Peter Borish is chief strategist of Quad Capital. He works as a trading coach and helps recruit new traders and develop the company’s trading strategy. He also is a founding member of the Robin Hood Foundation. The Robin Hood Foundation has made great strides in their charity work and are continuing to do bigger and better things. Peter believes that the quality of life for those around you is much more important than the material possessions that can be accumulated.

Michael and Peter change gears from charity work, to trading and Quad Capital. Quad Capital has had only 5 or 6 down months since inception about 42 months ago. What does their multi-strategy approach consist of? They look at alpha generating, capacity constrained strategies. They also believe investors are looking at liquidity, therefore that is exactly what they provide in their funds.

Peter is the business of managing risk, not just being right. Another way of putting it is, “Are you interested in making money or are you interested in being right?” We should all be in the business of making money, over being right. That being said, is Quad Capital open to other strategies that could make them money? As long as the strategy fits within their trading philosophy, then they are always open to new talent. Michael and Peter finish the conversation talking sports analogies. A lot of traders think they are Michael Jordon, but are they Michael Jordon on the Bulls? Or are they Michael Jordon on the White Sox?

In this episode of Trend Following Radio:

• Politics
• Robin Hood Foundation
• Risk management
• Discretionary trading
• Having objectivity in your trading
• Kelly criteria
• Own up to your mistakes

Mihir Desai is author of “The Wisdom of Finance: Discovering Humanity in the World of Risk and Return.” Mihir is currently the Mizuho Financial Group Professor of Finance at Harvard Business School and a Professor of Law at Harvard Law School.

He wrote his new book with two goals in mind: 1. Demystifying finance and 2. Have people look at finance in a more inspirational way. After each financial bubble bursts, the public repeatedly retreats to stereotypical ideas of finance. Mihir doesn’t want to wait for a generational shift to take place for finance to be looked at in a positive light. Financial literacy has gone by the way side in schools. How do you get children to think about basic risk taking? How do you think about protecting yourself? How do you buy insurance? How do you pool your money as a family? He hopes his book may help change some views and enlighten.

Mihir explains why diversification isn’t important just in the markets, it is important to diversify in all aspects of life. As an athlete you should workout all your muscles not just pinpoint one area. Or if you are looking at your health, you should look at all aspects of your health, not just what you are eating or how you are sleeping. Broaden your outlook and diversify your time and energy accordingly.

What is Agency theory? If you give someone money to invest, why do you get the money back? Arguably this is the biggest problem in modern finance. 150 years ago most people were self employed. Nowadays we appoint people as our “agents”. We have a system where we give money to people we don’t know and expect them to take care of it. Michael and Mihir end the conversation talking about people finding their path and true happiness in life rather than doing what their parents or society has told them to do.

In this episode of Trend Following Radio:

• Reputation of finance
• Diversification
• Risk management
• Black-Scholes model
• Behavioral phenomena
• The magic of leverage
• The asshole theory of finance
• Agency theory

Mark Minervini is author of “Trade Like a Stock Market Wizard: How to Achieve Super Performance in Stocks in Any Market” and now his newest book, “Think and Trade Like a Champion: The Secrets, Rules and Blunt Truths of a Stock Market Wizard.” He was also featured in Jack Schwager’s “Stock Market Wizards.” This is Mark’s second appearance on the show.

Nature vs. nurture or the debate of whether a person is “naturally gifted” is one of the oldest debates out there. Mark says he was an “unnatural” when it came to trading and he was actually in the negative for the first six years when he started. Why did he keep going? He had a passion for trading and a bigger vision of what he was doing. Mark knew he had all the tools to trade for profit, just not all the experience yet. He believed in what he was doing, had a passion for it, took responsibility for his flaws and put the process before the results–that is why Mark thinks he has been able to thrive over the years. “If you do not think you can perform at a certain level, you won’t be able to perform at that level” explains Mark.

Trading ultimately doesn’t come down to talent, it comes down to a trader’s correct mentality. Everyone wants to win, but everyone doesn’t choose to win. Is your passion your priority? Sacrifice is essential when trying to obtain anything worthy and Mark shares some of the personal sacrifices he made to become who he is today.

