Michael Covel discusses how to best go about learning to become a trend following trader. Often when people come to trend following trading for the first time they get fixated on the rules alone, thinking there is a "magic potion". There are other factors to consider, and Covel examines them by relating to two articles: "Why Are Super-Achievers So Successful?" from Smithsonian.com and "The Secret Ingredient for Success" from The New York Times. Covel examines the common threads of the super-achiever: self-awareness and self-evaluation; finding ways to connect themselves to people that would support their dreams goals; the skill of active listening; and patience. Covel highlights one part of the article that states "you don't have to win every lap", and points out a perfect parallel to trend following trading. The best traders out there don't win every day or every month, but they pick up the big wins when they come along. Do you want to allow yourself to be seduced by the buy and hold mantra, to be at the mercy of when the S&P will take it's next 50% dive backwards? Or do you want to be a super-achiever? Covel's training programs will put you in the position to be a super-achiever: his fifteen years of his experience; his insight of knowing exactly what to do in your own personal circumstances; the attitude and psychology necessary to be a successful trader; and the personal support and motivation to go out there and make it happen. You can get the systems and education you need to get a head start in the trend following world. If you want more than Covel's five books and film, you can get a leg up through his flagship trading system or one-on-one training. Free DVD: www.trendfollowing.com/win.
For the past couple of years many of us have been in love with Apple. Their products, their style, and their stock. It was a great story as long as the stock was going straight up. On today's podcast Michael Covel talks about all things Apple: the worship; the seemingly romantic love of Apple stock; and the drop down to $450 a share from its peak above $702.10 in September (down 35% from its peak). Covel compares the fundamental viewpoint looking at Apple today to the trend following perspective that is purely based on price action. The Wall Street analysts all seem to insist that they can predict the future, but none of them predicted this. So, what does this mean? Is Apple a "broken company"? Apple had a profit of 13 billion dollars, sold 28% more iPhones and 48% more iPads, and the stock still went down. Covel looks at several articles from Wall Street analysts and notes that none of these people were saying what they're saying now when the stock was at 700 a share. Covel creatively points out the complete drivel coming from these analysts, and notes how nothing has changed on Apple's end but the price of their stock. So why is this only being pointed out now? And what is Covel's ultimate point? Follow the price action. Trend followers don't have to know anything about what's going on inside the back room of an Apple store. This is a classic example of a trend: ride the train up, ride the train down. Is the stock cheap now? What if it's at 350 or 250 next month? Do you buy on the dip? If the market is going down, get out or short it. The price knows more than any Wall Street analyst. There is no way on the planet to attach all fundamental views to the movement of the stock price. If the best traders on the planet don't have these insights, how can the stock jockeys at CNBC and Bloomberg, for example, have them? Free DVD: www.trendfollowing.com/win.
Inspired by a blog post by Barry Ritholtz, Michael Covel goes over his own list of "Things I Don't Care About". You can have the intravenous drip straight into your arm, but what does all that commentary do for you? Ultimately, if you're a trend following trader or any type of investor you need a process. You need a set of rules that tells you where to enter, where to exit, and how much to bet of your limited capital at all times. Regardless of account size, volatility, etc. You need a process that determines that for you. If you have that then eliminating all other stuff is paramount. And it's not just for trading reasons; it's for life reasons. Covel goes through Ritholtz's list and compares it to his own. On the flipside Covel also goes through a list of the things he does care about: Knowing how the "behind-the-scenes" action really works; the traders that he has learned from in his books; having honest interactions with people; Alan Watts; Ken Tropin's white papers; The Winton Papers; the Zen Habits blog; and Seth Godin's website. Covel relates several stories from traders such as Salem Abraham and David Harding which taught him some valuable lessons. Covel explains that if you want to be good at anything you have to be passionate about it. You have to care, you have to get inside it, and you have to own it. In the next segment Covel talks about the idea of the efficient market hypothesis, which is one of the foundational pillars for academics. They claim to have mathematical formulas which can predict the future, even though the underlying assumptions are false. Life is much easier for a professor who can fall back on beautiful mathematics. Unfortunately, many people have been sold up the river using investment products based on efficient markets. Covel quotes Charlie Munger of Berkshire Hathaway regarding extreme proponents of the efficient market hypothesis. Munger, even though he's a value investing guy, knows there are outliers and black swans. He knows that markets aren't efficient. Munger notes that mistaken professors were "too much influenced by rational man-models of human behaviors from economics, and too little by foolish man-models from psychology and real world experience." How can there be rational man when Jersey Shore gets high ratings? There's no such thing as rational today. Even if there was markets still might go in a completely different direction from what rational is even deemed to be. Free DVD: www.trendfollowing.com/win.
