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

Mihir Desai
Mihir Desai

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Mihir Desai is 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. After each financial bubble bursts, the public repeatedly retreats to stereotypical ideas of finance. Mihir doesn’t want to wait for a generational shift to take place for finance to be looked at in a positive light. Financial literacy has gone by the way side in schools. How do you get children to think about basic risk taking? How do you think about protecting yourself? How do you buy insurance? How do you pool your money as a family? He hopes his book may help change some views and enlighten.

Mihir explains why diversification isn’t important just in the markets, it is important to diversify in all aspects of life. As an athlete you should workout all your muscles not just pinpoint one area. Or if you are looking at your health, you should look at all aspects of your health, not just what you are eating or how you are sleeping. Broaden your outlook and diversify your time and energy accordingly.

What is Agency theory? If you give someone money to invest, why do you get the money back? Arguably this is the biggest problem in modern finance. 150 years ago most people were self employed. Nowadays we appoint people as our “agents”. We have a system where we give money to people we don’t know and expect them to take care of it. Michael and Mihir end the conversation talking about people finding their path and true happiness in life rather than doing what their parents or society has told them to do.

In this episode of Trend Following Radio:

  • 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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Trading Food for Thought: August 10th Edition

Food for thought:

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Trading Food for Thought: August 6th Edition

Food for thought:

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Trading Food for Thought: August 3rd Edition

Food for thought:

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“…the best entry system?”

Feedback in:

Dear Michael,

I recently finished your new book, Trend Following. This is your best work to date and I thoroughly enjoyed reading it!

I was hoping to get some guidance from you regarding the best entry system. In chapter 23 of your book, you do a great job of comparing the 50-day channel breakout to the 10X100 simple moving average crossover. It appears to me that the moving average results were superior to the channel breakout method. While both methods have demonstrated good historic results, which method do you recommend today?

Thanks and best regards,
[Name]

It’s not an either or answer.

Both work.

Please don’t think my answer is curt or blunt, it’s not!

Trading Food for Thought: July 27th Edition

Food for thought:

Enjoy!

Note: My newest 2017 edition of Trend Following has an audio book version out now.

“Systematic trend-following may well be the best kept secret in finance…”

Feedback in:

Hi Michael:

I’ve just submitted a brief review to Amazon UK [for Trend Following]. I’d do the same for Amazon.com but the site keeps redirecting to the UK website. If there’s some way round this I’d be happy to post it there too. Feel free to use this in any way that might be helpful.

“Systematic trend-following may well be the best kept secret in finance. A friend of mine recently crunched the numbers on the best funds in the world. To make the final cut, a fund had to have an audited 20 year track record, and over that period also had to have earned net annualised returns of at least 20%. That’s an almost impossible hurdle. 11 funds made the final cut. Six of them were trend-following funds.

It’s not just about returns, it’s also about diversification. Trend-following funds tend to zig when other, more traditional funds, zag. And in 2008, for example, one of the worst years for financial markets in living memory, trend-following funds generated high positive returns. Given the egregious overvaluation of most stock and bond markets today, trend-following funds almost certainly have a role to play in anyone’s portfolio.

Intrigued? Want to know more? This book will likely become the bible with regard to the trend-following sector. In writing it, Michael Covel has, once again, acted as the ambassador for the industry. A great job, and an excellent introduction to one of the most fascinating – and successful – forms of trading out there.”

Best
Tim Price

Thanks Tim!