Trend following trading and momentum trading are not the same style. Consider two papers from AQR: 1 (PDF) and 2 (PDF). The terms might imply something similar, but the strategies are wholly different.
Please enjoy my monologue “Pas de Dough” with Michael Covel on Trend Following Radio. This episode may also include great outside guests from my archive.
In this episode of Trend Following Radio:
What trend following and dancing have in common
The philosophical foundations of trend following
Stock trading and location independence
Why relying on “fundamentals” is fool’s gold
What being a silent partner in the trend means
Why Darvas’ thinking from 1959 still applies today
The importance of having no ego when it comes to trading
“The only sound reason for my buying a stock is that it is rising in price. If that is happening, no other reason is required. If that is not happening, no other reason is worth considering” —Nicolas Darvas
My guest today is Campbell Harvey, a finance professor at Duke university, and research associate with the National Bureau of Economic Research in Massachusetts. His research papers on these subjects have been published in many scientific journals.
The topic is Trend Following.
In this episode of Trend Following Radio we discuss:
Survivorship bias, and not being fooled by randomness
Why people with higher risk tolerance experience much higher upsides
Understanding process vs. outcome
The difference between volatility and skew
The importance of recognizing that asset returns are rarely “normally distributed”
When it is appropriate to apply a general framework, and when it is not
The Sharpe ratio – is it always relevant?
Harry Markowitz, Jim Simons, and Nassim Taleb
“These people that are taking a lot of risk, with enough luck, will rise to the top. The person that is risk-averse is stuck in the middle” – Campbell Harvey
“Hungarian by birth, Nicolas Darvas trained as an economist at the University of Budapest. Reluctant to remain in Hungary until either the Nazis or the Soviets took over, he fled at the age of 23 with a forged exit visa and fifty pounds sterling to stave off hunger in Istanbul, Turkey. During his off hours as a dancer, he read some 200 books on the market and the great speculators, spending as much as eight hours a day studying. Darvas invested his money into a couple of stocks that had been hitting their 52-week high. He was utterly surprised that the stocks continued to rise and subsequently sold them to make a large profit. His main source of stock selection was Barron’s Magazine. At the age of 39, after accumulating his fortune, Darvas documented his techniques in the book, How I Made 2,000,000 in the Stock Market. The book describes his unique “Box System”, which he used to buy and sell stocks. Darvas’ book remains a classic stock market text to this day.”
How I Made $2,000,000 in the Stock Market by Nicolas DarvasHow I Made $2,000,000 in the Stock Market by Nicolas Darvas
This is a fan of yours from India! I have been following you since some time and find your interactions quite interesting. I heard you mention Bill Eckhardt speech that he made [years back]…which you found interesting. Could you send me the link for it if possible? Thanks a lot.
Only an audio file that I have locally. Thanks for nice words!
