Michael Covel opens up about his more interesting experiences in 2013, first talking about his experiences presenting to the sovereign wealth funds for Singapore and Malaysia. Covel moves into talking about the Abu Dhabi Investment Authority (another sovereign wealth fund), and whether they are understood as a trend following trader or not. Covel talks about the “silent magic hand”, and its connection to the Abu Dhabi Investment Authority, and whether this means they are now executing trend following in-house. Covel talks about how this means potentially less and less public information about trend following going forward. Covel moves into media manipulation and distraction and how it surrounds us 24/7. He also discusses an upcoming trend following conference in Asia in late 2014. Time to start kicking ass. No sitting still. Get on a plane now! Want a free trend following DVD? Go to trendfollowing.com/win.
Michael Covel takes us out of 2013 with his unique perspective on today’s podcast. Always the passenger, Covel discusses his travels throughout 2013. He moves on to discuss the people who have appeared on the podcast in the last few months. Discussing his most recent guest, Covel quotes Dan Ariely from a TED Speech. Covel notes that being a trend following trader is not about excitement; once you’ve figured out your system, there’s no day to day information flow that’s useful. That’s over: CNN, Bloomberg, etc. People think they need constant and more information to make decisions about the market--wrong. So how do you make good decisions in the light of so much information? Price movement, price action. Covel moves on to talk about simple heuristics and his recent podcast with Gerd Gigerenzer. Covel also announces a trend following conference in Singapore. Happy holidays! Free trend following DVD? Go to trendfollowing.com/win.
Today on the show is Dan Ariely. Ariely is a professor of psychology and behavioral economics at Duke. He has a bestseller titled “Predictably Irrational”. He has given great TED Talks with millions of views. Covel and Ariely discuss irrationality and rationality on today’s show, including how we make decisions (with often poor processes). Covel and Ariely’s discussion includes the irrationality of fundamentals in equity markets; the wisdom of crowds, constraints and where else our money can go; the awarding of the Nobel Prize to professor Shiller and Fama--two famed professors with very different outlooks--and whether it’s irrational or not; macroeconomics vs. microeconomics; lessons learned during his life-threatening burns; why people lie; why the freedom to do whatever we want and change our mind is the shortest path to making bad decisions; and how 2008 became a constructive tool for Ariely; why Bubbles are some of the most imprecise factors out there; and Ben Bernanke. Want a free trend following DVD? Go to trendfollowing.com/win.
Today, Michael Covel speaks with Gerd Gigerenzer. Gigerenzer is the director of the Max Planck Institute for Human Development in Berlin, and is a former professor of psychology at the University at Chicago. Gerd is also the director of the Harding Center for Risk Literacy (read David Harding the head of trend following firm Winton Capital). Covel speaks with Gigerenzer about heuristics. For those of you that trade; for those of you that invest; and for those of you that just want to navigate risk and certainty in your life, this conversation is mission critical. His work is the philosophical foundation of trend following success, for starters. Covel and Gigerenzer discuss uncertainty; comparing decisions to baseball (gaze heuristic); complex problems and simple solutions; using price action as a decision making cue; unconscious heuristics; the art of knowing what one doesn’t have to know; the less is more effect; the miracle on the Hudson River a few years ago as a case in point illustrating heuristics; the idea of an adaptive toolbox; the element of surprise in Gigerenzer’s work; the distinction between risk and uncertainty; intuition vs. rationality. This type of understanding is ultimately far more important than any trading system breakdowns. Want a free trend following DVD? Go to trendfollowing.com/win.
Michael Covel speaks with Dan Collins. Dan Collins is a 25-year veteran of the Futures industry, founder of the Dan Collins Report and most recently was named Editor-in-Chief of Futures Magazine (Covel and Collins’ conversation took place just before Collins was named Editor-in-Chief). Covel and Collins discuss why the mainstream media seems to not even attempt to hide the bias and the propaganda against the styles and types of trading in the worlds that Covel and Collins occupy (i.e. trend following, systematic, managed futures, etc.); a particular Bloomberg article which attacked managed futures and alternative strategies; and why articles like these are an attack on the average investor. Want a free trend following DVD? Go to trendfollowing.com/win.
