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Ep. 496: Six Feet Under with Michael Covel on Trend Following Radio

Milton Friedman

Milton Friedman

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Michael Covel interviews Milton Friedman. Of course, Friedman is dead. Such the conundrum.

In this episode of Trend Following Radio:

  • Free lunch myth
  • Robin Hood myth
  • Collectivism
  • Case against equal pay for equal work

“The state is that great fiction by which everyone tries to live at the expense of everyone else.” –Frédéric Bastiat

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Ep. 495: Ted Parkhill with Michael Covel on Trend Following Radio

Ted Parkhill

Ted Parkhill

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Michael talks with Ted Parkhill. Ted has over 25 years of management experience in the investment business. He is a founding partner of systematic macro investment manager Incline Investment Management (IIM). He is also serves as an Assistant Professor of business at Sierra Nevada College in Incline Village, NV.

Prior to IIM he was the director of marketing for Zazove Associates a multi-billion dollar quantitative convertible securities manager. He was a senior marketing executive at John W. Henry & Company one of the original Commodity Trading Advisors.

In this episode of Trend Following Radio:

  • It is possible to consistently generate profitable returns through systematic trading
  • Markets are inefficient and therefore trends materialize
  • Trends last longer than people think
  • Prices reflect the sum of the knowledge of all market participants

“…Human nature never changes. Therefore, the stock market never changes. Only the faces, the pockets, the suckers, and the manipulators, the wars, the disasters and the technologies change. The market itself never changes. How can it? Human nature never changes, and human nature runs the market – not reason, not economics, and certainly not logic. It is our human emotions that drive the market, as they do most other things on this planet.” – Jesse Livermore 1940

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Napoleon Hill Featured on Trend Following Podcast

Napoleon Hill was born in 1883 and died in 1970. He is most known for paving the way for the new thought and personal success movement with his book, “Think and Grow Rich,” which has become one of the best selling books of all time. Its premise is to help people realize they have the power to create success within themselves by way of conscious and unconscious thought. His message is straightforward, pragmatic and clear.

The presentation [featured in Trend Following Radio episode 404] is centered on making a goal and how to use certain tools to achieve that goal. Napoleon starts off by explaining the power of motives. He says you have no right to ask yourself or anyone to do something unless you give an adequate motive. If you give someone a good enough motive to buy something from you or give yourself a a worthwhile reason to achieve a goal you can sell or accomplish anything. You can also trick your mind to believe anything by repetitive action. If you have faith in what you want to accomplish you will accomplish it. On the same note, faith without action is dead and faith without believing is dead. Napoleon believed that 98%-100% of people sell themselves short because they do not believe in themselves. He says, “The power of thought is the only thing humans have absolute control over.” By repetition, thought, and action you can educate your brain to pick up only the vibrations related to what you want. He stresses that you must make sure your subconscious mind knows you are the boss.

The power of motives, thought, and faith in yourself all goes into being able to create and carry out a plan successfully. Napoleon says to write out your major objective in life and give it a timeline. Make sure it is clear and precise. Keep your major purpose to yourself. Your actions speak for themselves, and the envy of mankind can slow you down. Also, leave your plan flexible. Nobody can put limitations on you except for yourself. With that being said, acknowledge your weaknesses but don’t let them overtake you. If you keep your mind positive, it becomes greater than all the negatives.

Feedback in:


Thank you, thank you, thank you for posting the podcast interview with Napoleon Hill. In late 1975, I was fortunate enough to read an article in the Chicago Tribune about a man whose life was changed after he read “Think and Grow Rich”. As a recently divorced single Mom, I was so ready to hear his message. “Think and Grow Rich” literally changed my life and it was a joy to hear this man speak after so many years. His work continues to bring amazing gifts into my life and I thank you for reminding me what started it all so many years ago.
Sincerely, [Name]


Napoleon Hill

Napoleon Hill

Posted in Trend Following

Curiosity Created the Trend Following Trader

Many stumble onto trend following due to simple curiosity. An excerpt from Trend Following:

Can you remember how to experience simple childlike curiosity with no agenda other than simply to know? The curiosity I am talking about is open-ended and enthusiastic. Kids have the same wide-eyed wonderment when they take apart their first toy to figure out how it works.

