Please enjoy my monologue Process, Outcome and Sport 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:
Thinking about thinking
The importance of intellectual humility
The necessity of innovation
The longest view in the room
A contrarian mindset
A tolerance of uncertainty
Be long science
A healthy respect for tradition
A reverence for disruption
“We talk a great deal about being curious, not critical. About asking the question until you understand something truly. About not being afraid to ask the obvious question that everyone else seems to know the answer to. And about the willingness to say three simple words, ‘I don’t know.’ Tesla’s Elon Musk describes his everyday stance as, ‘You should take the approach that you’re wrong. Your goal is to be less wrong’.” – Sam Hinkie
My guest today is Jesse Lawler, the host of Smart Drug Smarts, a podcast that is centered around supplements people can take to augment brain function. He is also the Co-founder of Axon Labs, which sells nootropic stacks.
The topic is neuroscience.
In this episode of Trend Following Radio we discuss:
Was on my daily post-trading hike, enjoying your Valeant podcast. As usual this one also very well done! You know, as I was listening it reminded me of an article I read a number of years back about [Bill] Ackman. I couldn’t remember where I read it, or even all the details, but remembered the article discussed this bike ride Ackman took where he was so [!@#$] egotistical I was thinking at the time this guy is gonna blow up some day. He’s the type that just can’t admit he’s ever wrong, and we both know in trading one had to lose at times to win. And then I heard the Podcast. When I came back from the hike I googled Ackman bicycle ride and it came up immediately; was in Vanity Fair.
Keep up the good work!
Best,
[Name]
PS. Something else I wanted to tell you. After enjoying a Tom Basso podcast, [we connected]. Then a few months ago he posted something about the [location] in [location]. I emailed him and mentioned my [location] home is less than a mile from there. He emailed me back and we found out we’re within a mile of each other. Since then we’ve become friends, had dinner with [people] a few weeks ago. Thanks to you for hooking us up.
Very cool on Tom.
Tom coming on my podcast… really set a tone early on and throughout. Next time I am in the States I need to swing through [location].
Please enjoy my monologue My Sins My Own 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:
Process vs. outcome
Sports and trading analogies
Statistical thinking
“Think through all the possibilities, know the probabilities and be ready.” – Michael Covel
“Progress was not in the result, the progress was in the poise.” – Brad Stevens
A host of high profile money managers learned that the hard way recently when their investments in Valeant Pharmaceuticals reversed course.
For example, the Sequoia fund returned four times as much money as the stock market from 1970 through July 2015. What’s more, they did it with less volatility and lower drawdowns.
But Sequoia Fund’s brilliant performance came to a halt in the last year because of a single investment in Valeant.
At the peak, Valeant made up more than 30% of Sequoia’s portfolio. When Valeant began losing altitude, Sequoia’s managers failed to consider an exit plan. Instead of pulling the ripcord and exiting their positions, they added 1.5 million shares at the end of 2015 – only to see the stock nose dive a further 70%.
Valeant
Trust the process
The lesson here is clear. You won’t always be right, and you must have a process in place for the inevitable times when you will be wrong.
A rules-based investment process like trend following establishes predefined exit points before entering each position. This process defines exactly how much capital is at risk with each position across the portfolio. That allows you to cut losing trades quickly – before they ever have the opportunity to grow into career-ending losses.
Here’s how a simple trend-following strategy could have worked on Valeant:
Using a 200-day moving average would have gotten you into the stock during much of its move higher through 2013 and 2014. Then you would have gotten out of the stock above $200 per share – before it lost nearly 90% of its value.
With this kind of strategy, you will give up some profits when stocks fail to trend higher, like in 2014. But giving up this relatively small upside allows you to systematically avoid disastrous losses.
In 1995, psychologist Daniel Goleman published his best-seller Emotional Intelligence, a powerful case for broadening the meaning of intelligence to include our emotions. Drawing on brain and behavioral research, Goleman demonstrated why people with high IQs often flounder, while people with modest IQs often do extremely well. The factors that influence how well we do in life include self-awareness, self-discipline, intuition, empathy, and an ability to enter the flow of life, character traits most traders would not consider particularly useful for garnering profits from the markets.
Being self-aware also means understanding what you want out of life. You know what your goals and values are and you are able to stick to them. For instance, if you’re offered a high-paying job that doesn’t square with your values or your long-term goals, you can turn it down promptly and without regret. If one of your employees breaches corporate ethics, you deal with it instead of either ignoring it or worse yet making a half-hearted response because you pretend to yourself it won’t happen again.
Emotional self-control makes anyone more productive. However, Goleman is not saying we should repress our feelings of anxiety, fear, anger, or sadness. We must acknowledge and understand our emotions for what they are. Like animals, biological impulses drive our emotions. There is no way to escape them, but we can learn to self-regulate our feelings and, in so doing, manage them. Self-regulation is the ongoing inner conversation that emotionally intelligent engage in to be free from being prisoners of their feelings. If we are able to engage in such a conversation, we still feel bad moods and emotional impulses just as everyone else does, but we can learn to control them and even to channel them in useful ways.
A trend follower’s ability to delay gratification, stifle impulsiveness, and shake off the market’s inevitable setbacks and upsets, makes him not only a successful trader, but also a leader. Goleman found that effective leaders all had a high degree of emotional intelligence along with the relevant IQ and technical skills. While other “threshold capabilities” were entry-level requirements for executive positions, emotional intelligence was the “sine qua non” of leadership. Without emotional intelligence, someone can have superior training, an incisive and analytical mind, and infinite creativity, but still won’t make a great leader.
Now consider recent feedback to me in email:
Psychology is not a science, an art, a philosophy nor a religion. Why would I want to waste my time with people whose subject is completely unworkable?.
Yours truly,
[Name], a satisfied Scientologist for 48 years.
I can understand that. If I was in a cult I would say the same.
Note: Take a listen to some of the best minds in the field of psychology here.
Please enjoy my monologue The Big Short Never Ends 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:
Ponzi schemes and scams
The Enron scandal
Valeant meltdown
Ego in trading
“Limit the impact of your bad decisions to small loses. Limit your downside and don’t ever make an excuse that you are smarter in ‘just this one trade.’ There is no excuse.” – Dr. Steve Sjuggerud
