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Dear Michael,

Hello from Blue Ocean Strategy! We recently listened to the podcast “Masters in Business: Michael Covel” on Barry Ritholtz’s Big Picture (January 13, 2016). We really appreciate when people take the time to mention blue ocean strategy and as a thank you, we share the best content with our growing global audience via our website, social media accounts and email newsletter. We thought our audience would enjoy this piece and so we have already mentioned and posted a link to it in our eLibrary – here.

We would love to have you as part of our Blue Ocean Community. We have an exciting newsletter with original content that we’d love for you to sign up for. Also, if you haven’t already, check out our Facebook, Twitter or LinkedIn accounts where we share other latest developments on blue ocean strategy.

To blue oceans ahead!

With appreciation,

xxx from the BOS Team

Thanks! I hope to have Professor Kim on my podcast soon. Let’s make that happen.

Blue Ocean Strategy
Blue Ocean Strategy

Ted Williams, Stephen Curry, Barry Ritholtz and Nokia; See the Connection?

Ted Williams
Ted Williams

Barry Ritholtz pushed along the notion that Ted Williams was the first quant.

But what is so great about being a quant?

The edge.

Having an edge is what a game of numbers is all about.

Consider the controversy with Stephen Curry. The older retired players don’t see the quant aspect of his play:

Stephen Curry is not, in fact, unguardable. The plays he makes can be stopped or contained if a defense dedicates itself fully to those particular ends, much in the same way that any action on a basketball court can be. The distinction lies in the cost. Curry operates in a fashion that makes the necessary means of defending him counterproductive to the very enterprise—a spatial frustration that makes the reigning MVP, for all practical purposes, impossible.

This was apparently lost on NBA great Oscar Robertson, whose context-deaf response seemed to ignore the fact that Curry poses a greater threat farther from the hoop than any player in basketball history. So fearless is Curry and so trusting is Warriors coach Steve Kerr that shots well beyond the arc have become standard. Curry will pull up giddily from 30+ feet if left to his own devices. NBA defenders are learning how lonely that depth can be, and how hopeless the effort to deny Curry has become.

Concluding:

The openings he finds aren’t due to some lack of ingenuity in scheme or lack of pride on the part of the defenders. Curry merely has a way of creating quandaries without the slightest hope of a satisfying conclusion. There comes a point at which players and coaches would rather lose to a 28-foot pull-up than a compromised interior. It’s then that the best player in basketball has his opponents right where he wants them—conceding, hopeless, and in their own way, defeated.

He has found a new edge…and he is exploiting it. He is riding that trend.

What is the worst action opponents can take? To live in denial of the Curry trend!

A great example of denial can be seen when Nokia CEO ended his speech saying “we didn’t do anything wrong, but somehow, we lost.” Consider:

During the press conference to announce NOKIA being acquired by Microsoft, Nokia CEO ended his speech saying this “we didn’t do anything wrong, but somehow, we lost”. Upon saying that, all his management team, himself included, teared sadly. Nokia has been a respectable company. They didn’t do anything wrong in their business, however, the world changed too fast. Their opponents were too powerful. They missed out on learning, they missed out on changing, and thus they lost the opportunity at hand to make it big. Not only did they miss the opportunity to earn big money, they lost their chance of survival. The message of this story is, if you don’t change, you shall be removed from the competition. It’s not wrong if you don’t want to learn new things. However, if your thoughts and mindset cannot catch up with time, you will be eliminated.

Conclusion: The advantage you have yesterday, will be replaced by the trends of tomorrow. You don’t have to do anything wrong, as long as your competitors catch the wave and do it RIGHT, you can lose out and fail. To change and improve yourself is giving yourself a second chance. To be forced by others to change, is like being discarded. Those who refuse to learn & improve, will definitely one day become redundant & not relevant to the industry. They will learn the lesson in a hard & expensive way.

The dots connect and connect and connect. And plenty will never see that connection, but perhaps they just don’t want to see.

“My World Has Changed Dramatically…Thanks”

Feedback in:

Hi Michael, I just wanted to say thank you for the work you are doing with your writing and podcasts.

