Wall Street always overflows with Holy Grails—those predictions, strategies, secret formulas, and genius interpretations that promise otherworldly knowledge and riches if you just trust. They are most often delivered in the investment world through a black box—a closed system where the inputs and outputs are known, but the internal analytical workings are left top secret, only for the high priests’ consumption. Black box positioning goes far beyond markets, however. It is not surprising in a modern, interconnected age that when you take a very smart guy, rows of computers, proprietary formulas, and code that only the one smart guy can see, and then add a string of successful forecasts, boom—you end up with a nerdy, made-for-social-media superstar who suddenly makes prediction cool for the proletariat.
“This has basically never happened before in my whole life. I can remember 1½ percent rates. It certainly surprised all the economists. It surprised the people who created the life insurance industry in Japan, who basically all went broke because they guaranteed to pay a 3% interest rate. I think everybody’s been surprised by it, including all the people who are in the economics profession who kind of pretend they knew it all along. But I think practically everybody was flabbergasted. I was flabbergasted when they went low; when they went negative in Europe – I’m really flabbergasted. How many in this room would have predicted negative interest rates in Europe? Raise your hands. [No hands go up]. That’s exactly the way I feel. How can I be an expert in something I never even thought about that seems so unlikely. It’s new territory…
“I think something so strange and so important is likely to have consequences. I think it’s highly likely that the people who confidently think they know the consequences – none of whom predicted this – now they know what’s going to happen next? Again, the witch doctors. You ask me what’s going to happen? Hell, I don’t know what’s going to happen. I regard it all as very weird. If interest rates go to zero and all the governments in the world print money like crazy and prices go down – of course I’m confused. Anybody who is intelligent who is not confused doesn’t understand the situation very well. If you find it puzzling, your brain is working correctly.”
Shout out to Charles Munger, age 91, vice chairman of Berkshire Hathaway.
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.
Michael, I just wanted to take a moment to thank you for your work. I have read most of your books and they are exactly what I needed. You see I am a veteran of the brokerage business (30 Years) and I have always known intuitively that something about the entire business was, and is, a lie. Analysts have no skin in the game, management doesn’t care if you make money, it’s all about assets under management that’s why they will never say sell. “Just buy more.” You see I used to look at CFA’s as the smartest people in the room. Now I know that they are really just financial weathermen trying to predict the future. Something that can’t be done. I have adopted for my clients a simple trend following rules based strategy, and it amazes me how hard it is to change minds. It is so simple they somehow think it can’t work. But I will keep plugging away and I know you will to. The business needs to change even the other brokers in my office look at me like a freak when I tell them to stop listening to analyst’s and “stop buying stocks that are going down.” Old habits die very, very hard. Just wanted to say thanks.
Looks like this feedback was inspired by my recent interview here.
Saturday’s Powerball drawing is a staggering $320 million. With such an enormous sum at stake, who better to turn to then Richard Lustig — seven-time lottery grand prize winner and author of “Learn How To Increase Your Chances of Winning The Lottery” — for tips on how to win.
Lustig says he’s been playing the lottery for about 25 years. He claims to play every day, but in the first few years, he says he was not winning very much.
So Lustig decided to come up with a method, which he claims has helped him win seven grand prizes, including his last jackpot of $98,000 two-and-a-half years ago.
Lustig says a guaranteed way to increase your chances of winning the lottery is simply by picking your own numbers versus using the “quick-pick” ticket option.
“It doesn’t matter how you pick your numbers, once you pick your set of numbers, research them to know if it’s a good set of numbers and stick with them. There’s no magic method to picking your numbers, I get emails every day asking. One number doesn’t win the jackpot, a set of numbers does,” says Lustig.
“The lazy way out is to buy quick-picks. The computer picks out the numbers. Don’t play quick-picks. Quick-picks are the worst thing you can do, you are playing with the worst odds,” he says.
Lustig believes that what matters is whether the set of numbers people pick is a good one or not. To know this out however, one has to research the numbers in a method only taught in his book, which, as we found out, he guards very closely … unless you buy the book.
“The research is not that easy, it takes some time. Anything in life that’s worth having takes time,” says Lustig.
Another important part of playing the lottery, Lustig cautions, is setting a budget of how much you can afford on tickets.
“Don’t get lottery fever, don’t use your grocery money, or your rent money. Remember one thing, if there is one winner on Saturday night, there will be millions of losers, don’t be that person Sunday morning worrying about how you can pay back the money you spent,” says Lustig.
One secret Lustig will share is that he believes picking the same numbers regularly, even if you are losing, gives you more edge in the next drawing.
Lustig says he will absolutely be playing Saturday’s Powerball. But when asked what numbers he’ll be playing, he wouldn’t share.
Please enjoy my monologue Expanding Your Thinking with Michael Covel on Trend Following Radio. This episode may also include great outside guests from my archive.
In this episode of Trend Following Radio:
Why embracing uncertainty pays big
Trend following: it’s human nature
Losses: acceptable when you strategize to cover them
The sunk cost fallacy
Opening your mind to alternative ways of thinking
The mistake of blindly accepting the word of “authorities”
“I remind you there is a new kind of special occupation. I refuse to call it a discipline or a field of study. It’s called futurism. The notion here is that there is a way to study trends and know what the future holds. That would indeed be valuable if it were possible. But it isn’t possible. Futurists don’t know any more about the future than you or I. Read their magazines from a couple years ago and you’ll see an endless parade of error.” – Michael Crichton