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Ep. 608: Ed and Marty Give Clues with Michael Covel on Trend Following Radio

Ed and Marty Give Clues with Michael Covel on Trend Following Radio
Ed and Marty Give Clues with Michael Covel on Trend Following Radio

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Michael explores meeting the achievers, great coaching and brings back two trend following legends from the archives–a must listen.

In this episode of Trend Following Radio:

  • Meeting the achievers–how?
  • Coaching
  • Trend Following Legends

Mentions & Resources:

Listen to this episode:

Paul Tudor Jones: The Moving Average Wins

Wisdom:

“My metric for everything I look at is the 200-day moving average of closing prices. I’ve seen too many things go to zero, stocks and commodities. The whole trick in investing is: ‘How do I keep from losing everything?’ If you use the 200-day moving average rule, then you get out. You play defense, and you get out.” –Paul Tudor Jones, as interviewed by Tony Robbins

You won’t find the answer on TV. More on the Paul Tudor Jones book can be found in this aeticle.

How Do the Famed Macro Hedge Funds Really Trade?

How does Ray Dalio, George Soros and Paul Tudor Jones trade? The other big macro traders you read about in the books? How do they make their money? They are all fundamental guys who have big opinions about the directions of major markets (currencies, bonds, stocks, metals, energies, etc.) and use all of their intelligence to make the right bets year after year decade after decade? That’s their process?

Hold that thought.

How do trend followers trade? That answer is the foundation of my books. How can you be sure how trend followers trade? Their performance data for starters. You can see their performance data. You can look at the markets moving and see where the profits originated. And over the years the performance of trend following traders can also be compared to other trend followers where you can see the correlation of their performance. So not only does the story of what trend followers do to make money make sense, you can see the proof.

Confidence builder 101.

Now back to the big macro traders (many of which are positioned as fundamental traders; Dalio, for example, says he is 100% systematic using only fundamentals) that don’t hold themselves out as trend followers, but seem to trade the same markets making money off the big moves across all markets (just like trend following traders). Traders like Dalio, Soros, Simons, etc. are harder to analyze as their performance numbers are not as public (like trend following traders). Plus, even when the big macro traders give hints of what they do–are their words believable? You mean I should just accept that the big macro funds trade using fundamentals? Trust the media accounts? Trust the press releases?

Think about it this way. Consider “Argo” the winner of 2013 Oscar for Best Film.

What did Roger Ebert say about the film?

The craft in this film is rare. It is so easy to manufacture a thriller from chases and gunfire, and so very hard to fine-tune it out of exquisite timing and a plot that’s so clear to us we wonder why it isn’t obvious to the Iranians. After all, who in their right mind would believe a space opera was being filmed in Iran during the hostage crisis?

After all, who in their right mind would believe the most famous macro hedge funds promoted for decades as fundamentally-based are really classic technical trend followers? Look at it this way: If the American government in the late 1970s could pull off the Canadian Caper (the basis of the film Argo) with fantastic subterfuge, isn’t it possible that some of the richest men on the planet could disguise their trading technique to sell a story to investors? Do I know this to be 100% true? No, but draw your own conclusions, do your own homework and try hard to not blindly accept press accounts.

Quote from Patton: “Rommel, You Magnificent Bastard. I Read Your Book!”

Paul Tudor Jones as quoted in the Foreword to The Alchemy of Finance:

In Patton, my favorite scene is when U.S. General George S. Patton has just spent weeks studying the writing of his German adversary Field Marshall Erwin Rommel and is crushing him in an epic tank battle in Tunisia. Patton, sensing victory as he peers onto the battle field from his command post, growls, “Rommel, you magnificent bastard. I read your book!”

Every day I say the same thing to myself.

patton and rommel
The German General Rommel. In the film of the same name Patton declares to have read the Rommel book.

The Erwin Rommel book in question is most likely to be Infantry Attacks, published in the middle of the 30’s as ‘Infanterie greift an’. It discusses the Stoßtruppen tactics used in the first world war. Reading as many books as possible on a subject, especially by your competitor, may just give you the advantage you need to win.

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