now it is time to bring this living work forward to 2017 and a whole new audience and generation for I have barely dented the broad consciousness of global investors. Roughly $80 trillion of investable assets sit squarely at the mercy of EMT inside buy and hold and/or passive index funds with only a quarter of 1 percent of assets in trend following strategies. Almost everyone’s savings and retirement monies are literally a slave to wobbly economic theory that leaves the masses unprepared for the next smack down.
That slavery is why I have yet again opened up the chest cavity on Trend Following. Not outpatient surgery to correct typos, but open-heart surgery to add thousands of details – big picture to minutia that bulk up the original to a new and improved Schwarzenegger-on-steroids edition. For starters, Trend Following is now divided into three sections:
1. Trend Following’s original chapters and principles, updated and extended.
2. Trend following interviews (new): Seven interviews from pros illuminate trend following’s big picture with the requisite finer details.
3. Trend following research (new): Research contributions that add to the trend following conversation for average investors, professionals and scholars.
This is my most radical and extended volume. Content changes and additions are everywhere. It’s now three books in one. I have added material in a way where you can take small steps or go for the deep dive – starting on almost any page. The tone is different, too. Toned down in some areas, toned up in others. Some of my younger blank and vinegar was expunged and reformulated to a new mature version, while staying true to the heart and soul of my origins. Last, some might complain there is too much information, too much content, and I am throwing the kitchen sink at the subject. If so, I will be happy with that criticism. Guilty as charged.
Now, if you’re looking for guru secrets or easy money riches – please head on back to that OxyContin bender. There is no such thing. If you’re in the mood for outlandish predictions, stories about the ultimate gut trader, or what it’s like to work inside a Wall Street bank, or if you want to complain life is unfair and beg for the government to save you with a bailout – no one can help you on your path to irrelevance. Or, worse yet, if you maintain faith in EMT, steadfastly refusing to consider overwhelming contradictory evidence, maybe you can burn me in effigy along with Bouchaud and Harding. If you fit any of these problematic profiles, there is a good chance my words, and my politically incorrect perspective, will give you an aneurysm. Turn me off now.
In the alternative, if you want outside-of-the-box different, the truth of how out-sized returns are made without any fundamental predictions or forecasts, this is it. And if you want the honest data-driven proof, I expect my digging will give everyone the necessary confidence to break their comfort addiction to the box they already know and go take a swing at making a fortune in bull, bear, and black swan markets. – Michael W. Covel
Nearly every time I strayed from the herd, I’ve made a lot of money. Wandering away from the action is the way to find the new action.
Q: Do you pencil it in first?
A: No, you just start drawing.
Q: But don’t you make mistakes?
A: There is no such thing as a mistake. A mistake is an opportunity to do something else. You have to leave it and let nature take it course.
The efficient market theory is about two questions: Can the market be beat and is the market price the right price? First, evidence says the market can be beat. Second, debating the right or wrong price is futile. There is only the market price and it’s the most real, objective piece of data in finance. Don’t make the market a morality tale.
When it is a question of money, everyone is of the same religion.
Proponents of the theory [EMT] have never seemed interested in discordant evidence. Apparently, a reluctance to recant, and thereby to demystify the priesthood, is not limited to theologians.
Education rears disciples, imitators, and routinists, not pioneers of new ideas and creative geniuses. The schools are not nurseries of progress and improvement, but conservatories of tradition and unvarying modes of thought.
You’ve got to guess at worst cases: No model will tell you that. My rule of thumb is double the worst that you have ever seen.
Fish see the bait, but not the hook; men see the profit, but not the peril.
If you can’t explain it simply, you don’t understand it well enough.
To be aware how fruitful the playful mood can be is to be immune to the propaganda of the alienated, which extols resentment as a fuel of achievement.
The credit bubble pushed the price of most financial assets far from fundamental value. The central bankers were rigging the market with their asymmetric approach to market volatility, where Alan Greenspan put a floor under the stock market but did not cap it with a ceiling. That ensured that the cost of waiting until after the event to clean up was unacceptably high. 16
Question: Some researchers argue that a market timing strategy based on buy/sell signals generated by a 50- or 200-day moving average offers a more appealing combination of risk and return than a buy and hold approach. What is your view?
Eugene Fama: An ancient tale with no empirical support. 17
I have noticed that everyone who ever told me that the markets are efficient is poor.
The essence of trend following has been effective beyond my wildest dreams, and for me it has been more risky to diversify away from it than to embrace it wholeheartedly.
Most big startup breakouts are where people aren’t paying attention.
If you’re chasing the masses, you’re almost certainly heading the wrong direction. The masses are ignoring you. It’s the weird who are choosing to pay attention, to seek out what they care about.
It is necessary for you to learn from others’ mistakes. You will not live long enough to make them all yourself.
The river meanders because it can’t think.
“Trend” synonyms: tendency, movement, drift, swing, shift, course, current, direction, progression, inclination, leaning,
John Plender, “A New Paradox Found in Markets Theory,”
Eugene F. Fama and Kenneth R. French, “Q&A: Market Timing with Moving Averages,”
Eric Johnson, “Benchmark’s Bill Gurley Says He’s Still Worried about a Bubble,”
