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.
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
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:
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
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
Hypocrisy on the Internet
What are your “beliefs”
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
Michael uses an article from the “Financial Times” titled “A Warning for the Losers of the Liberal Elite” by Wolfgang Münchau. Münchau makes some valid points as well as weaving in made up assumptions that absolutely don’t exist in reality.
Everyday is a fight. You must wake up energized, and figure the game out. There is no permission needed. The successful do not ask for permission. The successful do not ask for “acceptable distribution of income.” Get a plan for yourself and execute it without making excuses such as “The economy is in a slump” or “But… Donald Trump is our next president.”
John Jantsch is an author, speaker and marketing consultant. His company is Duct Tape Marketing and he has been around 29 years offering insights. His new book is “SEO For Growth.” John seeks out knowledge for his own personal growth, which then spills over into helping out clients.
One of the major ways to build your brand is producing new, information rich and constant content. Michael and John talk about Twitter and blogging strategies that help tap into your marketplace so you reach your optimal audience. Creating constant content won’t build you or your brand up very much if nobody reads it.
Moving on to SEO, John says “Page one results [on Google search] is your new business card.” When you hear a friend talking about someone or if you are looking for products and services, the first thing you do is search their name or brand. Having an active Twitter and LinkedIn account is a good start to getting your name out there. However, if you take it a step further and write an article for a news source in your field it could give you a much larger leg up on your competition. There was a recent study done with 2,200 buyers. 80% of these buyers made their decisions to buy before ever even contacting the company. They are turning to search engines and their social networks. If you do not show up in their initial research, then you do not exist.
Google’s original objective (when it was founded) and its current objective is for people to get the most relevant results related to their search. Over the years Google has gotten better at refining their objective by creating new code and stopping fraud. John dives into ways to help out your SEO with Google. Essentially it all boils down to creating great content. “Build it and they will come” rings true more now than ever before.
What are some of the things people are doing right now that are on the Google “do not fly list?” The biggest mistake made is paying people to get results by bogus links. It may work for a month or two but after awhile you will probably get blacklisted from Google’s search engine. This is the most obvious of the “do not do’s” with SEO. Content creation will help the most with SEO, and getting people to stay interested in what you are doing. Ebooks, podcasts, books, articles, etc. all count as content. Responding quickly to client emails or calls is also a great key to gaining strong followers. Expectations have gotten so low on the customer service front that something as simple as returning an email in a timely fashion may be the differentiating point between you and the competitor.
Michael starts the podcast quoting from a recent blog post of Seth Godin’s called “The Candy Diet.” Most people want a Guru or someone to spoon feed them something, anything. They want to be told what will happen in the future. They are on the “candy diet” that Seth Godin speaks to. People want to be baited with quick and easy. Michael reads from the obituary of the late Jay Forrester next. Forrester made the point in one of his classes that not a single one of his engineering students had ever taken the back lid off of a toilet to see how it worked. Looping back to Godin’s candy diet piece: There isn’t enough curiosity out there.
Michael quotes Jameis Winston, quarterback for the Buccaneers next. Jameis was asked if the Buccaneers were playoff contenders. Jameis’ response was that he was just trying to be 1-0 each week. He was living in the “moment of now.” He wasn’t worrying about week five while he was playing a game in week one. This thought process goes for everything in life, especially trading. You need a systematic approach that keeps you in the moment of right now. Otherwise you become bait.
Jared Kushner ran the Trump campaign. He tried to run the Trump campaign on the cheap. He would see what worked, and if it didn’t work then they would cut their losses quickly. If it worked, they would keep that strategy going and scale it up.
Michael finishes up the podcast talking about the new version of his Trend Following book. He points out some edits the publisher wanted him to make to move toward a more politically correct book. Michael brings in a term coined by Nassim Taleb, “intellectual yet idiot,” to explain his stance on making his book more politically correct.
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