Next, Mark explains what is known as “the trading triangle.” Your average gain, average loss, and percentage of wins is what is known as the trading triangle. Averaging those components makes up your personal bell curve. When Mark does workshops only 8-12% of people attending have an idea of what their average gains and losses are.

Michael and Mark end the podcast going over the pros and cons of diversification. Diversification is great until it turns into what Mark calls “di-worsification.” When traders and companies start to veer too far from their core values they can start to hurt themselves with diversifying. There are many benefits from diversification when done in the correct way. Good traders know when to step on the gas and have a strategy backing them up.

In this episode of Trend Following Radio:

• Process vs. outcome
• Builder vs. wrecking ball mentality
• Eliminating excuses
• Neuro-linguistic programing
• Sacrifice when obtaining a goal
• Risk of ruin
• The trading triangle
• Diversification vs. Di-worsification
• Sophistication and simplicity

The Yale Endowment is the crème de la crème. Nothing beats it? Their AUM is about 25 billion. Michael evaluates and reads some of the 2016 copy of The Yale Endowment. He wants listeners to decide if it is an example of how the best think, or if it is how one of the best operations self-describes themselves. Michael ends with breaking apart an excerpt from a presentation that David Swensen gave on his portfolio management strategy.

In this episode of Trend Following Radio:

• Yale Endowment
• Portfolio management
• Black box trading
• Mean variance analysis
• Harry Markowitz
• Passive index
• Forecasting

Jack Schwager is author of the Market Wizards series and just completed his second edition of A Complete Guide to the Futures Markets: Fundamental Analysis, Technical Analysis, Trading, Spreads, and Options. Jack has gone into great detail updating his 1984 original edition with over 600 pages of educational insights.

At the beginning of his trading career technical analysis never made much sense. However, as he worked in markets over the years, he came to see that those who used charts and technical analysis tended to make more money. He also saw that fundamental analysis almost goes against the idea of money management. He found that the same went for risk management: How does risk management work with a truly fundamental perspective? It doesn’t for most.

The basics of futures trading for most is fuzzy. Jack gives a short summation of the basics: 1. Futures are very liquid. 2. They trade for every type of instrument you could think of. 3. You can go short or long just as easy. 4. Futures are truly a zero sum game. 5. They are real markets and have real fundamentals pushing trends. 6. Basic trends do have some sort of rational behind them in futures markets and the skilled fundamental players will beat the unskilled players if they are good at assessing probabilities. Michael and Jack finish talking about trading as an art vs. science, whipsaws, failure to exploit major trends, drawdowns and the efficient market hypothesis.

In this episode of Trend Following Radio:

• Fundamentals vs. Technical analysis
• Risk management
• Contrarian view on fundamentals
• Charting
• Science vs. art in trading
• Whipsaws
• Exploiting trends
• Sharpe ratio
• Efficient market hypothesis

On today’s episode of Trend Following Radio, Michael opens up about uncertainty and uses one of his favorite writers to illustrate: Christopher Hitchens. Hitchens is certain that he doesn’t know, and sees doubt and skepticism as our only path to enlightenment. He invites us to open up to the possibility that doubt will always be in front of faith–whatever that faith may be about. Covel sees Hitchens insights well beyond religion, and connects his comments to his trading world.

Next, Michael excerpts a recent soundbite from Jim Simons on Trend Following. He is one of the most successful traders ever. A great track record. 100% systematic. Uses price action. He is very clear that fundamental analysis is not his direction. How does Simons really trade? Will we ever know? No. Simons is tight lipped. Is Simons a trend follower? Does he use trend following at all? Worthy questions given his limited public statements. Covel digs into Simons recent comments about trend following asking the hard questions few are prepared to pose.

Lastly, Covel brings in Alan Watts to connect both Hitchens and Simons. Watts wonders why children have been forced into a learning process that doesn’t help them in the long run. He sees culture as leaving children at a disadvantage. He points out that the rules of the game are not given to children. Children are strung along. The powers that be keep key information away from the child, and even the adult, forcing them to always rely on the system. So while everyone is in desperate need of the future, ignoring the present moment is inevitable. Covel easily connects this to the markets and trading reminding us all that the gatekeepers are not your friends.

