Trend Following With Michael Covel

Michael starts off explaining how Trend Following Radio has morphed into the diverse podcast it is today. He started Trend Following Radio in 2012. It originally was all about trading, but with a Vernon Smith interview, then Gerd Gigerenzer and Dan Ariely interviews, he realized he could take it in a different direction. With those three interviews under the belt, he was able to secure Daniel Kahneman on the podcast which he believes was the real tipping point for the podcast. For the rest of the episode Michael plays curated clips from the men mentioned above: Vernon Smith, Gerd Gigerenzer, Dan Ariely and Daniel Kahneman. He wraps up by playing a short clip from another brilliant mind in behavior finance, Nassim Taleb. The clips exemplify the spirit of behavioral finance. They range from helping people understand their behavior at a fundamental level to behavior in markets and what drives the average person to make particular risky moves in life and in their trading. Michael finishes up talking about the e

Michael and David Burkus start off talking about Fredrick Winslow Taylor. Fredrick’s claim to fame is discovering that it isn’t about innovating a product, but rather about innovating the factory. He looked into factory processes and what it took to make a product most effectively. The downside of his work was that he believed management should be operated scientifically as well. He thought that management was smart and factory workers were dumb. His values helped people focus on how to make a product most efficiently not how to make people sustainable, prolific and healthy. He took a lot of the emotion out of it. Most of his work has shifted from the United States and moved to other more factory driven places such as China. The new form of work that we are seeing in most countries is creative work. Employees are required to make decisions or make collective designs with people in their company. Michael asks, “Isn’t this about making employees feel like entrepreneurs in their company or organization?” David

Michael starts an email from a listener that starts with praise, then turns around and claims that a top trend following trader has 400 employees and “super computers” to carry out trades, and that is why he is so successful. Michael uses this listener as just one example of how millions think. They are confused by what a computer does, and simply don’t understand what trend following is all about. The trader he refers to is on record saying that he trades off of Excel spreadsheets. For the remainder of the podcast, Michael expands on his response to the listeners email, and breaks apart algorithmic trading. Michael next reads an excerpt from “Intuition Pumps and Other Tools for Thinking”, by Daniel Dennett. The excerpt breaks down algorithms in depth. Michael’s point is to show that a computer doesn’t make a great trader, it is the algorithms programed in the computer that creates the success. Where do the algorithms come from? Humans. Trend following is all about having the brilliance to come up with a str

Jason Gerlach and Chris Stanton are the CEO and CIO of Sunrise Capital Partners. Sunrise Capital is a systematic firm located in San Diego. They were featured in The Little Book of Trading. Sunrise has been in business for four decades trading. Their goal is to invest in an intellectual way by taking human emotion out of their decision-making. Michael opens the conversation up with Brexit and how Sunrise Capital reacted. There are foreseeable events and unforeseeable events. Brexit was a foreseeable event. Jason and Chris breakdown the weeks before Brexit, and how Sunrise has been positioning their portfolios in contrast to other firms. Jason and Chris say that in the systematic world there have been two different camps of thought in how to approach Brexit. Michael moves the conversation from Brexit to Oil dropping in 2014. Jason and Chris say that these events are not just moneymaking events, they are also risk management events. People live in the middle of a bell curve and never think of the tail events

Everyone was told to trust the system and be happy: “Save your money and interest income will be your retirement.” This has come to be completely untrue and people are collectively beginning to wise up, as seen in Brexit. Michael goes into a timeline of market crashes illustrating trend following success: 1973-1974 stocks go down 50% and trend following kills it. 1987, known as Black Market Monday, US stocks go down 20%+ in a day and trend following kills it. Barings Bank collapses spring of 1995, trend following kills it. August 1998, Long Term Capital Management craters, and trend following made a fortune. It was almost a zero sum transfer from LTCM to trend followers in August of 1998. Spring of 2000, the dot com bubble bursts and trend following cleans up again. 2002 was one of the best trend following performance years ever. After 2002 another bubble is built and when it burst in October of 2008, trend following had outstanding performance results yet again. When the majority of people think the world i