Michael Covel talks with Eric Crittenden. Crittenden is a Founding Partner responsible for managing all research, risk quantification and trading operations at Longboard Asset Management. He's also been featured in Covel's own Little Book of Trading. Today, Crittenden and Covel talk about a white paper that was originally released in 2005 that concerns trend following on stocks. Topics of discussion include the decision to do research into trend following on equities, and the background behind the white paper; why others weren’t trading equities with a trend following strategy at the time, and why there’s been a sea change in the industry now; stress tests; how Critenden’s models and datastreams apply to a model; if Crittenden sees anything on the horizon that takes trend following on equities in a suboptimal direction, and where he sees it going in the future; whether Crittenden’s work is all price driven and all systematic; the amount of human judgment involved in Crittenden’s strategy; why this strategy works if it’s based on inefficiencies in the market, and Eugene Fama just won a Nobel Prize regarding the markets being efficient; why exposure management is more important than the entries and exits themselves; the importance of blocking out distractions.
Michael Covel monologue.
Michael Covel talks with Kathy Kristof. Kristof is a contributing editor for Kiplinger Personal Finance magazine. Kristof and Covel discuss the fact that, if we have bubbles, and we keep having bubbles, what does the average investor do?; the difficulty of trying to figure out value today (yes, clearly not Covel's world, but he listens to another perspective); the impact of interest rates on investors; the “nervousness” of stocks; government intervention and trust; why investors are better off with a “softer” job market, and a slower recovery; why we have a “Goldilocks” economy, and what might happen if a black swan swoops in; why almost every strategy will have good results at some time or another, and the importance of picking a strategy for yourself; technology, and the connection to entrepreneurial pursuits. For more information on Kathy Kristof see Kiplinger Personal Finance magazine and CBS MoneyWatch. Free trend following DVD: trendfollowing.com/win.
Michael Covel touches on on Motorhead, Hugh Hendry, David Harding, Vermeer, The Pope, acroyoga and Saigon psych rock in today’s monologue. How is it all related? Covel explores. First, Covel opens with a quote from Martin Bergin of Dunn Capital: “Everything we do is 100% systematic. There’s no over-ride, no individual decision-making whatsoever. That is the focus of the firm.” Covel moves into a clip from David Harding on Bloomberg. Harding doesn’t completely obliterate Eurgene Fama’s work, but he says, although his work is academic beauty, it doesn’t beat the performance of trend following. Covel then moves into Hugh Hendry. Although not a trend follower per se, he has often said things that are extremely trend following. The quote the Covel explores today, however, gives a clearer picture of Hendry's strategy (its not TF). Next, Covel discusses a documentary produced by Penn and Teller on the Dutch master, Vermeer, who may have used a tool to complete some of his paintings. The analogy to trading is there. There’s a system; there’s a process; there’s a model. Whether in painting, or whether in trading. Next, Covel talks about the Pope’s recent statement on economic inequality. Covel talks about how anyone who wants the politicians to legislate inequality is extremely naive. They have a vested self-interest. Covel moves on to talk about acroyoga, which he’s been practicing for the last several months. It’s reinforcing the idea of deliberate practice in Covel. That’s how Bergin makes that statement, and how Harding is so confident about trend following: They’ve been down the path of deliberate practice.
Charles Faulkner returns to the podcast for his fourth interview with Michael Covel. Today, he comes to us from Belgrade. Faulkner is an author, trader, and international expert on modeling the knowledge and performance of exceptional individuals. He was originally featured in "The New Market Wizards" by Jack Schwager. Covel and Faulkner discuss behavior, emotions, decision-making, and intuition in the world of money--and what money does to us on a biological level. Topics include Neurolinguistic Programming; how money in the mind influences money in the world; the schizophrenic-seeming handout to the two recent Nobel Prize winners; “system one” and “system two”; how “one” is running all the time, how “two” takes effort--and where Faulkner hopes to take this research; how experience can teach “system one”; new lightbulb moments in current research; how the “afraid to lose” (or in Singapore, Kiasu) concept could be terribly dangerous when applied to money; why the less you know about something, the clearer the image--and the more certain you are that it’s real and true; the need for certainty; money as a living metaphor; sunk costs; the Myers-Briggs instrument; and rituals and money. Faulkner also tells us the heart of what he’s after in his new upcoming book. Want a free trend following DVD? Go to trendfollowing.com/win.