Emotional issues aside, many traders remain fixated on academic intelligence as their only decision-making tool. William Eckhardt, a longtime trend follower, sees the issue:

“I haven’t seen much correlation between good trading and intelligence. Some outstanding traders are quite intelligent, but a few are not. Many outstandingly intelligent people are horrible traders. Average intelligence is enough. Beyond that, emotional makeup is more important.”

When it comes to outstanding trading, emotional intelligence is as important as IQ. Because we are conditioned to appear “book smart,” we are often afraid to be curious. We think that by asking questions, we’ll be perceived as ignorant; although in truth, by not questioning the world, we get into more trouble. Still others might not fear the question, but instead fear the answer, which might be the piece of information that requires integration into your life or worse, information that proves you wrong. Open ended curiosity lets you take a step back and see everything for what it is right now.

For most of our lives, many of us spend our time listening to someone else feed us information. Then we are judged on how well we can regurgitate that information back to whomever offered it in the first place. When it comes time to taking responsibility for our decision making, we are constantly waiting for someone else to tell us what to do or checking to see what others are doing. Curiosity has been pulled from us.

Now feedback from a listener:

Hello Michael,

First I’d like to introduce myself. My name is Terry. I hope this doesn’t sound stalker-ish but it seems we have some things in common:

  • I know you lived in San Diego for a while. I was born and raised there.
  • I know you started your journey throughout Asia in February of 2013. I took mine in March of 2013 (Albeit, much smaller. I only traveled to Hong Kong, Thailand and Vietnam).
  • I’m still working my way through your podcasts but I think you’re still in Saigon, is that correct? (I really liked that city). I now live in Chiang Mai, Thailand.

It’s interesting how sometimes everything just seems to come together in life. I was introduced to Trend Following by a value investing newsletter writer, of all people. His name is Tim Price. I think I heard you read something of his on a podcast. Anyways, he dedicated a whole issue to the concept of Trend Following and even showed the proof that it works. His bottom line was that he wasn’t changing his methodology but thought that investing part of a portfolio in a Trend Following fund is a good way to diversify.

He had a link to in that issue and that is how I was introduced to your materials. I immediately felt like I was home. I’ve dabbled in futures trading in the past as well as options trading. I even studied under Larry Williams for a while. I never did get the hang of “predicting” trends with chart patterns though.

Over the years, the majority of my investment money was tied up in a 401K. Of course, I lost 50% of that in 2008 like many others. I vowed I would not let that happen again and began using a crude form of Trend Following (I didn’t know the term then) using a 2 SMA crossover system. I took signals from that to move money in and out of equity funds. I admit I was sloppy with it and could have done better but I managed to build it back up to where it was before and then some.

I left my job when I moved to Thailand and I now have those funds in a self-directed IRA. I’ve done a little value investing with it using newsletter recommendations (I did pretty well that way with a small Roth IRA). However, after getting into your materials I’ve come to realize that it’s just another form of buy and hold. I receive some good recommendations for what to buy, but no exit strategy other than waiting for a sell recommendation.

So as I said, I’m still going through your podcasts (I feel like I’m getting a college education with all the great guests you have) and I’ve read The Complete TurtleTrader as well as Trend Following. (I posted reviews on Amazon)

Now I’m still hungry for more. I intend to read your other books but I’m anxious to get going with this and purchase your Flagship training. I guess I still have a little of the value investing mindset because I’m now going to ask you for the discount you talked about in your emails.

Let me know what I need to do next. I’m looking forward to hearing from you.

All the best,

Thanks! We are long connected now and I know you are on the path.

Posted in Trend Following

Ep. 494: The Fight for Liberty with Michael Covel on Trend Following

Michael Covel

Michael Covel

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Today, Michael dives into the fight for liberty. No show notes. Listen or not, your choice.

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Posted in Trend Following

The Search for Liberty Drives Me

Consider an excerpt from Trend Commandments:

Thanks to Facebook, generations are willing to share anything and everything. However, many are still ambivalent about money. Some want more money, but feel guilty about openly admitting it. A few have lots and feel guilty for reasons that don’t make sense. Many feel guilt if they did not come about it honestly (as they should) or at least in proportion to their labor to achieve it. Some dream of making a sex tape and building a reality TV empire. Fair enough. Yet take a moment to think through your motivations for trading. If you have any reason for trading except to make money, find something else to do and avoid the stress from the start.

