Subscribe now and watch my free trend following VIDEO.

Category: Trend Following

Lucky Survivors!

Posted on by Michael Covel

A critic has been on here recently with the argument, and I paraphrase, “trend followers are lucky survivors who were flipping coins with terrible Sharpe ratios who will soon blowup.”

His last post:

I’ve said it once and I’ll say it again. Risk is beta. Risk is the chance that you won’t meet your investment goals. The only way to quantify that in a portfolio is to use the long term variability in returns. You say Sharpe is bullshit because it penalizes good volatility, but the Sortino ratio fixes that. The Sortinos of trend followers are terrible. What else do I need to say?

This has been beat into the ground, but readers are free to comment. You too Geetesh Bhardwaj.

Note: one more post came in again after seeing above:

Let me guess Covel you had to look up Sortino ratio which is why you linked to it, right? My favorite part is that you won’t post what I write because you know it is entirely fact based and proves your trend following beliefs 100% wrong.

I do love it when the crazies think they have invalidated trend following technique and performance data. I saw these exact same accusations 15 years ago.

Dunn Capital Lesson for the Buy and Hopers

Posted on by Michael Covel

The most recent review of my book “Trend Following” on Amazon is this:

For 200 pages you read how much trend followers made, trend followers are so great, they are always winners…. It’s almost like the book is promoting some money managers. Seriously the book is pretty bad, I almost feel embarrassed to write a review. According to the author you don’t need to know anything about what you are really buying, as long as it trends up. So I wonder if Mr. Covel would buy a bag of dirt for $10 just because it was $7 last week. I don’t want to get to the dynamics of trends and explain that after you buy a up-trending security you may lose money. But I wonder if Mr. Covel plays rulette and bets on red after red hits 3 in a row, thinking the new trend is red. I had the feeling that this book is written to increase the number of trend followers so when the time comes some people can dump the stocks easier. I wonder how Mr. Covel knows that you wont be the one standing without a chair when the music stops. Anyway, I will say one thing, buying this book may cost you a lot more than its price.

I will not bother with the vast majority of the above reviewer’s lack of understanding on my blog (others are welcome to use his comments as an entry into a teaching rebuttal), but his comment about “promoting some money managers” gives me a great opportunity to clarify with hard data. For example, most people have NEVER heard of Dunn Capital unless they have read my book, read Futures Magazine, or are involved in the money management industry. So there is a very compelling reason for me to pass along data like this (PDF of Dunn’s 2008 performance). Personally, whether you want to be the next Dunn, let Dunn trade your money, or just sit there in your mutual fund and wet your pants trying to figure out if someone can give you permission to think for yourself — Dunn’s performance data is NEWS. Not news cause I have some business dealing with Dunn (I don’t), but because most people just lost their *** in 2008 and he just made +50% on his WMA program (inception 1984). And for those who might want to whack at me and say Dunn was an anomaly, no dice on that angle. He is one of many trend traders who just whacked 2008 markets like a piñata.

Here is annual Dunn WMA performance since 1995:

1995: +98.69%
1996: +58.21%
1997: +44.60%
1998: +13.72%
1999: +13.34%
2000: +13.08%
2001: +1.10%
2002: +54.06%
2003: -13.41%
2004: -16.68%
2005: -16.41%
2006: +3.08%
2007: +7.60%
2008: +51.46%

Notice his really bad spell (03, 04, 05) was right when Greenspan was engineering the credit/real estate/stock bubbles? I wonder if in hindsight most people would take Dunn or buy and hold.

Learn more about Trend Performance.