Hi Michael, what a great combination of conversations with Charles! I am about 4 hours in and the information just keeps getting better. Wanted to say thank you for the great and varied content. I would also like to share what I have learned since starting to follow you over the past 6 months or so. The power of language and more significantly the importance of right language and what that represents to my interpretation is truly insightful. What I realize is that:
– I have a long way to go (and 15 years in FX management means i have to unlearn many things as well)
– There is an absolute need for clarity of language
– Limiting the negative self-talk to very specific timely events, not large general broad sweeping ones
So thank you for the journey so far. As a side note, do you list the books that yourself and your guests recommend or mention on the podcasts on your website? Michael I will be honest I am leaving the above sentence in as a example of picking up my own system one thinking and the way search engines are making us look for easy and immediate answer. My mindset went straight to typing for an answer rather than doing search for one. A little research goes a long way.
First of all I have to say a big thank you! Your podcasts broadened my knowledge base and moreover, it provided me the impulse to change the way I’m thinking about markets, market participants and my own work.
I’m currently managing 2bn € AuM for institutional investors and the job is really embarrassing to me. The way money is managed in the industry is pro cyclical. You’re hiding behind benchmarks & marketing brochures and worse – due to regulations – you’re just paid for avoiding risks. I have enough and to spare!
Your 500th episode with Charles Faulkner was eye opening to me. It started a mental firework in my brain! I really want to change something in my life. As I was always a great fan of behavioral economics, and I would love to combine this direction with NLP and do coaching work in the finance space. Especially in Europe, we’re decades behind in comparison to the US.
As NLP is very criticized in [other country] for not being a “real science”, I wanted to ask you what do you think about NLP? At the moment I look at different coaching techniques. As I now that you are very open minded and a great thinker I really appreciate your feedback!
NLP has a great many benefits. Any effort that brings a greater understanding to us irrational humans is alright by me.
Charles Faulkner has been featured in many Trend Following Radio episodes and across all of my books. An excerpt from “The Little Book of Trading”:
Perhaps you have heard the expression about living in the moment of now. What do I mean? The past is gone and the future is unknowable, but we have right now. That does not mean we cannot consider our past experiences or mistakes as useful references. Nor does that mean we cannot prepare and plan for the future. It does mean that making decisions based upon what is actually happening in the moment of right now is how great trend following traders organize their lives and produce their fortunes.
While not primarily a trader, Charles Faulkner brings a tremendously useful insight to the table. In all my years I can think of no one who does a better job of bringing traders and investors to a better understanding of themselves. Understanding yourself as a trader is the needed introduction to the journey of success in trend following profits.
Faulkner sees the world from a very wide and novel perspective, and you should too.
Case in point: A crucial lesson to understand is that when entering the market game, losses are part of the game. No matter the amount of experience you have, there will always be losses. That said, you want to make sure your losses are ones that you can handle—knowing that they are emotionally going to affect you.
People in sports understand this. Professional game players understand that to build your skill, you need to take losses and learn from them. You hope to play against people better than you because that is what makes you better.
Studying traders is very useful because everything in their world is extremely focused due to the intensity of their profession. What might take months or years to unfold in an ordinary life can unfold very quickly for traders.
For example, for many people the biggest purchase they make is a house or a car. And for many successful trend traders that kind of money can go through their hands within an hour, or even minutes.
This means, when trading, you don’t want to view money in terms of dollars as if you were going to buy a new car, but rather use the dollars to keep score. Putting yourself into that mental framework is critical. Releasing your mind from how you value money in terms of shopping, and instead focusing on it as a score during the game, is a huge first step.
A nice email came across my desk:
Good day Michael,
First I want to thank you for sharing your work with me and the rest of the world. I first read your work about 5 years ago and have not missed a podcast. Many podcasts I have returned to repeatedly for the timeless information and thought-provoking content. Another resource I don’t miss is the Epsilon Theory notes by Ben Hunt (thanks for introducing me to his work as well). I just wanted to suggest to you if you have not already read Ben’s latest note “I know it was you, Fredo” it is worth the time, like all of his notes. The information you have shared has not only changed my approach to the market but to nearly every aspect of my life. The exposure you provided me to the works of Charles Faulkner and Alan Watts two examples of many that have shaped the way I think about the world.
I felt it was time I thanked for what your work has meant to me.
On today’s episode of Trend Following Radio Michael Covel features a presentation by Charles Faulkner. Charles is a trader, mentor and author who has been featured in Jack Schwager’s “Market Wizards” series. Faulkner is an international expert on modeling the knowledge and performance of exceptional individuals, teams and organizations, and applying the latest research in cognitive neuro-science and linguistics. He has appeared on this podcast five times and has received more positive feedback than any other guest.
Today, Charles’ message is about goals. It is about setting large goals that are above and beyond your everyday concerns. Goals that give your life purpose. Charles comes at this topic in a pragmatic and scientific way. He breaks down how our brains function best, making goals easier to obtain. The first example he gives is a “monkey see, monkey do” experiment. The experiment showed that when you do something repetitively in the correct form, you have a much higher success rate than if you were to be sitting in the stands watching or doing a variety of the same act, but only occasionally doing it right. Charles then moves onto a study centered on the idea of taking internal dialogue and externalizing it. When you write down a goal and draw out what that goal means to you, that is externalizing your inner-dialogue. In addition to writing out your goals, it is important to talk them out. Charles has his students ask each other: “What are you going to do to achieve your goals?” “What will you see, what will you feel?” “Where will you be and who will be there?” Asking these questions vivify your goal. On the flip side, it is important to ask about the downsides. The more important the goal, the more negatives it’s likely to have.