Michael and Jack Schwager talk about his new venture Fund Seeder. Jack is the author of the Market Wizard series. His books have remained relevant over the past 25 years, and for many traders they are the best trading books on the shelves today. Michael and Jack talk about the structure of the Market Wizards books and how they evolved to interview style format. Michael thanks Jack for opening his mind on the direction he took the Trend Following Radio podcast. Many of the traders Jack was able to interview, such as Bruce Kovner and Michael Marcus, never did another interview after “Market Wizards.” A lot of the secret to the book series success was the exclusivity of the interviews. Michael asks, “Of all the traders you have talked to, what trader impressed you the most?” Jack has a hard time, of course, narrowing it down to just one because there has been so many extraordinary people that he has interviewed. That being said, in terms of track records and sheer intellect, he would chose one. Jack was complet

Michael starts the podcast asking, “Do you need permission to get through your day?” He goes right into two examples: The first example is of his 12 year old nephew who just finished his baseball season. The second example is of a new show called “Billions.” It is about a hedge fund manager pitted against the U.S. attorney of New York. Michael argues against/for the political corruption that starts in child sports. Michael says that being screwed over early by the system is a good thing. It makes you stronger in the long run. Every time you face these types of obstacles, you need to learn to punch through them. You can’t get bogged down with seeking permission. Especially at a young age, if children learn to push through and work hard they will have a much better chance at success later on in life. Michael recommends watching the show, “Billions”. However, there are some things about Wall Street that have been left out. The show is based around a corrupt hedge fund manager that only trades off insider tradi

Michael takes a sci-fi journey on today’s podcast as he interviews Robin Hanson. Robin is professor of economics at George Mason University and his new book is, “The Age of EM.” Robin and Michael look forward about 100 years and analyze what the world will look like. They start the podcast discussing singularity and what it will be like when robots take over. Michael asks, “How much time will it take to get to singularity and are there faster ways that we may get to this point?” Robin says that robots are a staple of where the future is headed. There are a few different schools of thought on how they will evolve but Robin’s theory is based on porting. In a nutshell, this means that you re-write old software to fit your new criteria. The idea is to do the same thing with the human brain. Robin goes into detail on this idea and says that it may take as little as one century to unfold. Next, Robin discusses the types of people that will start out being emulated. The first will be top intellectuals of the time.

On today’s podcast Michael breaks apart comments from a Ray Dalio article. Dalio is one of the most successful hedge fund managers alive. He does not give out too much information on his trading strategy, except that he is 100% systematic. Before Michael begins reading the article he asks, “When the Fed raises interest rates, what will happen? Will the world end like people seem to think?” The first article he reads from was written in 2015 and answers questions on interest rates and the Fed. Next, Michael reads an article from 2016 where Ray comments on the Fed further. Ray is running a systematic firm, however, he gives historical narratives of the debt cycle. Michael still asks the question, “How do Ray’s words connect to trading? When to buy? When to sell?” Michael stresses that presenting “Oz behind the curtain” statements do not help anyone in there trading. If someone said buy here, sell here, that would help people, but using terminology that could be interpreted as anything is worthless. In this ep

Michael interviews Tucker Max. Tucker has authored many books, however today he is on the podcast to talk about a new entrepreneurial venture. Tucker created a simple algorithmic process to writing a book. He began by asking himself: What do we have to do to position a book? How do we structure it? How do we outline it? How do we conduct an interview to get the information out of a authors head? And then how do we transcribe it? Once he had these answers, he had a company. Today, 18 months in, he has signed about 230 authors and has put out about 50 books. With a price point of $20,000-$50,000, Tucker and his company offer the exact steps to writing a book. His company is not ghostwriting. They aren’t learning anything about your content, just getting your ideas on paper in a cohesive manner. You have to qualify in a few ways for their service: Can you pay for it? Do you have sufficient ideas for writing a book? And are you an a**hole? A**holes do not make the cut. Michael and Tucker bring up the importance

