Bullshit baffles brains. It’s that simple. …When you talk bullshit, it’s like you’ve thrown a baseball at someone – it is up to them to consider what you’ve said, ie. to catch the ball. It is up to them to understand or respond what you’ve said. If your words are made up of some big meaningless words which take your audience time to understand, then you’ve achieved your goal. Most people, who do not want to appear foolish, will happily nod and agree with you just to be seen that they’ve understood to avoid embarrassment. A bit of practice of talking crap and train yourself to reinforce people’s agreement by your own body language (like holding eye contact and gently nodding) will grant you a even more positive response. Of course, the voice level and everything will all come into play. Basically – sound convincing. Like so many other researches have found, actual words are a small part of communication. The body language, appearance, way of talking, etc all form a part of the overall communication process. The paced, non repetitive, confusing but yet convincing words are simply window dressing.
I always think of this when I do a podcast interview.
David Ricardo (19 April 1772 – 11 September 1823) was an English political economist, often credited with systematizing economics, and was one of the most influential of the classical economists, along with Thomas Malthus, Adam Smith, and John Stuart Mill. According to an 1838 book, The Great Metropolis, Volume 2, Ricardo had certain golden rules:
“As I have mentioned the name of Mr. Ricardo, I may observe that he amassed his immense fortune by a scrupulous attention to what he called his own three golden rules, the observance of which he used to press on his private friends. These were: 1. Never refuse an option* when you can get it, 2. Cut short your losses, and 3. Let your profits run on. By cutting short one’s losses, Mr. Ricardo meant that when a member had made a purchase of stock, and prices were falling, he ought to resell immediately. And by letting one’s profits run on he meant, that when a member possessed stock, and prices were raising, he ought not to sell until prices had reached their highest, and were beginning again to fall. These are, indeed, golden rules, and may be applied with advantage to innumerable other transactions than those connected with the Stock Exchange.”
Building off that consider a story sent in from a listener:
Michael,
I live in Guernsey, which is a small island with several single track lanes in the rural parishes. I was driving yesterday when I came across two cars which were almost bumper to bumper. (I knew the lady driving the car going in the direction we were traveling in, she is a robust lady who is the wife of a close friend.)
Anyway the man driving the other car refuses to back up a few yards to a passing point, and is already getting out of the car, to argue with her, when I drive up behind her, she gave him short shrift and by the time he had acquiesced and decided to reverse a car had come up behind me and he had a lorry approach behind him.
He eventually reversed making a meal of this – and the whole process took a lot longer than it would have if he had just swallowed his pride and reversed immediately.
The moral of the story is – cut your losses short, before they have the opportunity to get your ego involved and the whole situation escalates beyond sensible proportions.
Kind regards,
[Name]
True that!
More feedback in:
Wish you and Taleb did a podcast together. Thank you again for not wasting my time talking about damn beer, the now cool thing to fill time on podcast.
[Name]
Beer is the cool talking point, eh? I am so far out of the loop!
More feedback in:
Hi Michael,
Firstly a quick thank you for all your books, most of which I own and have reread multiple times. I can’t overstate how invaluable they have been in helping develop my views and approach to trading. And thank you for all the other open source sharing of knowledge that you provide in your podcasts and trend following update emails, again I really appreciated them both for the information provided and for the motivation and new trading ideas they have inspired.
I know your views on tertiary education, however I was given an opportunity to study a Masters in Finance and am now mid way through the degree. I’m exploring ideas to focus my research on for my final project and want to use the project as an opportunity to deepen my understanding of the CTA industry. Ultimately I’m aiming for my project to have real value to someone within the industry by sharing new knowledge and insights or ideally providing a solution to an issue they face.
You have a deep understanding of the CTA industry and an amazing network of contacts so I wanted to ask you whether there were any areas you felt required further research. Otherwise whether there were any problems the industry faced that you or your contacts had identified that I could research and challenge myself to solve. I want my research to be relevant and offer practical application and value to the industry, rather than being exclusively an academic exercise so I would appreciate any feedback you could share.
