Trend Following Is Entrepreneurial By Definition

Feedback in:

Michael, I was just listening to your podcast with Jon Boorman and it was so fitting. I had just connected with Jerry Parker on LinkedIn and was in the middle of contacting him about getting some feedback for someone just starting out. I’d love to get some feedback from you too. I would love to find a business partner who could put up the capital while I put in the “sweat equity”. I want to do my research and develop my system and eventually start my own fund/CTA/RIA. I would, if course, be splitting my fees with my business partner. First, does that sound like a reasonable way to go about getting started. Second, how do I go about making that proposition appealing to potential partners? My goal is to one day be interviewed on your podcast as someone who has been successful in trend following and to give back to the trend following community as Jerry Parker seems to be doing.

Looking forward to your response.

Devour my books and podcast then see if you ask the same question! Also, read Seth Godin’s blog. The last few years of his entries should be an entrepreneurial eyeopener.

Real Times News Will Not Increase Your Bankroll

Another explanation as to why real time news is useless:

Mike Bloomberg became the richest man in New York by selling traders just fifteen seconds head start on the data they needed. Fifteen seconds costs thousands of dollars a month per trader. But in most cases, what we get online is not actually in real-time and it’s not news, either.

Getting ever closer to the first moment is expensive in other ways. It might cost you in boredom, because watching an entire event just to see the good parts takes time, particularly if there’s no guarantee that there will even be good parts.

It might cost you in filtering, because the less you’re willing to wait, the more likely it is that you’ll see news that’s incorrect, out of context or not nearly as valuable as it appears.

When journalists, analysts and pundits are all racing to bring you the ‘news’ first, you get less actual news and more reflexive noise. Go watch an hour of cable news from a year ago… what were they yelling about that we actually care about today?

And, it turns out, the five minute head start you got from watching that news live has no real value to make up for all the costs that go with it.

On the other hand, if you can figure out how to bring actual, interesting, useful breaking ‘news’ to those that will pay for it, you can provide quite a profitable and beloved service.

In the last ten years we’ve redefined breaking news from “happened yesterday” to “happened less than fifteen seconds ago.” The next order of magnitude will be prohibitively expensive and (most of the time) not particularly useful. Better, I think, to hustle in the other direction and figure out how to benefit from well-understood truth instead of fast and fresh rumor.

Shout to Seth Godin for words of wisdom not intended to buttress trend following, but damn well do.

Your Incessant Search for the New New Thing Is Exactly How Big Banks and Brokers Churn You Alive

Seth Godin writes:

A generation ago, a clever idea could run and run. We talked about Space Food Sticks and Tang and Gilligan’s Island and the Batmobile for years, even though there certainly wasn’t a lot of depth. Hit movies and books stayed on the bestseller lists for months or even years (!)

Today, an internet video or an investment philosophy or a political moment might last for weeks or even a few days. It’s not unusual for a movie or a book or even a TV series to come and go before most people notice it. Neophilia has fundamentally changed the culture.

The result is that there’s an increasing desire, almost a panic, for something new. Yesterday was a million years ago, and tomorrow is already here. The rush for new continues to increase, and it is now surpassing our ability to satisfy it.

When that need can’t be filled (which is not surprising, if you think about it) then we’re inclined to declare that it’s the end, the end of new ideas, the end of progress, the end of everything that’s interesting. Spend a week or two watching TED videos and once you catch up, you might find yourself saying, “sure, but what’s new now?”

If you’re in the business of making a new thing, this churn may be an opportunity, because it’s easier now than ever to send a hit up the pop charts, whatever sort of pop you make. But it comes at a price, which is that it won’t last, and you’ll quickly have to go back and make another one.

The real opportunity, I think, is in trying to build longer arcs. Now that the cycle of new is eating itself in a race to ever-faster, there’s a bigger chance to make long term change by consistently focusing on what works (and what’s important), not what’s new and merely shiny.

What’s important, what’s always important, is useful change.

He did not write that piece to buttress the timeless nature and arc of trend following. He also did not write it as a way to rip investment junkies glued to news shows 24/7 afraid of missing something actionable. However, Godin’s piece achieves both goals. Want more? Start with my books.

