My guest today is David Burkus, the bestselling author of four books about business and leadership. His books have won multiple awards and have been translated into dozens of languages. Since 2017, Burkus has been ranked as one of the world’s top business thought leaders by by organizations like Thinkers50, Global Gurus, and LeadersHum. As a sought-after international speaker, his TED Talk has been viewed over 2 million times. He’s worked with leaders from organizations across all industries including Google, Stryker, Fidelity, Viacom, and even the US Naval Academy. A former business school professor, Burkus holds a master’s degree in organizational psychology from the University of Oklahoma, and a doctorate in strategic leadership from Regent University.
The topic is his book Under New Management: How Leading Organizations Are Upending Business as Usual.
In this episode of Trend Following Radio we discuss:
Please enjoy my monologue Don’t Worship the Computer with Michael Covel on Trend Following Radio. This episode may also include great outside guests from my archive.
In this episode of Trend Following Radio:
“Super computers”
Systematic trading
Creating algorithms
Coding
Machines replacing humans
Breaking down the use of software
“…The power of computers owes nothing (save speed) to the causal peculiarities of electrons darting about on silicon chips…” – Daniel Dennett
“Trend following trader = CPA not AI singularity theorist.” – Michael Covel
In Confessions of a Confidence Man, Edward H. Smith lists the “six definite steps or stages of growth” of a confidence game:
Foundation Work: Preparations are made in advance of the game, including the hiring of any assistants required.
Approach: The victim is contacted.
Build-up: The victim is given an opportunity to profit from a scheme. The victim’s greed is encouraged, such that their rational judgment of the situation might be impaired.
Pay-off or Convincer: The victim receives a small payout as a demonstration of the scheme’s effectiveness. This may be a real amount of money, or faked in some way. In a gambling con, the victim is allowed to win several small bets. In a stock market con, the victim is given fake dividends.
The Hurrah: A sudden crisis or change of events forces the victim to act immediately. This is the point at which the con succeeds or fails.
The In-and-In: A conspirator (in on the con, but assumes the role of an interested bystander) puts an amount of money into the same scheme as the victim, to add an appearance of legitimacy to the scheme. This can reassure the victim, and give the con man greater control when the deal has been completed.
The world we live in is profoundly complex and is much more difficult for us to navigate than we usually think or assume. According to Dan Kahneman, “We systematically underestimate the amount of uncertainty to which we’re exposed, and we are wired to underestimate the amount of uncertainty to which we are exposed.” Accordingly, “we create an illusion of the world that is much more orderly than it actually is.”
Our ability to forecast the future, much less control the future, is extremely limited and is far more limited than we want to believe. That’s why the planning fallacy is such a constant and monumental problem. We simply misapprehend (or ignore) the data far too often. Instead, we concoct stories — often wonderful stories — to provide an interpretive framework for our forecasts, expectations and decisions. That framework is necessary for us to “sell” our stories and ourselves.
He continues:
We are always tempted and too often swayed by the shiny new object — the next “silver bullet” — that will make things right. Sadly, life doesn’t seem to work that way very often. No matter what our stories say.
Please enjoy my monologue Sunrise Capital with Michael Covel on Trend Following Radio. This episode may also include great outside guests from my archive.
In this episode of Trend Following Radio:
Brexit and systematic trading
Price distribution
Price action
Directional betting on a coin flip event
Preparing for black swan events
Are computers good or bad?
MAR ratio
Diversification
“Systems control the trading ideas. What they do is they give you a statistical edge in creating your trading ideas.” – Chris Stanton
“It’s a bad idea to get the insurance after the catastrophe.” – Jason Gerlach
One of the great myths regarding trend following is that it does not work with stocks. That is wrong thinking. Trends in stocks are no different than trends in currencies, commodities, or futures. Chesapeake Capital, Jerry Parker’s trend following firm, for example, has adapted its system to stock trading. Parker says his system works well with stocks, particularly stocks in outlier moves that are in single industries. He adds:
“Our expertise [is] in systematic trend following or model development. So maybe we trend follow with Chinese porcelain. Maybe we trend follow with gold and silver, or stock futures, or whatever the client needs. We’re trading these great systems, and testing, and making sure what we do has worked in the past. And being disciplined, and unemotional, and applying our methods to the futures markets, but limiting our trading to this one group of markets. We need to look at the investment world globally and communicate our expertise of systematic trading.”
Bruce Terry, a disciple of Richard Donchian, dismisses out of hand that trend following is not for stocks:
“Originally in the 1950s, technical models came out of studying stocks. Commodity Trading Advisors (CTA) applied these to futures. In the late 1970s and early 1980s, stocks were quiet and futures markets took off. That is how the CTA market started. It has come full circle. People are beginning to apply these models to stocks once again.”
I read your book, “Trend Following” and I liked it very much. I started trend following before I even knew it was a thing. In the beginning of my trading experience I made a good amount of money trend following stocks but it quickly fell apart and led to huge losses. I don’t make very much money but in a few months I lost like 2k. At which point I came to the conclusion that it doesn’t work for stocks. I gave up and just use the old blue chip buy and hold. I suppose if it ever dramatically dropped I would sell but I think that’s not really trend following, it’s blue chip buy and hold and stocks seems more like a savings account than anything. It was a crushing blow that it didn’t work and basically killed my dreams.
I found out about Forex through the book and started trading it a couple of weeks ago. I like it better than stocks and thought trend following might work there since it would appear that there are strong trends. However, I lose even more money in Forex. Not to be a downer but I’m not convinced that trend following works at all. But who knows maybe there is some market somewhere that trend following would for but I haven’t seen it. If I set my stops small I don’t lose much per trade but I rarely gain money and the small losses add up. If I set my stops large to get around volatility I can make money but it usually turns against me and a small gain is a huge loss in a heartbeat. Who knows maybe there is some voodoo magic involved? Have a nice day and your book was very entertaining.
Cheers,
[Name]
Thanks for the feedback. Some resources for skeptics:
Please enjoy my monologue The Next Brexit with Michael Covel on Trend Following Radio. This episode may also include great outside guests from my archive.
In this episode of Trend Following Radio:
Boom and busts
Brexit
Certainty in markets
“Certainty in markets, that is the delusion. That is the media cacophony.” – Michael Covel