In this episode of Trend Following Radio:

• Christopher Hitchens on certainty v. uncertainty
• Jim Simons on Trend Following
• Faith v. Skepticism
• Is trend following dead?
• Buying pleasure: a complete fallacy
• Constraints on the truth

Today, Michael Covel reads a recent piece from Barry Ritholtz about the Death Cross: that foreboding moment when the 50 day MA falls below the 200 day MA. Then Michael looks at how a Twitter debate between Cliff Asness of AQR and Jerry Parker of Chesapeake Capital, sparked by the article, led to an examination of momentum v. trend following.

The so-called Death Cross is viewed by many to be an omen, a signal of dark days to come. And while that could be partly correct in the context of a complete system, the Death Cross is just a signal. It’s a mistake to think of it in apocalyptic terms that something will happen in 6 months time, etc. The Death Cross is the type of signal that can work for the investor with a robust, diversified portfolio within a system that doesn’t aim to predict the future. This is all about what’s happening in the present price, so you can take action now.

Michael also plays and comments on a Bloomberg interview with Barry Ritholtz, discusses the folly of predictive technical analysis, and hammers home the fact that trend following is the only proven form of quantitative trading.

In this episode of Trend Following Radio:

• The importance of ignoring old concepts
• Trend Following is about taking action
• Why no one can predict where the market is headed
• Incorporating the Death Cross into a diversified portfolio
• Understanding momentum trading
• The idea of “heuristics”

Want a FREE Trend Follwing DVD? Find it here. 

“Should I invest in X?” is a question often heard in the investment world. Coming from the general public it is an especially strong cry out. The answer to that question is simple, although not obvious to many.

What you invest in doesn’t matter; it’s the strategy that matters. Markets are instruments: you can choose the best market and instrument for your purpose, but ultimately it is your strategy for using that market/instrument that determines the outcome.

In this commentary Michael Covel curates several excerpts from Richard Feynman to Paul Samuelson and creates a narrative to illustrate the contrast between fundamental and technical traders. Covel also makes a case study of Commodities Corporation – the hedge fund/incubator that was founded and run by some of the biggest trend following heavyweights of our time.

One of the most notable aspects of Commodities Corporation’s success is their pivot from their original fundamental strategy to a trend following strategy. Though the company is not talked about much today (bought by Goldman Sachs years back), their trend following legacy still permeates the investing world.

In this episode of Trend Following Radio:

• Defining the exact risks involved in a trading strategy
• The importance of liquidity: entering and exiting markets with ease
• What we can learn from the history of Commodities Corporation
• How the scientific method applies to trading logic
• How Fundamental Analysis differs from Technical Analysis
• The origins and basic principles of Trend Following Trading
• The importance of accepting the risks and committing to your strategy

Want a free Trend Following DVD? Get it here. 

Many of the investment and trading approaches available today simply do not perform the same way in the real world as they do during simulation. This is why it's important to “look under the hood” of your trading strategy to understand how something works instead of simply taking it on faith.

This episode’s guest has appeared on the podcast twice before. Eric Crittenden is one of the key mind's behind Longboard Mutual Funds, a firm that has over 300 million dollars under management. Crittenden was also featured in Michael Covel's "Little Book of Trading".

In this episode, Eric Crittenden talks about creating a mutual fund based on trend following principles, why investment returns are not normally distributed, how financial simulations differ from the real world, and how to control risk in a trend following system.

Eric has many insights into trend following and trading in general, and has the financial data to back up his findings. He has also published several research papers on the matter, which are linked to below.

In this episode of Trend Following Radio:

-Relative momentum vs. time momentum
-Survivorship bias in the financial advisory market
-Defining risk – how much are you willing to lose?
-Why trend following works for both high-risk and low-risk assets
-Identifying the “sweet spot” client for fund managers
-The difference between most mutual funds and direct-managed funds
-Financial simulations vs. real life

Get a free Trend Following DVD here. 

