Please enjoy my monologue Persistence, Patton and Reincarnation with Michael Covel on Trend Following Radio. This episode may also include great outside guests from my archive.
Want to learn more Trend Following? Watch my video here.
Why Tactical Macro Investing Still Makes Sense — Further Revisiting Kat’s “Managed Futures and Hedge Funds: A Match Made in Heaven” (PDF):
In November 2002, Cass Business School Professor Harry M. Kat, Ph.D. began to circulate a Working Paper entitled Managed Futures and Hedge Funds: A Match Made in Heaven. The Journal of Investment Management subsequently published the paper in the First Quarter of 2004. In the paper, Kat noted that while adding hedge fund exposure to traditional portfolios of stocks and bonds increased returns and reduced volatility, it also produced an undesired side effect — increased tail risk (lower skew and higher kurtosis). He went on to analyze the effects of adding a macro investment approach known as “managed futures” to the traditional portfolios, and then of combining hedge funds and managed futures, and finally the effect of adding both hedge funds and managed futures to the traditional portfolios. He found that managed futures were better diversifiers than hedge funds; that they reduced the portfolio’s volatility to a greater degree and more quickly than did hedge funds, and without the undesirable side effects. He concluded that the most desirable results were obtained by combining both managed futures and hedge funds with the traditional portfolios. Kat’s original period of study was June 1994–May 2001. In this paper, we revisit and update Kat’s original work. Using similar data for the period Jan 2001–December 2015, we find that his observations generally hold true about 15 years later. During the subsequent 141⁄2 years, a highly volatile period that included separate stock market drawdowns of 36% and 56%, managed futures have continued to provide more effective and more valuable diversification for portfolios of stocks and bonds than have hedge funds.
More from Sunrise Capital:
Jason Gerlach appears on my podcast.
The Little Book of Trading (first chapter features Sunrise Capital).
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Hi Mike, my eyes have definitely been opened by your books, and lately listening to the podcasts as well… great interviews thanks!
This week I was listening to an audiobook of a classic novel “The Alchemist” by Paulo Coelho. It’s about a mentor relationship between an alchemist and a boy, but its really full of metaphors for lessons in life. It seems very appropriate to the philosophy behind trading, particularly having to constantly make many hard decisions just to follow a long term goal.
There was also passage which struck me as fitting to your general podcast sentiments. The two characters in the book are stopped and searched, and in the alchemist’s pockets they find a piece of the philosopher’s stone and some of the elixir of life. When asked the alchemist tells them exactly what they are, and that they can turn any metal into gold and make you life forever, and then they all just laugh as if he’s obviously joking. As they walk away the boy asks why he told them the truth. The alchemist replies, “It is often the case when you tell people the absolute truth they rarely believe you”.
Keep up the good work!
Cheers, Mike Blain
Great connection Mike. Thank you. EXACTLY the case for trend following skeptics.
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.
Alexander Elder is on the podcast:
My guest today is Dr. Alexander Elder, a trader, educator and author. Dr. Elder’s unique and inspiring story starts with his dissatisfaction with the system in his home country of Estonia. At 23, while working as a ship’s doctor, he jumped a Soviet Union ship in Africa and received political asylum in the United States; he also ended up on the KGB’s wanted list. Dr. Elder worked as a psychiatrist in New York City and taught at Columbia University.
The topic is his book Trading for a Living: Psychology, Trading Tactics, Money Management.
In this episode of Trend Following Radio we discuss:
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From SEED:
Nonlinear systems, however, are not so well behaved. They can appear stationary for a long while, then without anything changing, they exhibit jumps in variability—so-called “heteroscedasticity.” For example, if one looks at the range of economic variables over the past decade (daily market movements, GDP changes, etc.), one might guess that variability and the universe of possibilities are very modest. This was the modus operandi of normal risk management. As a consequence, the likelihood of some of the large moves we saw in 2008, which happened over so many consecutive days, should have been less than once in the age of the universe.
Our problem is that the scientific desire to simplify has taken over, something that Einstein warned against when he paraphrased Occam: “Everything should be made as simple as possible, but not simpler.” Thinking of natural and economic systems as essentially stable and decomposable into parts is a good initial hypothesis, current observations and measurements do not support that hypothesis—hence our continual surprise. Just as we like the idea of constancy, we are stubborn to change. The 19th century American humorist Josh Billings, perhaps, put it best: “It ain’t what we don’t know that gives us trouble, it’s what we know that just ain’t so.”
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.
My guest today is Steve Brechtel. Over the past 20 years Brechtel has worked as a trader for three of the top 100 hedge funds in the world: Trout Trading (now Tewksbury Capital) in Chicago and Bermuda, Crabel Capital in Milwaukee, and now Two Sigma in NYC (a $10 billion fund) — all short-term systematic funds.
The topic is trading.
In this episode of Trend Following Radio we discuss:
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Please enjoy my monologue The Human Marionette with Michael Covel on Trend Following Radio. This episode may also include great outside guests from my archive.
Want to learn more Trend Following? Watch my video here.