Today on Trend Following Radio Michael starts the podcast reading an email from a listener. This listener is a fan of the show and agrees with most of Michael’s views. However, he writes Michael asking about his opinion on a fundamental trading strategy that he employs. The listener uses a strategy that can’t be quantified and is not systematic. Michael challenges anyone listening to send their track record. Next, Michael moves into another trading strategy he is asked about frequently, predictive technical analysis. When you hear predictive technical analysis, you know you are watching a show. It is all made up. Michael throws out the same challenge to any predictive technical analysis trader. Prove that it is a legitimate trading strategy. In this episode of Trend Following Radio: Systematic trading Fundamental trading Gambling Trend following biases Day trading Predictive technical analysis What is the best strategy?

Michael Covel has an “out of the box” interview today with Amy Herman. In 2000 Amy started a program called, The Art of Perception at The Frick Collection in New York City. She helps her students figure out how to fix big picture problems by looking at the small details. Her new book is “Visual Intelligence: Sharpen Your Perception, Change Your Life.” Amy starts the podcast off sharing a story referred to by Michael as “the soap story.” It is about a man from Uganda who was moved by how wasteful the hotel industry is. His big picture movement started with a bar of soap. The staff at a hotel he had been staying at cleaned his room and replaced a bar of soap that he had only used a few times. He contacted the front desk of the hotel and asked why his soap had been replaced when it had not fully been used up. The front desk explained that they replace all the soaps everyday regardless of how much had been used. What came of this small encounter? This man from Uganda jumpstarted a movement that changed the way t

Michael Covel interviews Josh Hawes. Josh is the Risk Officer and Investment Manager of Hawking Alpha. He is a trend following trader now who started off at Goldman Sachs. Josh breaks apart the trading industry, highlighting many of the cons associated with the mutual fund space. Josh has always had a passion for math. He started looking at the performance of different funds within Goldman. As soon as he started to look at returns of some, he began to see a disconnect. They would judge themselves off “beating the index” but they were still losing massive amounts of money. They would also have access to CEO’s of top companies and still not be able to make money off of the information they would share. This is when he began to transition out of the company and turn to other forms of trading, not just long only. Josh was given many books to read while at Goldman. “Reminiscences of a Stock Operator” was one that resonated with him the most. “Trend Following” was another book that Josh had come across. “Trend Fo

Michael Covel interviews Ryan Holiday. Today they discuss his new book, “Ego is the Enemy.” Ryan makes the case that ego is the worst factor that you can add into any situation. So many entrepreneurial ideas start out as crazy. However, when the idea works out after ignoring every critic or bit of sound evidence that it would not work, then that can create an ego that can easily get out of control. Ryan says, “This is how a person that builds an empire also destroys an empire.” He uses General Sherman from the Civil War as an example of controlled success. His greatness came gradually and unexpected as opposed to a person like Napolean who thought they were set for greatness from the outset. Google is another example. It was started by two men who did not set out to conquer the internet but because they focused on events as they came, one at a time, greatness gradually happened. Next, Michael brings up one of Ryan’s book chapters relating to being a student. He tells the story of Kirk Hammett, one of the gr

Today on Trend Following Radio Michael Covel starts the podcast off talking about President Obama and his recent visit to Asia. Michael had an interesting bird’s eye look at the President’s visit. He describes the the reaction to President Obama’s visit and why Obama deserves credit for normalizing relations with Vietnam. Michael moves into talking about free market systems and the necessity for them. Venezuela is a perfect example of a failed socialistic state. They are failing big time with no sign of recovery. Michael moves into reading from an article written by David Sirota from 2013. Sirota thought that Hugo Chavez was an amazing leader three years ago. However, in 2016 Sirota goes on to say that oil is killing the economy rather than socialism. In this episode of Trend Following Radio: Venezuela Hugo Chavez Negative interest rate policy Trading off politics

