Michael Covel presents a series of great audio clips rather than his normal monologue or interview today on the podcast. Most of these are clips that Covel hasn't played on a podcast before, and they all loosely connect around the idea of risk, the unexpected, and black swans. First up, Covel plays a clip from Warren Buffett talking about Long Term Capital Management, the hedge fund that almost took the system down in the summer of 1998 (a huge winning time for trend followers). Covel follows it up with two clips from David Harding of Winton Capital Management--one of the top trend following traders of all time--talking about the lack of data on history's greatest manias, crashes and panics; a second clip of Harding talking about the difference between today's crashes and panics and ones that have happened over the past century; author Peter Bernstein (whose book, "Against the Gods", Covel calls a must-read book on risk); Dr. Vernon Smith, who appeared in Covel's film, "Broke: The New American Dream", talking to ReasonTV; Nassim Taleb, author of "The Black Swan". Finally, Covel ends with a clip of Ben Bernanke walking down the street. Somebody asks him about Nassim Taleb, the author of "The Black Swan". You would think that after we've just listened to all of these pragmatic voices lay the foundation for why you have to know there's always going to be another black swan to arrive, Bernanke completely dismisses it and says he doesn't read Taleb's work. Isn't it good to know that Bernanke, the man who is control of the Fed, doesn't even pay attention? All of these great voices that Covel has played today show how imperitive it is to prepare yourself for the next black swan; the next unknown event. Want a free trend following DVD? Go to http://www.trendfollowing.com/win
Trend following wisdom with the most inspiring Market Wizard Ed Seykota.
Michael Covel talks to Nick Radge in his second visit to the podcast. Radge operates The Chartist (www.thechartist.com.au) and is the author of the book "Unholy Grails". Radge lived in Singapore for two years and he and Covel talk about their shared experiences traveling in Southeast Asia. Covel brings up the lack of familiarity with trend following when giving presentations in Southeast Asia and how, just like in the US and Europe, 99% of the people out there really don't understand what constitutes a real trend following strategy. Radge and Covel break it down to the basics and use Apple as an example of how a trend following trader might look at one particular example. In Apple's case it's possible to see 700 as an anchor and think that although it's at 450 now, it's got to go back up. It's easy to take the value investing perspective and think that you're buying a quality stock on discount. However, there's one core thing that Radge stresses people have to understand is the undeniable truth: every company that goes bankrupt exhibits the exact same traits. They all trend down in a sustained manner; they don't just open and go bankrupt on one day. A company trends down over a sustained amount of time and eventually goes bankrupt. Of course, Radge isn't saying that Apple is going to go bankrupt; he simply says to pay attention and not get anchored to a higher price. Warren Buffet's idea of buying a good company on sale doesn't apply because he's obviously looking at things that people can't or won't pay attention to-- and his performance can't be replicated. Anchoring yourself to a price is dangerous, and Covel and Radge break down the idea of "anchoring" even further. Radge defines it as when an investment has reached a particular level that an investor has become emotionally attached to and has future expectations of the investment reaching past performance peaks. A trend follower would follow a stock that is at least moving in the right direction to start. Covel and Radge further discuss education, how the trend following world is foreign to many people who have been educated in the "right" places, and how the idea of taking losses and being incorrect in your position seem to be counterintuitive to them; the importance of drawing distinctions between traditional value investing and alternative systems like trend following; how the name of the game for many fund managers is not necessarily performance but funds under management; playing the game of mathematics vs. playing the game of picking the right stocks; why the US stock market has gone straight up despite all the fear going on elsewhere in the world, and why you shouldn't "fight the tape"; closet trend followers; why price can't be faked (and how sentiment plays into the picture); trade restrictions, cultural attitudes, and the importance of being able to step out of the crowd; why individuals have an advantage over fund managers; the value of understanding trend following even when you don't actually use it as a strategy; spotting 'trends', how you can't spot a trend until it's started or until it's over, and using hitchhiking as an analogy for trading; how trend following is useful when outlier events and black swans appear; using rules and strategies to fight fear; the difficulty of using Warren Buffett as an example, and the problems the arise when managing larger amounts of money; and Radge's thoughts on being an entrepreneur. Dig in! Free DVD? www.trendfollowing.com/win.
