Trend Following With Michael Covel

The new edition of Trend Following has gone from 100,000 words to 230,000. It is out now and it is the definitive effort on trend following. Other books have been written and they have given some good insights. However, this new edition is it. Today, Michael reads passages from the Preface and Chapter 1 of the 5th edition of Trend Following. This sneak peak gives listeners a flavor of how Michael is pushing the envelope in today’s world and further enhancing an understanding of trend following. In this episode of Trend Following Radio: 5th edition of Trend Following Preface 5th edition of Trend Following Chapter 1

Erik Wahl is author of “The Spark and The Grind,” “Unthink,” and “Unchain the Elephant.” Starting from an early age Erik was never encouraged in the arts but rather encouraged in his reading, writing and athletics. He believed that if he got straight A’s he would be successful later on in life. Things generally worked out for him–until the Dot-com bubble hit. He was devastated and realized he needed to figure out a new way to live. Erik started meeting artists rather than business types. He came to find that mainstream society does not understand artists and because of this, many of these people would become, for lack of a better term, “tortured artists.” The love of art is what launched him into work as a professional artist. Art was not about producing a product but rather about a new way of thinking. He began processing information in a whole new way, not just linear. Everyone has creative ideas. What sets people apart is how they chose to leverage and use it. When Erik does any presentation he starts of

Michael’s first edition of Trend Following hit April 2004. Since both Michael and trend following were largely “under the radar at the time” the publisher did not put much money into the first edition and it was not carried in bookstores. Since it’s inception, however, Trend Following has become a bestseller with 4 editions, 100,000+ sold, and now a 5th edition out April 24, 2017. Michael goes into detail outlining this new edition (double the size) and how it gives Trend Following a whole new look and feel across 688 pages. In this episode of Trend Following Radio: What went into the newest edition of trend following Performance Survivorship bias Efficient market theory Volatility

Mark Weatherford is an American cyber security professional who has held extremely high positions in both the public and private sector. He was appointed the first deputy under secretary for cyber security at the US Department of Homeland Security from 2011-2013. Mark brings a wealth of experience and insight into a subject that all of us should be worried about in this day and age. He gives examples of how things are unfolding in regards to the cybersecurity and steps we can take to try and mitigate risk. The basic infrastructure of the internet is essentially the same as it was back in the 90’s. A lot of physical infrastructure hasn’t really changed for most things since they were designed, however there has been layers of technology added. Michael uses the Hoover Dam as an example of old infrastructure with new technology layered on and asks, “Is it possible for the dam’s security to be hacked?” Mark says he always works from the viewpoint that absolutely everything can be broken into. Michael moves on t

To celebrate my upcoming fifth edition of Trend Following (April 24, 2017)…my mega episode with Tom Basso is here again by popular demand. If you want to know the right way to think, Tom brings it. Michael plays all of Tom’s interviews back to back and throws in a bonus interview at the beginning. The bonus excerpt is a Tom Basso presentation from the early to mid 1990s. Tom is most famously known as “Mr. Serenity” in Jack Schwager’s “The New Market Wizards”. Now retired from managing client money, Tom was president and founder of Trendstat Capital Management. He became a registered investment advisor in 1980, a registered commodities advisor in 1984, and was elected to the board of the National Futures Association in 1998. Throughout this 4 1/2 hour podcast Michael and Tom cover a broad range of topics including: Tom’s background and how he got into trading, speculation, emotional rushes, emotional devastation, catastrophic events, separating trading from politics, behavioral economics, advice to newcomers

Cass R. Sunstein is the Robert Walmsley University Professor at Harvard Law School. He is also founder and director of the Program on Behavioral Economics and Public Policy and is the most referenced law professor in the United States. From 2009 to 2012 he served under the Obama administration as Administrator of the White House Office of Information and Regulatory Affairs. Cass is the author of “#Republic: Divided Democracy in the Age of Social Media.” This past Presidential election created a huge rift within parties, largely propelled by social media and even search engine interference. GOOGLE has the ability to filter your searching, pushing things that are suitable to your interests. They are walking a fine line between giving you an easier searching experience and putting you in an echo chamber and shaping how you think. Cass is a big fan of Facebook and Twitter when people are balanced with it. He uses the analogy of cars, “They are great because they get people from point A to point B, however, they