Michael Covel talks to 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. Covel and Crittenden talk about Crittenden's beginnings, coming from a medical background and switching majors to economics. Crittenden got to see the world from two different perspectives: one from a biostatistics and natural sciences perspective, and also from a business school perspective. Crittenden is a little different than some of his counterparts in the industry in that he focuses more on "why?" than "what?". Covel and Crittenden talk about sustainability vs. short term inefficiencies; being "ultra long term trend followers" and some of the reasons why he believes it to be the most robust approach; Crittenden's peers and influences--particularly Tom Basso; the start of Longboard Asset Management; why Crittenden decided on a "trend following mutual fund" model, and the benefits to that model; looking at performance data and understanding when trend following (or the media perception of it) falls "below average"; diversification and the markets Crittenden chooses to trade; risk control at Longboard; who can buy into Longboard and the minimum investment required; whether most of the large liquid markets work within the robust structure Crittenden has developed for trading--and the one (only, single) market that long term trend following would have produced a loss on within the last forty years. Crittenden also gives an explanation on the source of trend following returns that might be one of the clearest explanations of the topic that Covel has heard to date.
Michael Covel opens up with some Johnny Cash. Like most of Cash's music it's a simple song. It's powerful, but it works. And its simplicity is exactly why it works. Covel dedicates today's episode to the topics of simplicity, prediction, and risk, and presents three articles revolving around each of these ideas. First, Covel mentions an article that appeared in Business Week regarding how Japan's fear of risk is getting dangerous. For those not aware the Japanese stock market is down 76% still from its 1989 high. That would have to be an entire generation--an entire country--that no longer believes in the stock market. That's not the reason Covel brings up the article; rather, it's the "play it safe" mentality. He goes on to discuss the tendency to focus on downsides rather than opportunities. The attitude of risk-aversion in Japan explains why few Japanese students choose to study abroad, why regulators hold up vaccinations, and why 844 trillion yen (almost twice the country's yearly economic output) sits idle in cash at home and in savings accounts earning 0.02% interest. We're not far away from this attitude coming to America, but with that comes an opportunity for you to profit. Covel isn't picking on Japan; it's just a useful example of the risk-averse attitude that seems to be spreading. Covel moves onto an article from Golf Digest called "What Predictions Say About Us". Predictions are about pretending to know. Covel points out one particularly compelling quote: "Human beings are wired to predict. In ancient times, predictions served as a psychological counterweight to the extreme uncertainty of life. As we've gained more control over this daily existence, predictions help encourage the illusion that we're in charge of our own destiny. The more that is unknown, the greater the urge to predict." Somehow we've come to think that we can predict almost everything. It's hard-wired into us. If you can understand that so many people are destined to predict (and continually predict incorrectly) it can put you in the position to profit--if you've got a strategy that's predicated on *not* predicting, i.e. trend following. Covel moves on to discuss simplicity quoting an article called "One Trick Pony". The article talks about Peyton Manning and Tom Moore, who teamed up with a NFL strategy that they used with great success. Their strategy was based on running the fewest play concepts of any offense in the league. It's not about trying to surprise the opponent, but in mastering a strategy that works. That's trend following, too. It's relatively simple, it's robust, it's big, and there aren't a lot of moving parts. It is what it is--which is a great opportunity for profit. Free DVD: www.trendfollowing.com/win.
