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Trend Following RadioEp. 605: Interview with Mark Kritzman Interview

Mark Kritzman
Mark Kritzman

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My guest today is Mark Kritzman, a Senior Lecturer in Finance at the MIT Sloan School of Management, founding Partner and Chief Executive Officer of Windham Capital Management and serves as a senior partner of State Street Associates. Mark has written six books, his latest titled “A Practitioners Guide to Asset Allocation”. Mark began his career on Wall Street in 1974 and was immediately drawn toward systematic trading. At a time when there were not many quantitative traders, he was affectionately titled a “token quant” within his company. Over the years Mark has been an advisor to many funds.

The topic is his book A Practitioner’s Guide to Asset Allocation (Wiley Finance).

In this episode of Trend Following Radio we discuss:

  • Definition of an asset class
  • Actively managed portfolios
  • Passively managed portfolios
  • Time diversification
  • Portfolio diversification
  • The fallacy of large numbers
  • Leverage
  • Value at risk
  • Risk management
  • Fear and greed
  • Risk and reward
  • Exposure to risk

“Time does not diversify risk.” – Mark Kritzman

“If we just step back, start with the basics and move on from there, that introduces comfort to the investment process.” – Mark Kritzman

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Ep. 581: Collin Seow Interview with Michael Covel on Trend Following Radio

Collin Seow
Collin Seow

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My guest today Collin Seow is author of “The Systematic Trader: How I turned a $250,000 debt into profits through stock trading.” He also is a qualified Chartered Portfolio Manager with a Certified Financial Technician qualification, and a member of MENSA Singapore and Technical Analysts Society Singapore.

The topic is his book The Systematic Trader: How I turned a $250,000 debt into profits through stock trading.

In this episode of Trend Following Radio we discuss:

  • Different types of momentum trading
  • Singaporean perspective
  • Risk management
  • Position trading vs. swing trading
  • A sense of entitlement in today’s society

“At the end of the day it isn’t about having the right strategy, it’s about having the right mindset.” – Collin Seow

“If you don’t have an edge, how the hell are you suppose to play the game?” – Michael Covel

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Ep. 579: Mihir Desai Interview with Michael Covel on Trend Following Radio

Mihir Desai
Mihir Desai

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My guest today is Mihir Desai, the author of “The Wisdom of Finance: Discovering Humanity in the World of Risk and Return.” Mihir is currently the Mizuho Financial Group Professor of Finance at Harvard Business School and a Professor of Law at Harvard Law School. He wrote his new book with two goals in mind: 1. Demystifying finance and 2. Have people look at finance in a more inspirational way.

The topic is his book The Wisdom Of Finance: Discovering Humanity in the World of Risk and Return.

In this episode of Trend Following Radio we discuss:

  • Reputation of finance
  • Diversification
  • Risk management
  • Black-Scholes model
  • Behavioral phenomena
  • The magic of leverage
  • The asshole theory of finance
  • Agency theory

“Luck is a dominant force in your outcome. That is lost on a lot of people in finance.” – Mihir Desai

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Ep. 568: Steve Burns Interview with Michael Covel on Trend Following Radio

Steve Burns
Steve Burns

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Please enjoy my monologue Steve Burns Interview with Michael Covel on Trend Following. This episode may also include great outside guests from my archive.

In this episode of Trend Following Radio:

  • Trend following
  • Taking a loss
  • Risk management
  • Proper psychology
  • Mindset

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Want to learn more Trend Following? Watch my video here.

Ed Seykota on Trading Heat

Ed Seykota adds:

Seasoned traders know the importance of risk management. If you risk little, you win little. If you risk too much, you eventually run to ruin. The optimum, of course, is somewhere in the middle.

Placing a trade with a predetermined stop-loss point can be compared to placing a bet: The more money risked, the larger the bet. Conservative betting produces conservative performance, while bold betting leads to spectacular ruin. A bold trader placing large bets feels pressure — or heat — from the volatility of the portfolio. A hot portfolio keeps more at risk than does a cold one. Portfolio heat seems to be associated with personality preference; bold traders prefer and are able to take more heat, while more conservative traders generally avoid the circumstances that give rise to heat. In portfolio management, we call the distributed bet size the heat of the portfolio. A diversified portfolio risking 2% on each of five instrument & has a total heat of 10%, as does a portfolio risking 5% on each of two instruments.