Michael has had some of the brightest psych minds on his podcast. Today he pulls together the great psych minds in trading into one podcast. Those interviews include: Brett Steenbarger, Jason Williams, Van Tharp, Daniel Crosby, and Meir Statman. Brett Steenbarger is a Clinical Associate Professor of Psychiatry at New York State University, and author of The Daily Trading Coach, The Psychology of Trading, and Enhancing Trader Performance. His newest work is Trading Psychology 2.0: From Best Practices to Best Processes. Jason Williams is author of The Mental Edge in Trading. Jason received his psychiatry degree at John Hopkins. His father is famed trader Larry Williams. Van Tharp runs the Van Tharp Institute and is 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. His new book is called Trading Beyond the Matrix. He was also featured in Jack Schwager’s Market

My guest today is Vanessa Van Edwards, author of Captivate. Vanessa jokes that she is a recovering awkward person and learned in college that she could apply systems thinking to people skills. Once she started making formulas around communicating with others, she found there was more people like her. “Treat others how you would want to be treated” is the golden rule. However, that rule should be changed to, “Treat others how they would want to be treated.” We think we know how others feel but we actually have very different ways of viewing the world and how we respond. Most are far better at intuition and snap judgment if they let their bodies do the work. Vanessa gives examples of our bodies sensing intuitively that something is wrong, exciting, etc. Our heart starts to pound, our palms start to sweat, and you may start blushing when your nervous. Your body also sweats differently when you are nervous or fearful rather than sweating from a workout. What does it mean to “Work a room?” Being a social butterf

Michael was recently interviewed by the CFA Society of Switzerland. Michael goes through the Q&A’s of his interview. Here are some of the questions: When did you start trend following? What do you say to trend following skeptics? Do the experts you have talked to in economics, trading and psychology share any characteristics or qualities that may have contributed to their success? Do many of your podcast guests, as well as yourself, have any habits that readers can emulate? What are some of the books that have influenced you the most over the years? What is the best advice you have ever received? Michael finishes playing an excerpt from another interview he recently did with Bloomberg about the Turtles. In this episode of Trend Following Radio: Getting what you want out of markets Trend following skeptics The Turtles Turtle Trading 101

Susan Peirce Thompson is author of “Bright Line Eating.” This is a podcast all about “aha” moments. Most have no understanding of how their bodies take in, and absorb food. Susan’s BHAG (big hairy audacious goal) is to make sure that all those who want to put forth the effort of losing weight and keeping it off have a road map. Susan had trouble losing weight starting at age 12. She found early on that the only thing that worked for her was using drugs, specifically crystal meth. During her 20’s she was able to get off the hard drugs, but then became addicted to nicotine, sex, flour, and sugar. The turning point for her was when she decided to do a bikini body 12 week challenge with her husband. They were suppose to work out 6 days a week and eat 6 times a day. Her husband did great on the program, Susan did not. She wasn’t able to keep with the eating schedule. She ended up running into an old friend that told her about a different way of eating. Her friend gave her the cliff notes version of a no flour or

The vast majority of the investing population only know their own country’s stock index inside their portfolio. Top investors know much more than that. They think about gold, palladium, the Swiss franc, the Japanese yen, silver, copper, bonds, wheat, etc. Most would never think of trading these markets, however these markets are part of the trend following world. Any everyone can trade any market through a handful of different financial instruments such as ETF’s, LEAPS, and futures. The fundamentals of these markets are irrelevant for profit. The only information needed to trade any market for profit is price. This type of thinking opens markets up to anyone and everyone willing to play the game and take advantage of the global opportunity trend following provides. In this episode of Trend Following Radio: Price action Momentum Macro hedge fund Trade everything Ignoring the fundamentals

Isaac Lidsky graduated from Harvard with a degree in mathematics and computer science, was a successful practicing attorney and became the only blind person to have clerked at the U.S. Supreme Court. His story is one of overcoming a rough obstacle. Isaac’s book, “Eyes Wide Open,” is about making the choice to take control of the reality you create for yourself. To choose in every moment who you want to be and how you want to live your life. Holding yourself accountable is the starting point. Sight is a great case study for showing how we create the lives we live. What you physically see isn’t necessarily an accurate depiction of reality. Isaac had been living in fear of his blindness until he went to see a low vision rehabilitation specialist and had an “aha” moment. She asked about his using a cane to get around even though he could still see slightly. It made him realize that even though he was rapidly losing his sight, all he had was right now. He was subjecting himself to succumbing to a fear that was do

Howard Marks is a billionaire value investor with four decades of success. Although a value investor, his thought process mirrors trend following in many aspects. Michael plays an excerpt from Howard covering his thoughts on price, the lack of value in forecasting, efficient markets, surviving market randomness, and high yield bonds. Trend following and value investing may be two different worlds, however, there is a lot of overlap in how Howard trades and how trend followers trade. In this episode of Trend Following Radio: Price action Forecasting Value investing How to think about investing Black swans

