“So my biggest challenge in trading was me…”

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Dear Michael,

As you wrote to me in your first mail, I will test you. You asked me about my biggest trading challenge.

As an undergraduate business student specializing in finance, I had to focus on the classic academic finance theory right from the beginning, which teaches us that capital markets are efficient and that it is therefore the smartest to invest globally diversified on a buy & hold basis.

At some point I heard about Smart Beta – ETF and got more involved with the academic theory behind it: Factor Investing.

At first, I focused on Value, which is probably the best-known investment style or risk factor. Warren Buffet is known to be the high priest of a global value investing religion, even known to people who are actually not involved in finance.

Of course, when studying all the risk factors, I also came across momentum at some point. My study of this anomaly, as supporters of the efficiency market hypothesis would call it, threw all of my beliefs, acquired during my studies, overboard in one fell swoop.

I realized that I had been wrong all along, been a blind disciple, and had fallen victim to herding. And I thought I was incredibly rational and smart. “Invest passively, that’s scientific and the best you can do! Market timing and asset picking is for idiots, who don’t get it.” I had always advised others with a certain arrogance, based on the fact that all the clever academics with PhDs would say so.

If somebody had told me at that time how he beats the market with trend following, ie market timing, I would have laughed at him and did not take him seriously.

So my biggest challenge in trading was me – my arrogance and the conservativism bias.

Best regards from Munich, Germany

A good place to start.

Michael Covel’s Mind Food For Thought: April 24th Edition

Food for thought:


Ep. 756: Taking the Damn Loss with Michael Covel on Trend Following Radio

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What makes you itch? What do you desire? What would you choose to do if money was no object? Michael opens the podcast playing a classic Alan Watts clip that regular listeners will have heard before–one of Michael’s favorites.

It is no secret that money creates drama. But if money was no object, chances are you would play “the game” a much different way. Michael drives home how to think of goals, losses, and success.

In this episode of Trend Following Radio:

  • Cut your losses
  • Sunk costs
  • Behavioral science
  • Outside influences
  • Clear thinking

Mentions & Resources:

Ep. 755: Rich Karlgaard Interview with Michael Covel on Trend Following Radio

Rich Karlgaard
Rich Karlgaard

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Rich Karlgaard is a journalist, entrepreneur, and speaker. He has been with Forbes for 27 years and became publisher of Forbes magazine in 1998. Rich has written three books, “Life 2.0: How People Across America Are Transforming Their Lives by Finding the Where of Their Happiness,” and “The Soft Edge: Where Great Companies Find Lasting Success.” His latest book is “Late Bloomers: The Power of Patience in a World Obsessed with Early Achievement.”

What was the trigger that pushed Rich to write “Late Bloomers?” Rich grew up as a late bloomer himself. He was at non-fulfilling “dead end jobs” up until his late 20’s, even with gaining a college degree. He doesn’t see his 20’s as a time of being lazy or having a lack of motivation, he simply didn’t feel like he was ready to enter the adult world. He also has two children whom he raises in Silicon Valley. He knows the added pressures being put on children and what those repercussions look like– from low self esteem to even suicide in teenagers. He felt a need to point out some of the major misconceptions adults may have about schools, tests, and the learning curve in each child.

Rich makes arguments for gap years, mandatory military service, and reforming how we look at academic tests. Americans are slipping every year compared to other counties and their youth. This has trickled into human resources and legal sides of companies that have turned to ranking employees with more tests and categorizing personalities based off data. Rich’s books, articles, and speeches also primarily focus on fundamentals of business, necessity of constant innovation, and the importance of building the right corporate culture.

In this episode of Trend Following Radio:

  • Late bloomers
  • Kylie Jenner
  • SAT scores
  • Importance of high IQ
  • Sports Illustrated
  • Passion vs. Mission
  • Gap years
  • West coast offense and Bill Walsh
  • Mike Milken

Mentions & Resources:

“Any suggestions? I have so many questions…”

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Good afternoon Michael!

Biggest challenge is knowing the rules. I am currently using a trend following system I created and didn’t even know about you or your work till I sought “rules” to help guide me. I have attached the rules that have really helped. My goal is to [have a] firm managing client assets using my system. One day to be on your Turtle list. I go live June 1, 2019. I am transitioning to only focusing on portfolio management and bringing on people that love financial planning to do what they do best. Reading your work and others has helped me realize I wasn’t a nut case and as I have thought in my heart, it is the best way to manage money.

Any suggestions? I have so many questions.

Thank you!


Michael Covel’s Mind Food For Thought: April 15th Edition

Food for thought: