Hi Michael. Dan in Boston here, hope you are well. I’ve been devouring your podcast after I heard you on the Stansberry podcast. Thanks so much for sharing all the info / state of mind, it’s F%$ing awesome!
Question for you regarding dividends. Will you ever hold a stock that’s trending downward because it’s throwing off solid dividends? I know you can’t talk individual stocks (assuming you can’t) so I’ll just say I bought a BDC that’s throwing off a monthly dividend, annual rate is over approx 12%. I’ve got a few other BDCs all throwing off similar dividends which are generally trading sideways but I’m up on a couple of them. Seems like they are a hidden jewel that nobody cares about. I bought them after the were dis-included from the Russell 2000 ETFs so I got ‘em at rock bottom prices.
I bought the one I’m referring to before I discovered and began to knuckle down into trend following. It’s trending downward but very slowly. My technical indicators are obviously negative but they aren’t screaming toward the bottom, just very slowly shaving off a few cents per day. I may of course hit my stop, however it’s only about 15 cents shy of my buy price, and the dividend is keeping me slightly ahead and reinvesting it I’m still in the green. I’m adjusting my stops to reflect that as well, so either way if I stop out I’m not gonna get hurt too badly, if at all.
Question is do you ever factor dividends into your trend following? I probably answered my own question as I’m still making money on the stock, but would love to have your feedback.
Keep up the great work man, I just finished chapter one of the Little Book of Trend Following and I’m sure within the next few months I will read all your books. I too believe people are sheep and freeloading off the system, I’m an entrepreneur anyway, so trend following is a natural extension of my life.
Cheers
Dan
Thanks Dan for the nice words! Let me keep it simple–judge the trade by price action always (not dividends). Holding onto a losing stock because it is spinning off a dividend is not trend following. Perhaps, the math works and it is ok for your situation, but it’s just not trend following.
Trend followers understand that life is a balance of risk and reward. If you want the big rewards, take the big risks. If you want average rewards and an average life, take average risks. Charles Sanford gave a commencement address that is timeless. It said in part:
“From an early age, we are all conditioned by our families, our schools, and virtually every other shaping force in our society to avoid risk. To take risks is inadvisable; to play it safe is the counsel we are accustomed both to receiving and to passing on. In the conventional wisdom, risk is asymmetrical: it has only one side, the bad side. In my experience—and all I presume to offer you today is observations drawn on my own experience, which is hardly the wisdom of the ages—in my experience, this conventional view of risk is shortsighted and often simply mistaken. My first observation is that successful people understand that risk, properly conceived, is often highly productive rather than something to avoid. They appreciate that risk is an advantage to be used rather than a pitfall to be skirted. Such people understand that taking calculated risks is quite different from being rash. This view of risk is not only unorthodox, it is paradoxical—the first of several paradoxes which I’m going to present to you today. This one might be encapsulated as follows: Playing it safe is dangerous. Far more often than you would realize, the real risk in life turns out to be the refusal to take a risk.”
Life is fraught with risk. There is no getting away from it. However we try to control the direction of our lives, there are times when we fail. Therefore, we might as well accept that life is a game of chance. If life is a game of chance, to one degree or another, we must be comfortable with assessing odds in the face of risk.
New York (May 02, 2014, 6:27 PM ET) — The special master in the Refco Inc. securities fraud multidistrict litigation on Friday recommended that a New York federal judge enter a $669 million judgment against five defendants, for their roles in the scheme that brought down the massive commodity brokerage.
Under Ronald Hedges’ proposal, ex-Refco Group Ltd. President Tone Grant, former Refco CEO Phillip R. Bennett, former Refco Vice President Thomas Hackl [see: Acies Asset Management, S.A.], PlusFunds Group Inc. Founder and Chairman Christopher Sugrue, and Refco Group Holdings Inc. would pay $669,370,9991, plus $78,430 in interest for each day after April 29 until the judgments are entered.
While the defendants had already been judged years earlier to be liable by default, Hedges’ report focused on the damages the group owed stemming from the massive losses Sphinx and PlusFunds investors incurred.
The special master indicated that the group should be held “jointly and severally liable” for the mutlimillion- dollar judgment, leaving the individuals’ portion of the damages owed unclear.
The recommendation will now head to U.S. District Judge Jed S. Rakoff, who is overseeing proceedings for the consolidated suits.
The five defendants are all named in the sprawling litigation brought by liquidators and trustees for Sphinx Ltd., which was induced into depositing hundreds of millions of dollars into accounts that were exposed in the $1.5 billion Refco scheme.
Sphinx and PlusFunds, which helped manage its investments, lost approximately $263 million when Refco collapsed in 2005. Sphinx has since entered liquidation proceedings, and PlusFunds filed for Chapter 11 bankruptcy protection in 2006.
Many were found guilty of criminal charges related to the con, including Bennett, who is serving a 16-year sentence, and Grant, who received a 10-year term of his own.
The suits arose from revelations that Refco executives had concealed $430 million in debt through complex trading and lending schemes and shell companies, in an effort to bolster the company’s financial reports.
Refco sought Chapter 11 protection in October 2005, two months after a $583 million initial public offering, and about a year after it was purchased for $1.9 billion in a leveraged buyout by Thomas H. Lee Partners LP.
