I’ve been listening to your podcast and really enjoy it. Thank you for bringing different perspectives on investing, and for all the trend followers you interview who are candid about their processes, advantages, and disadvantages. I really enjoy all the interviews, especially those with Jerry Parker.
I’ve got a question: You disparage buy and hold, but is it the same thing as trend following? Charles Dow (in my mind) is the inventor of trend following. He defined primary trends, that could not be manipulated, secondary trends that could be manipulated, and shorter term trends (daily) that are generally random.
When you think about it, buy and hold (in equities) is just a bet on the longest of primary trends, namely, that the market goes up and down, but it goes up more than it goes down. It is divorced from any fundamental analysis, and has a clear entry and exit points: buy when you have funds throughout your working career and sell when you need money for retirement.
Sure, it has more volatility and drawdowns than something like the turtle strategy, but it has bigger gains at times too – trend following can’t match the gains in large bull markets. Thus, a buy and hold person subjects themselves to more volatility and drawdowns to follow a long-term (and hopefully more lucrative) trend, while a Turtle uses systematic trading rules to trade on the shorter – akin to Dow’s “secondary” – trends to reduce volatility and drawdowns, sometimes at the loss of gain but likely with superior preservation of capital.
The only difference is the length of trend one wants to follow. Otherwise, they’re effectively the same. Entry and exit rules, no fundamentals, seeking to ride a trend.
Thanks for keeping the trend following torch burning. Keep up the good work!
Where is the exit strategy with buy hold?
Pretty big issue to leave out if making the comparison to trend following.
Michael Covel returns for his first podcast since going abroad in Southeast Asia. Currently in Thailand, Covel catches us up on where he’s been so far. He notes the history of past conflicts in the area and his thoughts from a mountain view six-thousand feet above the ground looking onto the landscape below. Since leaving the US Covel has especially enjoyed not paying attention to the news coming from America. The idea of noise is after all pointless from a trend following perspective. If you can get away from it, either physically (like Covel) or mentally, it’s a good idea to eliminate it in your life. Along the lines of what’s needed and not needed, Covel plays a video called “What Do Prices Know That You Don’t?”, a clip from a Duke professor that discusses relying on price to make decisions. Even though the video doesn’t come from a direct trend following perspective, it illustrates the danger of too much information. It’s easy to play the game of waiting for one more news report, watching one more episode of Bill O’Reilly, or trusting the promises of one last politician. That’s where we are right now: we’re in a game. So, if you are in a game, how do you navigate it? What do you do? What decisions do you make? And what happens when the game doesn’t go the way the government has said? So, what lies ahead? Covel reads a piece of writing from Transtrend’s newsletter regarding the role of the government and what you can expect, followed by a piece from John Hussman. Both readings seem to agree on one thing: something will happen at some point. Are you prepared? Or do you just want to just trust that the government will forever be able to prop up the market? Hussman makes the point to not follow prices, which Covel disagrees with–if the Chinese stock market is going up, you want to be long. The issue isn’t what to do in a market that’s going up; the issue is having an exit strategy. Covel’s view is to be long and be happy in a rising market, but have an exit strategy. That’s the solution. If you can’t wrap your arms around that you might think about getting out of the markets completely. Even if you don’t ultimately adopt a trend following strategy, if you’re going to be trading, it’s of dire importance to understand the concept of trend following. It’s essential to have it in your arsenal of tools. Covel wraps up and shares some other observations about Asia, his upcoming presentations abroad, announces an upcoming audiobook version of The Complete TurtleTrader, and discusses what you can expect from the podcast in the coming months.
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