Michael Covel has done a podcast on Apple before, but today's podcast focuses on the media coverage surrounding people calling the top. Covel just saw an interesting article called "Following a Herd of Bulls on Apple" by James Stewart. Covel reads through the article and gives his commentary and notes that the premise of the article is disingenuous at best and dishonest at worst. The main subjects of Covel's criticism are the people that they bring on to criticize the Wall Street analysts. Covel isn't here to defend the Wall Street analysts--anyone that makes a buy or sell decision based on a report from a Wall Street analyst after looking at the last 20 years of Wall Street history isn't doing their homework. The "funny" part of the article, Covel says, lies in the people who were quoted in the article--and the author. Jim Stewart has been around Wall Street for a long time. Did he just dial this piece in? Stewart knew it was impossible to predict Apple's top. Yet, for this article, they find one guy out there who pegged the top. And we're all supposed to look at this guy as some sort of miracle worker? You don't pick the top. People who pick tops like Apple at 700 are lucky. It's not a skill. If you can only find one guy to do it, you've found the lucky survivor, and Jim Stewart built the article around him. Covel saves the most ire for the professors quoted in the article. The men who teach that markets are efficient. The ones who have the basics of finance wrong and continue to push this nonsense to their students: "Markets are efficient". The big scam is that the very people out there writing Wall Street research probably sat through that very professor's class. Wall Street is populated with people who obtained this sort of education. One other thing Covel covers is momentum: a great way to have traded Apple is through a momentum trend following style. A momentum trend following style wouldn't have had you getting in at the bottom or out at the top. All you can hope for is capturing the the middle meat of the trend. The trend following way doesn't require you to be worried whether wall street analysts are right or wrong; doesn't require you to be worried whether or not Jim Stewart had an agenda; or whether a Harvard university professor had conflicts of interest himself. Covel only brings it up to make a point and to sharpen the divide between these very different ways of looking at the world. On one side you have all the university nonsense; the efficient market hypothesis; Wall Street giving you buy/sell/hold decisions; and adulation for the one guy that picked the top. On the other side, you have the trend following traders who know that absolutely all of that is junk. Make your life simpler. Walk away from the nonsense and stick to the other side of that divide. Free DVD: www.trendfollowing.com/win.
Michael Covel starts with an interesting blogpost from a reader quoting Dow theorist Richard Russell. Covel discusses his thoughts on Russell, noting that he saw him speak in San Diego and followed his writings some in 2009-10. Here's the thing: Russell got it all wrong at the time. He was calling for the end of the world and the Dow has gone up--way up. Russell isn't a trend following trader; he was using subjective discretionary technical views on what he thought the markets were doing, would do, and what the government or Fed might do or was doing wrong. Covel shares many of Russell's views about the economy and the Fed; however, his way of thinking about the markets in 2009 and 2010 was the kind of predictive technical analysis that Covel has rallied so much against in recent podcast episodes. Bottom line, if the market's up, you're long; if the market's down, you're short. Trend following is not Elliott Wave, it's not Dow Theory, it's not Gann, it's not anything Tom DeMark is describing. It's price action based and that's it. Covel goes onto discuss the gentleman's blogpost in further detail, and notes how taking hold of data such as trading volume and confirming the Dow and transports together are almost fundamental-like in their approach. From a trend following perspective, all of this is irrelevant. The gentleman's blogpost ends with the phrase the pressure in the market is building, and we may be watching the beginning of the most spectacular stock market blowoff ever. Just before an even more astonishing decline." The operative phrase there is "may be": if you hear a sentence like that, it's not trend following. Covel goes on to discuss more local Malaysian food, Yoga, getting the tar beat out of him in a Thai massage, General Patton, and invites listeners to write in with questions about predictive vs. reactive technical analysis. Covel ends with a clip from famed basketball coach John Wooden at UCLA. He had a brilliant way about himself, inspired many, and Covel notes how Wooden got down into the nitty gritty in coaching--even teaching players how to properly put their socks on so they didn't get blisters. Free DVD? www.trendfollowing.com/win.