Our studies of heat show several factors, which are:

1. Trading systems have an inherent optimal heat.

2. Setting the heat level is far and away more important than fiddling with trade timing parameters.

3. Many traders are unaware of both these factors.

Don’t know yet? Dig in.

Enjoy one of my interviews with Ed Seykota here.


How can you move forward immediately to Trend Following profits? My books and my Flagship Course and Systems are trusted options by clients in 70+ countries.

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Trend Following is for beginners, students and pros in all countries. This is not day trading 5-minute bars, prediction or analyzing fundamentals–it’s Trend Following.

Risk Management Lessons from the Valeant Saga

The case for clearly defining your exit strategy

By Ross Hendricks

It pays to pack a parachute.

A host of high profile money managers learned that the hard way recently when their investments in Valeant Pharmaceuticals reversed course.

For example, the Sequoia fund returned four times as much money as the stock market from 1970 through July 2015. What’s more, they did it with less volatility and lower drawdowns.

But Sequoia Fund’s brilliant performance came to a halt in the last year because of a single investment in Valeant.

At the peak, Valeant made up more than 30% of Sequoia’s portfolio. When Valeant began losing altitude, Sequoia’s managers failed to consider an exit plan. Instead of pulling the ripcord and exiting their positions, they added 1.5 million shares at the end of 2015 – only to see the stock nose dive a further 70%.

Valeant
Valeant

Trust the process

The lesson here is clear. You won’t always be right, and you must have a process in place for the inevitable times when you will be wrong.

A rules-based investment process like trend following establishes predefined exit points before entering each position. This process defines exactly how much capital is at risk with each position across the portfolio. That allows you to cut losing trades quickly – before they ever have the opportunity to grow into career-ending losses.

Here’s how a simple trend-following strategy could have worked on Valeant:

Using a 200-day moving average would have gotten you into the stock during much of its move higher through 2013 and 2014. Then you would have gotten out of the stock above $200 per share – before it lost nearly 90% of its value.

With this kind of strategy, you will give up some profits when stocks fail to trend higher, like in 2014. But giving up this relatively small upside allows you to systematically avoid disastrous losses.

That’s a small price to pay for a softer landing.

Valeant
Valeant

Ross Hendricks is a senior portfolio consultant.


How can you move forward immediately to Trend Following profits? My books and my Flagship Course and Systems are trusted options by clients in 70+ countries.

Also jump in:

Trend Following Podcast Guests
Frequently Asked Questions
Performance
Research
Markets to Trade
Crisis Times
Trading Technology
About Us

Trend Following is for beginners, students and pros in all countries. This is not day trading 5-minute bars, prediction or analyzing fundamentals–it’s Trend Following.

Ep. 385: Paul Slovic Interview with Michael Covel on Trend Following Radio

Paul Slovic Interview with Michael Covel on Trend Following Radio
Paul Slovic

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My guest today is Paul Slovic, a professor of psychology at the University of Oregon and the president of Decision Research. Decision Research is a collection of scientists from all over the nation and in other countries that study decision-making in times when risks are involved. He study the psychology of risk and decision making. Current interests are motivating action to prevent genocides and nuclear war.

The topic is his paper Perception of Risk.

In this episode of Trend Following Radio we discuss:

  • The psychometric paradigm of risk perception
  • Balancing risk vs. reward
  • The concept of affect heuristics
  • How the media sways the public’s risk assessment
  • Fast vs. slow thinking
  • Risk in the context of decision making

“Bad is stronger than good. If something goes wrong in a system it decreases our trust in the management of that system more than when something goes right. Something goes right, it doesn’t really boost our trust and confidence. It’s the negative that outweighs the positive, and the negative is being conveyed to us much more frequently and forcefully through the media than the positive is.” – Paul Slovic

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