Tom Basso Feedback

Some great feedback came through the other other day:

It’s because of you my friend that I’ve come to know so many in the space. Thanks for your efforts.

His personal message to me (above) was followed by his newsletter to his clients:

In my career, I’ve had many mentors, some of which I’ve met and some not.

Tom Basso is one of these people, and I was fortunate to get to meet him last week where he was generous enough to give me over two hours of his time over lunch in Scottsdale. Tom is also getting added to the email list and may be able to contribute some wisdom from time to time.

Tom is probably most known for being profiled in the bestseller, The New Market Wizards, where he was nicknamed “Mr. Serenity.”

The scope of our discussion was very broad… Tom left the money management business largely because of the frustration of working with clients who constantly made poor decisions that were rooted in fear and greed. Tom produced decades of double digit gains for clients on a very attractive risk-adjusted basis yet many never achieved these results because of emotions and performance chasing. As you know, I write on these subjects regularly because they matter that much.

One thing Tom mentioned that was particularly interesting was how at the later stages of his career (approximately 10 years ago) Tom put together a diversified program that was a combination of strategies, asset classes, and products (meaning futures, ETF’s, mutual funds, etc.). He said he himself was the largest customer and it seemed that many people just simply didn’t grasp the value. Regulatory restrictions about combining multiple products together (such as equities and futures) made it overly obstructive. This, in essence, is exactly what I’m trying to do with LCD (Lorintine Capital Diversified) as it mimics endowment level diversification.

The benefit of a multi-strategy single account is it doesn’t give you the opportunity to miss the forest through the trees and take from those who may be underperforming in the short term in favor of those who are currently performing best…essentially the process of buy HIGH and sell LOW where you should be doing the opposite. Tom mentioned how he had a client during the Black Monday crash of 1987 (largest single down day in history where the Dow lost over 22%) that he had set up one account as a stock portfolio and another account as a hedging portfolio where he would short equity futures based on his quantitative market measurements… The client ended up making money on Black Monday (about 1.5% from Tom’s memory) while of course the stock account was down significantly it was more than offset by the short futures account…The client ended up firing Tom as an equity manager because they couldn’t see past the losses in the stock account…yet if this would have been done collectively in one account they would have only seen the net gain (on the worst day in history where many traders went bankrupt). Unfortunately, I’ve witnessed much of this type of behavior in 2014 as some things never change.

This game is incredibly simple, yet not at all easy. It’s simple the same way that getting in shape or losing weight is – just get on almost any decent diet and work out consistently and you are almost guaranteed results… yet few have the discipline to do it day after day for the long term. Make it your goal in 2015 to follow your plan. If you don’t really have a plan it’s like not being able to spot the sucker at the poker table… because you’re it.

Enjoy the ride!
[Name]

Thanks.

University: The Wrong Place to Go for a Trading Education

Feedback in:

Hello sir, Next year I am going to university and I m not sure which program is the best to become a trader. The first choice I have is to do one year in Honours Economics and Finance and then apply to Honours Investing Management program and the second choice is to go in Mathematics and then do a MBA. Do you know which one is the best option? Or is there any other programs that are good to become a trader? Thank you.

If you want to become a trader I can’t think of a worst place than to be at a university. Just the way it is. A better option (and its not self serving for you weenies out there!)? Read these this blog and this one everyday and grab my books. My film? That too. Just saved you a whole bunch of soon to be wasted time and money.

The Thoughtful Feedback

Feedback in from a reader:

Michael, Hello. First of all, thank you for all of your efforts. I have read all of your books and listened to nearly all of the podcast episodes, and am a big fan. Keep it coming! They are really interesting and needed! I like that the podcast have a good amount of “bite” to them. You can tell how much conviction you have about this subject.

Late last year I backed my way into becoming a trend following trader. I lost a lot of money (for me) in a very short period of time (when the government debt-ceiling situation was going on last summer), and stopped trading for months. I told myself, I would not trade until I “figured this shit out.” What I ended up w/ is a trend following, systematic approach. I used to read a ton of news, watch CNBC, take “hot” tips, etc. but have quickly learned that true wealth is not built that way. This year I was lucky enough to find your resources, and am glad I did. It is helping me take the system that I developed last year and build it out completely and with confidence. I’ve truly learned a lot.