My world has changed dramatically since listening to you and Barry Ritholtz on Master’s in Business a couple of weeks back. I’ve since read your book The Complete TurtleTrader and am in the middle of reading Trend Following. I’ve also started to listen to your podcasts (along with Master’s in Business that I listen to each week) and have really enjoyed your conversations with Tom Basso, Meb Faber, and listening to your views on the world.

My educational background is in physics and economics and professionally I own an internet advertising and online publishing business. So I’m comfortable with numbers and fairly entrepreneurial.

Since reading your books and listening to your podcasts I’ve been busy programming and developing a trend following trading strategy all with set conditions on: when to open positions, how to manage funds and risk exposure, rules for what to do when a trend breaks out, and a stop loss system that defines when to exit at all times win or lose. All done programmatically and connected into the trading platforms API’s. I now feel confident in the process being put in place to be successful with my trading (regardless of whether this particular strategy back tests well or not) and I’m excited for what 2016 and further into the future have in store. An amazing change in less than 6 weeks.

It has been a fantastic learning process for me and it is a process that is on-going and one that I feel has changed my life forever. Without your efforts I don’t think I would have come across any of this and it is for this this reason that I felt I needed to email you to let you know how your work has impacted me.

So thank you again.
Sincerely
[Name]

Great feedback. Thanks [Name]. Best of luck!

Ep. 420: Inequality of Effort with Michael Covel on Trend Following Radio

Inequality of Effort with Michael Covel on Trend Following Radio
Inequality of Effort with Michael Covel on Trend Following Radio

Subscribe to Trend Following Radio on iTunes

Today on Trend Following Radio Michael Covel discusses three topics: the idea of two Americas, crowds, and his recent Barry Ritholtz interview. Michael starts off reading from an article titled “Two Americas.” The article focuses on people who contribute, and those who do not. People who work and those who do not. The article disagrees with the notion that all incomes should be equal. Different choices lead to different consequences. Those who choose wisely have a greater degree of success and should not have their success taken from them because others chose unwisely. The article goes on to say, “Entitlement has replaced effort in American society.” Just because you went to college doesn’t mean you are entitled to a certain level of income. On the other hand, those that do not have an education or work hard to make something happen are also not entitled to a certain level of income. Achievers do not want a pat on the head or a fake handout. Free money doesn’t work. You need passionate effort for there to be a desirable end result. If the drive is not there then the result is there.

Michael then reads from a blog post by Seth Godin titled “The crowd, your work, and a choice.” Seth dives into crowd mentality. He says that the public would rather, “Watch a movie than read a book, stand in lines for the popular attractions…likes explosions, resolved plots and ample lighting…Crowds only care about fast, easy, cheap, fun, now and simple.” Crowds demand that they are told how much they will make and in what markets. When it comes to investing and trading there are no deadlines. Trends come and go, there is no timeline.

Michael moves on to discuss his recent interview in New York with Barry Ritholtz. He talks about himself and Barry as a piece of media and how media is becoming more individualized with the help of social media. There are so many outlets to get your name out whether it be your blog, podcast, or news column. All these places are just distribution outlets. Places like twitter and Instagram give you a platform to contribute value and feedback to people. It is now easier than ever to build a one man media conglomerate.

In this episode of Trend Following Radio:

  • Two Americas
  • Crowd behavior
  • Marketing yourself

“The crowds favorite words include fast, easy, cheap, fun, now, and simple.” – Seth Godin

“One group will preach equality of outcome as a right while completely ignoring inequality of effort.” – Source Unknown

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Listen to this episode:

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Fundamentals and The Death Cross: Confusion Always

Need a refresher about the fundamental mindset? From Trend Following:

