Michael Covel talks to Darren Kottle. Kottle is the CEO of Caddo Capital Management a trend following firm. He talks about his roots, growing up in Shreveport, Louisiana. Shreveport was an oil town and Kottle talks about the experiences growing up in an entrepreneurial town. Covel and Kottle also discuss Kottle's early experiences in the market, starting off in a discount stock brokerage; his experiences working with a Nobel laureate Kenneth Arrow at Stanford; the sources of trend following profit; George Soros' concept of reflexivity; the importance and believing in your system to the core; thoughts on investment banks; the pivot point for Kottle to fully embrace a trend following system; what the Turtle story did for him when he first heard it; uncertainty vs. being wrong; and the percentage of people that truly understand that "it's all reflected in the price". Special free DVD offer: www.trendfollowing.com/win.
"It takes two to make things go right, it takes two to make it out of sight". That's a market for you. It takes you over there and me over here and we reach across to make a deal. That's what the market is: it's a bunch of hands shaking, except it's in the form of stocks or futures. Covel talks about "Pawn Stars" and how it's simply price discovery; two people coming together to find a price. Covel takes this and expands on how it's terribly complicated to get to a price. But here's the trick: except for trend followers nobody really wants to talk about how the stuff that gets to the price is waste product. The price is the smartest one out there. Covel also talks about the source of trend following profits in the zero sum game. Trend trader Dave Druz makes the case that it's the risk premium from hedgers. Covel talks about hedgers, the futures market, how it's very much like insurance in a way, and how it relates to the source of trend following profits. Covel also talks about a white paper called "The Winners and Losers of the Zero Sum Game: The Origins of Trading Profits, Price Efficiency, and Market Liquidity" by Lawrence Harris, and how it changed the direction of his own career. Special free DVD offer? Go: www.trendfollowing.com/win.
Michael Covel dives into the topic of cutting your losses, opening with a quote from "The Boxer" by Simon & Garfunkel: "The fighter still remains". It's a personal fight and personal responsibility for all those out there. And if you trade to money the fight to understand the topic of losses should be at the top of your list of concerns. Most people want to hear "instant profits"; they want to run away from discussing losses. However, knowing how to strategically approach losses is one of the most important concepts to understand as a trend following trader. Covel shares a note from a fan who made a connection between Covel's work and some of the ideas found in famed quarterback Joe Montana's book, "The Winning Spirit": "In training for success, we shouldn't hide from failure. Just like football players in the film room, we study failure. We want to see how it happens and which strategies work to keep us from making the same mistakes again." This doesn't just apply to trading: The loss cutting can be a relationship, a business, a family member--it can be anything. How do you know when to cut your losses and get out? Covel goes on to talk about the concepts of opportunity costs and sunk costs. When you've spent the money and it turns out to be "gone" you can't fret about it. It's over--it's a sunk cost. An opportunity cost is equally important: If you are doing A, you can't do B. It's a choice. If you invest your time, energy, or money in one relationship or one business, you can't spend your time, energy, or money with another. There is a cost to choosing one opportunity over another. Covel expands on these concepts relating them to familiar companies like Microsoft and Apple. Covel goes on to discuss how people have difficulty letting bygones be bygones; why people have difficulty with stop-losses in trading; and why having a system that forces you to take losses is the foundation of trend following trading success. A special offer from Michael Covel? Free DVD telling the story of a small town guy who made a trend following fortune. Delivered to your home or office: http://trendfollowing.com/win.
Michael Covel opens his monologue with a clip from the film, 'Patton'. He talks about persistence over time in relation to the film, relating it to some personal examples from his own life. Some people seem to have genetic disposition for certain skills; however, the drive to succeed supersedes any genetic disposition you may have. Dedication, persistence and the drive to achieve are the true keys to success. Covel leads into a clip of Maria Bartiromo talking with Ray Dalio of Bridgewater. Covel notes some things that Dalio goes into that have to do with trend following: having a strategic asset allocation mix that assumes you don't know what the future is going to hold; and the importance of the few big wins. However, Dalio says he isn't a trend following trader in the traditional sense: he's 100% systematic using fundamental information--not technicals. Covel goes on to surmise that there is evidence that some portion of Dalio's business is perhaps in the technical trend following space. Covel also talks managed futures: the origin of the term; how it describes an instrument and not a strategy; and its relation to trend following. Further topics include why you don't need a Ph.D. to be a trend following trader, and process vs. outcome. A special offer from Michael Covel? Free DVD telling the story of a small town guy who made a trend following fortune. Delivered to your home or office: http://trendfollowing.com/win.