Episode: Trend Following Style, Prechter, Godin and Gawande

Synopsis: Michael Covel talks about his upcoming trip to Asia (with a special song intro for Korea). His plans include a speech in Tokyo, time spent in Singapore, Bali, Panang, KL Thailand, with various speaking events throughout. Covel’s Asian odyssey is sure to be documented in the podcast. Covel also thanks the listeners for the success of the podcast. People feel stuck, and Covel talks about Stephen Cope’s “The Great Work of Your Life: The Guide to the Journey of Your True Calling“. Most Americans don’t want to be on the endless treadmill, and maybe trend following is a way to get the freedom that you need in order to find your calling. Next, Covel discusses a quote from Bob Prechter, of Elliott Wave fame. Covel doesn’t think that predictive techniques work, but Prechter had a fantastic piece of writing that Covel shares that analyzes some of the Fed actions in the past compared to what they’re doing now. Covel contemplates what this might mean, and how it shows the Fed might be in a panic. But what does this mean to a trend following trader? Very simply, it’s just another reason to employ a trend following strategy. If the Fed has dampened speculation in the past by raising interest rates to pop a bubble, and today you’ve got markets right back at the all-time highs but rates are still at 0%–what might this mean? If this scenario is accurate, what strategy do you employ? You can either trust the system, or you can put in place a strategy that only places trust in price action. Look at what Prechter says to inspire you to become a trend following trader. So how do you adjust? Covel goes on to discuss how to get “unstuck” quoting author Seth Godin: “Starting without seeing the end is difficult, so we often wait until we see the end.” Next, a quote from Atul Gawande that talks about knowing your fallibility, and the importance of practice and nurture (in trend following). Covel also discusses an upcoming massive searchable .PDF file that he’s putting together featuring 15 years of research containing background documents, systems, and other research materials. Covel’s special offer new DVD:

Why Trend Following Is Wise from Many Angles

What follows are three different views I found relevant to trend following success. First, Bob Prechter offers:

“You can go all the way back to 1929, and [the Fed] was doing what its job is supposed to be, which is to put dampers on exuberance and only make money easier when the markets are down and the economy is contracting. Following that plan, the Fed raised the discount rate in 1929 to 6%. Here at the 1937 high, it raised margin requirements and bank reserves. In the 1968 bull market, when the public was excited about stocks, the Fed raised margin requirements and raised the discount rate to 6%. In 2000, right at that high, the Fed again raised its discount rate to 6%. In 2006, when the housing market was topping, and a year before stocks topped, it raised it to 6¼%. What is it doing now? The market is right back in the rarified areas that it was when the Fed dampened speculation, but now the Fed is doing the opposite. Not only has the Fed not raised the discount rate to 6%, or even to 1%, but it is keeping the Fed funds rate at zero, and it is promising a 0% Fed-funds rate through 2015, three whole years. This 180-degree turn tells me that the Fed is in a panic.”

Real simple: want to trust that system to take care of you? Of course not. Trend following is wise for anyone who sees the moral hazard at play and still has a pulse. How can you go about breaking away from the current Federal Reserve daddy/mutual fund/CNBC/”fundamentals till you drop” Matrix? Seth Godin offers:

“The best way to get unstuck? Don’t wait for the right answer and the golden path to present themselves. This is precisely why you’re stuck. Starting without seeing the end is difficult, so we often wait until we see the end, scanning relentlessly for the right way, the best way and the perfect way. The way to get unstuck is to start down the wrong path, right now. Step by step, page by page, interaction by interaction. As you start moving, you can’t help but improve, can’t help but incrementally find yourself getting back toward your north star. You might not end up with perfect, but it’s significantly more valuable than being stuck.”

One way to approach being unstuck? Copy the best’s understanding of fallibility. Atul Gawande offers:

“What I found over time, trying to follow and emulate people that were focused on achieving something more than competence, is that they weren’t smarter than anybody else, they weren’t geniuses. Instead they seemed to be people that could come to grips with their inherent fallibility–fallibility in the systems that they work in, and with what it took to overcome that fallibility.”

“Bingo!” The Turtle story as but one example fits the bill.

The Trend Following Association

Author Seth Godin writes:

Who you hang out with determines what you dream about and what you collide with. And the collisions and the dreams lead to your changes. And the changes are what you become. Change the outcome by changing your circle.

THAT is how you learn trend following. Are you ready to change your associations?