Diversification in a Trend Following Philosophy

Gerald Loeb: Timeless Trend Following Advice
Gerald Loeb: Timeless Trend Following Advice

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Hi Michael,

Regarding your latest lesson on diversification, I understand the necessity to spread across different markets and accept small losses in the hope that other trends continue to absorb this with profits. But, you then give an example where all capital would be invested in one trend, with the obvious stop loss, giving a possible loss of 5% on a 10,000 stake.

Trend following involves diversification (yes), but if a big trend unfolds not only do you need rules to get you on it, but heavily on it. Trend following does not force a mandatory “this amount of money” equally across both trending and non-trending markets. This is not traditional diversification whereby you typically tie up capital in markets that are flat.

More.

Ep. 672: Winning Big Requires Belief with Michael Covel on Trend Following Radio

The Complete TurtleTrader
The Complete TurtleTrader

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Michael shares the Preface and Chapter One of his book, “The Complete TurtleTrader.” “The Complete TurtleTrader” is a classic nature vs. nurture story starring famed traders Richard Dennis and Bill Eckhardt. Are people born with the innate ability to trade? Or can it be taught? Dennis believed that anyone could be taught to trade successful with the right set of rules, Eckhardt disagreed – and from there this epic experiment was born. These men took 23 novice traders, gave them millions and taught them how to be successful on Wall Street.

In this episode of Trend Following Radio:

  • Nature vs. Nurture
  • Efficient markets
  • Beating the market
  • Systems trading
  • Behavioral finance

Mentions & Resources:

Michael Covel’s Mind Food for Thought: June 29th Edition

Trading food for thought:

Enjoy!

Ep. 671: Bryan Caplan Interview with Michael Covel on Trend Following Radio

Bryan Caplan
Bryan Caplan

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Bryan Caplan is an economist and professor of economics at George Mason University, research fellow at the Mercatus Center, adjunct scholar at the Cato Institute, and blogger for EconLog. Bryan has written several books–his newest being “The Case against Education: Why the Education System Is a Waste of Time and Money.” His main goal for the book is for people to forget education propaganda, look at what is right in front of them and examine what they have learned first hand.

From a young age Bryan always wondered, “Why do I need to learn this stuff? I am never going to use it.” The further he got along in school the more passionate he became about that belief. Yet it wasn’t until he started studying economics that he found there were other like-minded people who thought how he was thinking.

What is the problem with everyone getting a college degree? To stand out you now need to get another degree. Credential inflation has only gone up. People are spending too many years studying subjects that do not interest them, just to graduate and never use that information again. They get multiple degrees to do a job that would have only taken a high school diploma 30 years ago. It has been ingrained in so many that the education system enriches lives. However, the wall between formal education and practical education is ever growing. Bryan doesn’t hate education, he just believes people need to be more realistic about their interests and learning capabilities.

Michael and Bryan finish up discussing Bryan’s new books coming out about poverty and immigration policy.

In this episode of Trend Following Radio:

  • Affirmative action
  • Equality without losing quality
  • College vs. no college
  • Problem solving vs. memorization
  • Inert learning
  • Integrating more play in schools

Mentions & Resources:

Ep. 670: Three Times Out of Ten Beats Millennial Madness with Michael Covel on Trend Following Radio

Michael Covel
Michael Covel

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53% of Millennials expect to become a millionaire at some point in their life. That is a lot of optimism without a lot of math. Building off that survey Michael quotes some research from a man named Ned Davis titled “Was I too Correct for My Own Good.” Ned is more pessimistic than the Millennials. He see’s the present economy as an uphill battle for making money rather than Millennials who think the money will just fall from the tree’s.

If you can stand outside the crowd and accept the notion of failure you have a great opportunity to succeed over the course of a lifetime. Imagining you are going to make a million dollars without a process is obtuse. Have a good process and stick with it. Michael ends with wisdom from “The Wisdom of Insecurity: A Message for an Age of Anxiety” by Alan Watts.

Ep. 669: Harvey Silverglate Interview with Michael Covel on Trend Following Radio

Harvey Silverglate
Harvey Silverglate

Harvey Silverglate is an events attorney with 51 years of experience practicing in courts throughout the country. Harvey is the co-founder of the Foundation for Individual Rights in Education where he serves as the current Chairman of the Board of Directors. He is also author of “Three Felonies A Day: How the Feds Target the Innocent.”

What is Harvey’s current view on the President? He is not a Trump supporter, but does not agree with Robert Mueller and how the legal system is systematically trying to pin him. What Trump has done may be politically unpalatable to some, but he is not doing anything illegal. Harvey uses Mueller to show how an overreaching prosecutor bent on getting his agenda done–get’s it done. Justice, for the most part, has nothing to do with the American legal system today.

Harvey feels we are in an era where people look at the law in an objective way rather than with passion. Colleges pump out politically correct lawyers afraid of standing for what they believe in. Harvey is fighting to reverse that trend.

In this episode of Trend Following Radio:

  • Trump vs. Mueller
  • Overreaching prosecutors
  • Motivations of law enforcement
  • Flaws in the justice system

“We are in a time of troubles right now and it is the obligation of every citizen to rise above it.” – Harvey Silverglate

Mentions & Resources:

“The trend is the trend, no emotion, no guessing…”

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Dear Michael,

I purchased the book, signed up for the emails and I can tell you emphatically the ONE thing I got from all of it is clarity. I used to worry about the news, what the President tweets, the day of the week and other assorted voodoo to make trades. I even signed up for a few services that spewed some of the most indecipherable gibberish while impressing me with their almost perfect timing. I no longer care about any of that. The trend is the trend… no emotion…no guessing.. I’m now pleasantly trading the trend and not worrying about the external nonsense.

Thanks. More resources to consume here.

Reminiscences of a Stock Operator by Edwin Lefèvre
Reminiscences of a Stock Operator by Edwin Lefèvre