Five days before Refco sought protection, more than $312 million was transferred from the Sphinx accounts at Refco to unprotected offshore accounts. The hedge fund group ultimately settled with Refco creditors, agreeing to turn over $263 million.
Meanwhile, federal investigators believe Refco had been covering up customer trading losses by transferring securities to appear as debts owed by Refco Group Holdings Inc., a holding company controlled by former directors. Directors later hid RGHI’s receivables from auditors by transferring funds to make the debt appear to be from an entity not related to RGHI, prosecutors alleged.
The plaintiffs are represented by Lee M. Andelin, Leo R. Beus and Dennis K. Blackhurst of Beus Gilbert PLLC; and David J. Molton, Andrew S. Dash and Mason C. Simpson of Brown Rudnick LLP.
Counsel information for the defendants named in the recommendation was not immediately available Friday.
The case is In re: Refco Securities Litigation, case number 1:07-md-01902, in the U.S. District Court for the Southern District of New York.
Refco Inc.’s former Chief Executive Officer Phillip Bennett and two of his ex-colleagues were ordered to pay $671.7 million to Sphinx Providence Ltd. and its hedge funds for losses stemming from a $2.4 billion fraud at Refco.
U.S. District Judge Jed Rakoff assessed the damages, including interest, against Bennett, former senior vice president Christopher Sugrue, former executive vice president Thomas Hackl [Acies Asset Management, S.A.] and Refco Group Holdings Inc., an entity Bennett owned and used to hide more than $1 billion of debt.
Once the biggest independent U.S. futures trader, New York-based Refco collapsed in 2005, two months after raising $670 million in an initial public offering. Refco Inc., as it was known after the IPO, filed one of the biggest bankruptcies in U.S. history, after having revealed Bennett’s holding company owed it hundreds of millions of dollars.
In the ruling, which was made public today in Manhattan federal court, Rakoff followed last month’s recommendation of a special master assigned to the case. Rakoff didn’t address the special master’s conclusion that former Refco Group Ltd. President Tone Grant should also be held responsible for the damages.
Bennett is serving a 16-year prison sentence. Grant is serving 10 years.
Sugrue was chairman of PlusFunds, which filed for bankruptcy in March 2006 after the disclosure of its relationship with Refco helped spur investor withdrawals.
Now, let’s get practical. Answer the following five questions, and you have a trend following trading system:
1. What market do you buy or sell at any time?
2. How much of a market do you buy or sell at any time?
3. When do you buy or sell a market?
4. When do you get out of a losing position?
5. When do you get out of a winning position?
1. What is the state of the market?
2. What is the volatility of the market?
3. What is the equity being traded?
4. What is the system or the trading orientation?
5. What is the risk aversion of the trader or client?
You want to be black or white with this. You do not want gray. If you can accept that mentality, you have got it.
Today on the podcast, Michael Covel speaks with Mike Harris. Harris is President of Campbell & Company (3B+ AUM), the systematic trading firm started by Keith Campbell (Campbell was featured in Covel’s first book Trend Following). Covel and Harris discuss systematic trading in the early 70’s; education about managed futures; correlation with other markets and managers; trading diverse markets; focusing on data rather than the fundamentals; why “commodities” and “CTA” are misnomers; why Harris wouldn’t fly down to Brazil to investigate fundamental information on the coffee market; risk management, drawdowns, and taking small losses; dealing with uncertainty and helping clients to understand the uncertain nature of trading; how human emotion often gets in the way of profitable trading; the efficient market hypothesis and behavioral finance; continuity and how that has been thought through at Campbell & Company; the Sharpe ratio and why it isn’t the best way to look at systematic traders; and why being defensive is central to being a great absolute return trader. For more information on Campbell & Company, visit www.campbell.com.
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Hello Michael, I just started listening to your podcast from the beginning and am up to Ep. 39 where you said that If I can show proof of purchase of any of your books you would send additional material to read, (see attachment).
Regards,
[Name]
What address can I send to? A day later the conversation continues:
Hello Mike, if this is the same [set of] articles you were giving…then I just received the CD last week. If this is something new to read then you can send it to the following address: [Address]
When I was 18 I really wanted to trade the markets but living in the small town of Stratford, Ontario, Canada, it was hard for me to find an easy way to get into the markets. Back then, (1989), I looked at and plotted charts to see the patterns but was never able to take the next step.
Just so your aware, your podcasts are a real eye/mind opener and reminded me of what I saw back then. I am currently putting my plan together.
My goal is to make money. My plan is to read as much as I can find on the trend following methods. Before I start I plan on reading all 4 of your books at least once and get through 75% of your podcasts, (currently at Ep. 47). At the moment I see my only hold back is fully understanding and setting up my risk management plan and my position sizing. Right now I only have between $5k and $10k, but next year I will have $24k more when I am able to transfer one of my Canadian LIRAs over to the US. Yes, I was a buy and hold guy.
If you can recommend what you think are the best books to read for Risk Management and Position Sizing that would be a great help to me. I have a very analytical mind therefore I plan to tackle Ralph Vince’s books to see what insights I can find there.
Thank-you again for all you have done, Best Regards, [Name]
Same CD! In terms of books check out my favorite books. Thanks for all of the nice words.