Kind Regards
[Name]
Cape Town, South Africa
Thanks for your nice words.
I don’t have a research idea for you. But going through my world of books and podcast will push serious ideas I suspect.
More feedback in:
BTW, I like how you say PhDs are not necessary…I have a PhD in Microbiology and Immunology and a law degree, bought into the whole education thing. It’s fine as far as making a living but definitely not what it’s cracked up to be.
“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.”
I wonder how many fundamental analysts could have “predicted” the market’s reaction to the Brexit news. It amazes me how many people still believe these “experts” on TV know what they are talking about. Hopefully some day people will learn that trend following is the only way to prepare for these 100-year floods that seem to happen quite often. Thank you for your podcasts and continuing to educate those who are looking for the right way to trade.
At a philosophical level, it is important to understand that while Brexit is in some respects novel and shocking (no country has ever left the European Union and many polls suggested that Britain would stay), from a broader perspective, Brexit is no different than any of the many exogenous geopolitical events that have periodically disrupted markets over the course of our 37 year investment history. As we see it, Brexit is simply another example of an “unexpected” event happening and investors overreacting to that event in such a way that it causes a great deal of immediate market turmoil.
The financial pain caused by this turmoil is real, it is not enjoyable and it is generally not good for the global financial system or people’s faith in that system, particularly in the short term. However over the long haul, as history has proven over and over again through world wars, revolutions, and numerous other types of global disruptions, markets are resilient and ultimately right themselves to some kind of equilibrium level. Accordingly, our approach to Brexit has been quite similar to the approach we’ve taken to numerous other global shocks and that is to plan, prepare and then “keep calm and carry on” as the British would say.
Last night I listened to your podcast episode 458 on continuous improvement. In the speech you mentioned if one is using trend following in day trading, go away! I was shocked to hear that. For the past two months, I am using the 15 min and 30 min charts on most of my commodities and futures trading. The reason is if I use the daily chart to trade, the N value (ATR) is too big and my capital is very limited, plus the difference in currency exchange between USD and MYR.
Moreover, in the same podcast you mentioned it is gambling staring at the computer screen whole day–which is what I might result in doing if I use the 15 min or 30 min chart. And trend followers don’t do that?
With regards,
[Name]
Malaysia
Not a new message from me about day trading. I say across my books. I say here.
You can’t effectively trade a 6 month move as a day trader, for example. You can find more here:
I said to myself: “There’s no way in hell I’m listening to a 4-hour episode with Tom Basso…” And then I got to hour 3 and said to myself “I owe you an apology” holy **** this is amazing. 95 pages into Trend Following and just bought The Complete TurtleTrader today… thank you for doing this amazing show.
The two things that go hand in hand are reward and risk.
Yes simple, I know, but for some reason in all my travels and conversations it is often lost on investors.
Its natural for most people to concentrate on just the reward side in terms of return when it comes to investing, but you cannot think about reward without thinking about the cost.
For example what is more desirable, a 20% return with a 50% drawdown, or a 10% return with a 10% drawdown?
Sadly its not just the hunt for return that suffers from this one sided thinking but also when it comes to comparisons of performance.
Once again, most people if a person underperforms point out that they could’ve made 10% a year by parking their assets in an index.
To that we say all well and good, but are you willing to accept a 50% drawdown for that return?
You see you just cant think about reward without thinking about risk in any scenario.
For us we use a simple measure of gain to pain, the MAR ratio.
This ratio simply looks at your compound annual growth rate and divides it by your maximum drawdown.
It is a great tool in measuring “performance” both internally and externally.
To put it another way, I like to ask people this question, “How much did you pay for that drawdown?”
Sadly for most people when they see a manager that gets a 15% return and another that gets 11% they instinctively want to go with the manager that gets the higher return, even when they see that his drawdown is substantially larger than the other managers!
The manager with a 15% return might have exceptional skills at finding long only stocks that outperform but due to high correlation and market risk he still has 50% drawdown giving him a MAR of .3.
Compare that to the manager who gets an 11% return and only has a 20% drawdown with a MAR of .55, the less obvious choice is the better one!
