Look at the KOSPI. South Korea’s main stock index. I am not going to tell you a story about it. I am going to point at the chart and let price do the talking, because price is the only thing in this business that has never lied to anyone.
Over the past year that index ran from around 3,300 to more than 9,000. It nearly tripled. Sit with that number. An entire national stock market, close to tripling in a year.
Now the question that matters. Who called it? Which forecaster, which strategist, which face on television sat down last summer and told you to back up the truck on Korean equities for a triple? Name one. You cannot, because almost nobody did. The move did not wait for permission and it did not wait for consensus. It just went, the way big trends always go, while the experts were busy explaining why it could not.
Here is the part the prediction crowd will never understand. You did not need to call it. Not the start, not the size, not the reason. A trend follower long that market rode the entire move without a single forecast. Price broke out, you got long. Price kept rising, you stayed long and added. The trend did the heavy lifting. Your only job was to follow it and not talk yourself out of the position every time it paused.
Now look at the right edge of the same chart. The market that handed you a triple broke lower, hard, down to 6,820, with one session shedding more than six percent. And I promise you the questions are already flying. Is this the top? Is it a dip to buy? Is the Korea story still intact?
Wrong questions. Every one of them.
The trend follower does not predict the top. He never did. He does not need to know whether this is a pause or the end, because his exit is not an opinion. It is a rule. A trailing stop lifts him out when the trend gives way, and he keeps the gains the run handed him instead of riding them back down on hope. The story sellers will be along any minute now to tell you the fundamentals have not changed, that this is a gift, that you should love it lower. You have heard that song before. It ends the same way every time.
So what happens next with the KOSPI? I have no idea, and neither does anyone else. Here is the beautiful part. I do not have to know. If the trend resumes higher, price will tell me and I get back on. If it keeps falling, I am already out and watching from dry land. Two outcomes, one plan, zero predictions.
That is the whole game, and it is sitting right there in one picture. The trend gave. The trend is taking it back from the people who overstayed. The only ones who keep what the trend handed out are those who followed it up with a plan for getting off. Everyone else is holding a story and a loss.
Stop forecasting. Start following.
Stay systematic.
P.S. The Trend Following Mastery course walks you through the entry, the trailing exit, and the discipline to sit through the pauses that shake everyone else out. The Bull, Bear & Black Swan Report puts that same thinking to work every month, research instead of prediction. Both at trendfollowing.com.
Chart: KOSPI Composite Index ($KSIC), Barchart.com.
My guest today is Cullen Roche. He is a financial executive, author, and investor. He is also the Founder and Chief Investment Officer at Orcam Financial Group and Discipline Funds, a financial planning firm that focuses on holistic financial advice.
The topic is his book Your Perfect Portfolio: The Ultimate Guide to Using the World’s Most Powerful Investing Strategies.
In this episode of Trend Following Radio we discuss:
Investment strategies and portfolio construction
Trend following vs. buy-and-hold investing
Rules-based strategies
Government intervention, markets, and economic incentives
Your email got me excited and wanted to share my story incase you happen to read it. I heard about your book through a friend recently and ordered it on Amazon – and I am already hooked. I was reading and reading and reading, understood in theory what you said (in whatever capacity I can) until one day I stopped reading and made a google sheet with data on some stocks/commodities, and applied a 200 day moving average rule. It was then when all the theories I had generated in my head about trend following started to take the form of true understanding and the concept became more clear – this was exactly two weeks ago. Since then, I am reading the book with more intent and clarity and I am slowly building my portfolio and have slowly started using trend following in my investments. I still have a long way to go, but thank you for the work you do! Its simple – its as straightforward of a strategy that it can be – to the point that when I tried to explain it to a couple of my friends – they dont buy the idea.
Regarding the biggest trading challenge, here are some key pointers that applied to me:
1) So far not knowing is the biggest challenge – I had no idea about trend following until my friend told me about it.
2) I have always been a classic Buy and Hold Guy – with roughly half a Million Dollars of Investments in index funds and some stocks, all through automation – always brought and never sold till date. Automated investments is boring, trend following from what I hear from you in the book is boring too, and its one of the biggest reason I feel I am getting hooked to it.
The challenges I am trying to solve related to trend following:
1) I am using a 200 day Moving Average – would you recommend using less/more?
2) Having a hard time picking up investments – no idea about how to invests in currencies, eurodollar, inr/dollar, steel, Japan’s Nikkei and other non-stock investments, trying to do some research on the same and expanding my horizons.
3) My google sheet that shows trend is robust – all it needs is plug a ticker name – and I can easily see the trend and make a buy/sell decision (manually still) – the key challenge is identifying these diverse investments.
4) I work at a Bank for an IT product and have access to Trade Data (I dont understand shit about it though), but my bank imposes a 30-day holding period – this policy has definitely created some resistance in my head my to pursue trend following, but its too early to tell. I am in this for the long run.
5) Also getting confused about making decisions in investing in stocks like SpaceX – dont care if its ivolatile, dont care if its risky, but trying to understand how does trend pattern fit into new stocks like this? Do you just reduce the moving average to a month in such cases? Or just ignore it completely until you have sufficient data?
Hope to hear your insights on the same. Thank you once again for the work you do, I have also started listening to your podcasts recently, and would continue diving into this methodology in more depth and apply it in my investment strategy.
Regards,
Rishab K.
Great feedback. Check your email for the next steps.
