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Ep. 566: Induced with Michael Covel on Trend Following Radio

Induced with Michael Covel on Trend Following Radio
Induced with Michael Covel on Trend Following Radio

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Fear drives all in today’s world. Two operations who have not let fear dictate their trading are Berkshire Hathaway and Dunn Capital. Both have 40+ year track records that should be studied. What was their system? How has it worked? If you look at the month by month and year by year of these two much can be learned. Both track records have not just gone up, up, up–they have had massive drawdowns (at least by the definitions of mortals) and still they have been able to persevere. No matter who you are, the ability to adapt to the markets is mission critical.

In this episode of Trend Following Radio:

  • Drawdowns
  • Dunn Capital performance
  • Warren Buffett performance
  • Risk management
  • Ego in trading
  • Cognitive dissidence
  • Efficient market hypothesis
  • Black Swans
  • Transparency
  • Critics; Trolls!

Mentions & Resources:

Listen to this episode:

Famous Last Words: “No One Saw it Coming!”

Feedback in:


I just wanted to take a moment to thank you for your work. I have read most of your books and they are exactly what I needed.

You see I am a veteran of the brokerage business (30 Years) and I have always known intuitively that something about the entire business was, and is, a lie. Analysts have no skin in the game, management doesn’t care if you make money, it’s all about assets under management that’s why they will never say sell. “Just buy more.”

You see I used to look at CFA’s as the smartest people in the room. Now I know that they are really just financial weathermen trying to predict the future. Something that can’t be done.

I have adopted for my clients a simple trend following rules based strategy, and it amazes me how hard it is to change minds. It is so simple they somehow think it can’t work. But I will keep plugging away and I know you will to.

The business needs to change even the other brokers in my office look at me like a freak when I tell them to stop listening to analyst’s and “stop buying stocks that are going down.” Old habits die very,very hard.

Just wanted to say thanks.


The same listener wrote back the other day, almost a year later:


As you can see we have corresponded before. I just wanted to drop you a line to tell you just how bad it is out here. As I mentioned previously I have 30 years under my belt in the brokerage business, but only in the last four or five have embraced rules based trend following.

Happily my clients that will listen with an open mind almost always say the method makes perfect sense. The problem lies with the people I work with, when I talk about having rules, following them, and being completely agnostic about what you own just make sure that what you own is going up they look at me like I have two heads. Like it is a cute parlor trick but could never work long term. Then I prove to them how much better off they and their clients would be if they would only have rules to sell what is going against them they shake their heads, agree, and forget everything I said.

My point is keep pushing these concepts when it hits the fan one of these days people are going to be destroyed because they won’t sell anything. And all my peers will be sitting with clients apologizing for not protecting the down side and saying, “No one saw it coming.” To which I will respond, “It wouldn’t matter if you had rules for selling.”

Keep it up, these ideas can change lives.



Is Noah Smith of Bloomberg Just a Troll who does not Understand Troll Following?

I caught this write-up from Nassim Nicholas Taleb. My first thought? That name sounds familiar…

This same guy Taleb rips… I also dealt with him a few years back over his severely misinformed take on trend following.

I responded on my podcast here. Small world for Noah Smith Bloomberg.

Bloomberg Noah Smith
Noah Smith


Read more about Nassim Nicholas Taleb quotes.


“Stick with what you know best, so you don’t sound like a complete idiot”

Feedback in based on my recent podcast:

“I think you should have named the most latest episode abject stupidity, and lack of human decency. Stick with what you know best, so you don’t sound like a complete idiot. Now you can go ahead and read this email on your podcast like you’ve done to others in the past, but I think you should stop and think for a second that you might be annoying the very people you are expecting to money off of.”

A great excerpt from Ayn Rand, John Galt, in Atlas Shrugged:

“The symbol of all relationships among [rational] 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.”

A good retort.

Dr. Phil Doesn’t Work Here

A recent exchange:

Mary: I’ll start by mentioning that I love most of the podcasts. I am also so appreciative that you created the Broke dvd, and The Complete TurtleTrader book. Ironically, many of us that don’t follow the herd still like to know that there are others out there like us. I listened to podcast episode 231 recently, and I wanted to give feedback, because you asked your listeners to! Episode 231 felt to me like I was being subjected to an infomercial. Every time you mentioned the words ‘Trend Following’, I felt like I was being asked to send you a 10k check. Trend following is certainly the subject of that podcast, but it sounded more like a pitch for the program you are selling. I didn’t hear the specifics of the report you were discussing. I’m not implying anything negative about your program because I haven’t tried it, and I don’t mind that you are selling it, I just don’t want to get to the end of a 30 minute podcast and feel that I listened to a live ad. That being said I can usually trust and count on your podcasts to be very valuable and I am a lunchtime listener. It makes my day!

Mike: Everyone is entitled to their opinion. People can judge my world off one podcast, or more than one, or none. People can read my books and draw conclusions, or not. Thanks for your feedback.

Mary: Thanks for the response, but no response would have been better in this case. ‘Thanks for being a loyal listener!!’ Would have been more appropriate.

Not sure what to say. Dr. Phil I am not.

Peter Schiff: The Angry People Arrive

Feedback in:

If there ever was a poster child for why trend following will never get too big it’s Peter Schiff. His stubbornness is legendary. He’s never wrong in his own mind even though a lot of his predictions(higher interest rates, lower dollar and hyperinflation) haven’t panned out. His housing bubble prediction panned out big time but he still didn’t make a lot of money because things like commodities and gold stocks collapsed.

He’s basically why I stumbled upon trend following. I realized that experts often didn’t know what is going on and neither did I. If Schiff can’t predict what’s going to happen and not make a lot of money what does that mean for the rest of us? If the government can spend so much money and commodities can still collapse there must be more to investing than most of us can understand. Hence trend following.


Trading was not the point of that conversation. That was clear.

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