Anyhow, I wanted to give you a few ideas for your podcast:

  • I think it would be interesting to interview X amount of traders – half fundamental/news oriented and half system/trend followers. You could do this verbally or via a form… Then, 2 years or so down the road, talk to them again and see what has happened in their trading career and the results they’ve had, etc. The reason I say this is b/c if you had interviewed me from 12 months ago and again now, it would be comical! I had no selling plan (and I am very plan-oriented!) or consistent strategy. It would be a performance battle of fundamentalist vs. technical.
  • Brett Steenbarger is an outstanding author as you know – he would be a great interview.
  • Entrepreneurship vs. our education/factory system that isn’t working – I know you just had one podcast on this (and mention it frequently), but more on this would be great. We, as a country, are not in good shape going forward.
  • Selfishly, I would like to hear more detail on position sizing and risk management – my automated strategy trades only stocks currently, but I have a diversified group and plan to trade international stocks in the near future as I ramp up my trading to my full account value.
  • The relationship between sports and investing/life… I played college football and can relate nearly everything to the sport, just like you can to baseball. I think sports are my most important degree – more so than mechanical engineering and business.
  • Seth Godin – this is a stretch, but he is brilliant. At least talk about “prajna” that he refers to… Central to being a linchpin is the ability to “see things as they truly are” or what the Buddhist might call “prajna”.
  • More about this: in your opinion, can trend following be successful with stocks?

Here are some good articles that you may enjoy: 1, 2, 3.

Also, you’ve mentioned that you attend some conferences; are there any that you would recommend for trend following/system traders? I would love to go to some, but haven’t found anything great just yet. I live in Jacksonville, FL but am mobile.

This is quite funny – one of those “free money” schemes…

Sorry for the long-ass email, but hopefully you have found some value here. Keep up the good work. I have included more information on me in case you’re interested.

[name]

My story in a nutshell:

  • 26 years old
  • Mechanical engineer by degree, minor in Business
  • College football player – team captain, ESPN Academic All District 1st Team, yada yada
  • Currently work for a Fortune 4 “big oil” company.
  • Will not be working for “the man” in the near future – I am no doubt an entrepreneur at heart.
  • I’ve been a version of a trend follower since late last year – I trade different time frames than most of what you do, but everything you teach still applies.
  • I created my own system from using the problem solving method (engineer) – I wrote down everything I hated about the market/trading, and found a solution for each one of those things – ultimately, it came to a programmed trend following system.
  • I have tested it, programmed it myself, and tried to poke holes in it for the last 7 months.
  • I just started my automated trading this week on my own money now that I feel very confident in it and have countless paper results.
  • I believe my personality and skills will allow me to be a successful trader – unemotional, disciplined, logical, calculated, frugal (risk mgmt), ambitious, efficient, I know what I don’t know (self-aware), entrepreneurial, etc…
  • My edge is in the math and in mastering my psychology. I try to take pride in seeing reality, which is so rare in the world.
  • I’ve read well over 100 books in the past 1.5 years – Trend Following and The Complete TurtleTrader are in my top 12. The Little Book of Trading is in my top 30. Excellent books!
  • I don’t even have cable TV and don’t remember the last time my TV was turned on other than when my family is in town – maybe last year. Once you realize that CNBC is a business and entertainment, you can only watch it for the laughs. People really listen to Jim Cramer? I did.
  • Planning to step away from my company within 12 months as I want to be 100% in the investment industry; I want to start my own fund after learning from another great trend following trader for some time… The biggest thing I battle with is if/when to leave my company, but I have a sweet set up now where I am able to trade and learn (work from home!), so I am getting results under my belt at low risk… However, entrepreneurship is inevitable, no doubt about it.
  • Motto on life: ONE

Thanks for the great feedback!