There are two basic theories that are used to trade in the markets. The first theory is fundamental analysis. It is the study of external factors that affect the supply and demand of a particular market. Fundamental analysis uses factors such as weather, government policy, domestic and foreign political and economic events, price-earnings ratios, and balance sheets to make buy and sell decisions. By monitoring “fundamentals” for a particular market, one can supposedly predict a change in market direction before that change has been reflected in the price of the market with the belief that you can then make money from that knowledge. The vast majority of Wall Street uses fundamental analysis alone. They are the academics, brokers, and analysts who spoke highly of the new economy during the dot-com craze. These same Wall Street players brought millions of players into the real estate and credit bubbles of 2008. Millions bought into their rosy fundamental projections and rode bubbles straight up with no clue how to exit when those bubbles finally burst. Consider an exchange between a questioner and then President Bush at a press conference:

Q: “I wanted to ask you [Mr. President], I’m a financial advisor here in Fredericksburg [Virginia], and I wanted to ask you what your thoughts are on the market going forward… and if any of your policies would make any difference?”

The President: “No (laughter), I’m not going to answer your question. If I were an investor, I would be looking at the basic fundamentals of the economy. Early on in my Presidency, somebody asked me about the stock market, and I thought I was a financial genius, and it was a mistake (laughter). The fundamentals of this nation are strong. One of the interesting developments has been the role of exports in overall GDP growth. When you open up markets for goods and services, and we’re treated fairly, we can compete just about with anybody, anywhere. And exports have been an integral part, at least of the 3rd quarter growth. But far be it for me—I apologize—for not being in the position to answer your question. But I don’t think you want your President opining on whether the Dow Jones is going to—(laughter)—be going up or down.”

Now, consider a recent email exchange with a Trend Following Radio listener that expands out in a better direction:

Listener: Honestly, my entire career has changed because of your podcast now that I think about it b/c it was my first exposure to trend following. A couple years ago I listened to your podcast for the first time and didn’t like it, too closed minded. Then I listened again… and again. My mind gradually continued to open and expand.

Covel: Thanks for the nice words.

Listener: Great interview with Campbell Harvey. Definitely have him on again sometime. Hearing about your trip to China was also great as we are in the middle of working on an opportunity over there.

Concluding:

Listener: I agree with your comments on your death cross podcast that Cliff’s tweets seemed a bit odd… But then again, I don’t understand what he is talking about with at least half of his tweets. It indeed is a bit hard for people to understand that trend following is different than predictive technical analysis. I cringe when people ask me “so what are your indicators telling you”. You’ve done a good job at attempting to articulate it. Keep it up. I’m no different than you, I just looked at the data when I came across trend following. Then when I started adding it to a traditional portfolio and found a couple good managers like Chesapeake and [name] it was a no brainer. I guess for some that’s not enough. That’s fine with me.

Ep. 374: The Death Cross with Michael Covel on Trend Following Radio

The Death Cross with Michael Covel on Trend Following Radio
The Death Cross with Michael Covel on Trend Following Radio

Subscribe to Trend Following Radio on iTunes

Today, Michael Covel reads a recent piece from Barry Ritholtz about the Death Cross: that foreboding moment when the 50 day MA falls below the 200 day MA. Then Michael looks at how a Twitter debate between Cliff Asness of AQR and Jerry Parker of Chesapeake Capital, sparked by the article, led to an examination of momentum v. trend following.

The so-called Death Cross is viewed by many to be an omen, a signal of dark days to come. And while that could be partly correct in the context of a complete system, the Death Cross is just a signal. It’s a mistake to think of it in apocalyptic terms that something will happen in 6 months time, etc. The Death Cross is the type of signal that can work for the investor with a robust, diversified portfolio within a system that doesn’t aim to predict the future. This is all about what’s happening in the present price, so you can take action now.

Michael also plays and comments on a Bloomberg interview with Barry Ritholtz, discusses the folly of predictive technical analysis, and hammers home the fact that trend following is the only proven form of quantitative trading.

In this episode of Trend Following Radio:

  • The importance of ignoring old concepts
  • Trend Following is about taking action
  • Why no one can predict where the market is headed
  • Incorporating the Death Cross into a diversified portfolio
  • Understanding momentum trading
  • The idea of “heuristics”

“Woe to the unwary trader who relies on the urban legends to inform an outlook.” – Barry Ritholtz

Mentions & Resources:

Listen to this episode:

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