Ep. 530: Against the Gods with Michael Covel on Trend Following Radio

Against the Gods
Against the Gods

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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

Mentions & Resources:

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Ep. 529: Annie Duke #2 with Michael Covel on Trend Following Radio

Annie Duke
Annie Duke

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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 were wrong can easily start to snowball and make things personal. The key is to learn to move on from one hand dealt to another quickly because life won’t pause for anyone. Take the time to reflect later, but don’t get caught up in the moment and dwell on what mistakes you may, or may not have made.

The world of poker is a male driven sport. Focusing her purpose on winning the game rather than getting people at the table to like her enabled her to get over discrimination and actually use it to her advantage. Not caring about the approval of peers instantly gives the person being discriminated against the upper hand. Once you view something as a challenge rather than adversity you become a stronger person and begin creating a positive narrative for that situation and your life. Shying away from adversity is a way of giving up on yourself and falling victim. Facing adversity as a challenge provides self power and confidence.

In this episode of Trend Following Radio:

  • Quality of outcome vs Quality of your decision
  • Game theory and math
  • Applying poker decision making to life decision making
  • Cognitive science

Mentions & Resources:

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Trading Food for Thought: February 16th Edition

Trading Food for Thought: February 6th Edition

Ep. 525: Martin Bergin Interview #2 with Michael Covel on Trend Following

Martin Bergin and Bill Dunn
Martin Bergin and Bill Dunn

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Martin “Marty” Bergin is the President and owner of DUNN Capital Management. Bergin began working with DUNN in 1997. He took over the day-to-day operations of the firm in 2007 and became owner in 2015 (Bill Dunn remains Chairman). DUNN has an outstanding track record that spans over 40 years. Bergin first met Dunn while he was tasked with doing an audit of the company over the course of 7 years. Once the audit was over, Dunn offered him a job.

There has been ongoing dialogue since 2008 that trend following has been a negative. DUNN Capital’s track record does not reflect that. They have been doing things different. They are 100% systematic. They do not have an army of traders staring at screens. All emotion has been removed from the equation and traders use algorithms that have already been put in place to make day to day trades. They take positions strictly based on what the system tells them to do.

Managed futures (read: trend following) was the only strategy that stood out during the 2008 crisis. Historically DUNN has been able to outperform the S&P over their 40 year track record. I argue that when looking at their performance side by side with S&P performance, there could be a whole class taught on the chart. Bergin says that with all the changes in America (mostly political) there is no telling if the new policy’s that are said to come will crash the S&P or double the S&P. He has no way to predict the future and neither does anyone else.

In this episode of Trend Following Radio:

  • Management fees
  • How the financial industry works
  • Systematic trend following strategies
  • Trading off of price data
  • The advantages of diversity in your portfolio

“What has more information in it than price? It is the accumulation of all information in the marketplace, and that is all we trade.” – Marty Bergin

Mentions & Resources:

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Trading Food for Thought: February 2nd Edition

Ep. 523: Tom Asacker Interview with Michael Covel

Tom Asacker
Tom Asacker

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This is Tom Asacker’s second appearance on the show. His newest work is “I Am Keats: Escape Your Mind and Free Your Self.” The title of his book spawned from a conversation he had with a friend whose 20-something year old son was still living at home. Tom told his friend “Too bad we can’t wipe his memory clean and start over.” All actions come from your memory so Tom figured if he could wipe the 20 something’s memory clean, he could rewrite his life. After that conversation Tom had a sequence of serendipitous moments that lead to the writing of “I Am Keats.” Tom gives a unique perspective on the human condition that will no doubt give all listening something to think about.

Tom’s work allows people to think of themselves as being in a “mental cell,” to think clearly outside that, and learn how to make better decisions. There is a powerful misconception among people that they have a predisposed identity. Asacker says, “Who you are is what you create.” Just because you choose to go one direction, doesn’t mean that you won’t have some serendipitous event that changes your course of life. Just enjoy your journey, whether it is a journey full of struggle or journey full of success. The process is the goal, not where you think you are going to get to in the future.

There is no linear path to success and happiness. This illusion of stability causes people to wake up when they are 40 or 50 and think to themselves, “What happened with my life?” Life is not predetermined. It unfolds as you live it. What you do in the past sets you up for the future. How do you compete with the Steve Jobs of the world by staying in your office cube? Stop hedging your bets, and jump off the ledge.

In this episode of Trend Following Radio:

  • Taking a leap of faith
  • Traveling for the sake of traveling
  • Serendipity
  • Hypocrisy on the Internet
  • What are your “beliefs”
  • Cognitive dissonance
  • Being driven by inspiration vs. data
  • Bring the engineers in after you have the design

“People in general already believe that they are better and smarter than average. It is a cognitive bias called illusionary superiority and the internet is making this bias even more extreme. It is supercharging peoples pre-conceptions and solidifying their false assumptions.” – Tom Asacker

“I want life to be like an Easter egg hunt.” – Michael Covel

“You can’t create from data, you create from the soul.” – Tom Asacker

Mentions & Resources:

Want a FREE Trend Following DVD? Get it here.