Blog

Feedback from a reader in Malaysia:

Hi Michael, First of all I would like to say THANK YOU for writing what must (or should) be the most important finance theory book of recent times. It was an absolute revelation, an eye-opening, out-of-this-world experience…well for me, at least. I work as a fund manager in the largest financial institution, here in Malaysia and it is not easy to put forward this Trend Following concept which seems so alien to the traditional fund managers in Malaysia. As you have rightly mentioned…some people do it to become smart or to show-off their intelligence and capability to analyze hundreds of accounts, economic data and financial data, whereas the enlightened ones..simply do it for money. I have never believed in fundamentals from the very beginning of my training and have been labeled as a loose-cannon cowboy fund manager amongst my peers for my refusal to accept any of the fundamental/traditional economic theories. Your book has given me the enlightenment that I so need and to know that there is such a simple concept/theory as following something as simple and real such as price is absolutely godsend! You wont believe how thrilled and ecstatic I was after reading the book that my wife bought for my birthday. She must have gotten ear bleed from listening to my babblings about Trend Following! I started my training in technical analysis, which after awhile I found to be useless as well because there is no way anybody can predict anything and I have become a complete convert after reading your book. But I would greatly appreciate if you could provide some insights and advice on how to use the system in a long equity (only!) market? I have developed an Excel based system to backtest my parameters and the result is astounding. Using crossings of simple moving averages, the return from the sample data of Top 60 stock (in terms of market cap) in the Kuala Lumpur Composite Index was an unbelievable 1800% for the past 10 years from 1996-2005. Can this be right? Am I doing something wrong or is the system THAT good? Perhaps I need to get the Wealth Lab software for a more reliable backtesting system and get more detailed results and analysis of the system? I would also appreciate if you could advice on how I can argue the concept of following price against fundamentals, as I am continuously being shot down by my superiors and the Chief Investment Officer who seems adamant that there is no other way except the fundamental way! Our daily morning meetings are flooded with discussions on what Bernanke meant, where the US interest rate is going, the Malaysian GDP, the US dollar vs. ringgit, inflation level and the topic of the year, OIL PRICE! And my supremely intelligent research team constantly tries to find non-existent correlations between everything and anything and how it will affect our local stock market! I’m beginning to feel very frustrated that nobody seems to be able to accept that none of that works and the only thing we can use is PRICE! XXX Portfolio Manager – Equities

Wealth-Lab is definitely a step in right direction.

In terms of arguments about trend following v. fundamental analysis, my book, blog and podcasts should give plenty of ammunition!

Mark J. Walsh was not a Turtle, but Mark was close enough to the Turtle experiment and Richard Dennis early in his career to learn the ins and outs. Now 20 years later, Mark still a relatively young man, has put together an impressive track record (PDF) as a trend following trader.

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.

I was in Chicago today for the Managed Funds Association’s Forum. The lunch keynote was delivered by Elizabeth Cheval, Chairman, EMC Capital Management, Inc. and was titled ‘Let’s Get Negative! Correlation and the Case for Managed Futures’.

Cheval’s presentation was easily one of the best I have seen in the industry. Tackling a subject like ‘correlation’ and making it user friendly is not easy, but Cheval hit the mark. Some highlights with more to follow in the next week:

1. She framed the conversation in two parts: 1.) Human Investment Psychology and 2.) The Mathematical Solution.

2. The psychology that led to the tech boom/bust influences our portfolios every day. The psychology that led to the tech bubble does not go away and it is still a useful example because it is in reach of short-term memory.

3. She outlined chronocentricity [from this book] or the inborn egotism that one’s own generation is poised on the very cusp of history. Everyone should see why she was speaking of this.

4. Her definition of correlation: the nominal measure of the tendency for two assets to concurrently under perform or over perform their average returns by the same number of standard deviations.

5. You want negative correlation as much as you can get it in your portfolio as long as the components added are positive returns.