May 21, 2013
Today on the podcast Michael Covel talks about the idea of resilience and the ability to operate with variability as the norm. There's going to be volatility and you can't make it go away; to operate with variability as the norm is to be a trend following trader. If you try and make it go away, you might end up falling with the next 50% drop in the S&P killing your account. Because it will happen. There will be another major equity drop. There will be the same panics that we saw in 2000 and 2002, the fall of 2008, and October of 1987. Most people will lose 50% of their net worth because they don't have a strategy that deals with variability. The 100-year flood doesn't happen every 100 years; it happens every 2-3 years. Covel moves into a clip with David Harding of Winton Capital Management and quotes author Nassim Taleb about surviving when the black swan flies in. It's the difference between taking a punch when you're prepared for it or being caught off-guard with a punch to the gut when you least expect it. Those that simply buy and hold and put their trust into the government and the Federal Reserve? They're the ones getting a punch to the gut that they don't see coming. Next, Covel moves into another clip from Michael Lewis (author of "Liar's Poker" and "Moneyball") about what was behind "Moneyball" and how rather than being a story about baseball it is about misinterpreting value and misappraisal. Building off what David Harding said, Lewis also talks about the idea of measuring, counting, and using statistics to make good judgments. What David Harding and Michael Lewis are getting at is not generally accepted. Most aren't paying attention. Covel shares a quote from a Stanford psychologist: "A man with a conviction is a hard man to change. Tell him you disagree and he turns away. Show him facts or figures and he questions your sources. Appeal to logic and he fails to see your point." In many ways, that's what Covel feels like when he's trying to get the ideas of trend following across; that's what he's up against. He's also up against the buy & hold mutual fund industry, who love fees. They have no desire to tell their clients about trend following strategies, how to look at the world from a statistical perspective, or how to prepare yourself for the next black swan. Covel is fully aware of the controversial nature of his views and the idea of trend following in general, and he closes by reading a polemic and playing a clip from author Christopher Hitchens, as well as another king of controversy: Glenn Danzig. Where else do you find such diversity on a podcast about making money? Free trend following DVD? Go to trendfollowing.com/win.