Michael Covel talks to Michael Gibbons. Gibbons is a market timer (otherwise known as a trend following trader) who runs a firm called Gibbons Trading (gibbonstrading.com). Gibbons started as an economics major and quickly realized that much of what he was taught in academia didn't add up. He has been trading since 1971, and was one of the first to discover what is now known as stock index arbitrage. He was one of the first to use computerized trading and currently provides his proprietary research primarily to large traders and hedge funds. Gibbons talks to Covel about how he got started in the markets; the fallacies of buy & hold and fundamental analysis; trading prices apart from everything else (and how this is close to playing the market like a video game, i.e. pong); the problem of when the media is simply "making things up"; how trading can be primarily psychological; the problems of the efficient market hypothesis (EMH) and academia; the benefits of having a trend following strategy during chaotic times; the danger of gurus; and separating your ego from your trading. Special Offer: receive free DVD delivered to your home or office: www.trendfollowing.com/win.
Michael Covel picks up the thread from last week's episode on the global chatroom that is Twitter, StockTwits, and other social networking services. Covel received some feedback from a listener that took exception with Covel's characterization of Twitter and StockTwits, noting that the service isn't limited to one style of trading. Covel doesn't disagree, but notes that it's entirely irrelevant. If you're in the market to make money using a price-based trend following system, any other information is extraneous. The non-stop continuous flow of information never ends; it's simply a distraction. Covel also discusses the importance of consistency: If you don't have consistency in your thought process, how can you have consistency in your process of trading? Be consistent with your use of price as the basis of your system. Covel reads from an upcoming, updated edition of his The Little Book of Trading with some new writing from Cole Wilcox. Wilcox's description of trend following as purely data-driven system that is immune to politicking is a perfect counter to someone who might be missing the point of why Covel takes issue with StockTwits, Twitter, etc. Covel also discusses a great passage by Milton Friedman. Friedman discusses the impossibility of a single man manufacturing a pencil by himself. There are thousands of people who cooperate together to make a pencil, all motivated by the presence of a market. It's a marvelous example of how you can get a complex structure of cooperation and coordination which no individual planned; rather, it is coordinated by the market. It was not directed under the hand of state centralized authority. While the connections to trend following and Friedman's point may not be obvious, there is a connection on the psychological side. To the person who wants to get ahead on their own, the answer is there. Either you want the state to do/fix things for you, or you go out and try and get things done on your own. Everyone has to choose their path. Special Offer: receive free DVD delivered to your home or office: www.trendfollowing.com/win.
Michael Covel speaks with Ralph Vince. If you've done your homework on trading systems, specifically about optimal bet sizes, you have run across Vince's work before. Vince is self-taught and has crafted some extremely detailed, comprehensive looks at optimal betting strategy for traders over the last 20-plus years. Covel discusses whether coming up outside of the typical educational institutions affected Vince's outlook - and how learning outside of institutions can work better for some than others. Covel and Vince also discuss optimal bet sizes; whether Ed Thorp's work and the Kelly criteria had any effect on Vince's work; the importance of knowing the optimal spot depending on your criteria; why maximizing profits can result in a large drawdown - and why you should be happy about that; if diversification really does give you a free lunch; and the importance of learning the wrong approach. Special Offer: receive free DVD delivered to your home or office: www.trendfollowing.com/win.
"More Ways to Win." Michael Covel talks to Howard Getson, an entrepreneur and president & CEO of Capitalogix. For those that recall Covel's Dave Stendahl's interview, Getson is an associate of Stendahl. Getson has a degree in psychology and philosophy from Duke University, an MBA and law degree from Northwestern, and has practiced corporate law. Getson is running a hedge fund today as well as a quant research shop, and he's in the business of systematically finding edges through all sorts of different approaches - not only trend following. Getson started his first business in the sixth grade, and he has always had the mind of an entrepreneur. He talks about his legal background and how being a practicing corporate attorney influenced his trading and other business practices - as well as how a diverse background can help. Covel and Getson also discuss the "E-gene", and how entrepreneurism is at the core of what both Getson and Covel practice. In 1991, Getson left his law practice, became the CEO of a fast-growing technology company, and started trading. Covel and Getson pick up Getson's progress from there, and discuss how hunches can be dangerous; turning your hobby into your business; recognizing patterns; the "three levels of mastery" - cognitive, emotional, and physical; how minimum standards can define your life; how systematic trading can define your minimum standards; and controlling emotions through automation. They also discuss the importance of travel with a focus on Southeast Asia in particular and why this area of the world is so important to keep an eye on. Special Offer: receive free DVD delivered to your home or office: www.trendfollowing.com/win.
