My guest today is Tim Koller, a partner in McKinsey’s Stamford, Connecticut office, where he leads a global team of corporate-finance expert consultants. Tim has served clients globally on corporate strategy and capital markets, mergers and acquisitions transactions, and strategic planning and resource allocation. For over 90 years, McKinsey & Company has helped corporations and organizations make substantial and lasting improvements in their performance. Through seven editions and 30 years, Valuation: Measuring and Managing the Value of Companies, has served as the definitive reference for finance professionals, including investment bankers, financial analysts, CFOs and corporate managers, venture capitalists, and students and instructors in all areas of finance.
The topic is his book Valuation: Measuring and Managing the Value of Companies.
In this episode of Trend Following Radio we discuss:
Recession and Recovery
The first half of 2020
Valuation: Measuring and Managing the Value of Companies 1st Edition
Getting out at the peak of any trade is luck. Your goal in trading should be to have a solid trading process. Guessing the peak or bottom of a stock is not a process, it is luck. Eventually you will go broke. Michael pulls a review into the podcast and adds commentary. This reader claims that he uses trend following and adds fundamentals as he sees fit. Smack down ensues.
Milton Friedman is one of Michael’s favorite dead guests to bring on the podcast. He takes complicated subjects and breaks them down clearly. Today, Michael curates two interviews between Phil Donahue and Milton Friedman. These interviews were recorded back in the 1980’s, but many of the points made are more relevant today than ever. Milton foreshadows Uber, talks about the deep state (without mentioning the deep state), brings up airline service and monopoly. His solutions to problems in government 35 years ago were to cut government spending, hold monetary growth back and cut regulations. The same solutions to government are at the forefront of American politics today.
In this episode of Trend Following Radio:
Liberty in trading
Unknowingly supporting private interests
How to prevent monopoly
“I don’t believe government is the mother of children, I don’t believe it is the father of children, I believe government is a way in which you and I and our fellow citizens achieve certain things jointly that we can’t achieve separately.” – Milton Friedman
“The private market system is a system of profit and loss. And the loss part is just as essential as the profit part.” – Milton Friedman
Michael brings football into the podcast today. He starts off playing a press conference clip with Tony Romo and his response to being injured and falling from his spot as the starting quarterback.
Michael moves on to Donald Trump and what government should be. There are pro’s and con’s to Trump becoming President, but the bottom line is that people voted against the current political system. 50% of Americans decided to roll the dice and see what happens.
Big picture: Your trading strategy must not be based on who the President might be. Just follow the trend.
In this episode of Trend Following Radio:
Donald Trump as President
Trading off the trend, not fundamentals
“They said the market would crash if Trump won, and the market didn’t. But who are ‘they’? That should be the question.” – Michael Covel
Michael Covel starts off reading an email from a listener asking, “Do all trend followers use spreadsheets alone to trade? Or do they also use charts for visualization? I am having a hard time trading using a spreadsheet alone and I tend to need to see a chart. It provides the visualization I need.” Michael responds saying “What does the visualization do? Are your trading decisions based on the price or visualization of a chart?” You don’t need charts or multiple monitors streaming at a time. That is not how the best traders trade.
For the remainder of the episode Michael leads with a presentation from Gregg Popovich, the head coach of the San Antonio Spurs basketball team. Gregg talks about organization, discipline, player relationships (between players and the coach and between players and players), and the importance of being comfortable enough in your own skin to take advice from others, among many other subjects. You can’t begin to execute a trading rule until you have sound philosophical grounding. It starts with the right mentality and imagination, and Gregg is a perfect example of this. There are countless lessons to be learned listening to Gregg’s presentation. His outlook is applicable to anything you could want to do in life whether it be starting a business, trading, or running a marathon.
In this episode of Trend Following Radio:
Why cultivating your second string is so important
Foreign players vs. U.S players
Importance of honesty
Having the same standards for everyone
Importance of humility
A different perspective on goal setting
Looking at the big picture
“It’s a journey. It’s a process. It’s difficult. The joy is in the process. The joy isn’t in the final culmination. That fades away pretty quick… The journey is what you are most proud of.” – Gregg Popovich
Today on Trend Following Radio Michael Covel speaks with Steve Kamb. Steve is the author of “Level Up Your Life: How to Unlock Adventure and Happiness by Becoming the Hero of Your Own Story” and has built a career in the niche of Nerd Fitness. He gives great insight on how to reach a specific audience and gain a loyal following. He knew he was horribly mismatched in his career and had to make a drastic change. Not wasting much time, Steve moved to Atlanta and took a job making half the money and loved it. It was at this job where he started getting into fitness and creating a website to help others. His company, Nerd Fitness, soon turned into a full time job.
