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Ep. 108: Distraction v. Focus with Michael Covel on Trend Following Radio

Distraction v. Focus with Michael Covel on Trend Following Radio
Distraction v. Focus with Michael Covel on Trend Following Radio

Today on the podcast Covel gives us a peek into the presentations he’s been giving and the responses of audiences abroad. Since February 25th he has been in Tokyo, Hong Kong, Singapore, and Kuala Lumpur (Malaysia). He’s given 23 presentations–anywhere from 60 to 90 minutes long–spread over 4 cities. Covel speaks to us today from Kuala Lumpur where he was only supposed to stay for two days. However, Covel was so taken by the city that he decided to stay for three or four weeks. Covel weighs in on the food, the culture, and the experiences surrounding his recent travels before getting into the kind of presentations he has been giving abroad and the investment style of the people to whom he has been speaking. Unsurprisingly, many of the largest fund managers in Hong Kong, Singapore, and Kuala Lumpur are unfamiliar with trend following; they have the a similar understanding of many in America and Europe. Most of the fund managers Covel sat down with were long-only, fundamental and value-based. Perhaps they used some predictive technical indicators on top, but that was it. Covel would go through the big picture differences between trend following and what his audience was doing. While most of these investors were unlikely to wholly adopt trend following, if you can bring a trend following strategy in-house that produces returns at a different point in time than your typical fundamental value returns–that’s extremely useful information. Covel also discussed behavioral finance aspects, the idea of the black swan, and outlier move issues. Ultimately, it’s about this scenario: you wake up tomorrow and you’re on a desert island. You’ve got nothing except the closing price of the 75 most liquid global markets (which somehow magically appear in the sand), and a phone to your broker to make the trades. You have nothing else–no Bloomberg, no Wall Street Journal, no CNBC. Can you look at that data–and only that data–over time, and figure out a way to make money? That’s the challenge. Can you find a positive mathematical edge in that stew of data from all those different markets? You don’t even need to know the names of the markets you’re trading. All you need are the prices. Can you find a positive mathematical edge in the great spirit of Ed Thorp and “Beat The Dealer”? That is the rallying cry of the trend following world–the desert island trading scenario. Even if someone elected not to make an allocation to a trend following firm (or did not want to trade as a trend follower themselves) Covel invited them to create a model portfolio. That way, you can at least know when trend following is doing well. That piece of information can be a useful piece of fundamental data for your fundamental trading shop. Some criticisms? The idea that Covel is not revealing the “secret sauce”, holding back, or not revealing the “new thing”. You have to ask yourself: Can you look at a trend following system? Test it? Look at professional trend following managers and see how they have performed? Compare it all? And believe in it? Or do you allow yourself to be distracted by other peoples’ comments? Distracted by society? Ultimately that might be the big picture issue that Covel is seeing in his journey. Distraction kills focus.

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