Let's face it you don't stand an outside chance if you don't have a good strategy. Covel plays the Turtles' pop classic, "Outside Chance", and notes that for many people, the fantasy is quick, easy money that pays off like the lottery. However, you don't stand much of a chance if you play the game like this. But how do you go about a strategy that gives you more than an outside chance of winning? The first step is to train the space in between your ears and develop a better philosophy. Covel plays a clip from "Choke", a documentary on UFC fighting champion and jiu jitsu practitioner Rickson Gracie. In jiu jitsu, everything is based on leverage. Gracie talks about momentum, putting yourself in the right position, and reacting to what your opponent gives you in the "moment of now". Your strategy must not be to anticipate what is going to happen, but to react. It's all about getting leverage on your opponent, getting in the right position, and adapting to the situation. Markets are the same way: they're going up and down constantly like a "bucking bronco", as trader Bill Dunn famously said. It's difficult to accept. Most people want to have control of their environment, but we're all in a great wave, and the only choice is to ride it with a strategy in place. Rickson Gracie teaches the philosophy, but once you move beyond that, you must know how to execute this "moment of now" strategy. Covel discusses a clip from author Malcolm Gladwell (Blink, The Tipping Point, Outliers) to illustrate this point. Gladwell's example focuses on emergency room doctors, and how diagnosing chest pain can be enhanced by simply limiting the number of factors to be considered. If you reduce the number of data points for a doctor to consider, and limit it to the four most important factors, his ability to become a better diagnostician increases exponentially. It's the same in trading, except there is only one factor worth consideration: price action. How many different data points can you actually digest? How are you going to take an action to buy or sell with millions of data points? It's simple: you must reduce the variables to something more manageable by focusing on price. Special Offer: receive free DVD delivered to your home or office: www.trendfollowing.com/win.
Michael Covel interviews Van Tharp. Van Tharp runs the Van Tharp Institute and is the author of four acclaimed books published by McGraw Hill: Super Trader, Trade Your Way to Financial Freedom, Safe Strategies for Financial Freedom, and Financial Freedom Through Electronic Day Trading. He was also featured in Jack Schwager's Market Wizard's: Interviews with Great Traders. Van Tharp received his Ph.D. in psychology, is a certified Master Practitioner of Neuro Linguistic Programming (NLP), a Certified Master Time Line Therapist, a certified Modeler of NLP, and an Assistant Trainer of NLP. He has used his expertise in NLP to create the successful models of trading and investing upon which so much of his work is based. Tharp also was also considered for the original Turtle program with Richard Dennis and Bill Eckhardt. Covel uses Tharp's psychological expertise to explain why trading psychology is so important to being a successful trader. Many people attribute the phrase "trading psychology" to Tharp, and he's also done a lot of work in the area of position sizing. Covel and Tharp discuss these topics in addition to the importance of happiness in relation to trading psychology; the influence of Tom Basso, Bill Eckhardt, and Ed Seykota (and his concept of "market's money"); and the notion of self-sabotage. Special Offer: receive free DVD delivered to your home or office: www.trendfollowing.com/win.
