Kevin Dowd once offered great insight on Long Term Capital Management here.
A great reminder.
Kevin Dowd once offered great insight on Long Term Capital Management here.
A great reminder.
Getting out at the peak of any trade is luck. Your goal in trading should be to have a solid trading process. Guessing the peak or bottom of a stock is not a process, it is luck. Eventually you will go broke. Michael pulls a review into the podcast and adds commentary. This reader claims that he uses trend following and adds fundamentals as he sees fit. Smack down ensues.
Phil Donahue and Ayn Rand are on the podcast today, but one of them is of course dead. Rand is best known for her two best selling novels, “The Fountainhead” and “Atlas Shrugged.” Michael plays two clips of Donahue interviewing Rand. Rand is controversial, but her thinking is accurate and clear. She breaks down altruism, government regulation, free market, monopoly, God, feminism, terrorism, and many more topics. You may not agree with her on all points, but there is inspiration to be taken away from her passion and to-the-point thinking.
Oh, how I show my age missing discourse like this. Besides Donahue, we had William Buckley, Dick Cavett, and, often, even Johnny Carson. Hearing liberal vs. conservative in an informative way was so, so nice. NOT screaming, NOT engaging in relentless raw ad hominem attacks, NOT being proud of ignorance, nor being illogical–and so smug about doing all this. Even the audiences back then were different. Civility is always welcome. I like to hear from the dead, because what they say is locked down, therefore, allowing a true evaluation of them.
Today on Trend Following Radio Michael Covel starts off giving listeners perspective on the feedback he receives. Over the years Michael has received thousands of emails that have created insightful and thought provoking give and take discussions. He reads an email that came in recently on a fairly controversial topic. The listener talked about his disagreement with Yaron Brook in episode 183. He disagreed on the shared viewpoint between Yaron and Michael. The listener’s email also touches on unemployment, minimum wage, and government regulations. The email was extensive and Michael gives his feedback as he makes his way through reading it.
Michael furthers the discussion by moving into reading from an article titled, “The Case Against the Minimum Wage” by Daniel Bier. Daniel says that there is much we may not agree on, but when there are topics that economic professionals do agree on, we should take notice. Economists across the board agree that by raising the minimum wage we will actually increase unemployment. The article’s main premise is that the core value a young person gets from their first job is the life experience rather than the monetary gain. Working with a team, punctuality, and taking direction are just a few fundamental skills that can be taken away from a minimum wage job. These jobs create a track record for an individual that lets them move on to other higher paying jobs.
So many people miss the point: It isn’t about the money, it’s about the experience. Having exposure to minimum wage jobs at a early age has long term effects. Daniel Bier says that it is actually more about politicians trying to feel good than actually doing good. Michael finishes with a quote from Nobel laureate James Buchanan further touching on the ramifications of raising minimum wage.
“Given that minimum wages hurt the very people they are supposed to help, by restricting workers’ freedom, reducing their choices, and increasing unemployment, One must wonder why, despite decades of consensus among economists, politicians and pundits continue supporting these destructive regulations. They often do so because they want ‘send the right message’ about the ‘kind of society’ we want to live in. While this appears well-intentioned, the principle underlying such arguments is actually quite perverse: that it is better for us to feel good than to actually do good.” – Daniel Bier
“Prices are not levels that set value, they are metrics that reflect value.” – Anthony Davies
Get the foundation to making money in up, down and *surprise markets on the Trend Following mailing list.
Hi Michael, I am enjoying your podcasts tremendously, and have started to listen to them all the way back one by one … since outset. I came across one of your monologs where you talks about money as means of exchange, people exchanging value. I am familiar with this definition. I am curious about your opinion about trading with that regard, meaning, what value does a trader brings? What is the role of the trader in that respect?
Ayn Rand said it best:
Happiness is not to be achieved at the command of emotional whims. Happiness is not the satisfaction of whatever irrational wishes you might blindly attempt to indulge. Happiness is a state of non-contradictory joy—a joy without penalty or guilt, a joy that does not clash with any of your values and does not work for your own destruction, not the joy of escaping from your mind, but of using your mind’s fullest power, not the joy of faking reality, but of achieving values that are real, not the joy of a drunkard, but of a producer. Happiness is possible only to a rational man, the man who desires nothing but rational goals, seeks nothing but rational values and finds his joy in nothing but rational actions.