There is nothing good or bad about money. Money is just a tool. Ayn Rand countered brilliantly the desire of some to classify money as evil: “You think that money is the root of all evil? Have you ever asked what is the root of money? Money is a tool of exchange, which can’t exist unless there are goods produced and men able to produce them. Money is the material shape of the principle that men who wish to deal with one another must deal by trade and give value for value. Money is not the tool of the moochers, who claim your product by tears, or of the looters, who take it from you by force. Money is made possible by the men who produce. Is that what you consider evil?”2

If all ethical people think money is bad, who’s going to get the money? That’s my question. Here is a great example of money and emotions in full bloom. Years back, talk show king Phil Donahue was interviewing free market economist Milton Friedman. He wanted to know if Friedman had ever had a moment of doubt about capitalism and whether he thought greed was really a good idea.

Friedman was quick in response: “Is there some society you know that doesn’t run on greed? You think Russia doesn’t run on greed? You think China doesn’t run on greed? The world runs on individuals pursuing their separate interests. The great achievements of civilization have not come from government bureaus. Einstein didn’t construct his theory under order from a bureaucrat. Henry Ford didn’t revolutionize the automobile industry that way. The only cases in which the masses have escaped from the kind of grinding poverty you’re talking about, the only cases in recorded history, are where they have had capitalism and largely free trade. If you want to know where the masses are worst off, it’s exactly in the kinds of societies that depart from that.”

Donahue countered that capitalism doesn’t reward virtue, but instead rewards the ability to manipulate the system. Friedman balked: “And what does reward virtue? You think the communist commissar rewards virtue? Do you think American presidents reward virtue? Do they choose their appointees on the basis of the virtue of the people appointed or on the basis of their political clout? Is it really true that political self-interest is nobler somehow than economic self-interest? Just tell me where in the world you find these angels who are going to organize society for us?”

America has long seen certain contingents push the belief that there could be a government angel to let the proletariat have more money—with no effort.

Consider President Franklin Delano Roosevelt talking to America on January 11, 1944. He gave a caring government hug across the airwaves as he proposed what he called a second Bill of Rights—an economic Bill of Rights for all regardless of station, race, or creed that included:

• The right to a useful and remunerative job in the industries or shops or farms or mines of the nation.

• The right to earn enough to provide adequate food and clothing and recreation.

• The right of every farmer to raise and sell his products at a return that will give him and his family a decent living.

• The right of every businessman, large and small, to trade in an atmosphere of freedom from unfair competition and domination by monopolies at home or abroad.

• The right of every family to a decent home.

• The right to adequate medical care and the opportunity to achieve and enjoy good health.

• The right to adequate protection from the economic fears of old age, sickness, accident, and unemployment.

• The right to a good education.

What is left for us to accomplish if the government gives us all of that?

Come on. Let’s face it head on. The market does not care about you or me. If you can accept that reality, then you can deal with it and trade it. You need to decide how much money you want over the course of a lifetime. You want a little? Or do you want a lot? Or are you satisfied believing empty investment promises made by suits in Washington D.C.? Regardless, you will get exactly what you want out of life through your actions.

It is the survival of the fittest. Eat dinner or be dinner.

Feedback from a listener:

Dear Michael,

I’ve been listening to your podcast since your interview on Barry Ritholtz’ Masters of Business podcast. Your episodes are interesting, informative, and overall enjoyable. I’ve also gone back and listened to about a dozen past episodes, some I’ve saved to listen to over and over again (e.g. #278 with Larry Swedroe), a few I didn’t care much for, and one that prompted this email, #183 with Yaron Brook.

At the beginning of episode #183, you say that you feel very strongly about Ayn Rand and objectivism and I believe you were genuine in your request for response from those who disagree with her along with our reasons. Before I get into my feedback, first let me tell you a little about myself so that you know I’m not an ignorant hater. I have a B.S. in Economics-Finance, a Master’s degree in Accounting, and am a licensed C.P.A. I work in public accounting as an auditor and am a (very) small-time real estate investor. I once identified as a libertarian, believing in a 0% tax rate on businesses among other ideas. It’s probably also worth mentioning that I’ve never been a trader as that is one of the focuses of your podcast. Please excuse me if I blur the boundaries between Ayn Rand, objectivism, and libertarianism.