Michael Covel speaks with Daniel Shapiro. Dan is author of “Negotiating the Nonnegotiable.” He demonstrates negotiation as a process and quantifiable. His work tries to articulate practical negotiation skills based on the most recent science. Dan’s work started when he was working in eastern central Europe when countries were going from open, to closed societies. He wanted to help people deal with conflict more effectively especially the emotional side of it, and more specifically, dealing with identity. He looked at: Do relationships matter in negotiations? Do emotions matter? And how do you deal with them? He has spent the last 20 to 25 years learning how these intertwine. Dan’s website sums up his work perfectly saying, “Drawing on these experiences and his years of research at Harvard, he has developed a wealth of practical approaches to amplify influence and leadership—in business, in government, and in life.” Dan and Michael start off discussing, “What gets us so stuck in emotionally charged conflicts?

Michael Covel breaks apart Bill Ackman and Valeant Pharmaceuticals. He reads from a MarketWatch article that highlights documents that came from a Senate committee investigating the Valeant scandal, and the various reactions of top people involved. Michael also outlines and comments on various interchanges between Bill Ackman, Warren Buffett, Charlie Munger, and news outlets. This episode is a “behind the curtain look” at billionaire traders and the seduction of fundamentals. In this episode of Trend Following Radio: Fundamentals Valeant vs. Enron The Deep State Fixing the media Trading off price

Michael Covel talks with Daehee Park and JT Marino. They are the owners and founders of Tuft and Needle, a modern mattress company. They met during college at Penn state, parted ways after college and then met back up in Silicon Valley at a startup tech company. Two young men, who had never worked at a mattress store and were coming straight out of Silicon Valley, hardly fit the mold of mattress company tycoons. When they first started Tuft and Needle, the majority of questions they received all circled around how and why they came to enter the business of mattresses. The answer was quite simple; JT and Daehee started the company based on horrible personal experiences buying mattresses. After their experiences and talking about them together, the two sat down and wrote out all the painful things associated with shopping for a mattress and discussed how they could eliminate those experiences. They came to find out that their wasn’t any “love” or brand loyalty associated with a mattress or the company. This wa

Today on Trend Following Radio Michael Covel starts off reading a listener email from someone interested in making 3-4% every month with only 15% drawdowns. Michael gives his personal feedback as well as responses from Facebook after posting the email. The responses were mixed. Some people fully believed these kinds of returns are possible, while Michael and others said that if anyone is telling you they can produce 3-4% returns every month then it is absolutely a scam. Only Long Term Capital Management, Bernie Madoff, and some high frequency traders with insider trading access can tout such returns. Michael finishes the podcast talking about the upcoming American elections. What is the alternative to Trump and Sanders? Hilary Clinton? Michael says that everything is an act with Clinton and that she’s a bona fide…[fill in the blank]. In this episode of Trend Following Radio: Long Term Capital Management Bernie Madoff Leverage Diversification Indian Stock Market

Michael Covel interviews Neil Pasricha. Neil is author of the New York Times best seller, “The Happiness Equation.” He is also author of the popular blog, “1,000 Awesome Things.” Neil brings great insights on finding happiness and staying positive. Neil starts the podcast sharing how his success started. During his first years of gaining notoriety for teaching about happiness, he actually wasn’t happy himself. He was going through a divorce, hardly sleeping, and still working a full time job at Wal-Mart management. His creative output was nothing. He ended up falling in love with a women and that ended up shifting his thinking. He went from observing awesome things, which he is probably most known for, to the application of integrating those awesome things into your life, such as “How do you live a happier life?” “The Happiness Equation” started as notes to Neil’s unborn son. He essentially wanted to write down everything he wanted him to know about life. Neil details some of his techniques on how he starts