When shouldn't you take a bet? Michael Covel talks about the importance of waiting, and of not doing anything if there's no move. It's not smart to have a trading strategy that says, "I must make a certain amount each day". You must wait, be patient, and have a plan, but not act if there's nothing to do. Trend following puts you in the position to benefit when something big or unexpected happens, and teaches you that when you're put in the right position, you jump on it. Covel talks about the importance of waiting, and how the best strategy to employ is to follow price movement. Covel excerpts a TED talk from Baba Shiv regarding when it's the right move to take the figurative "passenger seat" instead of the "driver's seat". Shiv's example is based on medical decisions, but this extends to every facet of life--especially trading. Baba Shiv reduced it to the simplest factors, and with trading it's a good idea to do the same. In this case, it's price. Reducing yourself to the passenger seat in following price movement is the best move you can make, and Covel explains why. Don't follow the news, don't follow the tweets; follow the price. Covel also discusses an article in the Wall Street Journal from Robert Shiller, talking about a home price rebound. Shiller discusses house prices, whether we're at the bottom, and momentum. Momentum (the tendency for prices to keep moving in the same direction) is caused by "feedback loops" according to Shiller. Covel contends that the article states that we need to make another fake bubble to make everyone happy again. In the article, Shiller also contends that momentum doesn't apply to the stock market, but is exclusive to the housing market. Covel notes that, of course, the same feedback loops and the same momentum does happen in the stock market. While it's great that Shiller makes these observations about momentum, bubbles, and feedback loops, you can't predict these things. You have to have a strategy to take advantage of them when they do happen. Special Offer: receive free DVD delivered to your home or office: www.trendfollowing.com/win.
Michael Covel discusses the constant onslaught of information on the news, particularly through Twitter and other social media services such as StockTwits. If following the global chatter about market information is so important, how come the world's greatest traders don't do it? Covel refers to an interview on CNBC with the CEO of StockTwits. This day-to-day, mob-rule idea of following "trends" is sheep behavior, and following the news so tightly all day long is akin to sitting at the craps table in Vegas. Are you in the market to make money, or to talk about the market? Do you want to make a profit, or do you want to sit around talking about your trades at cocktail parties or on Twitter? Trading is not a group activity. If you have to constantly bounce your ideas off of others, it isn't good technique. Your basic system should tell you when to pull the trigger or take a loss. True trend following is the total antithesis of looking at day-to-day, minute-to-minute Twitter talk. The important principles include following a diversified group of markets, having a good entry strategy, knowing how much to bet of your limited capital, and knowing when to get out of the market. Taking an action based on random Twitter or StockTwits chat is not the way to be a great trader. Accepting the fact that you don't know which way the market is headed is really the ticket to success. The news and information never stop, and building your strategy around "I don't know" is one of the most important things you can do. It opens up a world of opportunity. Wait for the movement. Wait for the trending price. And put yourself in the position to make big money when the big moves happen. Special Offer: receive free DVD delivered to your home or office: www.trendfollowing.com/win.
Michael Covel checks in from the road - in sweaty, humid Virginia, on his way back from a speaking engagement in Vancouver. Covel discusses a Bloomberg television interview with Cole Wilcox of Longboard Asset Management (featured in Covel's Little Book of Trading). Wilcox discusses how his strategy is purely based on price trends and catching the big waves when they come along, as opposed to any sort of predictive or fundamental analysis. The Bloomberg reporters simply can't wrap their heads around the fact that Wilcox doesn't have any specific picks or predictions in the market. They ask about specific markets and push to create some sort of narrative (Where do you see energy going? Where do you see fixed income going? Where do you see stock indices going?). Covel notes that if the reporters don't have a story, they don't have a business - that's the bottom line. Wilcox's bottom line is price and profitability; nothing else matters. Despite the fact that Wilcox doesn't know where the market is going, that doesn't stop the Bloomberg folks from thinking that there is a way to figure it out. Covel relates this to a recent speech he gave in Vancouver. One of the slides he used in his presentation, a quote from trader Paul Tudor Jones, states that fundamentals are religion: "The illusion has been created that there is an explanation for everything, with the primary task to find that explanation". This is precisely what the Bloomberg reporters were doing to Cole Wilcox: they want an explanation, a story, a narrative. Trend following drives a stake through the primary tenet of modern financial theory: the efficient market hypothesis. How do you reduce your decision-making to something that's easily digestible? You reduce it to price. There is an illusion that we can control the market; trend following dispenses with this illusion so you can follow the waves and concentrate on what really matters - the price. It's ok to say "I don't know what's going to happen", but you have no choice but to build a strategy around not knowing the outcome. Special Offer: receive free DVD delivered to your home or office: www.trendfollowing.com/win.