Today on the podcast Covel gives us a peek into the presentations he's been giving and the responses of audiences abroad. Since February 25th he has been in Tokyo, Hong Kong, Singapore, and Kuala Lumpur (Malaysia). He's given 23 presentations--anywhere from 60 to 90 minutes long--spread over 4 cities. Covel speaks to us today from Kuala Lumpur where he was only supposed to stay for two days. However, Covel was so taken by the city that he decided to stay for three or four weeks. Covel weighs in on the food, the culture, and the experiences surrounding his recent travels before getting into the kind of presentations he has been giving abroad and the investment style of the people to whom he has been speaking. Unsurprisingly, many of the largest fund managers in Hong Kong, Singapore, and Kuala Lumpur are unfamiliar with trend following; they have the a similar understanding of many in America and Europe. Most of the fund managers Covel sat down with were long-only, fundamental and value-based. Perhaps they used some predictive technical indicators on top, but that was it. Covel would go through the big picture differences between trend following and what his audience was doing. While most of these investors were unlikely to wholly adopt trend following, if you can bring a trend following strategy in-house that produces returns at a different point in time than your typical fundamental value returns--that's extremely useful information. Covel also discussed behavioral finance aspects, the idea of the black swan, and outlier move issues. Ultimately, it's about this scenario: you wake up tomorrow and you're on a desert island. You've got nothing except the closing price of the 75 most liquid global markets (which somehow magically appear in the sand), and a phone to your broker to make the trades. You have nothing else--no Bloomberg, no Wall Street Journal, no CNBC. Can you look at that data--and only that data--over time, and figure out a way to make money? That's the challenge. Can you find a positive mathematical edge in that stew of data from all those different markets? You don't even need to know the names of the markets you're trading. All you need are the prices. Can you find a positive mathematical edge in the great spirit of Ed Thorp and "Beat The Dealer"? That is the rallying cry of the trend following world--the desert island trading scenario. Even if someone elected not to make an allocation to a trend following firm (or did not want to trade as a trend follower themselves) Covel invited them to create a model portfolio. That way, you can at least know when trend following is doing well. That piece of information can be a useful piece of fundamental data for your fundamental trading shop. Some criticisms? The idea that Covel is not revealing the "secret sauce", holding back, or not revealing the "new thing". You have to ask yourself: Can you look at a trend following system? Test it? Look at professional trend following managers and see how they have performed? Compare it all? And believe in it? Or do you allow yourself to be distracted by other peoples' comments? Distracted by society? Ultimately that might be the big picture issue that Covel is seeing in his journey. Distraction kills focus. Free DVD? www.trendfollowing.com/win.
Michael Covel starts off the podcast with two famous film speeches: one that you've probably heard and one that perhaps only those with some Wall Street experience may be familiar with. Covel notes that this is how most young men begin their understanding of Wall Street: through the brokerage lens (hence the 2nd speech). It's how Covel first understood it, too: through the lens of Liar's Poker and Salomon Brothers. The idea is that if you work for this big investment bank and become a broker, you can make yourself a fortune. And you can call yourself a trader. But, being a broker doesn't make you a trader. You have to put your time in and you have to allow yourself to be in learning mode. Can you put off all the distractions and focus on the education of learning a trend following system and trend following psychology? Or do you operate under society's rule that if you lift a finger someone has to pay you first? If you have the opportunity to learn trend following trading don't worry about the silly stuff: how much time it will take, how much money you'll have to spend, etc. As long as you don't go broke it will be fine. The important thing is taking the proper amount of time and effort to prepare. In stark contrast to the earlier clips Covel transitions into playing and analyzing several excerpts from legendary trend following traders Bill Dunn, Jerry Parker and David Harding. These excerpts are not the Hollywood speeches: they're real, raw and full of priceless trend following insights. Covel ends with a quote by Harding: "We know that we know almost nothing, but the almost nothing we know isn't completely nothing and we only bet on that." We all know the price action; we know whether a market is moving up or down. We can follow that flow. If you can follow the flow of a market either up or down you've got a chance. Don't try and predict tomorrow, it's impossible. Take what you do know for sure and look for a way to use it and be prepared for when the next black swan swoops in, the next big event appears suddenly. As Bruce Lee says: "Be water, my friend." DVD: www.trendfollowing.com/win.