Michael starts the podcast asking, “What is your definition of a nerd?” Steve quotes Wil Wheaton, “A nerd is not what you love but how you love it.” He elaborates saying that you could be a comic book nerd, medical school nerd, Star Wars nerd, etc. Steve’s outlook on fitness is about keeping a healthy lifestyle while keeping your other passions alive. It took Steve years to get his fitness regime down. He knew there had to be more people that were struggling to find the right information when it came to fitness. Steve started writing about sound strategies to build solid plans to get on the right fitness path. He uses movie and comic book references to help get his clients motivated and relate more to what he is teaching.
Steve also started looking at his life, and his clients lives as if they were on their own “hero’s journey.” He calls it the “hero’s call to action.” This journey is cyclical. You go out and come back and it is never ending. He shares stories of superhero’s like Clark Kent/Superman or Indiana Joans/archeology professor. Regular men that go out time and time again on their hero’s journey, only to return back to reality after accomplishing what they set out to do. His book, “Level Up Your Life,” is about re-framing ones life in a hero’s journey type of way. Strength training, yoga, live action role playing, etc. could all be things that motivate you to get off the couch and start your own hero’s journey.
Michael and Steve finish up sharing tips on how to travel smarter. Steve says that when it comes to jet lag, what works best for him is exercising immediately after traveling. Also, buying the cheapest ticket can ruin the first few days of a trip by adding to your jet lag.
In this episode of Trend Following Radio:
Traveling domestic and internationally
The hero’s journey
Marketing to a niche
What is a nerd?
Tailoring your fitness needs
“Surround yourself with people that are challenging you and making you better.” – Steve Kamb
“Life is meant to be lived on your own terms.” – Michael Covel
[Trend Following] fills a void in a marketplace inundated with books about buying low and selling high, index investing, and all other types of fundamental analysis, but lacking any resource or, for that matter, practically any reference to what I believe is the single best strategy to consistently make money in the markets. That strategy is known as trend following. Author Van Tharp has described it succinctly:
“Let’s break down the term ‘trend following’ into its components. The first part is ‘trend.’ Every trader needs a trend to make money. If you think about it, no matter what the technique, if there is not a trend after you buy, then you will not be able to sell at higher prices … ‘following’ is the next part of the term. We use this word because trend followers always wait for the trend to shift first, then ‘follow’ it.”
Trend following trading seeks to capture the majority of a market trend, up or down, for profit. It aims for profits in all major asset classes—stocks, bonds, currencies, and commodities. Unfortunately, however simple the basic concepts about trend following are, they have been widely misunderstood by the public. My desire to correct this state of affairs is what, in part, launched my research. I wanted to be as objective as possible, so I based my writing on all available data:
• Trend followers’ published words and comments over the last 30 years
• News accounts of financial disasters
• News accounts of the losers in those financial disasters
• Charts of markets traded by trend followers
• Charts of markets traded by losers in the financial disasters
If I could have written books comprising only numbers, charts, and graphs of trend following performance data, I would have. However, without any explanation, few readers would have appreciated the ramifications of what the data alone showed. Therefore, my approach to writing Trend Following became similar to the one Jim Collins describes in his book Good to Great, in which a team of researchers generated questions, accumulated data in their open-ended search for answers, and then energetically debated it.
However, unlike Collins who was writing about generally well known public companies, trend followers form a sort of underground network of relatively unknown traders who, except for an occasional article, the mainstream press has virtually ignored. What I have attempted to do is lift the veil, for the first time, on who these enormously successful traders are, how they trade, and what is to be learned from their approach to trading that we might all apply to our own portfolios.
Trend Following challenges much of the conventional wisdom about successful trading and traders. To avoid the influences of conventional wisdom, I was determined to avoid being influenced by institutionalized knowledge defined by Wall Street and was adamant about fighting “flat earth” thinking. During my research, starting with an assumption and then finding data to support it was avoided. Instead, questions were asked and then, objectively, doggedly, and slowly, answers were revealed.
If there was one factor that motivated me to work in this manner, it was simple curiosity. The more I uncovered about trend followers, the more I wanted to know.
Feedback from a listener:
I’ve been listening to your awesome podcast for a few months now and it has intrigued me quite a lot. Thank you so much for putting it up out there.
I never really thought about money before. I’m one of those suckers who has been keeping the money in the bank, too skeptical of financial advisers, too afraid and ignorant of the stock markets. At some point obviously I started to realize that I needed to be in control of my savings and start planning my future. I’ve been reading a lot about the markets, but nothing makes as much sense as your words.
Despite understanding your message (at least I think I do), I actually don’t know how to exactly implement that way of thinking on a personal strategy. I am a dentist living in London, 2 small kids at home, so not a lot of time on my hands. I have been putting some of my savings on a buy and hold strategy with Vanguard equity funds. But without a doubt I am dependent on market timings and on the hope things will always “get better.” And that doesn’t seem to be very sensible.
So, I am contacting you in the hope you could help me to have some more clues on how to start on a trend following strategy that could fit my circumstances.
With great admiration,
My father is a dentist. I feel a kinship! Good news and bad news: Good? Trend following can help anyone. Bad? Need to do some prep. Here are some starters: Start Now and an Intro Video.