Michael Covel talks to Dr. Eric Prentis, a graduate professor at the University of Southern California, and author of "The Astute Investor" and "The Astute Speculator". Covel talks to Prentis about his Zero Hedge article, "Everything You Know About Markets Is Wrong", which strikes down the efficient market hypothesis. Prentis lays the foundation for the credit crisis and everything that started to unfold in the summer of 2007; he lays the foundation, tells us how we got there, and the approaches we're taking to getting out. Covel and Prentis discuss "financial psychopaths" - and whether the public might be complicit in Wall Street's behavior; why the "wealth effect" isn't working today; how zero interest rate policy (ZIRP) is effecting us us, and why there isn't an uproar against it; why four years into the credit crisis, we still aren't seeing improvements; and using more debt to keep the debt cycle going (and why it's a dead end). Special Offer: receive free DVD delivered to your home or office: www.trendfollowing.com/win.
Michael Covel talks to trader and programmer Brad Rathe. Rathe allocates funds to other traders, as well as operatoring his own global macro fund. Rathe has worked at such firms as EMC (original Turtle), Northbourne, and Rotella. Rathe moved to Chicago the day he graduated college and immersed himself in the pits of the Chicago Board of Trade, initially working in the "meats" pit (pork bellies, live cattle, live hogs, and feeder cattle). Covel and Rathe talk about some of the practical/physical factors involved in the futures pit in the late 80's/early 90's. In the off-season, some of Chicago's athletes would work in the pits, and Rathe was surrounded by ex-Bulls, Blackhawks, and Bears. It was a very physical game back then, and Rathe saw broken ribs in the pits. Rathe shares some great anecdotes about someone who sold his spot in the pit for $1 million dollars - even though there were no assigned spots to begin with. Covel and Rathe discuss the move to screen-based exchanges (computer trading) replacing floor trading; Rathe states that when you get off the floor, it takes on more and more importance to have a systematic, non-emotion based trading strategy. Rathe fell into working at Globex, which was just starting, and saw some of the beginnings of electronic trading. By 1991, Rathe moved to EMC, where he worked under Liz Cheval (original Turtle). Rathe relates some of the lessons he learned from Cheval, and sheds a little light on the Turtle story from the perspective of having worked for Cheval. Covel and Rathe also discuss how the CTA business grew under the Turtles; the importance of programming; tweaking and changing your trend following system; MF Global, Madoff, Wasendorf and other cheaters; and the importance of being unemotional during a big blowup. Special Offer: receive free DVD delivered to your home or office: www.trendfollowing.com/win.
Michael Covel talks to Ryan Holiday, director of marketing for American Apparel; media strategist for Tucker Max, Dov Charney, and others; and author of the new book "Trust Me, I'm Lying: Confessions of a Media Manipulator". If you're in business, if you're an entrepreneur, if you're someone that needs to communicate with the public, or if you're anybody that has a message - Holiday's book has some important lessons for you. Holiday discusses the hard truths behind the media today: the blog-online media cycle not only drives the offline cycle, but determines and directs culture itself. As Holiday notes, a famous journalist once said in the early 1900's: "America is a country governed by public opinion, and public opinion is governed by newspapers. Isn't it critical that we understand what governs newspapers?" Today, newspapers have been replaced by the internet, blogs, and online media - and the internet rules over us all. It's integral that we understand what governs us in a world where page views drive everything. Holiday shares several stories that illuminate the truth behind the media today: the presidential candidacy of Tim Pawlenty, how Andrew Breitbart was able to exploit the system; and how Holiday was able to manufacture a fake controversy and jumpstart an ad-campaign he was working on - only to create real controversy along the way. Covel and Holiday also discuss the media food chain; what goes into media manipulation; the lie of "if you're doing something great, it will be heard"; gatekeepers in the media; how blogs are our digital bloodsport; why being inaccurate and inflammatory gets more page views; and how we don't seek honesty or reality. Cicero used to say, "Who benefits?". Ask yourself and examine who is writing what, and what they gain from it. Special Offer: receive free DVD delivered to your home or office: www.trendfollowing.com/win.