It's common knowledge that if you throw a lobster into a pot of boiling water it will scream for its life. However, if you put the lobster in cool water and slowly bring it to a boil the lobster will accept its fate. Michael Covel notes that this is the scene for many investors today: they're like the live lobster in a pot of cold water as it's coming to a boil and they don't know what's coming. Covel presents this idea and several others in the context of gambling, chance, and uncertainty. Gambling can be a pejorative term for many, but Covel relates it to trading. Covel discusses an article entitled, "The Illusion of Control: Dancing With Chance" and relates its ideas to trend following trading. Covel also discusses a TED video from Dylan Evans. Evans talks about three different types of gamblers: problem gamblers, leisure gamblers, and expert gamblers. Covel extends Evans' categorization to traders. These different types of gamblers play for different reasons, handle profit and loss differently, and bet on different games. Are you a problem trader, a leisure trader or an expert trader? Do you trade for fun or for money? While problem gamblers will bet the farm, leisure gamblers know their limits (using a nascent kind of stop strategy), and expert gamblers aim for profit. A problem gambler will bet on anything, but an expert gambler will only bet on games with an element of skill. Covel also analyzes Evans' three ways to make decisions: setting a threshold (how much are you willing to lose?); bet sizing (how much do you bet on each trade?); and the expected value (if you follow your strategy, what is going to be your average winner and average loser?) If you look at the market price of a diversified portfolio of markets, have an entry and exit strategy, and have a bet sizing strategy, then you can make money over the long haul if you have a positive expected value. Please note: Michael Covel quotes Christopher Hitchens in this episode, which contains an f-bomb. Special Offer: receive free DVD delivered to your home or office: www.trendfollowing.com/win.
Michael Covel opens with quotes from both Jay-Z and Malcolm Gladwell ("My goal of the day is to fully listen to my critics, even if they may not know exactly what they're critical of."). Jay-Z recently spoke with Russell Simmons about Occupy Wall Street, noting that he wasn't sure exactly what the message was behind the rally. Covel talks about the Occupy movement, about criticism he's received in support of Jay-Z's stance, trend following in general, and the culture of "trolling" that has popped up on the internet. Next, Covel covers some of the more technical details regarding trend following trading. How can you detect a trend? How can you measure it? For anyone with a pulse, it's really simple. A trend is from point A to point B. There are all kinds of different trend lengths, but you don't know the trend until it's over; you enter, you exit, and then you see where the trend was. The goal is to capture the "meat" in the middle. Covel covers the five basic precepts of trend following: What markets are you going to follow? What will be your signal to enter a trade? What will be your exit signal for getting out with a gain? What will your exit signal be for getting out with a loss? What will your bet size be? Covel also discusses drawdowns, speculation, and entry signals. He notes the connection between wildcatting/speculation and trend following, referencing P.T. Anderson's film about oil speculators, "There Will Be Blood". You can enter randomly, but if you can give yourself an edge on the entry, you should take it. Think about drilling an oil well: You show up and you start drilling holes. You can drill randomly, but if you do a little geological homework, you can find out where to drill to increase your odds. The same logic applies to trend following. You're going to drill a lot of holes: some of them are going to be dry, but you're going to hit a few gushers along the way. No one will care about the dry holes when you hit the gusher that pays for them all. You can either call Fidelity, give them all your money, and wait and hope that you have the timing correct for your own retirement; or you can craft your life around looking for the gushers with a strategy that gives you an edge. Special Offer: receive free DVD delivered to your home or office: www.trendfollowing.com/win.
Michael Covel talks to trader, educator and author Dr. Alexander Elder. Besides his numerous other books, just about everybody involved in the trading space in the past 15+ years has Dr. Elder's international best-seller "Trading For A Living" on their shelves. Dr. Elder's unique and inspiring story starts with his dissatisfaction with the communist system in his home country of Estonia. At 23, while working as a ship's doctor, he jumped a Soviet Union ship in Africa and received political asylum in the United States; he also ended up on the KGB's wanted list. Dr. Elder worked as a psychiatrist in New York City and taught at Columbia University, and he shares with Covel how his experience as a psychiatrist provided him with a unique insight into trading. Dr. Elder's work has established him as one of today's leading experts on trading psychology and in the use of technical analysis with money management. Elder and Covel talk about the psychology of trading; how a high degree of education can sometimes be a hindrance; the most dangerous personality traits to have as a trader; the stages of trader development; the importance of money management; the importance of keeping records and diaries of your trades; the notion of exiting long positins and shorting weakness; the similarities and differences between traders in different geographic locations; and how financial markets can be like manic depressive patients. Special Offer: receive free DVD delivered to your home or office: www.trendfollowing.com/win.
