My guest today is Michael Mauboussin, an investment strategist in the financial services industry, professor at the Columbia Graduate School of Business, and serves on the board of trustees at the Sante Fe Institute (an independent, nonprofit theoretical research institute). He is managing director and head of Global Financial Strategies at Credit Suisse, where he advises clients on valuation and portfolio positioning, capital markets theory, competitive strategy analysis, and decision making.
The topics are his books More Than You Know and Think Twice: Harnessing the Power of Counterintuition.
In this episode of Trend Following Radio we discuss:
Multi-disciplinary thinking and its influence on Covel
Looking at larger reference classes
The Swiss Franc
Mauboussin’s personal take on the recent oil move
Fundamentals and expectation
Luck or skill when it comes to trading profits
The paradox of skill, absolute, and relative skill
Whether scientific principles of luck exist
Defining luck
Outcome bias
The general public perception of behavioral economics
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Hi Mike: I wanted to thank you so much for everything you have shared and taught. I have been working day and night for the last couple of years (it seems) on designing/backtesting my system. It is a blend of styles and EMA crossover (Ed Seykota style). The returns are consistent with other trend following returns. Do you ever link traders with investors? I know this might sound off but I just need funds to execute this system. The podcasts are just so awesome in that they have so much quality meaningful substance. Please keep it up!
Some great feedback came through the other other day:
It’s because of you my friend that I’ve come to know so many in the space. Thanks for your efforts.
His personal message to me (above) was followed by his newsletter to his clients:
In my career, I’ve had many mentors, some of which I’ve met and some not.
Tom Basso is one of these people, and I was fortunate to get to meet him last week where he was generous enough to give me over two hours of his time over lunch in Scottsdale. Tom is also getting added to the email list and may be able to contribute some wisdom from time to time.
Tom Basso trader is probably most known for being profiled in the bestseller, The New Market Wizards, where he was nicknamed “Mr. Serenity.”
The scope of our discussion was very broad… Tom left the money management business largely because of the frustration of working with clients who constantly made poor decisions that were rooted in fear and greed. Tom produced decades of double digit gains for clients on a very attractive risk-adjusted basis yet many never achieved these results because of emotions and performance chasing. As you know, I write on these subjects regularly because they matter that much.
One thing Tom mentioned that was particularly interesting was how at the later stages of his career (approximately 10 years ago) Tom put together a diversified program that was a combination of strategies, asset classes, and products (meaning futures, ETF’s, mutual funds, etc.). He said he himself was the largest customer and it seemed that many people just simply didn’t grasp the value. Regulatory restrictions about combining multiple products together (such as equities and futures) made it overly obstructive. This, in essence, is exactly what I’m trying to do with LCD (Lorintine Capital Diversified) as it mimics endowment level diversification.
The benefit of a multi-strategy single account is it doesn’t give you the opportunity to miss the forest through the trees and take from those who may be underperforming in the short term in favor of those who are currently performing best…essentially the process of buy HIGH and sell LOW where you should be doing the opposite. Tom mentioned how he had a client during the Black Monday crash of 1987 (largest single down day in history where the Dow lost over 22%) that he had set up one account as a stock portfolio and another account as a hedging portfolio where he would short equity futures based on his quantitative market measurements… The client ended up making money on Black Monday (about 1.5% from Tom’s memory) while of course the stock account was down significantly it was more than offset by the short futures account…The client ended up firing Tom as an equity manager because they couldn’t see past the losses in the stock account…yet if this would have been done collectively in one account they would have only seen the net gain (on the worst day in history where many traders went bankrupt). Unfortunately, I’ve witnessed much of this type of behavior in 2014 as some things never change.
This game is incredibly simple, yet not at all easy. It’s simple the same way that getting in shape or losing weight is – just get on almost any decent diet and work out consistently and you are almost guaranteed results… yet few have the discipline to do it day after day for the long term. Make it your goal in 2015 to follow your plan. If you don’t really have a plan it’s like not being able to spot the sucker at the poker table… because you’re it.
My guest today is Peter Larson, an American paleontologist, fossil collector, and president of the Black Hills Institute of Geological Research, a company that excavates, prepares, and sells fossils. He led the team that excavated “Sue”, the largest and most complete specimen of Tyrannosaurus rex found to date, and has published numerous scientific and popular works on dinosaur paleontology.
The topic is paleontology.
In this episode of Trend Following Radio we discuss:
Luck’s role in finding dinosaurs
Larson’s personal anecdotes about finding “Sue”
Whether Larson knew at the time that he was finding a piece of “land” in a legal sense
The scientific data that Larson was able to glean before the government took the bones
Telling a male dinosaur from a female dinosaur
What makes Larson a T-Rex entrepreneur
T-Rex as a predator or scavenger
The legal case surrounding “Sue”
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My guest today is Jean-Philippe Bouchaud, a French physicist. He is co-founder and Chairman of Capital Fund Management, adjunct professor at École Normale Supérieure and co-director of the CFM-Imperial Institute of Quantitative Finance at Imperial College London.
The topic is Trend Following.
In this episode of Trend Following Radio we discuss:
His firm’s performance for 2014
Whether trend following actually “died” prior to it’s “reappearance” in 2014
What trend following manages to exploit
Exploiting vs. exploring
Looking at volatility as a precursor to profit
Volatility as a measure of risk
Trend following as a genuine market anomaly
The behavioral biases in play as oil has fallen fifty percent plus
The feedback Bouchaud has received from peers on his newest paper
Whether other strategies exploit a genuine market anomaly
Bouchaud’s philosophy on transparency and “secrets” in his work
Why Bouchaud’s work culture is not a culture of MBA’s
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