Michael Covel talks about the dwindling lack of individual responsibility in America today, and the emphasis on the group rather than the single individual. In a recent speech, President Obama said, "If you've got a business, you didn't build that. Somebody else made that happen". While his speech noted some great communal national achievements, it negated the importance of the individual to a great degree. It's not a political issue; whether you're on the right or the left, you are responsible for your own work. The state can't fix your problems. It's up to you. America may have built the infrastructure and the roads, but an individual made the car. There are some great things that have come about as communal, national achievements; however, mitigating the individual achievements of entrepreneurs gets us nowhere. A few years ago President Bush stated that he needed to suspend the free market system to save the free market system. Do we want the State equalizing everything? If you want to get ahead today, it's got to be purposeful, hard work on your own part. The State can't do it for you. Successful entrepreneurs aren't just lucky; it requires hard work and dedication. Special Offer: receive free DVD delivered to your home or office: www.trendfollowing.com/win.
Michael Covel talks to Patrick De Villiers, a co-founder of systematic trend following fund Neural Capital. Originally from South Africa and now based in Cyprus, De Villers talks about his early background and the philosophy behind Neural Capital. De Villiers had no background in finance until he left university. Instead, he studied experimental physics in superconductivity, which helped give him the background in analyzing and looking for patterns in data (that he later used in his financial career). Staying in South Africa, he found it difficult to find work, but met a woman at an investment bank--and that opened a door. He was assigned to a graduate development program and found his way into the trading room. The idea of hiring individuals with scientific backgrounds was just taking off at that time in South Africa, and De Villiers got in on the ground floor. De Villiers eventually teamed up with Brett Venter and founded Neural Capital in 2004. They started by looking at predictive investment models using neural networks; however, this didn't pan out, and they eventually found the trend following strategy that they employ today. Covel and De Villiers discuss that when you're at a big bank the performance can be based on the franchise you're working at; the connection of ego to performance; how to explain a trend following approach to clients; capturing the "fat" of the trend; outliers and black swans; putting the unexpected moves in your favor; the relation of trend following to behavioral finance; and insuring that you're in the game for when the big winners come. Special Offer: receive free DVD delivered to your home or office: www.trendfollowing.com/win.
Michael Covel talks to trader and author Gil Morales. Morales got started in the early 90s, became a broker with Merrill Lynch in Beverly Hills, and moved on to work as a portfolio manager and ultimately chief market strategist at William O'Neil's firm (of IBD and CANSLIM fame). Morales eventually moved onto his own investment advisory firm with with Chris Kacher. His book with Kacher is called "Trade Like an O'Neil Disciple: How We Made 18,000% in the Stock Market". Covel compares Morales' trend trading style to his via a comparison of going to Tokyo the first couple of times: It's a parallel world - everything is different, but they're ultimately trying to achieve the same thing. Covel also gets into some of Morales' unexpected beginnings. Morales actually started as a cartoonist, and discusses his early influences during this phase of his career. He also relates some interesting stories working at the Beverly Hills branch of Merrill Lynch. Covel and Morales go into a broad overview of William O'Neil's strategies, which ultimately provide the stepping stone for Morales' strategies today. Covel and Morales discuss how "you can't kiss all the babies", and how you have to keep from getting distracted with too many potential investments. Further topics include how O'Neil's system is trend following at its core; fibonacci sequences, the moment of "now"; getting away from the rationale and the narrative of the trend; and why losers average losers. Special Offer: receive free DVD delivered to your home or office: www.trendfollowing.com/win.