Michael Covel talks with trader Steve Brechtel. Over the past 20 years Brechtel has worked as a trader for three of the top 100 hedge funds in the world: Trout Trading (now Tewksbury Capital) in Chicago and Bermuda, Crabel Capital in Milwaukee, and now Two Sigma in NYC (a $10 billion fund) -- all short-term systematic funds. Considering the often secretive nature of hedge funds Brechtel's candid talk about Two Sigma required internal clearance from his company and is a rarity in the hedge fund world. Covel and Brechtel cover Brechtel's history, from his beginnings roughing it as a Pizza Hut manager while working an insurance job, to finding his way to Monroe Trout, to working at Crabel, to his career at Two Sigma today. They also discuss their mutual history in Virginia; why he was hired at Monroe Trout in the first place as a new trader and the advantages of having a beginner's mind; the difference between the short term/systematic traders that Brechtel worked for and the longer term trend following Covel talks about; the six strategies Brechtel learned trading the pits; what's changed and what's the same now that technology has evolved; Ayn Rand, objectivism, and Trout; Brechtel's transition from Trout to Crabel, and the differences between these two firms; and his work at Two Sigma today. Brechtel also has written a screenplay ("Unhedged") using hedge funds and high finance as its backdrop. He shares his experience in writing the script, how his movie differs from other Wall Street movies, and Covel talks with him about his experience in making his own documentary, "Broke: The New American Dream". Special Offer: receive free DVD delivered to your home or office: www.trendfollowing.com/win.
"You have to understand, most of these people are not ready to be unplugged. And many of them are so inured, so hopelessly dependent on the system, that they will fight to protect it." That quotation inpsired Michael Covel to analyze the two political conventions in America over the past few weeks offering a trend following perspective as an alternative. Within politics people seem to be marionettes attached to strings with invisible hands moving them all around. On either side of the aisle you have people blindly following "their guy" thinking their political win is the answer to their problems. Yet if you want the dollars in your account to go up clapping like a "happy seal" at one of this conventions ain't going to cut it. Covel compares today's landscape to the famous Twilight Zone episode where Roddy McDowall finds himself crash landed on Mars only to realize the comfortable home that has been made for him is a prison where he is exhibited like he's in a zoo--an "earthling in his natural habitat". Covel also notes how technology is arbitraging away the need for human capital and how no politician in America is honest enough to admit it. If so, how do you succeed in this environment? You have to pick an option that's not simply a political belief in "your guy". So what's a way out? Covel lines up some of the basic trend following concepts and applies the eight key features of the scientific method. However, if everyone adopts trend following how can it still be successful? The vast majority of invested assets are in buy and hold mutual funds and unless people stop gambling, stop watching CNBC, and stop drawing false parallels, trend following will never be adopted by the masses. However, the fact that most people are unable to adopt trend following gives you the leg up and a fantastic opportunity to mint cash. Get out of the human zoo. Stop being a marionette. Stop being manipulated. And do something big for yourself. Special Offer: receive free DVD delivered to your home or office: www.trendfollowing.com/win.
Michael Covel speaks with trader, author and blogger Steve Burns. Burns has written two books (his most recent book "New Trader, Rich Trader: How to Make Money in the Stock Market" is available on Amazon) and operates an educational website. Burns is an up-and-comer, and Covel talks to him about his early start, his Nashville location and lessons learned along the way. Burns' start came during the tech bubble of the late 1990's, and he discusses how the bubble bursting helped to shift his perspective from a fundamental, buy and hold approach to the trend trading perspective he's adopted today. Covel expands on some of the chapter titles in Burns' book, such as "New traders try to prove they are right, rich traders admit when they're wrong," and "New traders bet the farm, rich traders carefully control position size." They also discuss the problems with buy and hold; how "rich" can be a mindset rather than a number; the role of luck and circumstance in trading; staying away from the need for constant action and waiting for the "fat pitch"; developing a robust system; staying away from predictive trading approaches; and viewing the markets as a video game as a means to help with trend trading understandings. Special Offer: receive free DVD delivered to your home or office: www.trendfollowing.com/win.
Michael Covel discusses reducing decisions in our lives. He lays the foundation by exploring typical Yahoo Finance articles and a recent John Bogle piece titled 'Ten Rules of Investing', which basically pumps a buy & hold strategy. These articles are the digital stress and information overload of our lives. They don't help us make decisions; instead, they distract. Covel relates this to a white paper from the Bank of England called "The Dog and the Frisbee". Thousands of decisions and factors go into the simple act of a dog catching a frisbee, but does the dog ever think of all those factors? Does the dog crunch the higher math? No! This makes for an easy connection to trading. The objective is to reduce trading decisions down to a simple factors, and to make good buy and sell decisions with some sort of risk-management constraint. So, how do you reduce the buy/sell decision-making process down to something manageable? A trend following strategy and trade based on price. All of the Yahoo Finance, CNBC, and Bloomberg articles in the world won't help make better trading decisions--its all overload. Focusing on the thousands of factors that can go into any market decision will leave your head spinning; if you adopt a trend following approach, you can reduce all decision-making down to the price action up or down of the instrument you're trading. Simplicity in life and the markets--the key. Special Offer: receive free DVD delivered to your home or office: www.trendfollowing.com/win.