Michael Covel opens up today's podcast by playing an interview with freelance journalist and author Helaine Olen from "The Daily Show With Jon Stewart". Olen is there to promote her book, "Pound Foolish: Exposing The Dark Side Of The Personal Finance Industry". Olen notes that how when those in the "financial entertainment" business such as Suze Orman and Jim Cramer gives stock picks, the stock goes up. However, it almost always falls back down several weeks later. To that end, Olen recommends immediately shorting anything Jim Cramer mentions as a buy. However, towards the end, the interview takes a different tone as Stewart mentions that he doesn't understand "why we don't value work more and why investment has become so valued". Covel kicks into gear and comments on the interview, first noting that he's a fan of Stewart, but also pointing out the problematic attitude Stewart takes. There was something distinctly missing from Stewart's interview with Olen: personal responsibility and how the world really works. The search for security, especially in your investments, is fool's gold. But why did Covel play this clip? It's a lead into today's topic: how the world really works. Covel talks about Google clinging onto it's cash waiting for the right opportunity. Google is waiting for the good bet. Their hand is not being forced and they don't care what you think about them. So, Google can wait, but can you? They know the right move will come, and they know they have to have the capital when it does. So in a sense, Google is acting like a trend following trader. That's trend following 101. You have to wait for the home run. So what causes us not to wait? What screws us up? Covel plays a clip from Keith Chen to illustrate why in which he about how language can have an effect on your ability to save money. Covel comments on the clip, noting how being a trend following trader involves reacting to right now. You're not dealing with tomorrow. All you're dealing with is the here and now. Looking at the machinations of American investors through Chen's speech, Covel notes how we all want to deal with the non-existent future, but if you want to step outside of that bubble, it's up to you. It's your personal responsibility. Free trend following DVD? Visit www.trendfollowing.com/win.
Michael Covel comes to us with his first podcast in in China, dedicating today's episode to the the city of Hong Kong. Having just arrived in Hong Kong from Tokyo, Covel ruminates on the differences between the two places. Tokyo is a fantastic, organized, and civilized place. Covel discusses the feel of the city, especially loving green tea vending machines every hundred feet giving hot or cold tea perfectly every time. However, he notes a somewhat slow pace which is a direct contrast to the speed of Hong Kong. Hong Kong is on fire, and everybody is there trying to make things happen. You don't have to like it-- and it does have some rough edges-- but it's alive. It's a giant melting pot with a pulsating energy in the air of people making things happen. Covel also details the events surrounding the presentation he gave for CLSA at the Hyatt in Roppongi, Tokyo. Following Covel's presentation, Dr. Marc Faber spoke. Faber and Covel share a view that all of the misadventures happening in society today will eventually end badly. If you're going to try and trade all this uncertainty you'd better have a timing indicator. Trend Following has a timing indicator built in: price action. You'll never get in at the very bottom and you'll never get out at the very top, but you'll get out alive and with a profit. Covel shares a quote from Seth Godin on that subject and discusses alternatives to staying glued to the television. Is it really fun staying glued to the screen watching blips go by? Or do you do it because you think that's how you make money? Fortunately, you don't need to be worried what high frequency trading is doing and you don't need to be worried about the next Fed announcement. Consider the alternative: you want to be ready when markets move in larger trending directions and get aboard the trends that have much lengthier time horizons than fifteen seconds. You want to be prepared for when the next black swan swoops in. If you put the fifteen second news flashes aside and start trading something like a six month signal instead, doesn't that allow you a much nicer life than fixating on the minutia of every moment? Also: Covel talks about why Hugh Hendry will probably never do the podcast, shares a speech from the "Kid President", and finally uses the word "ladyboy" on the podcast. Want a free trend following DVD? Visit www.trendfollowing.com/win.