Michael Covel talks to Dave Stendahl of Capitalogix. Stendahl's world is 100% systematic, and he has been involved in conceptualizing and thinking up systematic approaches to trading the market for decades. But what is a system? Stendahl's explanation appeals both to the average person and to the seasoned trader. Stendahl's approach is that a system should have as few moving parts as possible; it should be simple enough to be explained on the back of a cocktail napkin. Covel and Stendahl make an analogy to cars, and how you can easily fix a simpler car in your garage as opposed to a complex Lexus. Stendahl explains that everyone is using a system in one way or another: every time you make a decision to buy or liquidate, whether it's based on a real system or based on advice from someone on the television, it's systematic in some regard. If you can talk it, you should be able to quantify it. If you can't quantify it, it might not really be there. Stendahl also talks about his beginnings, collaborating with his father in the mid 1970's. This was his exposure to the investment arena. It wasn't until college that he started taking "technical" things more seriously. When he was introduced to technical analysis, and had the lightbulb moment, he realized he could make money based off of something other than fundamentals. Interestingly, this was rooted in Stendahl's dyslexia. He turned this disadvantage into an advantage, and was forced to find his own solutions: to learn specifically how to automate everything from start to finish. This allowed him to look at numbers and trading from another light, and this approach ended up being very profitable for him. Covel also asks Stendahl about Ray Dalio of Bridgewater, who says that he is 100% systematic, but doesn't use any technical information. Stendahl explains that Dalio says he's looking at fundamentals from all these different markets, and this requires a huge amount of work. For Stendahl, he simply has one major input. Making price action systematic vs. taking in a massive number of fundamentals systematically. In the early 90's, Stendahl tried to work with fundamentals, but he found that the numbers were always changing, the data was slow, and given the amount of inputs, it would be much more complex and slow to put a good systematic program together. Stendahl chose to take the easier and more robust route, but he was very sophisticated in the way his systems were designed. Your system doesn't have to be complex to work. Sometimes the best system can be only four lines of code. Covel and Stendahl also discuss position sizing and money management, and how you can approach this systematically. Free Dvd? www.trendfollowing.com/win
Michael Covel talks about "Zen Habits", a website that offers general wisdom from the Zen school of Buddhism. What you might not realize is that this philosophy is incredibly relevant to trend following traders. Michael discuses one post in particular called "The Wisdom of Allowing Things to Happen". In our Western society, we're doers and creators; we don't just wait for things to happen. Michael doesn't discount the amount of effort needed to start a successful business or to be a trend following trader, but there is immense value in simply allowing things to happen, observing, and responding to the change. Covel discusses Zen, Yoga, and the aforementioned article from a trend following perspective. We think we're in control, but we're really not. We don't control the overwhelming power of nature or the market, yet we have the illusion of control in our lives. "You learn how things work. Instead of trying to make things work the way you want them to work, just watch them work. You'll learn more about human nature, about the nature of the world, as you see things work without you controlling it. It might change you. The best you can do is take what is presented to you in the moment of now and respond to it. Covel relates several anecdotes that link the Zen mindset and trading. "To control your cow, give it a bigger pasture". By allowing things to happen, giving them more room to grow and prosper, your needs will also be met - and you've done no work." Ultimately, trend following is about allowing something to happen. With trend following, you can't control the cow, you can't control the market. However, you can react and respond to it. The trend follower's job is not to predict, but to observe and respond. You don't control the markets. You don't control how much you're going to make tomorrow. If you accept the fact that you don't know what will happen, you open yourself up to better ways to minimize risk, better strategies that embrace the unknown, and outcomes that you couldn't conceive of on your own. The wisdom of allowing things to happen is rock central to life success, entrepreneurial success, and trend following success. Special Offer: receive free DVD delivered to your home or office: www.trendfollowing.com/win.
Michael Covel monologue.