An article recently appeared in Forbes, entitled “What Jurassic World Can Teach Investors About The Stock Market”. In it is an interview with Ben Carlson on why simplicity trumps complexity when it comes to investment strategies. Although not explicitly about trend following, the article brings up points about the poor historical performance of financially engineered assets and the superiority of simple systems.

In this monologue, Michael Covel talks about his desire to seek the truth, and the importance of taking personal responsibility for your actions. He also breaks apart the Forbes article on simplicity vs. complexity, and the logical reasons why trend following systems have historically performed better than others.

Also in this episode: the recent study that shows that metal-heads from the 80s are happier and better adapted than their peers.

In this episode of Trend Following Radio:

• Why simple strategies are better than complex ones
• The importance of defining your risk as a number
• How risk and reward are two sides of the same coin
• Why going for the average is a losing strategy
• The difference between hiring a financial advisor and an trader

Speculation has become a pejorative for some in recent times. A quick search yields the following definition of speculation: “forming a theory about a subject without firm evidence.” Yet if we look at the origin of the word, “speculor” means “to observe” in Latin. To speculate is to observe, and to make decisions based on those observations. In business and in life, there are ultimately two choices: to speculate or to gamble. The difference between the two is simple: the first has a strategy behind it; the second does not. The first relies on predetermined parameters for making decisions; while the second leaves decisions up to circumstance or emotion. In this monologue, Michael Covel talks about the philosophical foundation of success: speculation. This episode features many notable quotes from famous economists and traders, going back as far as the 1800s. The wisdom of these men is the foundation of trend following, and is as relevant today as ever. In this episode of the Trend Following podcast: why speculation is such an important concept, the philosophy behind trend following, watching results rather than causes, cutting short your losses, timeless excerpts from as early as the 1800s, and the early beginnings of Wall Street. Free trend following DVD: www.trendfollowing.com/win.

Francisco Vaca can be called a “second generation turtle trader”. He worked with Richard Dennis at C & D Commodities, and for the last 15 years has been closely associated with Paul Rabar. He is now the Co-Chief Investment Officer at Rabar Market Research. Before he became a trader, Vaca was a particle physicist and worked at the famous Fermi lab. This is not an insignificant fact, as his background in mathematics and statistics became very useful in his career as a trader. In this second interview with Michael Covel, Francisco Vaca talks about evaluating the short-term and long-term performance data of fund managers, the benefit of using trend following systems across the entire time spectrum, trend anticipating techniques, and using modern technology in trading. In this episode of Trend Following Radio: the importance of distinguishing between long term and short term track records, “alpha” and “beta” trading strategies, how the holding period length affects the risk-reward profile and return streaks, the benefits of diversification across different holding times, using high frequency trading technology in long term trend following, how correlations are often misinterpreted, and knowing the limitations of your tools. Get a FREE Trend Following DVD: http://trendfollowing.com/win.

There is a common problem in finance when it comes to evaluating investment managers’ performance: the factor or skill vs. luck. When a manager performs well over a number of years, it is not clear whether the success can be attributed to the manager’s skill and strategy, or random luck. And vice versa, when a manager performs badly, it can be difficult to pin-point whether it was due to lack of skill, or simply bad luck. Another factor that is commonly misunderstood in finance is risk. Understanding the differences between risk, volatility, and skew is essential to developing a well-performing trading strategy. Campbell Harvey studies these phenomena. He is a finance professor at Duke university, and research associate with the National Bureau of Economic Research in Massachusetts. His research papers on these subjects have been published in many scientific journals. In this episode, Campbell Harvey and Michael Covel discuss risk tolerance, evaluating trading strategies, Harry Markowitz’ classic paper on portfolio selection, and the importance of differentiating between volatility and skew. In this episode of Trend Following Radio: Survivorship bias, and not being fooled by randomness, Why people with higher risk tolerance experience much higher upsides, Understanding process vs. outcome, The difference between volatility and skew, The importance of recognizing that asset returns are rarely “normally distributed”, When it is appropriate to apply a general framework, and when it is not, The Sharpe ratio – is it always relevant?, Harry Markowitz, Jim Simons, and Nassim Taleb. For more information and a free DVD: trendfollowing.com/win.