Just as I support my life, neither by robbery nor alms, but by my own effort, so I do not seek to derive my happiness from the injury of the favor of others, but earn it by my own achievement. Just as I do not consider the pleasure of others as the goal of my life, so I do not consider my pleasure as the goal of the lives of others. Just as there are no contradictions in my values and no conflicts among my desires—so there are no victims and no conflicts of interest among rational men, men who do not desire the unearned and do not view one another with a cannibal’s lust, men who neither make sacrifices nor accept them.
The symbol of all relationships among such men, the moral symbol of respect for human beings, is the trader. We, who live by values, not by loot are traders, both in manner and spirit. A trader is a man who earns what he gets and does not give or take the undeserved. A trader does not ask to be paid for his failures, nor does he ask to be loved for his flaws. A trader does not squander his body as fodder, or his soul as alms. Just as he does not give his work except in trade for material values, so he does not give the values of his spirit—his love, his friendship, his esteem—except in payment and in trade for human virtue, in payment for his own selfish pleasure, which he receives from men he can respect. The mystic parasites who have, throughout the ages, reviled the trader and held him in contempt, while honoring the beggars and the looters, have known the secret motive of the sneers: a trader is the entity they dread—a man of justice.
Is speculation the root of all evil? Consider this excerpt from my third book, Trend Commandments:
The film director Oliver Stone believes that speculation is evil. That’s interesting. He has written some fantastic scripts. He has directed Oscar-winning films. Nevertheless, to say that speculation is “the mother of all evil” is disingenuous. When Stone sets forward to make a new film, he’s speculating that you will spend your money and watch his film. There is nothing wrong with that. That’s life. That’s a good thing.
Speculation in markets is essential too. Think about what drives a market. It is millions of people speculating to make money. One of the most successful trend following traders knows deep down how important speculation is to finding opportunity:
“Speculari, the Latin root of the verb “to speculate” has the literal meaning to observe. To be successful this observation must, of necessity, be detached and unemotive and thus where great social and moral issues are at stake, it is perhaps not surprising that distrust and hostility among the general population can arise particularly when the speculator profits at a time of general discontent. Yet this detached observation is clearly in the spirit of the natural scientist and the act of speculating for money is in the spirit of the empirical scientist’s restless yearning to add to empirical knowledge and put theories to the test.”
Regardless of whether you win or lose, you are speculating—trying to get ahead. Every time you get into a car, you are speculating. If you go to the Apple store to buy an iPhone you are speculating the phone is more valuable than your dollars. Additionally, you are speculating the iPhone will work. When you turn on a show you are speculating that it is worth more than something else. All of these activities don’t always work out, and that is the nature of speculation. All speculators are not winners.
So why is it bad to take advantage of an opportunity that you recognize? It’s not.
Speculate this: Do you consider yourself an investor or a trader? Investors put their money into investments hoping value will increase over time. Typically, they have no plan if it goes down. They usually hold on, praying value will reverse and go back up. Investors typically succeed in bull markets and lose in bear markets. They usually have no coherent response when the losing starts. They often hang tight and continue to lose even more.
Traders are different. They have a defined strategy to put money to work for a single goal: profit. Wise trend traders do not care what they buy or sell as long as they end up with more money in the long run. Bottom line, winning traders don’t invest, they trade. It is a massive distinction. Consider timeless qualities essential to speculation:
1. Self-reliance: A man must think for himself and must follow his own convictions. Self-trust is the foundation of successful effort.
2. Judgment: That equipoise, that nice adjustment of the faculties of one to the other, which is called good judgment—essential to the speculator.
3. Courage: That is, confidence to act on the decisions of the mind. In speculation, there is value in the dictum: Be bold, still be bold; always be bold.
4. Prudence: The power of measuring the danger, together with a certain alertness and watchfulness, is very important. There should be a balance of prudence and courage; prudence in contemplation, courage in execution.
5. Pliability: The ability to change an opinion, the power of revision. He who observes and observes again is always formidable.
I don’t care whether you ever trade, but those precepts should be the first life lessons taught to grade school kids.
Live it. I like that Covel. Wise excerpt.