A wide selection of feedback and trend following points follows:
I am working my way through all of your podcasts. They are excellent. I learn something from each one. I am slowly getting educated. Next I shall get your books and movie, and some of books mentioned in your podcasts. I think that I must at least get the ones by Mr. Schwager. Keep up the great work.
Some great points made in this newsletter that came across my desk the other day:
In chapter two of “Fooled by Randomness,” he (Taleb) makes the remark, “Clearly, it is foolish to think that an irrational market cannot become even more irrational.”
One of the things we like to stress at [Name] and tell our clients all the time is that, “humans think linearly but react emotionally.”
We say this because whether it be someone who thinks the market is mean reverting or looks at the fundamentals most have a singular flaw in there assumptions.
That flaw is that their calculations are in normally a linear form.
For example the participant who tries to invest in a mean reverting strategy forgets about having to handle outside skew with those pesky, outlying, non explainable, one way stocks. Let alone the fact that the market is not built off of the premise of even caring about arbitrary and static percentage numbers of a price from some relative value.
Fundamental traders do not get away with this either though.
We know that for value and growth managers they must make estimates on the future profitability of a firm.
There are two major concerns here. One, they have to guesstimate on the future. Two, they can only look at past data to extrapolate upon the future earnings of a company but most never take into account the business cycle.
Just because company A makes $1 last quarter does not mean that it will every quarter after that.
There is nothing wrong with thinking linearly and rationally, but the expectation that the market does or even should is incorrect.
As such the way we invest and execute is not based upon such faulty thesis.
Trend traders such as Bill Dunn, Keith Campbell, Millburn Ridgefield, Bruce Kovner and Ed Seykota know that in order to aim for and win big profits, trader and client must be aligned. Dunn is adamant about that alignment:
“Now there is, of course, the possibility of turning down the leverage and trading more capital, but with less leverage. That works fine if the client will go along with you and you’re charging management fees because you’re charging management fees on the capital and then incentive fees on the profit. Dunn Capital Management does not charge any management fees to any of its clients. So we care about the numbers that are generated.”
There might be safety with watered down trend following from a low-risk, low-reward standpoint, but the true way to win the big money is through Dunn’s approach of higher risk, higher reward. And when you shoot for higher risk, higher reward, you’re less inclined to worry about management fees from your clients because incentive fees on only profits earned can be fantastic paydays. The key is to be in concert as trend trader Jason Russell notes:
“Managers often say that they are managing to long-term objectives but act to meet short-term objectives of clients who have not spent the time understanding what trend following means to them. As much as the managers, industry, and regulators try to educate and illustrate, the ultimate responsibility lies in the hands of the client.”
Of course, you might opt to trade as a trend follower for your own account and never hire one of the professional trend following traders. In that instance, you can pay fees to yourself for a job well done.
Feedback from a listener:
Dear MC at TF,
My name is [Name] and I am the general partner of [Name] Investment Partners, a family office. We are a partnership of accredited investors.
I’ve read your materials and appreciate the approach in general terms. I would like to ask, however, how much leverage generally your trend followers employ. If you could express that as a number approximately the following nomenclature, I would be appreciative. For example, 5:1 or 10:1, etc.
Thank you very much,
I don’t have an exact number as leverage will vary given the timing of your positions in given markets. The key thing to know is that leverage is used in trend following and always has been. This is not FX broker trading 100:1 nonsense, however. Many traders trade as trend followers using leveraged ETFs and or futures. That said, it seems like you might be looking at this incorrectly. Should not the issue really be how much can you lose? Leverage used doesn’t tell you that.
More feedback in:
My boys have a grass cutting business and I worked with them for the weekend. I had downloaded about 10 podcasts and listened to them on the weekend. So far I have enjoyed the Salem Abraham and Ep 450 the most. Listened to them a couple of times on the weekend. Also listened to Jerry Parker and Mike Shannon. I have attached my review screen shot as per your request. I would greatly enjoy getting a copy of the audio version of Trend Following.
Whereabouts are you today? In Ep 450 you were in Saigon.
Have a great day,
Thanks! Free audible.com code sent.
Great show–the contrived myopathy about the Venezuelan situation is painfully evident amongst the media lemmings… Glad you’re laying into them. If you haven’t had a good laugh lately, check out the apologist comments on WSJ opinion articles–simply incredible.
I’m a financial analyst out in Dubai and would like to take a look at your trend following information. Thank you and keep it up.
Feedback in from Santiago, Chile:
Lately I heard your podcast about “social paradise” and it was spot on.
I don’t understand how governments and politicians measure the “poverty index”. Just because the government gives houses or food, it doesn’t mean that you are out of poverty. Poverty is a state of mind and right know Venezuela is leading the word in poverty creation, the government is promoting no values and morals to the people.
I am from Venezuela and since October 2012 I moved with my wife to Santiago-Chile, my parents and my brothers are living in The USA, all my wife’s sisters and brothers are living abroad in different countries and most of our friends are also living abroad. Venezuela is a mess and is going to take years to revert all the damage that was done there.
All the articles praising the socialist miracle are just lobbies paid by our Dictatorial government that right now it is selling their ass to keep the party going.
Here is a very interesting blog where you can find all what is going on in Venezuela right now: The Devil’s Excrement.
Devil excrement name is referring to the most remembered quote of Juan Pablo Pérez Alfonzo, one of the creators of OPEC. He said that in 1976, when he gave an intuitive warning about what economists now call the “natural resource curse”: “Ten years from now, twenty years from now, you will see: oil will bring us ruin… Oil is the Devil’s excrement.”
Keep up the good work, take care. Sorry if something is misspelled or with bad grammar, I tried to do my best writing this.
Thanks for your interview w/ Mike Lofgren — one of the best discussions on this subject I’ve heard.
I always find it valuable to hear about this subject from those who have inhabited the depths of the deep state, or who observed them at first remove. May you find and interview others like this who are not yet on the radar.
Another recent email across my desk:
Please, if time permits you, can you give me some direction on how best to approach investing of my retirement savings. I do not like loss of funds as I have found it very difficult to work and save. I have now saved over [$] as my capital and I believe that investments in bonds is less risk or better than stocks. I want to have a return of five to ten percent per year. I believe my best investment route is to purchase investment grade bonds and hold to maturity. I may take some bond investment advice from [name].
I am interested in your comments and suggestions.
No short answer but my strong views are here: www.trendfollowing.com/start. Have you reviewed that content? As far as interest income–that’s over. 10% interest income from bonds? Not in our lifetime. In fact, never again.
Finally, I noticed the other day my book The Complete TurtleTrader was ranked #2200 of all books for sale on Amazon. Very cool considering Amazon currently lists 32.8 million books for sale.