that punting is actually the riskier choice.

Michael stresses that no matter how much fundamental information you think you may have, you are lying to yourself. The only thing that you can rely on in the markets is the price data. The only way to get ahead is to be a contrarian. Michael ends paraphrasing Ed Seykota, “Everyone gets what they want, win or lose. If you lose a lot you got exactly what you wanted, to lose.”

In this episode of Trend Following Radio:

  • Math in football
  • Thinking like a contrarian
  • Risk management
  • Fundamentals
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