Ep. 540: Michael Covel Interviews on Trend Following Radio

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Michael was recently interviewed by the CFA Society of Switzerland. He goes through the Q&A’s of his interview. Here are some of the questions:

  • When did you start trend following?
  • What do you say to trend following skeptics?
  • Do the experts you have talked to in economics, trading and psychology share any characteristics or qualities that may have contributed to their success?
  • Do many of your podcast guests, as well as yourself, have any habits that readers can emulate?
  • What are some of the books that have influenced you the most over the years?
  • What is the best advice you have ever received?

Michael finishes playing an excerpt from another interview he recently did with Bloomberg about the Turtles.

In this episode of Trend Following Radio:

  • Getting what you want out of markets
  • Trend following skeptics
  • The Turtles
  • Turtle Trading 101

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Ep. 539: Susan Peirce Thompson Interview with Michael Covel

Susan Peirce Thompson
Susan Peirce Thompson

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Susan Peirce Thompson is author of “Bright Line Eating.” This is a podcast all about “aha” moments. Most have no understanding of how their bodies take in, and absorb food. Susan’s BHAG (big hairy audacious goal) is to make sure that all those who want to put forth the effort of losing weight and keeping it off have a road map.

Susan had trouble losing weight starting at age 12. She found early on that the only thing that worked for her was using drugs, specifically crystal meth. During her 20’s she was able to get off the hard drugs, but then became addicted to nicotine, sex, flour, and sugar. The turning point for her was when she decided to do a bikini body 12 week challenge with her husband. They were suppose to work out 6 days a week and eat 6 times a day. Her husband did great on the program, Susan did not. She wasn’t able to keep with the eating schedule.

She ended up running into an old friend that told her about a different way of eating. Her friend gave her the cliff notes version of a no flour or sugar diet—combined with weighing your food. Susan ended up quitting the bikini challenge and started down this new path of eating. She began losing weight instantly. This lead to her going back and reverse engineering why the program worked. She started Bright line eating in 2014 and started doing a scientific study on the results of the participants.

80% of food sold in the super market has added sugar. 60% of one year olds are fed sugar every day. Susan explains why it is so hard to have the brain let go of the need for sugar. The dopamine release in sugar is the same type of dopamine release that occurs when using drugs or having sex. Doughnuts and pornography give a dopamine release that is larger than the body is trained for. What happens over time is your need for stimulation rises. There is a need to keep it sustained.

What is the solution? You need to automate your eating just like brushing your teeth is automated. There is no impulse control, just automatic. There needs to be no choosing involved. 80% execution of this program is so much harder than going 100% all in. It’s a system.

In this episode of Trend Following Radio:

  • BHAG
  • Sugar is an addiction
  • How to handle withdrawal from sugar
  • Drinking calories vs. eating calories
  • The radish study
  • Willpower is a finite resource
  • Regulating task performance

“Hunger is not satisfied by eating.” – Susan Peirce Thompson

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Ep. 535: Brad Rotter Interview #3 with Michael Covel on Trend Following

Brad Rotter
Brad Rotter

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This is Brad Rotter’s 3rd appearance on the show. He is well known in financial circles as being the first investor with Richard Dennis. As a venture capitalist, Brad has helped launch numerous new enterprises. Our conversation today takes you in the mind of how a venture capitalist thinks and describes how he views new opportunity, particularly his newest investment: desalinization of water.

What is your process? How do you explain venture capitalism? Brad grew up on a farm in Iowa and became interested in futures contracts. This made him interested in investing in the future and he quickly began to see things a little differently than the “normal” world. Brad made his first hedge fund investment in 1982. At that time hedge funds were a very inefficient market. He would look at managers that had a special niche, grasp what they were doing, and invest.

Brad looks for long term trends when he invests in ideas and companies. Technology brought him to California. His current venture is providing fresh water across the world. The one crisis facing humanity that has a solution is fresh water and it is now an invisible water emergency. Brad says, “We don’t really have a water problem, we have a salt problem.” Brad goes in depth describing the processes of desalination and the infrastructure, or rather the mobile infrastructure involved.