Michael Covel speaks with Mikael Stenbom. Stenbom is the CEO and founder of RPM, which is a advisory consulting firm in Sweden. They advise, consult, or manage over 3.5B AUM. Stenbom has had tremendous experience in understanding strategy and the money management side of the CTA/managed futures world. Stenbom and Covel discuss what makes up a “smart money investor”; third party risk monitoring; and the life-cycle of CTA’s, hedge funds, and businesses in general. Nothing is constant in this world, and things change--Stenbom places a time axis on CTA’s to better manage for his clients. He also gives his opinions on why certain CTA’s have found such success. Covel and Stenbom discuss some of Stenbom’s early influences, such as the first time Stenbom had a “lightbulb moment” in the systematic world; Stenbom’s economics background; connections between economics, trading, and sociology; and the Austrian school of economics. Further topics include how Stenbom goes about explaining his style of responsive, systematic trading to new clients; Andrew Lo’s Adaptive Markets Hypothesis (which says that markets are for the most part efficient, but from time to time due to changes in the market ecology, become extremely inefficient); the process of rebranding Stenbom’s firm in 2008; the “politically infected” investor; and the cultural compatibility between Nordic countries and the Japanese. Free trend following DVD: www.trendfollowing.com/win.
Michael Covel speaks with Tom DeMark. DeMark is the founder and CEO of DeMark Analytics and the creator of the DeMark Indicators. DeMark considers himself a market timer and believes that fundamentals are critical; however, he and Covel have a lot in common. His work is price driven and technically driven. DeMark and Covel discuss how all conceivable market factors are in the price movement; obsession, passion and practice; having the “cover story” of fundamentals, but using technical analysis behind the scenes; Elliott wave; the fibonacci sequence; forecasting; DeMark’s thoughts on George Soros, Michael Steinhardt, Paul Jones, Steve Cohen, and others; thoughts on when DeMark first started computerizing his indicators; why you’ll fail if you rely solely on charts; DeMark’s thoughts on the pure price driven, reactive trend following traders; and introducing a new variable into a pure trend following approach. Receive a free trend following DVD? Go to trendfollowing.com/win.
Michael Covel interviews Cal Newport. Newport writes on a really interesting subject: Passion (mission critical to trading). You hear it all the time: chase your passion, find your passion. But Newport comes at it from a different perspective, similar to Covel's experiences--passion does not come first, but rather developing top skill comes first. Newport and Covel also discuss Alan Watts; why following your passion isn’t such a great idea from Newport’s perspective; the notion of deliberate practice and the 10000 hour rule, falling back on simplistic strategies that fail; passion following success as the true gauge; misconceptions about passion; thinking of passion as a side-effect of running your career in the right way; overcoming difficulty as a necessary step in the process; the work and analysis Newport has done looking at top chess players; the systematic aspect of gaining skill and its ties to passion; and anxiety and failure. Cal Newport can be found at calnewport.com. Want a free trend following DVD? Go to trendfollowing.com/win.
Today on the podcast, Michael Covel speaks with Yaron Brook. Brook is the president and executive director of the Ayn Rand Institute. Covel early on was introduced to Ayn Rand's work by famed trend trader Ed Seykota. Over the years Covel has come to appreciate that numerous top traders and entrepreneurs cite Rand's work as inspirations in their careers. Covel and Brook discuss trading; the nature of altruism; the idea and definitions of selfishness in the context of objectivism; the power of ideas; the idea of being a victim; schools, teaching, and political teaching; entitlement leading to victimhood; the rise of state power, the ambitious poor, and the minimum wage; free work and internships; Alan Greenspan; and America compared to Singapore. More on Yaron Brook: http://en.wikipedia.org/wiki/Yaron_Brook. Receive a free trend following DVD: trendfollowing.com/win.
Michael Covel opens up today’s podcast with an excerpt from a book called “Maximize Your Potential”; talking about growing your expertise and taking bold risks. It comes down to making bets. That is the trend following way. You do not know which market is going to take off; you can’t know, you just have to make bets (with risk management). When whatever technical indicator you’re using hits, you’re in. And if it doesn’t go your way, you get out. With that overview, Covel goes over his week and his experiences so far in Cambodia. Covel talks about living large, comparing us to the people who built the temples in Cambodia. Nothing goes up forever, whether it’s the Cambodian grandeur or Twitter, Priceline or Google. Covel moves on to talk about when one market dries up--then what?. Can you trade all those markets the exact same way? Want a free trend following DVD? Go to trendfollowing.com/win.