“Goals are a way of directing your attention” says Charles. He goes on, “You don’t set one big goal, you set interim goals so you get rewarded along the way.” Charles goes on to talk about the importance of having milestones so you don’t get discouraged when your goal is not met immediately. People become attached to a certain outcome but they don’t think about why that outcome is important. He asks the question, “What is important about making a million dollars?” When you break down the reasoning behind your goal, it may uncover layers you had never thought about.
In this episode of Trend Following Radio:
How to set goals
How to achieve your goals
Externalizing your inner-dialogue
The importance of milestones
“We are very good at looking back on things and seeing how we got somewhere, it’s the looking forward thing that throws us off from time to time.” – Charles Faulkner
Perhaps not surprising, trend followers have spent as much time observing and understanding human behavior as they have trading. Understanding human behavior and how it relates with markets is commonly referred to as behavioral finance.
Behavioral finance evolved out of a contradiction between classical economic theory and reality. Economic theory is based on the assumption that people act rationally, have identical values and access to information, and use rational decision making. The truth is people are irrational and seldom make completely rational decisions even if they think they do. I have had the good fortune to learn from some of the top minds in the field of behavioral finance. From Nobel Prize winner Vernon Smith to Charles Faulkner, my eyes have been opened. Faulkner outlined the core issues:
“The current proliferation of electronic technologies— computers, the Internet, cell phones, 24-hour news, and instant analysis—tend to distract us from the essentially human nature of markets. Greed, hope, fear, and denial, herd behavior, impulsiveness, and impatience with process (‘Are we there yet?’) are still around, and if anything, more intensely so. Few people have absorbed the hard neuroscience research that reasons arrive afterwards. That given the choice between a simple, easy-to-understand explanation that works and a difficult one that doesn’t, people tend to pick the latter. People would rather have any story about how a series of price changes happened than that there is no rational reason for it. Confusing hindsight with foresight and complexity with insight are a few more ‘cognitive illusions’ of Behavioral Finance.”
Faulkner is correct, but that doesn’t make his words easy. The problem is that by not accepting that truth, you will get into trouble one way or another, as Carl Sagan reminds us:
“It is far better to grasp the universe as it really is than to persist in delusion, however satisfying and reassuring.”
A few years after writing Trend Following I came across another great mind in the field of human behavior and psychology, Alan Watts. Consider some feedback from a listener:
Thanks for turning me on to Alan Watts through your podcasts. Below is a link to an audiobook that I think you may find interesting, considering your interests in yoga and other eastern traditions. Andrew is a Lama (not a llama) and an old friend of mine: Here
Michael Covel speaks with Charles Faulkner today on the podcast. Faulkner is an author, trader, and an expert on modeling the knowledge and performance of exceptional individuals. He was originally featured in “The New Market Wizards” by Jack Schwager. Covel and Faulkner discuss the notion of fictional people and why famous figures in finance are “fictional”; the importance of narratives, stories, and metaphors; the halo effect and deluding ourselves; the difference between a story and a strategy; the nature of independent thinking; herd behavior; ego, ignorance, and authority; the five different types of minds: the experiencing mind, the imaginative mind, the reasoning mind, the reflective mind, and the generative mind; system one and system two; why words don’t change people but experience does; experience base and the difference between amateur and professional traders; the two kinds of market wizards; language in the context of the five different types of minds; the importance of asking “how” does the market work over “why”; the importance of luck and time in the case of Warren Buffett; why you shouldn’t get your excitement from trading. For more information on Charles Faulkner, visit charlesfaulkner.com.
Listen to this episode:
Listen to this podcast on iTunes. (Please leave a rating!)
Charles Faulkner returns to the podcast for his fourth interview with Michael Covel. Today, he comes to us from Belgrade. Faulkner is an author, trader, and international expert on modeling the knowledge and performance of exceptional individuals. He was originally featured in “The New Market Wizards” by Jack Schwager. Covel and Faulkner discuss behavior, emotions, decision-making, and intuition in the world of money–and what money does to us on a biological level. Topics include Neurolinguistic Programming; how money in the mind influences money in the world; the schizophrenic-seeming handout to the two recent Nobel Prize winners; “system one” and “system two”; how “one” is running all the time, how “two” takes effort–and where Faulkner hopes to take this research; how experience can teach “system one”; new lightbulb moments in current research; how the “afraid to lose” (or in Singapore, Kiasu) concept could be terribly dangerous when applied to money; why the less you know about something, the clearer the image–and the more certain you are that it’s real and true; the need for certainty; money as a living metaphor; sunk costs; the Myers-Briggs instrument; and rituals and money. Faulkner also tells us the heart of what he’s after in his new upcoming book.
Listen to this episode:
Listen to this podcast on iTunes. (Please leave a rating!)