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Ep. 729: John Lin Interview with Michael Covel on Trend Following Radio

John Lin
John Lin

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John Lin is founder and CEO of Grasshopper, a high frequency trading firm providing liquidity in global markets. Grasshopper was founded in 2006 and is heavily driven by technology and innovation. After graduating with an Engineering degree from Cornell University, John worked his way up from a clerk position in the Chicago Mercantile Exchange. Since then, he’s lived and traded internationally in London and Tokyo, and currently lives in Singapore.

John is one of the last traders fortunate enough to have floor experience on the CME. He got a job as a runner on the CME floor in the early 1990’s and from there he learned invaluable lessons on trading, discipline and respecting the market. What made John so interested in trading in the pits? He saw the pits as capitalism ground zero.

Over the years, with technology changing, John has had to adapt his trading style accordingly. John has gone through a gradual transformation in his trading – starting with his 15 year career on the trading floor where he interacted heavily with people to 100% computer driven high frequency trading. He has taken his experience from his early years of trading and poured it into his current companies. As a trader, you are taught you’re never bigger than the market. John knows he is always listening to the market when he trades, not trying to beat it.

In this episode of Trend Following Radio:

  • Trading in the pits
  • Nick Leeson
  • Singapore legal system
  • Barings Bank – 1995
  • High frequency trading
  • Crypto currency
  • Interfacing with technology

Mentions & Resources:

“Turning off from the noise of the news…”

Feedback in:

Hi Michael

I guess the mindset of turning off from the noise of the news and concentrating only on the price action and sticking to your tested Trading system even when it doesn’t feel right. A good example would have been where I follow Jim Rickards, Bill Bonner, Jim Rogers and Peter Schiff where they’ve been warning about another stock market collapse due to an increasing US National debt and also escalating National Corporate and personal Debt to unsustainable level that cannot be paid back with current GDP growth rates yet the Stock indexes continue to rise or rather they where going up despite the warnings I’ve been reading the past couple of years.

Using a simple 30/50 Weekly average would have kept you in the trade during this period. I Personally moved out mostly of equities in my Private Pension Fund a year ago put a 20% allocation to physical gold. One of the issues with pension funds is if there is sudden crash the Fund manager can restrict exit from the fund for 6 months so you cant just easily pull your money if you see your chart reversing to the short side

I know this is a lot easier with spread trading but i wouldn’t have a large enough bank to trade over long periods at present. Most of my money goes into my pension. What i do in my pension fund is use the gone fishing portfolio strategy of re-balancing once a hear with my 20% allocation to each of cash, gold, bonds, commodities, equity and insight currency funds. So I’m selling a part of the funds that went up and buying more of the funds that have gone down and its been doing well. Lot of friends in work are all in equities and they brag about their big gains but they won’t sell either when the market turns thinking it will come back.

Regards
[Name]

Hard to be a trend trader on one market alone.

“Right now the world is primarily long only. That seems dicey…”

Feedback in:

Hi Michael,

I always enjoy your podcast and think you are a gifted speaker. Contacting you for 2 things:

1) do you have transcripts for your podcasts? In particular I am in interested in the Markowitz podcast. In addition to being shocked as your were about his youthful voice, I was also surprised at his candor about the misrepresentation of his work throughout the industry. Would like to see some of his specific statements. I often share the contents from memory with friends but am starting to forget the exact wording.

2) I take issue with your criticism of buy/hold. I too am an independent futures trader, Wharton MBA, and was a very profitable interest rate and credit derivative trader at Merrill Lynch in the 90s – generated over $100M pnl in less than 10 years. But recently I dug deeply into the long only side, dissecting historical data going back 150 years in a myriad of ways. The persistence of long term broad stock market performance was very surprising.

I too always wondered why a rational investor would subject themselves to an investment likely to lose 1/2 its value (possibly multiple times) over his investment time horizon. I still make a living as a discretionary trader but after carefully looking at the data I have a newfound respect for buy and hold…if properly managed for liquidity needs. Standard industry practice of blindly making decisions based on meaningless rules of thumb is ridiculous.