Michael Covel talks about fear: what scares us and why. What’s scarier: a deadly snake slithering across your path on a hike, or watching a 1000 point drop in the stock market? Covel discusses how there is no way to quantify fear itself. However, there’s a book out: “The Science of Fear”, and Covel quotes from it. Covel also shares his snake eating story from Asia. So what’s the moral of this? The science of fear, Covel’s snake eating story, etc.? Break it down into its component parts. Break it down, and then go live it; do it. The fears that one might have going through the snake scenario are exactly like those going through the markets. You can’t let that fear of losing grab you so that you can’t progress. Look at the opposite side of fear: fear and opportunity exist on either side of the coin. If you don’t think about breaking down trading and investing into its component parts, and figuring out how it works, you’re going to fail. If you hang out with those who make general feel good statements, that’s not breaking it down. Covel’s simple lesson for today: Walk right into the snake, find out how the snake works, take the snake apart, eat the snake (if you have to). That’s how you learn. That’s how you gain confidence. Want a free trend following DVD? Go to trendfollowing.com/win.
Michael Covel talks with Porter Erisman. His documentary film “Crocodile in the Yangtze” is the story of Chinese entrepreneur Jack Ma. Jack has assembled a net worth of over 3B USD all started from one little e-commerce site called Alibaba. Erisman’s film is a great window in to the cultural differences and similarities that exist across the countries of our planet. Even more specifically, it is an entrepreneurial manifesto for EVERYONE. Covel and Erisman discuss what it was like working with Ma; short-term vs. long-term entrepreneurs; the lack of knowledge/insight America has for China; the perceived threat of China to America; whether nationalism played into Ma’s success; the commonalities between the greatest internet entrepreneurial success stories; government interference with Alibaba; and how eBay was defeated by this small startup in China. More information can be found at www.crocodileintheyangtze.com. Free Covel trend following DVD: www.trendfollowing.com/win.
Michael Covel talks with Tim Price. Price is a partner and director of investment at PFP Wealth Management in the UK. Price makes no bones about it: He comes more from a fundamental value-based perspective. However, what Covel’s eye was the pragmatic, almost investigative look into what’s going on in government and central banks in the past five years. Covel and Price discuss the subordination of freely discovered prices to policy goals; why the recent trading environment seems “wrong and dangerous”; why Price wouldn’t be able to speak freely working for a large bank; why Price and his colleagues aren’t “doom and gloomers”; why the media neglects to report on black swans; why the role of the Fed is to keep “spiking the punch”; the vested financial pushback on having some of these views; risk and “Against The Gods”; why people are hardwired to be loss averse; and an analogy to the US Forest Service. Covel also offers a monologue on the back side of Tim's interview including an update on Bitcoin and an additional insight from Brad Rotter (ep. 177). Tim Price can be found at http://thepriceofeverything.typepad.com. Want a free trend following DVD? Go to trendfollowing.com/win.
Today on the podcast, Michael Covel speaks with Vernon Smith. Smith is a professor of economics at Chapman University in Orange, CA. He also shared the 2002 Nobel Memorial Prize in Economic Sciences with Daniel Kahneman. Covel and Smith discuss bubbles; some of Smith’s early experiments; how “we’re all born traders”; early “ah ha” moments; early science and engineering beginnings; upsetting the conventional economics “apple cart”; the difference between “hamburgers and haircuts” and the other 25% of goods; Smith’s experience bringing Chicago traders in to lab experiments; how we see the dotcom bubble, spring of 2003, and the real estate bubble today; differences between housing bubbles and stock market bubbles; understanding why bubbles happen; liberty; views on Adam Smith; and Smith’s idealogical journey from socialist to his libertarian leanings today. Want a free trend following DVD: trendfollowing.com/win.
Michael Covel interviews Brad Rotter. Rotter is a speculator, venture capitalist, and looks for big trends. He's not a trend follower per se, but he's made money in the trend following world. He was the first investor with Richard Dennis in the early 1980’s. Covel and Rotter have a wide-ranging conversation--Rotter's premise is that America has peaked and he sees Bitcoin as a tremendous opportunity. Covel and Rotter discuss how Rotter became an entrepreneur from early years as a farmer in Iowa; how he came to be Richard Dennis' first client when he started managing money; why the US is at 'peak civilization'; why technology is arbing away the need for people; how the unit of time is changing; why it's harder and harder to make an easy living; whether the US government is the greatest hedge fund in history; and why Bitcoin is a 'perfect' currency. Want a free trend following DVD: trendfollowing.com/win.
