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Danie Pretorius of Morgan Stanley: Hit and Run

Posted on by Michael Covel

I recently posted about this view of my new book Trend Commandments:

I’ve found Covel’s previous books interesting, and have re-read ‘Trend Following’ multiple times. The latest book unfortunately does nothing to build on the previous works (for instance, there is still no attempt to deal with survivorship bias in the performance data), but instead loads the pages with random anecdotes and film quotations that tangentially supports his thesis. Disconcertingly, what the book lacks in substance is made up for in ego. If you’re not with him, you’re against him – and a moron. Successful value investors? Don’t exist (sorry Mr Buffet, you made your money through luck and speculating with derivatives). Covel admonishes the world for ‘going with the herd’… ummm… isn’t following a trend exactly that? Too light on science, way too light on humility.

As the post shows, it was debated extensively. Then last night I stumbled onto the reviewer’s real name, saw he worked at Morgan Stanley, and dropped him this simple email:

“I welcome the criticism, but why not use your real [full] name?”

He responded via his Morgan Stanley address:

Hi Michael,

Quite a surprise to hear from you – not sure exactly what your asking? Danie is my real name.

As you no doubt are aware, I am an equity analyst in South Africa. Please do not construe that to mean I am dogmatically attached to fundamental analysis, far from it. I must confess to having reread my copy of Trend Following multiple times. I think precisely because I see the limitations of fundamental analysis on a daily basis, I am conceptually a big fan of systematic trading with objective entry and exit signals, and why I’m so interested in the trend following concepts. Explains why I own all your books…

My criticism on the last book is simply that there was little in the way of new content to build on what you’ve covered before, and that any other trading/investing method is so summarily dismissed, which makes the book seem less objective.

I certainly don’t question the concepts inherent in trend following. However, while I realise the book is not an academic paper, I’m struggling to distinguish between the efficacy of the system & trading rules and the talents of the traders themselves. For instance, the Turtles had the same rules but wildly varying results; by the same token, a sample of successful long-term buy-and-hold investors says equally little about the style if the multiple failures along the way are not highlighted. I think it would add quite a lot to the body of knowledge to deal with (a) the failures in the trend following space – if these are known, (b) the differences between traders’ approaches, and (c) how the successful traders manage whipsaws. E.g., how important is market selection and model parameterisation vs. other factors?

Hopefully it’s clear that I don’t have an agenda here, just a genuine interest in the topic.

My private email address is […]. I look forward to the next book!

Regards,
Danie Pretorius
RMB Morgan Stanley
Johannesburg

I responded:

Hi Danie,

Why not use your real full name and firm name on your review? That was not left out due to the fact that Morgan Stanley raises assets for the very traders mentioned [in my books]?

Of course, there was an agenda. If there wasn’t you would have reviewed the book with a professional disagreement–like in [your] email.

You didn’t.

Best,
Michael Covel

This individual owns all my books, likes them all, is not really a diehard fundamental guy, but receives a paycheck from making daily fundamental predictions?

Take your best whack at me personally. Take your best whack at my work. However, if you are going to do so, please disclose when you are a fundamental guy who also works for a firm (Morgan Stanley) who raises assets for the very trend traders mentioned in the very book you slam.

An honorable enough request?

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Removing ‘Junk’ from People’s Brains? Check!

Posted on by Michael Covel

From an associate in the trend following world:

“Michael, Great to see you at the MFA panel in Chicago and congratulations on Trend Commandments. I’ve been working through it and really impressed with how you continue to make trend following more and more accessible to the average individual who, unfortunately, has to be de-educated in order to ‘get it’. Your writing successfully breaks down all the mis-information leaving fertile ground for people to open their minds to new concepts of managing money. Most…may never actually trade for themselves, but I think your book is a great tool to get people thinking in the right direction on many things, including how to manage their portfolios.”

Thanks.

Unrelated, people have been asking about trend following performance in recent queries. All of my books, including Trend Commandments, gives an idea of how trend following pros have fared for decades. Ignore their success at your own peril.

Related:
Training
More Performance

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Michael Covel, Joe Kernen & CNBC Insanity

Posted on by Michael Covel

My new book Trend Commandments tackles financial news head on. An excerpt where I analyze a CNBC interview with trend trader David Harding:

Joe Kernen is not devoid of academic intelligence. He holds a bachelor’s degree from the University of Colorado in molecular, cellular, and developmental biology and master’s degree from Massachusetts Institute of Technology. He worked at several investment banks including Merrill Lynch. I am no Harding fanboy or apologist, but I have spent time with him. That research time, coupled with his public career and track record, make him one of the most learned trend trading voices of the past twenty years. It is clear to me that Kernen had a preformulated agenda [in the interview]. His questioning was a transparent attempt to marginalize Harding and trend following. Why would Kernen do that? Imagine if the interview started like this:

“We at CNBC believe in efficient markets and the use of fundamental analysis. Our business model requires viewers to watch. Today, we have a guest on who has made billions with trend following trading, which does not require fundamental analysis or CNBC. Would you like to know how to make money without ever watching our channel again? Welcome David Harding!”

More.


click pic for high res

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“More Sellers than Buyers”

Posted on by Michael Covel

What causes a crash? Four words:

“More sellers than buyers.”