Michael Covel sets the tone for today's propaganda-themed show with two clips: A Rod Serling monologue from "The Twilight Zone" and the infamous Apple "1984" commercial. Covel goes on to discuss an article about David Harding of Winton Capital--a trader who has become one of the major faces in trend following trading due to his track record in the last decade. The article notes Harding's -3.5% 2012, calls his success a "blip", and generally presents criticism without any foundational understanding of Harding's techniques. Covel tears the article apart point-by-point. It's a perfect representation of how the media misrepresents the facts. Covel's isn't motivated to critique this particular article because he's a David Harding fanboy--rather, his goal is to point out the intellectual dishonesty put on display so often in the media. Covel questions the motives of the writers; dispels the myth that massive computational power is needed to be a trend following trader; and questions how one 3.5% down year can possibly be considered a "plunge" or "blip" in the larger context of Harding's track record. The authors state that Harding was "blindsided by market uncertainty", but trend following is built on accepting the fact that a black swan can appear in at any moment--a fundamental concept that the authors clearly don't understand. Next, Covel discusses Dave Ramsey and Ric Edelman; radio hosts who both are convinced that you can't make money trading. So, they convince you to buy and hold mutual funds (perhaps some of which they've helped create) and leave you hoping for the best. Covel takes both of them on and dispels their claims that no one in the Forbes 400 makes their money trading. So, why do Ramsey and Edelman persist in putting out such information? Because they have something to sell. Covel has something to sell too, but he gives both sides of the story. He lays out the buy and hold strategies and compares them to systematic trend following. It's just clear who the winner is when you see the whole picture. Ramsey and Edelman neglect to talk about trading successfully; it's all part of the propaganda machine. Think critically. Don't be a sheep. If you want to obtain something more than average, you've got to keep your eyes wide open and look for the propaganda. Free DVD: www.trendfollowing.com/win.
The first monologue of the new year! Covel goes on to review four things that have recently hit his desk that highlight the misinterpretations of trend following and trading in general. The first, regarding a speaking gig in Beijing, concerns itself with distinguishing between reality and unreality. The second comes from Teller, of Penn and Teller fame. Covel goes on to discuss whether a trading system should be specifically designed to suit your personality--something Covel doesn't necessarily agree with. He gives examples of the Turtles, AHL of London, Larry Hite, Ken Tropin--all traders who have different personalities but are similar in their systematic approaches. It's not about whether trend following trading "fits" your personality--it's about the fact that it works and there is performance data that proves it. The third example comes from a listener, and Covel discusses time decay and "choppy markets". The fourth comes from Jim Rohrbach, who put a piece out in late December in which he caught a radio show that stated "the stock market is always right". Paraphrasing Rohrbach, Covel notes that the market does what it wants to do. When the market doesn't do what a trader thinks it should do, they insist the market is wrong. We may not like or agree what the market is doing any any particular time, but it's futile to say the market is wrong or to invest opposite the market. It's as simple as being long when the market is going up, and being short when it's going down. Of course, you need rules to deal with that: choppy markets, knowing when to exit, and keeping losses to a minimum--that's what Covel teaches. Free DVD: www.trendfollowing.com/win.
Michael Covel speaks with traders Chris Kacher and Gil Morales, authors of the new book "In The Trading Cockpit with the O'Neil Disciples: Strategies that Made Us 18,000% in the Stock Market". Their book is a step-by-step instruction guide to implementing Morales and Kacher's trading methods. Covel starts off by asking Kacher and Morales about the "fiscal cliff", why quantitative easing is not the answer to economic growth, and why all of this isn't necessarily relevant to making money. None of it matters if the Dow ultimately goes from 13,000 to 26,000. Regardless of your political views you shouldn't be sitting on the sidelines if that happens. Ultimately, the trend is your friend. In a pure trading mindset, all this news, the fiscal cliff, the debt limits--they aren't necessarily relevant to making money. Covel, Kacher, and Morales go on to talk about their new book, "In The Trading Cockpit with the O'Neil Disciples"; the "O.W.L." ethos, and the story behind it; reversion to the mean mentality, and how it can often be the kiss of death for traders and investors; trading psychology, the idea that "you must lose to win", how the least important statistic is your percentage of gains v. losses in your trading account; dealing with emotionalism and why clients often want to hear something that will make them feel better; teaching people to let go of the news and simply watch the price action; why people think that "this time is different", put their trust in the central economy, and why trend following will survive into the future; understanding that investing is always a process of changing along the way; and what mental clutter in the way of fears, biases, concerns and more can build up in the mind and get in the way of clear and decisive decision-making. Dig in! Free DVD: www.trendfollowing.com/win.