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A Fake Price Is Still A Price

Feedback in from my assistant Michelle:

I was watching survivor last night with my mom and my mind was blown when the person who got kicked out said this:

I was very confident that whether we won or lost [the challenge] things would work out for me. I really don’t know what happened that made my tribe want to vote me out tonight. I don’t think the numbers lied to me, it’s the people that lied to me and when you count fictitious promises you get a fictitious total.

She was saying that she got kicked out because of the people, not the “numbers”, but the people are the numbers. They are who vote. Just like saying you don’t lose money because of what the market does, you lose money because of what other people do to make the market go up and down. Just trying to blame your loses on the “people” rather than “the numbers.” It’s all the same thing. The game is made up of people who make up the numbers.



What If I Were Starting Over?

Feedback in:

Good afternoon Mr. Covel,

I hope this message finds you well. My name is [Name] & I live in Sykesville, MD which is about 25 min’s south west of Baltimore.

I’m reaching out b/c I would like to learn how to conduct the research you’ve conducted & continue to do on trend following. I don’t know where to begin. Would you mind sharing what you would do today knowing what you know if you had to start all over again? Many thanks in advance for your time & thoughts.


P.S. I love your podcasts!

I have actually put that here.

“Improve Our Odds While Controlling the Risk”

Feedback in:

Hi Michael,

I have read one of your books, bought your movie, “/broke/”, from, and have been a podcast listener/fan for over 2 years now. I am a William O’Neill-style, long [term] stock trader, but as a computer programmer and system architect by trade, I am refining my own trading style on more of a trend following rooted philosophy. That is why I cannot stop listening to your podcast. It is great from your insight/commentary to the top-notch and interesting guests that you showcase! I would say it rivals the quality of TED Talks for me.

Anyway, I appreciate you making this information available so those traders like me can continue to learn and improve our odds while controlling the risk. Take care!


Thanks for the nice words.

Use a computer rather than your brain…

CNBC: One of the U.K.’s most successful hedge fund managers [David Harding in pic] has spoken of the benefits of using the “emotionless systematic approach”.

Covel: That’s another way of saying trend following.

David Harding
David Harding


Ep. 354: The Babe Ruth Effect: Frequency v. Magnitude with Michael Covel on Trend Following Radio

The Babe Ruth Effect: Frequency v. Magnitude with Michael Covel on Trend Following Radio
The Babe Ruth Effect: Frequency v. Magnitude with Michael Covel on Trend Following Radio

Michael Covel discusses one of Michael Mauboussin’s white papers, “The Babe Ruth Effect”. This paper first caught Covel’s eye over a decade ago. It makes the critical point that big wins can pay for small losses (expected value thinking). Covel discusses the expected value mindset and how it relates to other fields, especially venture capital through a blog entry by Chris Dixon. Next, Covel connects a podcast episode titled “Good Bubbles, Bad Bubbles, and Where Unicorns Come From” with Bill Janeway, a venture capitalist and partner at Warburg Pincus. Covel shares a few excerpts covering liquidity and survivorship bias (all in this frequency v. magnitude mindset and all relating back to the Babe Ruth effect). Covel brings these topics to trend following as well.

Listen to this episode:

Trend Following Is Entrepreneurial By Definition

Feedback in:

Michael, I was just listening to your podcast with Jon Boorman and it was so fitting. I had just connected with Jerry Parker on LinkedIn and was in the middle of contacting him about getting some feedback for someone just starting out. I’d love to get some feedback from you too. I would love to find a business partner who could put up the capital while I put in the “sweat equity”. I want to do my research and develop my system and eventually start my own fund/CTA/RIA. I would, if course, be splitting my fees with my business partner. First, does that sound like a reasonable way to go about getting started. Second, how do I go about making that proposition appealing to potential partners? My goal is to one day be interviewed on your podcast as someone who has been successful in trend following and to give back to the trend following community as Jerry Parker seems to be doing.

Looking forward to your response.

Devour my books and podcast then see if you ask the same question! Also, read Seth Godin’s blog. The last few years of his entries should be an entrepreneurial eyeopener.

PIMCO: Trend Following Through the Rates Cycle


Some investors have been concerned that the historical success of trend following–a quantitative strategy that seeks positive returns by capturing momentum across major asset classes–would unravel in a period of range-bound or rising interest rates. PIMCO’s New Neutral thesis anticipates that interest rates will remain lower for longer. Eventually, however, rates are likely to rise from today’s rock-bottom levels. Even so, history shows that trend following strategies have the potential to generate positive returns amid rising rates–and indeed, across all interest rate environments. Most asset classes have benefited from 30 years of falling interest rates, as future cash flows have been discounted at steadily lower rates, boosting present values. Accordingly, passive long-only strategies now face a challenge in generating positive returns in a period of range-bound–or worse, rising–rates, which could partially reverse this discounting windfall. Trend following strategies, which take long or short positions across equity, bond, currency and commodity futures markets consistent with trends in these markets, rode the long downward trend in rates and often profited. However, unlike most passive strategies (and many active ones), trend followers have no fixed directional bias and can short any and all markets that are falling. By their nature, trend followers will often miss turning points. But whether markets are rising or falling, if trends are persistent and strong, trend following strategies are designed to seek profits.


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