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Ep. 408: The Force Awakens with Michael Covel on Trend Following Radio

The Force Awakens with Michael Covel on Trend Following Radio
The Force Awakens with Michael Covel on Trend Following Radio

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On today’s episode of Trend Following Radio Michael Covel starts off with a short clip from Star Wars. Michael notes that Yoda and the force have unexpected connections with trend following. He then recounts a story that happened to him a few weeks ago where he feels “the force” was involved. While he was waiting to take a red eye to Tokyo with his parents a man asked if he could share the power outlet he was using. That man happened to be one of the world’s most famous computing pioneers. Michael agreed to share the outlet if he could take a selfie with him. It was a weird serendipitous moment that Michael attached “the force.”

Michael goes on to read from an article titled, “Meet David Harding: The Man Behind Models that Beat the Market,” published in The Australian Financial Review. The article highlights Harding’s accomplishments and views on trading. Harding stresses in the article that the only reason systematic trading has gotten big over the years is because it works. Harding’s company, Winton Capital Management, goes completely against the efficient market hypothesis and he has actually made massive money going against the theory. David goes on to say that investment management is an internal psychological war with yourself. You constantly doubt yourself but the challenge is rising above that self doubt and sticking with your system. If you allow every emotion to be built into your system then you do not have a system at all.

“Over-fitting and It’s Impact on the Investor” by the Man AHL Academic Advisory Board is Michael’s next interest. Over-fitting is finding patterns that aren’t actually there. It is a common phenomenon in science as well as trading and other fields of study. Analyzing a companies culture is a good way to produce less over-fitting results. Michael quotes different view points regarding the concept of over-fitting, finishing up with inspirational quotes by NBA player Kevin Garnett and Christopher Hitchens focused on “making it happen.”

In this episode of Trend Following Radio:

“You can’t teach the beast, its either in you or it isn’t. you cant just go to the store and buy a six pack of beast.” – Kevin Garnett

“The reason the systematic investing community has gotten big is because it is successful. No one should miss that point.” – David Harding

Mentions & Resources:

Listen to this episode:

Get the foundation to making money in up, down and *surprise markets on the Trend Following mailing list.

The Australian Financial Review: David Harding

david harding

David Harding is one of the most successful trend followers alive. I have had the opportunity to meet with him several times. An excerpt from The Little Book of Trading:

Who doesn’t want to make a billion dollars? Yes, I imagine there are downsides to that type of wealth, but it must be one helluva ride to produce that kind of success— especially from essentially nothing. Is it a reasonable goal for you to make a billion dollars? Well, the odds are probably not on your side for that.

However, sometimes in this world, this crazy and often chaotic world of ours, people win the lottery. They buy a scratch-off ticket and win millions. They didn’t practice. They didn’t struggle. They didn’t do anything except buy a scratch-off ticket.

On the other side are people like David Harding. Harding struggled mightily early. However, Harding stuck with it for decades and is now a true billionaire. Don’t get me wrong—Harding, like many success stories, has had luck on his side.

However, that’s not the takeaway here. The takeaway is perseverance. The takeaway is not quitting. That’s how Harding really hit it big. Without perseverance, Harding would have had no chance for luck to shine through.

What can you do? You can learn to think like a trader who has made a billion dollars. And if you think like him, and if you model how a trader like that views the world, you can put yourself in a place to possibly make your billion. Note, I said possibly. The real reason, the honest reason to think like a billionaire, is to make your first million. Anyone with guts and determination can figure a way to make their first million, but you have to stick with the ups and downs. Known as the commodities king (primarily because the press always talk about some of the markets trend followers trade as opposed to their strategy), London’s Harding could be called an overnight trading sensation— only 30 years in the making.

His trend following trading has produced, on average, nearly 20 percent a year for 20 years. Let that digest for a second as you ponder the buy and hold investments in mutual funds you may have, slowing eating away at your capital and your sanity.

These days, the white-haired financial wizard (still under 50) enjoys collecting books on economic history, some dating back to the 1860s. In my time with him, he carried that distinct American entrepreneurial spirit center stage, along with a salty tongue of randy one-liners, all wrapped in a quintessential British flair.

Feedback from a listener who spotted David Harding in the news recently:

Hi Michael,

I hope you are well. Great work with the podcast. I thought I’d let you know that David Harding made front page news of the Australian Financial Review (23 November 2015).

Not too sure whether you can access the above given online version is subscription based. I’ve attached a PDF of the article for your reference. Looking forward to the next time David Harding makes an appearance on your show.