This is Brad Rotter’s 3rd appearance on the show. He is well known in financial circles as being the first investor with Richard Dennis. As a venture capitalist, Brad has helped launch numerous new enterprises. Our conversation today takes you in the mind of how a venture capitalist thinks and describes how he views new opportunity, particularly his newest investment: desalinization of water. What is your process? How do you explain venture capitalism? Brad grew up on a farm in Iowa and became interested in futures contracts. This made him interested in investing in the future and he quickly began to see things a little differently than the “normal” world. Brad made his first hedge fund investment in 1982. At that time hedge funds were a very inefficient market. He would look at managers that had a special niche, grasp what they were doing, and invest. Brad looks for long term trends when he invests in ideas and companies. Technology brought him to California. His current venture is providing fresh water ac

Black swans arrive as a surprise. Rare stuff happens. Surprises walk up and punch you in the gut. They smack you upside the head. There is no exact preparation for the timing of a black swan, but you can position yourself. Michael plays an excerpt from Nassim Taleb explaining black swans. Taleb is of course responsible for popularizing the term. In this episode of Trend Following Radio: Knowledge is therapy Black swans Uncertainty Probability Global warning

Donald Hoffman is a cognitive scientist at UC Irvine. He studies how our visual perception, guided by millions of years of natural selection, authors every aspect of our everyday reality. His research is about uncovering the underlying secrets of human perception. Donald has discovered clues that point to our subjective nature of reality. According to Donald, we actively create everything we see. Donald started to learn how to program at a very early age. This is what got him thinking: Are we just machines, or actual humans? Donald began to be bothered by the reality that we might not be seeing what our eyes are seeing. Do we see reality as it really is? Almost all of us have a belief that we see the world as it is. Michael and Donald go in depth about certain illusions and truths that may be hidden from the main public. Illusions are everywhere when you start looking. Evolution shaped us with certain perceptions and interfaces that we, as humans, evolved to keep us alive. Whether or not those perceptions ar

Michael excerpts a presentation from Cliff Asness. Asness is rigidly focused on the systematic side of the trading equation. Don’t let the idea of something being systematic scare you into thinking complication alone. Systematic means you follow rules. Asness has models, rules, and mechanisms he automates and executes. That’s smart. We can learn from that thinking. In this episode of Trend Following Radio: Black box investing Quantitative trading Quants vs High frequency trading Value based trading Momentum trading The dirty words of finance Statistical arbitrage Quant macro Managed futures

Mark Rzepczynski is the CEO of AMPHI Capital Management and has a deep knowledge of trading, especially trend following trading. Simplicity beats complexity every time. Unfortunately, people crave more complex. With trend following, traders keep it simple. They just want to get the direction of the trade right. Trend followers don’t care about what the price will be or how far it will go, they just go back to the basics and see what way the trend is going, up or down. The ability to simply follow the math has always been undervalued. Risk management is about the math of selling losers and hanging onto winners. It isn’t hard math to do, but this is what separates successful managers from losing ones. Successful managers build a portfolio, follow the trends and execute trades properly. Harry Markowitz said, “If I would have created CAPM around semi variance no one would have understood the math and I would not have won the Nobel Prize.” Mark breaks this quote from Markowitz apart. He dives into good volatili

Many take risk without thinking. They do not quantify risk. One of Michael’s first steps into the risk indoctrination came in the 1990’s through a book, “Against the Gods: A Remarkable Story of Risk.” Michael plays an excerpt from the author Peter Bernstein. There is no perfect algorithm for risk, only guesses. Everyone has a limited amount of capital. Risk is putting your money down and knowing that you can lose it. In the trend following world, risk is why traders keep it small. How much can you afford to lose? This is the only thing you can control in the markets. Predictions should be a blinking red light for anyone listening. In this episode of Trend Following Radio: Stop loss Know your risk How much are you willing to bet? Coarse risk management Long Term Capital Management Too much dependence on math

Annie Duke is on the podcast for the second time. She is a poker player, author, decision making expert, and cognitive scientist. Her understanding of how luck, skill and uncertainty all play a role in life is fascinating. Donald Trump has made some unusual cabinet choices, especially for getting elected by such a small margin. Annie breaks down her perspective on why Trump chose the way he did. One of the hardest people to play against is someone playing aggressively across the board, such as Trump. She relates Trump’s aggressive political playing to poker, giving insights as to how Trump opposition might be playing their cards to beat him. Annie moves on to decipher luck and skill in decision making and outcomes. Black and white thinking can be harmful. Decisions that don’t go your way are not always the wrong choice. You may have taken the right direction, the cards just didn’t fall in your favor. You need to be able to move on and know that another chance is around the corner. Fixating on decisions that