Michael Covel received an email from Jonathan Garner about a blog post from Derek Hernquist titled “I Have No Idea What Tesla Is Worth, Do You?”. It linked to a CNBC interview with an analyst named Brian Shannon. Covel plays the CNBC clip and gives commentary at specific points. Covel shares the technical analysis viewpoint with Shannon, but disagrees when it comes to price targets. Covel also points out some terms that aren’t part of the vocabulary of a trend following trader. A pure, predictive technical analyst could go that direction, but that’s not trend following. Covel isn’t trying to slam Shannon, who is trying to fight the good fight from a price action perspective. Rather, Covel focuses on CNBC’s coverage and one particular talking head who has no idea about technical analysis. Covel points out that even if you’re a purely fundamental trader, you have to know what trend following is, what it does, and how it behaves. Covel focuses on price action and momentum, not Tesla’s latest announcement. Shannon concludes by talking about risk management, which Covel then discusses. Covel ruminates on why trend following and technical analysis are so confused, and talks about the difference between predictive and reactive technical analysis. Continuing on with another example, Covel tells a story about a young man he met who invested in $10,000 worth of Facebook stock, and why it’s important to have an exit plan. Covel was forwarded the young man’s blog post, which stated the decision to invest in Facebook was based off a wealthy friend’s advice. If you’re going to follow advice, make sure it isn’t made up out of thin air. If you’re going to follow a thought process about how money is made, you have to scientifically dig in and look at the process. If not, it’s just gambling. To close out, Covel talks about a piece he re-read from Malcolm Gladwell about how Nassim Taleb first met Victor Niederhoffer.
More on Malcolm Gladwell & Nassim Taleb can be found here.