“The more time I spend among humans, the more I love my dog…”

Listener: The Mona Lisa of them all IMHO. On my 5th listen!

Covel: Why?

Listener: Maybe its just me, but it struck a chord. The fact that average folks cannot equate to large sums of money is bang on. I mean if one spends there time looking for bargains at Walmart, how can they possibly comprehend millions let alone billions. The brainwashing and their ignorance prevents them from that. The Kevin Bruce story is simply amazing. What a humble human being. He understood what most never will at such a tender age that its all about the freedom and not the bling. Truly inspiring for the masses that want more out of life than the status quo or as I like to call it the neighbor quo!

Listener: David Harding calling the SPY a system, who the heck would ever have the courage to go on CNBC and tout that? The Godfather clip, inner confidence at its finest. As human beings we seek the answers everywhere but from within, where they truly lie. Truly inspiring and motivational at least for me, and this is coming from a guy who’s favorite quote is;

“The more time I spend among humans,the more I love my dog.”

As always thank you for what you do.

Covel: Thanks!

Ep. 376: Overcoming Bias with Michael Covel on Trend Following Radio

Overcoming Bias with Michael Covel on Trend Following Radio
Overcoming Bias with Michael Covel on Trend Following Radio

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Human beings have a strange habit of trusting other humans, even when the trust isn’t warranted. Everywhere in mainstream media, statistics are used and misused to convey an agenda. All too often, people ignore the agenda and buy into this engineered information.

To be successful, both in life and in trading, a person must move beyond this behavior. You need to be a skeptic. You can’t put blind faith into a system that doesn’t make its agenda clear. You probably shouldn’t trust it even if the agenda does seem clear. This is just as true when considering pollsters like Frank Luntz as it is when listening to the sales pitches of discretionary traders on Wall Street.

In today’s episode Michael Covel discusses the biases we have as human beings that lead us to poor investing decisions. Most notably, it is a bias that prevents us from trusting algorithmic trading, even when a human alternative is demonstrably worse. Through entertaining and insightful clips, Michael demonstrates why algorithms deserve our trust: their accountability and their ability to be back tested through different market conditions.

The episode is full of interesting sound clips and passages from bright minds such as Penn Jillette, Leda Braga, Daniel Dennett, Lasse Pedersen, and David Harding.

In this episode of Trend Following Radio:

  • The use and misuse of statistics
  • Using skepticism to your advantage
  • The advantages of algorithmic trading
  • Leda Braga on why ‘Black Box’ isn’t a fair term
  • Daniel Dennett’s simplifications of algorithms and computing
  • Trend following as simple agnostic rules that can easily be passed to a computer
  • Efficient market theory failure during surprises

“You want to be a contrarian. You want to be on the other side of the coin. Don’t be with everyone. Stand to the side. That’s where the opportunity is…” – Michael Covel

Mentions & Resources:

Listen to this episode:

Get the foundation to making money in up, down and *surprise markets on the Trend Following mailing list.

Use a computer rather than your brain…

CNBC: One of the U.K.’s most successful hedge fund managers [David Harding in pic] has spoken of the benefits of using the “emotionless systematic approach”.

Covel: That’s another way of saying trend following.

David Harding
David Harding


David Harding: “We Must Either Be Cheats, Charlatans or Crooks”

While going through some of my old Trend Following Radio monologues I came across this excerpt from a David Harding interview:

Interviewer: Okay, one final question. When you look back at your long and successful career, was courage rewarded in your investment decisions?

Harding: The main place I would say that courage had entered into my career, and I’m not sure whether this is virtuous courage or not, [Name] this morning differentiated between good courage and bad courage and I’m not sure whether mine is good courage or bad courage. But I can tell you that everybody, most of my career, all of the intellectual orthodoxy and all the professors and the businessmen and all the forces of respectability said that what we did was impossible. Completely theoretically impossible and therefore we must either be cheats, charlatans or crooks. To go on running your business when everyone says that what you’re doing is theoretically impossible clearly means you’re in a very lonely position. I think part of the reason I’ve been very well rewarded is out of sheer perversity. I went on doing what I was doing because I trusted the evidence of my scientific research and the evidence of my senses over received wisdom of the powers that be and the authorities in the world. So if I had any lesson, Mark Twain said, “How come when physical courage is so common, moral courage is so rare.” That saying has always had a special meaning for me because I’m particularly cowardly physically as well.


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