Let’s say that I define risk not as a statistical measure but as the probability that I can’t meet predefined annual liquidity needs (defined as 5% of portfolio value) starting at age 65 and continuing into perpetuity (wishful thinking). Nothing ever changes in terms of asset allocation or approach – manage solely for liquidity needs (which may mean for next gen when health deteriorates). My basic thesis is that the market will always go up in the long run, subject only to the fall of US capitalism or, say, 30 years of 20% compounded growth such as Greece or Japan.

With rare exceptions, market corrections and subsequent reversions to an adequate IRR (say 5% compounded annually from previous peak) are surprisingly short. Most are inside 18 months and only 6 corrections in the past 100 years extend beyond 5 years before recovering sufficiently to yield 5% CAAR. The notable exceptions being 8/1929 (25 years to 5% IRR), and 7/2000 (18 years to 5% IRR).

I can’t manage liquidity risk with a long only equity index over weeks or months, but I can manage it over 5 years. From a practical standpoint, I can maintain a 5 year liquidity bucket that I only refill if market at a sufficient price level to reflect, say, 7% CAAR from last peak. Else I draw from the bucket and expect at some point to have to sell at a lower price when a correction extends beyond 5 years. But at only 5% of the portfolio the impact would be quite small.

Interested to hear your view on the idea.

Keep the podcasts coming! Very refreshing

Thanks for your note.

I don’t have transcripts up yet unfortunately. In terms of buy and hold I lay out my best take on that in my 2017 edition of Trend Following. Right now the world is primarily long only. That seems dicey.

Michael Covel’s Mind Food for Thought: January 11th Edition

Food for thought:

Enjoy.

Ep. 727: Tero Isokauppila Interview with Michael Covel on Trend Following Radio

Tero Isokauppila
Tero Isokauppila

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Tero Isokauppila is author of “Healing Mushrooms” and founder of Four Sigmatic, a natural super foods company specializing in mushroom-based drink powders. In 2012, he founded Four Sigmatic, spreading to Europe and Canada and eventually brought the business to the U.S. in 2015.

Tero grew up on a 13 generation farm in Nokia, Finland with both of his parents in the health, wellness and agriculture sphere. Some of his earliest memories were going into the forest when he was about 2 or 3 and picking herbs, berries, and mushrooms. He loved the berries but found the mushrooms so “odd.”

There is estimated to be about 1.5 million different types of mushrooms–that’s about 6 times the amount of mushroom species over plant species. Mushrooms are used for food, soil, psychedelic purposes, and medicinal. They are present in just about every aspect of life however not many realize how integrated they are in their everyday life.

There are two genres of mushrooms–functional and culinary. Generally, functional mushrooms are eaten for health reasons and culinary mushrooms are eaten for taste. Functional mushrooms grow on trees and culinary mushrooms grow in the ground. Skin, eyes, vitamin D, minerals, immune system boosters, and brain functions are all areas mushrooms can help in the body. Through Four Sigmatic, Tero has developed coffee’s, tea’s, elixirs, and other boosters enhanced with mushrooms to target all tastes and appetites.

An episode direct to health and wellness coupled with entrepreneurial drive.

In this episode of Trend Following Radio:

  • Gut health
  • Functional mushrooms
  • Culinary mushrooms
  • Super foods
  • Mushroom coffee
  • Reishi

Mentions & Resources:

“It is one of your best ever…”

Feedback in:

Mr. Covel,

I listen to almost all of your podcasts. I just finished listening to the one with Jonathan Tepper on “The Myth of Capitalism.”

It is one of your best ever. You did a great job of asking questions and leading the discussion. Mr. Tepper is taking on a subject that needs more publicity and scrutiny.

I wish that you, through your podcast, can find other guests to continue to enlighten the American people on this subject–restrained competition.

Thank you for your time.
[Name]

Thanks!