In this episode of Trend Following Radio:

  • Venture capitalism
  • Turtles
  • Efficient market theory
  • Mobile infrastructure
  • Desalination

Mentions & Resources:

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Ep. 534: The Swan Problem with Michael Covel on Trend Following Radio

Black Swan
Black Swan

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Black swans arrive as a surprise. Rare stuff happens. Surprises walk up and punch you in the gut. They smack you upside the head. There is no exact preparation for the timing of a black swan, but you can position yourself. Michael plays an excerpt from Nassim Taleb explaining black swans. Taleb is of course responsible for popularizing the term.

In this episode of Trend Following Radio:

  • Knowledge is therapy
  • Black swans
  • Uncertainty
  • Probability
  • Global warning

“History does not glide, it leaps.” – Nassim Taleb

Mentions & Resources:

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Ep. 533: Donald Hoffman Interview with Michael Covel

Donald Hoffman
Donald Hoffman

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Donald Hoffman is a cognitive scientist at UC Irvine. He studies how our visual perception, guided by millions of years of natural selection, authors every aspect of our everyday reality. His research is about uncovering the underlying secrets of human perception. Donald has discovered clues that point to our subjective nature of reality. According to Donald, we actively create everything we see. Donald started to learn how to program at a very early age. This is what got him thinking: Are we just machines, or actual humans?

Donald began to be bothered by the reality that we might not be seeing what our eyes are seeing. Do we see reality as it really is? Almost all of us have a belief that we see the world as it is. Michael and Donald go in depth about certain illusions and truths that may be hidden from the main public. Illusions are everywhere when you start looking. Evolution shaped us with certain perceptions and interfaces that we, as humans, evolved to keep us alive. Whether or not those perceptions are real or fake is irrelevant. As long as they keep us feeling happy and alive, that is all that matters. Natural selection has also led us to the reality we see. The only thing that matters in natural selection is fitness. Fitness according to natural selection is not based on physical fitness but rather if you are able to reproduce. That is the only criteria.

Michael and Donald end the podcast posing the question: Do humans have the capacity to even understand what the true reality is?

In this episode of Trend Following Radio:

  • Are we robot or human?
  • Evolution
  • Reality vs. Perception of reality
  • Natural selection
  • Pushing theories to their limits

Mentions & Resources:

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Ep 532: No Systematic Fear with Michael Covel on Trend Following Radio

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Michael excerpts a presentation from Cliff Asness. Asness is rigidly focused on the systematic side of the trading equation. Don’t let the idea of something being systematic scare you into thinking complication alone. Systematic means you follow rules. Asness has models, rules, and mechanisms he automates and executes. That’s smart. We can learn from that thinking.

In this episode of Trend Following Radio:

  • Black box investing
  • Quantitative trading
  • Quants vs High frequency trading
  • Value based trading
  • Momentum trading
  • The dirty words of finance
  • Statistical arbitrage
  • Quant macro
  • Managed futures

“The hedge fund manager has to use what I call the dirty words of finance: Leverage, derivatives, and shorting.” – Cliff Asness

Mentions & Resources:

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Ep 531: Mark Rzepczynski Interview #2 with Michael Covel

Mark Rzepczynski
Mark Rzepczynski

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Mark Rzepczynski is the CEO of AMPHI Capital Management and has a deep knowledge of trading, especially trend following trading.

Simplicity beats complexity every time. Unfortunately, people crave more complex. With trend following, traders keep it simple. They just want to get the direction of the trade right. Trend followers don’t care about what the price will be or how far it will go, they just go back to the basics and see what way the trend is going, up or down.

The ability to simply follow the math has always been undervalued. Risk management is about the math of selling losers and hanging onto winners. It isn’t hard math to do, but this is what separates successful managers from losing ones. Successful managers build a portfolio, follow the trends and execute trades properly.

Harry Markowitz said, “If I would have created CAPM around semi variance no one would have understood the math and I would not have won the Nobel Prize.” Mark breaks this quote from Markowitz apart. He dives into good volatility vs bad volatility.

Fake news has been the premise of the 2017 presidential election. But is fake news new? Every time you see a government announcement come out saying they are revising their data, that is fake news. GDP numbers, unemployment, etc. are examples of fake our outdated news that cannot be depended on. We know that prices move and fluctuate from day to day, but trend followers can do things to smooth the uncertainty and prepare with a toolbox of rules such as staying diversified and having crisis alpha.

In this episode of Trend Following Radio:

  • Controlling volatility
  • Style diversification
  • Long term vs. Short term managers
  • Simplicity beats complexity
  • Quant trading

“Price is primal.” – Mark Rzepczynski

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