One reason that I disagree with Ayn Rand is that her policies would lead to a more stratified society. The rich would continue to get richer and separate themselves from their employees. As their resources grow, so does their political power. They can manipulate laws to suit their own purposes making it harder for others to achieve their goals. One idea of objectivism that people should act in their own self interest to get what they deserve, not to take whatever they can weasel out of the political system.

It bothers me that Ayn Rand’s supports seem to be almost exclusively people who are already well off or inspired young people who believe they will be productive and wealthy in the future. Their arguments that objectivism will help poorer people by unleashing companies’ potential are a justification for their own personal desire for wealth and/or freedom rather than a true concern for the poor. Otherwise, they would suggest their free-market policies as a way to help the poor rather than listing it as an example of why we should adopt libertarianism.

This leads into the minimum wage. Yaron gave an example of the government interfering with a private agreement between a person and an employer because their agreed upon wage was below the regulated minimum wage. The person would be better off with the lower wage because he would learn the skills that would help him get promoted, earn more money, and maybe eventually become an entrepreneur. This is nonsense to me for three reasons:

1) In real life there would be several applicants for this unskilled job and they would “race to the bottom” with the applicant who is willing to work for the least amount of money getting the job. Price theory would suggest the “winning” applicant would be the one with the lowest cost (as an employee) to work, and his/her “profit” as an employee, the difference between the wage and cost to work, would approach zero, especially during worse economic times.

2) The jobs that would pay below the minimum wage today are unskilled, dead-end jobs. Cleaners, cashiers, and farm workers are not going to learn the skills on the jobs need to become more productive. They may go into the job capable of doing more but they won’t come out more skilled.

3) If the business owner can’t afford to pay a poor employee just a little bit more so that the employee can afford basic life necessities (food, clothing, housing, health care of some sort), then the business is a crappy one and probably shouldn’t continue to exist. Better to free the entrepreneur to start a more successful business.

I don’t remember hearing it in the interview but a common argument is that regulations are strangling businesses. Remove them and the economy will flourish. Yes, there are many illogical, annoying regulations but the idea behind regulations is to protect others who would not otherwise be protected. Properly disposing of waste may be costly and unproductive, but the idea is to prevent companies from acting in their best interest and destroying the environment for others’ enjoyment or even economic benefit (think tourism). Not locking employees in factories to prevent them from leaving early is another regulation that prevents one’s self interest from harming another. Proper labeling of food, proper storage of perishable food, proper sanitation in food processing areas, restrictions against what can go into food – these prevent us from getting sick. The government can remove all regulations and jobs will be created, but at what cost? I’m sure you see plenty examples in Asia of how lack of regulations, regulators, or the adherence to regulations harms society more than it helps. I’m not advocating implementing more regulations or keeping the ones we have, but I am in favor of weighing the harm of a regulation on businesses against the harm the lack of a regulation will have on other businesses and people.

During the interview you or Yaron made a mention of how much Asia’s economy has boomed, attributable to some free-market principles. I wonder how much of the boom is due to poor living conditions in some areas leading to people accepting work for low wages to manufacture for export, or the growth of companies supporting such manufacturing, and how much is due to the importation of advanced technologies (relative to local existing technologies) into their economies.

Again, I enjoy your podcast, I will keep listening, but I may skip the episodes with libertarian themes. Keep up the good work.


Thanks for the feedback.

Let me sum up the counter courtesy of Ronald Reagan:

Posted in Trend Following

Ep. 493: Adam Khoo with Michael Covel on Trend Following

Adam Khoo

Adam Khoo

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Michael welcomes Adam Khoo to the podcast.

Khoo is a Singaporean serial entrepreneur, author, trainer and a professional stock and FX trader. Khoo became a self-made millionaire at the age of 26, making him one of the youngest millionaires in Singapore.

Khoo is the Executive chairman and Chief Master Trainer of Adam Khoo Learning Technologies Group, one of Asia’s largest private educational institutions, which runs educational seminars for over 80,000 people annually in 7 countries.

From Neuro-linguistic programming to trend following, Adam and Michael cover the key topics.

In this episode of Trend Following Radio:

  • Neuro-linguistic programming
  • Technical analysis
  • Finding the edge
  • Trend following
  • Market Wizards

“If you want to change your life in any area, you have to change those habits that are creating those specific results. No matter how many goals you set or how much you believe that you can achieve it, if you don’t change your habitual daily actions, your life will never get better.” –Adam Khoo

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