Michael Covel uses Richard Feynman to help break down the scientific method. Michael reads quotes from Feynman explaining it, then uses the scientific method to look at the recent actions of Tiger Woods highlighted in the news. Investing, money, and sports figures are examples of where people those sight of reality. Most do not make decisions based on the scientific method. They want to think that their sports hero is still a hero or they want to think they have not lost money in the markets just because they have not sold. People just want to be right. Ego and arrogance run amok.
“Should I invest in X?” is a question often heard in the investment world. Coming from the general public it is an especially strong cry out. The answer to that question is simple, although not obvious to many.
What you invest in doesn’t matter; it’s the strategy that matters. Markets are instruments: you can choose the best market and instrument for your purpose, but ultimately it is your strategy for using that market/instrument that determines the outcome.
In this commentary Michael Covel curates several excerpts from Richard Feynman to Paul Samuelson and creates a narrative to illustrate the contrast between fundamental and technical traders. Covel also makes a case study of Commodities Corporation – the hedge fund/incubator that was founded and run by some of the biggest trend following heavyweights of our time.
One of the most notable aspects of Commodities Corporation’s success is their pivot from their original fundamental strategy to a trend following strategy. Though the company is not talked about much today (bought by Goldman Sachs years back), their trend following legacy still permeates the investing world.
In this episode of Trend Following Radio:
Defining the exact risks involved in a trading strategy
The importance of liquidity: entering and exiting markets with ease
What we can learn from the history of Commodities Corporation
How the scientific method applies to trading logic
How Fundamental Analysis differs from Technical Analysis
There is often misunderstanding among the general public when it comes to probability and risk. For example, 20% of Americans believe they are in the top 1% of income earners, or are soon to be there. This is, of course, statistically impossible.
Statistical thinking needs to have a bigger focus in our society, especially since the amount of data we have to deal with on a daily basis is constantly increasing. We need systems to help us sift through the noise.
Today’s episode is a selection of excerpts from some of the brightest minds of today and yesterday, and their takes on systematic and statistical thinking. Michael Covel provides the commentary. Though this is not strictly a trend following episode, all the material is very much applicable and relevant for anyone in trading or business.
From Penn Jillette (of Penn & Teller) to Gerd Gigerenzer, to Daniel Dennett, to Richard Feynman, this episode is permeated with wisdom to help you cultivate a trend following mindset.
In this episode of Trend Following Radio:
Having a foundation, a system to get through the noise
Developing a statistical mindset
Understanding risk and knowing how to deal with it
Getting “under the hood” of any trading system
Richard Feynman’s lecture on computer heuristics
What computer heuristics have to do with systems trading
A trait that geniuses have in common
The importance of isolation and concentration in learning
“The most important thing is to feel about things you should feel about, and think about things you should think about.” – Penn Jillette
Trend followers trade the “price”. It’s the number that can’t be faked, the real indicator of the past, now and the future. Richard P. Feynman adds:
“You can know the name of a bird in all the languages of the world [think of all those so-called market fundamentals], but when you’re finished, you’ll know absolutely nothing whatever about the bird…So let’s look at the bird and see what it’s doing — that’s what counts.”
What is the market doing right now? That’s what counts. The price.
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