Michael Covel discusses two philosophical approaches that are the key to being a success in any field: being awake to the outside world and thinking outside the box. Being part of the system is not going to reward you, and if you're awake to the outside world, you can see things you wouldn't otherwise notice that you can use to your advantage. From his childhood to early experiences doing opposition research in a political campaign, Covel offers several anecdotes regarding "lightbulb" moments that have come about as a result of thinking outside the box. Covel has used the same principles and outside-the-box thinking to get at the insights of how trend following really works. Trying to figure out how people like Bill Dunn, John W. Henry, and Jerry Parker all pieced together was revealed to Covel at a conference in London. He relates the story that was the foundational thread for much of his later work. Covel also connects outside-the-box thinking to trend following in general: If there's anything hard about being a trend following trader, it's that you have to be comfortable being by yourself. You can't take solace in the crowd, and thinking differently is the key. Special Offer: receive free DVD delivered to your home or office: www.trendfollowing.com/win.
Michael Covel talks to Mike Dever, founder of Brandywine Asset Management and author of "Jackass Investing: Don't Do It. Profit From It." Covel talks to Dever about being an entrepreneur from an early age and making his first investments in his early 20s. Starting with $5,000 in 1979, Dever quickly ran it up to $60,000 and learned some of his first trading lessons along the way. After deciding to set up some systematic trading models to help protect his investments, he put together his first fund in 1981. Dever had some interesting experiences at a fairly young age with some people who became big names on Wall Street: Paul Tudor Jones and John W. Henry. Deciding to get outside brokers to manage a fund to diversify his own business, he ended up starting funds with both of these legendary traders. Covel and Dever discuss some of the myths discussed in "Jackass Investing"; how everybody is a market timer; the stigma against investing in futures; return drivers; the risks you take by being risk averse; and the shift in attitudes towards volatility in America. In 2011, Dever relaunched Brandywine; he discusses why strategies based on sound return drivers are so important to his firm and where he's at today. Dever was on the show many months ago, but this episode goes much more in depth with some really fantastic color regarding the early stages of the managed money world. Note: This is Dever's 2nd appearance on the podcast. Special Offer: receive free DVD delivered to your home or office: www.trendfollowing.com/win.
Michael Covel talks about the importance of entrepreneurism today. We're not in a world that rewards doing what you're told anymore. Covel discusses Fairfax County, VA (where he grew up), home to one of the highest median incomes in the United States of America. Covel discusses why this area you might never have heard of has this status, and why this simply isn't a sustainable way of life for the rest of us. People seem to think that there's a job out there waiting to fall into their laps that will give them easy access to the American Dream. In today's world, you need the vision of an entrepreneur to successfully get to where you want to go. With all of the technology at our disposal, the road to this success is more open than ever before. Even going down the path of being a trend following trader requires the skills of an entrepreneur. Covel relates the story of Boone Pickens, one of the entrepreneurs he's had the good fortune of learning from. Pickens has the attitude that today's entrepreneurs need; when he got started, it was about taking a risk and making something happen, i.e. a "wildcatter". Covel invites you to take a look at your own motivations. When you get up in the morning, are you going in a direction that you control, or are you following someone else's plan? Special Offer: receive free DVD delivered to your home or office: www.trendfollowing.com/win.
Michael Covel interviews author and reporter Scott Patterson. Patterson has made a career of reporting the subterranean inner-workings of the markets, writing for the Wall Street Journal, Rolling Stone, and Mother Earth News. His first book, The Quants: How a New Breed of Math Whizzes Conquered Wall Street and Nearly Destroyed It, was released in 2010. Patterson talks to Covel about his newest book, Dark Pools: High-Speed Traders, A.I. Bandits, and the Threat to the Global Financial System. Covel and Patterson trace the history of high speed trading and electronic communication networks (ECNs) back to Josh Levine, who founded Island, the computer system that led to the high frequency trading we see today. Patterson discusses the technological revolution behind Island, and how its transparency led to dark pools - opaque markets where bids and offers are not made public. Dark pools have the benefit of operating in the shadows, helping institutions do what they do without anyone checking in on them. Today, Patterson goes on to propose that the entire market has gone dark. Covel and Patterson discuss the relation of dark pools to the flash crash; the regulation of dark pools; and how the real New York Stock Exchange is in a data center in the countryside of New Jersey. Not a trend following podcast, but an episode every investor should absorb. Special Offer: receive free DVD delivered to your home or office: www.trendfollowing.com/win.