That’s it.
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Trend Following is for beginners, students and pros in all countries. This is not day trading 5-minute bars, prediction or analyzing fundamentals–it’s Trend Following.

16 Life Rules from Bob Parsons, Founder of Godaddy.com

Posted on by Michael Covel

1. Get and stay out of your comfort zone.

I believe that not much happens of any significance when we’re in our comfort zone. I hear people say, “But I’m concerned about security.” My response to that is simple: “Security is for cadavers.”

2. Never give up.

Almost nothing works the first time it’s attempted. Just because what you’re doing does not seem to be working, doesn’t mean it won’t work. It just means that it might not work the way you’re doing it. If it was easy, everyone would be doing it, and you wouldn’t have an opportunity.

3. When you’re ready to quit, you’re closer than you think.

There’s an old Chinese saying that I just love, and I believe it is so true. It goes like this: “The temptation to quit will be greatest just before you are about to succeed.”

4. With regard to whatever worries you, not only accept the worst thing that could happen, but make it a point to quantify what the worst thing could be.

Very seldom will the worst consequence be anywhere near as bad as a cloud of “undefined consequences.” My father would tell me early on, when I was struggling and losing my shirt trying to get Parsons Technology going, “Well, Robert, if it doesn’t work, they can’t eat you.”

5. Focus on what you want to have happen.

Remember that old saying, “As you think, so shall you be.”

6. Take things a day at a time.

No matter how difficult your situation is, you can get through it if you don’t look too far into the future, and focus on the present moment. You can get through anything one day at a time.

7. Always be moving forward.

Never stop investing. Never stop improving. Never stop doing something new. The moment you stop improving your organization, it starts to die. Make it your goal to be better each and every day, in some small way. Remember the Japanese concept of Kaizen. Small daily improvements eventually result in huge advantages.

8. Be quick to decide.

Remember what General George S. Patton said: “A good plan violently executed today is far and away better than a perfect plan tomorrow.”

9. Measure everything of significance.

I swear this is true. Anything that is measured and watched, improves.

10. Anything that is not managed will deteriorate.

If you want to uncover problems you don’t know about, take a few moments and look closely at the areas you haven’t examined for a while. I guarantee you problems will be there.

11. Pay attention to your competitors, but pay more attention to what you’re doing.

When you look at your competitors, remember that everything looks perfect at a distance. Even the planet Earth, if you get far enough into space, looks like a peaceful place.

12. Never let anybody push you around.

In our society, with our laws and even playing field, you have just as much right to what you’re doing as anyone else, provided that what you’re doing is legal.

13. Never expect life to be fair.

Life isn’t fair. You make your own breaks. You’ll be doing good if the only meaning fair has to you, is something that you pay when you get on a bus (i.e., fare).

14. Solve your own problems.

You’ll find that by coming up with your own solutions, you’ll develop a competitive edge. Masura Ibuka, the co-founder of SONY, said it best: “You never succeed in technology, business, or anything by following the others.” There’s also an old Asian saying that I remind myself of frequently. It goes like this: “A wise man keeps his own counsel.”

15. Don’t take yourself too seriously.

Lighten up. Often, at least half of what we accomplish is due to luck. None of us are in control as much as we like to think we are.

16. There’s always a reason to smile.

Find it. After all, you’re really lucky just to be alive. Life is short. More and more, I agree with my little brother. He always reminds me: “We’re not here for a long time, we’re here for a good time!

Note: Tip to Perry Jonkheer for the list.

How can you move forward immediately to Trend Following profits? My books and my Flagship Course and Systems are trusted options by clients in 70+ countries.

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Trend Following is for beginners, students and pros in all countries. This is not day trading 5-minute bars, prediction or analyzing fundamentals–it’s Trend Following.

A Value Investor’s Perspective on Tail Risk Protection

Posted on by Michael Covel

You are a value investor? You want to protect against tail risk? Two choices:

James Montier says this.

I say this.

Don’t get me wrong, I like Montier’s behavioral views on markets. There is, however, a better solution to tail risk and it rhymes with …bend wallowing.

Note: Tip to Cullen Roche for the Montier paper.

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Trend Following is for beginners, students and pros in all countries. This is not day trading 5-minute bars, prediction or analyzing fundamentals–it’s Trend Following.

Man Investments Employee Sounds Off

Posted on by Michael Covel

Someone from Man Investments posted this today:

“As an employee of one of the largest CTAs I can catagorically [sic] state that we do change our models. This is, amongst other things, what us researchers are employed to do. I think that the assumption that all major CTAs run the same or similar models is also fairly amusing. Not all CTAs using EWMAs for example. At our shop we use four types of models to determine the level of momentum from markets, EWMAs being just one.”

Later in the day the same person posted:

“I agree that they are not changed every day but it is not as black and white as you appear to be making it.”

So you have a system that changes the system at Man?

Isn’t that a system?

How can you move forward immediately to Trend Following profits? My books and my Flagship Course and Systems are trusted options by clients in 70+ countries.

Also jump in:

• Trend Following Podcast Guests
• Frequently Asked Questions
• Performance
• Research
• Markets to Trade
• Crisis Times
• Trading Technology
• About Us

Trend Following is for beginners, students and pros in all countries. This is not day trading 5-minute bars, prediction or analyzing fundamentals–it’s Trend Following.