On today’s episode of Trend Following Radio Michael Covel talks critical thinking and behavioral finance. He begins with an article excerpt about locker room etiquette and loops around to the parallels between sports psychology and trading psychology. Michael argues that critical thinking has gone by the way side in the general populace and if you have an alternate way of thinking, one that is not with the masses, then you have a leg up.
Digging in Michael explores excerpts from a paper by Howard Marks titled, “Inspiration from the World of Sports.” The paper outlines the consistencies between sports and trading. Michael discusses bullet points from the article; 1. Trading and sports are competitive. Some succeed and some fail, and the distinction is clear. 2. In the long term the better returns go to superior investors. 3. An investment career can feel like a basketball or football game with an unlimited number of quarters.
Michael also explores from Howard Marks the career of Yogi Berra, his achievements and his baseball philosophy. Howard points out how consistent Yogi was in his performance and how that is exactly what he likes to see in his investing. Howard then compares Yogi Berra and Reggie Jackson (Reggie was far less consistent then Yogi). Howard says that he would rather have returns like Yogi, nice and consistent. Michael argues the case for trading like Reggie’s baseball performance. He says the Reggie Jackson home run model is more in line with venture capital, film financing, the MIT blackjack team, and trend following trading, for example. The point being that home runs will pay for the strike outs. Michael ends the podcast by pointing out that Reggie and Yogi are ultimately in the same game, but it is up to you to decide what style of trading you want.
In this episode of Trend Following Radio:
- Consistency vs. the home run
- Quarterly performance
- Trend following performance
- Emotion in human nature
- Irrationality in investing
“The market is made up of people and to beat it you have to know them as well as you know the thing you are considering investing in.” – Howard Marks
“The future ain’t what it use to be” – Yogi Berra
“Consistency and minimization of error has always ranked high among my priorities and they still do.” – Howard Marks
Mentions & Resources:
- Howard Marks
- “Inspiration from the World of Sports”
- Daniel Kahneman
- Vernon Smith (Check out my Interview with Vernon Smith on Economic Bubbles.)
- Baseball Reference
- Yogi Berra
- Reggie Jackson
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