Today on Trend Following Radio Michael Covel starts off quoting famed trader Stanley Druckenmiller. Stanley shares his views on betting big and diversification. Michael expands on Stanley’s views by stressing how crucial diversification is to a portfolio’s success. You must be open to many markets to handle your risk management. And when markets start to go your way, you have to “bet the ranch.” When one market in your portfolio takes off you need to go big and make the most of it. This is where your profits will come from. Note: Stanley Druckenmiller had two big mentors in his life. One of the two influences was George Soros. The two have been business partners for years now and have made a fortune trading trends. These men do not tout themselves as trend following traders but Michael describes them as “kissing cousins” to trend following.
Michael then reads an article from Josh Brown titled, “Everyone is a closet technician.” In the article, Josh claims everyone is a technician. What is a technician? Josh defines them as, “Someone who cuts right to the chase and studies actual prices and behavior instead of puzzling over the causes of prices and behavior like everyone else.” He says that investors only pay lip service to fundamentals. Technicians find truth and meaning in price and the action that is currently happening. They respect the idea of sentiment. Sentiment is how valuations come to be. Prices change and with that the truth is constantly changing. Technicians do not waste their time with the “Why” question. Hindsight bias is a slippery slope. Josh says, “Fundamentalists will share their reasons with anyone willing to listen. The technicians will take these reasons with stride and focus on what is happening, not ‘why.’ The ‘why’ will always be much more apparent after the fact. After it doesn’t matter.” Price will do its thing regardless of what people predict. Michael doesn’t believe the people on CNBC throwing out predictions are technicians. Trend followers are the only people who fit the mold of what Josh describes in the article.
In this episode of Trend Following Radio:
- What is a technician?
- Risk management
- Trading off price
“Price creates the reality for investors because investors take their behavioral cues from price and the media fashions their headlines from it.” – Josh Brown
Mentions & Resources:
- Stanley Druckenmiller
- George Soros
- “Everyone is a closet technician”
- “Market Wizards”
- Hindsight bias
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