Michael Covel opens with a mini-monologue about travel including a discussion of his experiences in 2013. Then Michael talks with his guest Fabian Lim. Lim is an entrepreneur based out of Singapore. Covel and Lim discuss life in Singapore generally, and how Singapore has become "the gleaming city on the hill"; Singapore's success despite its lack of natural resources, and how its airport represents the forward thinking found there; Lim's first entrepreneurial ventures; the varied reasons that cause us to become entrepreneurs, and the difference between online and offline entrepreneurs; experience in the context of entrepreneurship, and how it can be used as an excuse; timeframes and getting out of the "employee" mindset; becoming rich, and why it's a choice; classical conditioning, self-limiting beliefs, and breaking the mold to become an entrepreneur; the idea of "failing faster"; the connection between Lim's flight training and entrepreneurship; risk and uncertainty; using simulations to practice; success traits and failure philosophy; and why choice can be the enemy of a successful entrepreneur. Free trend following DVD: trendfollowing.com/win.
Michael Covel talks with Dylan Evans. Evans is a British academic and author. The one subject that really caught Covel’s eye is the idea of “risk intelligence” (see his TED video which is great): expected value, bet sizing, certainty, and process vs. outcome. Evans does a fantastic job of getting at these issues (critical to traders and just about anyone else), and these are the critical issues not only to trading but to life. Covel and Evans discuss expected value, the definition of risk intelligence; optimism bias; correlations between IQ and risk intelligence; the Brandywine Raceway in Delaware and unconscious statistical modeling; probabilities and the nuclear power risk issue; making decisions on uncertain information; the expected value mindset; bet sizing; how luck is always part of the game; knowing when not to bet; the hidden costs of trying to eliminate risk in a system where risk can never be eliminated; and the “calibration test” for risk intelligence. Dylan Evans can be found at projectionpoint.com. Want a free trend following DVD: trendfollowing.com/win.
Wondering why your money’s all gone? Michael Covel has two fantastic examples why on today’s podcast. First, famed trend follower David Harding appearing on CNBC gives great opportunity to learn. And second, an article from the reformed broker Josh Brown. Covel goes through the Harding appearance point by point. Next, the CNBC anchors ask questions and Covel responds. Covel moves on to Josh Brown’s article about people acting like “silly little bitches” with their money. Are we in the “funny phase” of a bull market? You see the misinformation campaigns, you see people like Brown saying we’ve entered the silly season. So what does it mean for you? You need a system. You have to know what portfolio you are trading and why. You have to know you’re entry and exit strategies. How much are you going to bet? Do you want to be part of the sheeple, or are you somebody different?
Michael Covel returns from a presentation in Bangkok, Thailand and opens up today's podcast with a motivational speech that caught his attention. It all relates back to the individual and personal responsibility. Today, he presents five issues that ultimately revert back to that main headline. First, he talks about Nobel Prizes, Donald Rumsfeld, and one of the “Moneyball” stars (Paul DePodesta). Secondly, he talks about Dave Ramsey on "God" investing. Next, he discusses an article by Howard Gold that says you can't beat the market and then Alan Greenspan having his behavioral economics moment, and lastly listener mail. If the world is uncertain, where does personal responsibility come in? Covel discusses the pursuit of money through religion by way of Dave Ramsey. What does investing "God's way" say about personal responsibility? Covel also talks about the health care rollout, the government role in our lives, and the persistence of the average, and relates it all back to personal responsibility. Receive a free trend following DVD: trendfollowing.com/win.
It might seem like common sense, but clearly it's not being practiced. We all know that markets are volatile. They go up and down. You can get hurt, and getting hurt is part of the game. Even though you can get hurt in the markets or life, that doesn't stop people from pretending. Covel gives some examples to illustrate, and makes an analogy to the Federal Reserve. How have we gotten to the point where some failure, some losing, has been deemed so inappropriate that we're going to try and protect everyone and everything? This has become the way of the markets; the way of life. However, the markets and life are rough. But if the vast majority of people are just trusting their money to a big monolith of a machine, that gives you a leg up. If you have rules that are opposite to what the vast majority of people are doing, that should give you an edge. Free trend following DVD: www.trendfollowing.com/win.