Michael Covel speaks with Mebane Faber. Faber is a a noted author (The Ivy Portfolio), blogger, and portfolio manager with Cambria Investment Management. If you're into quantitative style investing, trend following, and systematic strategies, Mebane is right there with you. Faber grew up in a family full of engineers, and he started off studying biomedical engineering in college. Despite his scientific background, he's always had a strong interest in finance. Faber discusses how coming into finance with his unique background helped to give him the ability to look at the data without getting distracted by investment dogma. He spent the majority of his youth in a raging bull market during the internet bubble; however, when he realized his mother's style of buy and hold investing didn't cut it anymore, he was forced to find new methods. Covel talks to Faber about his white paper, "A Quantitative Approach to Tactical Asset Allocation"; his book, The Ivy Portfolio; the differences between "market timing" and "quant"; behavioral finance; the benefits of trend following systems in reducing volatility and drawdowns over enhancing returns; and the idea of macropessimism/microoptimism. Professor Faber! Special Offer: receive free DVD delivered to your home or office: www.trendfollowing.com/win.
Michael Covel lays out 25 selected Trend Commandments. While these principles aren't all-inclusive, they're guidelines to help get you to understand the trend following mindset. Covel also brings up a recent review of "The Little Book of Trading" in the Financial Times and offers a response. This critic has a hard time wrapping her arms around the benefits of trend following; however, if you don't "get" trend following, you can't be beaten over the head with it. Covel disputes the criticism that, if you teach something, the sheer act of being compensated to provide information to people disqualifies you from having a valid opinion. If Nobel prize winner Daniel Kahneman gets paid to teach at Princeton, does that invalidate his work? The company Covel keeps with other traders might give a clue that he's speaking the truth. Covel also plays a clip from Nigel Farage on the genius of mutual indebtedness, the bailout of Spain, and the failure of the Euro. In a clearly volatile market, what are you going to do to prepare? How do you prepare for uncertainty when you can't trust just about anything? Trend following is the only trading strategy that has rational basis to it; it allows you to participate in the profits and protect yourself on the downside. Isn't that the goal? Special Offer: receive free DVD delivered to your home or office: www.trendfollowing.com/win.
Tony Bazile of Intrinsic Capital Management is a trend following trader specializing in stocks. Michael Covel talks to Bazile about his background, which is unlike anybody profiled on the podcast so far: He was a professional water skier into his 20s. After observing another water skier trading on the sidelines and making a ton of money, Bazile decided to look into trading for himself. He made quite a bit before the tech bubble burst; when it popped, he was left with the feeling that there was still plenty of opportunity, and he forged forward. He moved to New York with his then-girlfriend and wound up living directly behind the American Stock Exchange, where he spent six or seven months handing out his resume (litetrally on the streets to Wall Street warriors). Eventually, he found himself working for John Mulheren. Bazile relates a story where Mulheren went on vacation after taking a large position. When Mulheren's team sold 80% on the second day of what would become a three week rally, Mulheren returned from his vacation furious, and Bazile learned one of his most valuable trend following lessons. This sent him down a path where he visited Bill Dunn in Stewart, Florida, and eventually ended up working for Ken Tropin at Graham Capital. Tropin told Bazile: "I'm good because I know that I don't know which way the markets are headed." After managing money for Graham Capital, Bazile left and partnered up with David Frakes, and formed Intrinsic Capital Management. ICM uses a trend following strategy to trade stocks, and Bazile and Covel discuss dealing with the sheer volume of information on individual stocks; and how trend following is the strategy, not the instrument. Covel also traces the lineage from Richard Dennis to Jerry Parker to Salem Abraham, and from John W. Henry to Ken Tropin to Tony Bazile. Only time will tell! Special Offer: receive free DVD delivered to your home or office: www.trendfollowing.com/win.