WEBVTT - Interview With Michael Covel: Masters in Business (Audio) 0:00:03.240 --> 0:00:07.560 This is Masters in Business with Barry Ridholts on Bloomberg Radio. 0:00:08.400 --> 0:00:11.560 Welcome to the podcast this week, I have a very 0:00:11.600 --> 0:00:15.440 interesting person who I'm going to suspect that the average 0:00:15.520 --> 0:00:18.880 listener is not familiar with. His name is Mike Covel. 0:00:18.960 --> 0:00:22.360 I've I've known Mike for a long time. We share 0:00:22.400 --> 0:00:26.200 a fascination with all things turtle, and we'll we'll discuss 0:00:26.239 --> 0:00:29.200 that a little bit. UH. Mike is probably best known 0:00:29.320 --> 0:00:32.680 for his book Trend Following it's sold a hundred thousand 0:00:32.680 --> 0:00:37.000 plus copies. He goes around the world lecturing on this. UH. 0:00:37.040 --> 0:00:41.280 He's met with some of the most successful futures traders 0:00:41.280 --> 0:00:44.720 in the world, everybody from Larry Height to Build Done 0:00:45.120 --> 0:00:49.520 to John Henry to go go through the list. It's amazing. UH. 0:00:49.560 --> 0:00:55.640 If you're interested in commodities trading specifically, or the concept 0:00:55.680 --> 0:01:00.639 of trend trading dress generally, this is really h an 0:01:00.680 --> 0:01:05.319 interesting conversation. What I found most fascinating, UH, Mike and 0:01:05.400 --> 0:01:10.880 I have both been completely enamored by Richard Dennis's total experiment. 0:01:10.920 --> 0:01:12.800 And for those of you who may not be familiar 0:01:12.840 --> 0:01:16.920 with this, UH, in Jack Schwager's Market Wizards, a classic 0:01:17.000 --> 0:01:21.319 book on the art of trading and investing. H Richard 0:01:21.360 --> 0:01:26.160 Dennis's is brilliant commodities trader made eighty million dollars one 0:01:26.240 --> 0:01:28.640 year in the eighties, back when eighty million dollars was 0:01:29.000 --> 0:01:32.880 real money, and had a debate with his partner as 0:01:32.880 --> 0:01:36.839 to whether or not great traders are born or made. 0:01:37.600 --> 0:01:41.759 And Dennis's argument was that the way they grew turtles 0:01:41.800 --> 0:01:44.520 in the turtle farms and in the Far East is 0:01:44.560 --> 0:01:47.840 how he could train h traders. And so they took 0:01:47.840 --> 0:01:50.040 out an end and a number of newspapers, brought in 0:01:50.640 --> 0:01:55.960 a bunch of uh newbies and people with no experience 0:01:56.040 --> 0:01:59.960 or background in this, and ultimately taught them to trade. 0:02:00.160 --> 0:02:03.480 And and the turtle traders have put together a fairly 0:02:03.560 --> 0:02:08.959 spectacular track record following Dennis's instructions. And so the conclusion, 0:02:09.000 --> 0:02:10.680 by the way, the punch line to all this is 0:02:11.080 --> 0:02:14.720 they developed this debate after seeing the classic Wall Street 0:02:14.760 --> 0:02:19.119 movie Trading Places. And so the conclusion is, yes, you 0:02:19.360 --> 0:02:23.200 can train traders to follow a few specific rules, to 0:02:23.280 --> 0:02:29.480 develop discipline, to manage their losses, and create fantastic traders. 0:02:29.520 --> 0:02:33.240 And and this is really a really interesting conversation. I 0:02:33.240 --> 0:02:36.720 think you'll find it absolutely fascinating. Without any further ado 0:02:37.000 --> 0:02:44.720 my conversation with Michael Covel. This is Masters in Business 0:02:44.800 --> 0:02:49.400 with Barry Ridholts on Bloomberg Radio. My special guest today 0:02:49.639 --> 0:02:54.920 is Trader author and fellow podcaster Michael Covel. You probably 0:02:54.960 --> 0:02:59.600 know him as the author of the best selling trend Following. 0:02:59.639 --> 0:03:02.560 He's all so the author of Complete Total Trader, as 0:03:02.560 --> 0:03:06.639 well as three other books. Born in Quantico, Virginia, grew 0:03:06.720 --> 0:03:11.600 up in the US, currently residing in Saigon. Michael, Welcome 0:03:11.639 --> 0:03:14.520 to Bloomberg. I want to jump into your background a 0:03:14.520 --> 0:03:18.359 little bit because you wrote, you know, in finance, a 0:03:18.400 --> 0:03:21.680 decent selling book is ten thousand, twenty thousand, you know, 0:03:21.760 --> 0:03:26.600 unless you're Michael Lewis, you're not selling half a million copies. 0:03:27.200 --> 0:03:31.280 But trend Following, which is really a very specific trading 0:03:32.000 --> 0:03:35.920 um book that's old, hundreds of thousands of copies, didn't it. 0:03:36.520 --> 0:03:39.000 I know it's sold over a hundred thousand for sure. 0:03:39.320 --> 0:03:41.800 So yeah, that's a pretty cool thing. I feel very 0:03:41.880 --> 0:03:45.440 fortunate to have this fantastic strategy to write about in 0:03:45.520 --> 0:03:48.920 this cast of characters that just have changed my life 0:03:48.920 --> 0:03:51.880 for sure. So let's talk about how you found your 0:03:51.920 --> 0:03:55.200 way into this. You grew up your dad was in 0:03:55.200 --> 0:03:57.320 the Navy. You grew up in Quantico. Your father was 0:03:57.360 --> 0:04:00.520 a dentist. How do you go from being colon an 0:04:00.600 --> 0:04:03.800 army brat but essentially a Navy brat to finding your 0:04:03.800 --> 0:04:05.480 way into the world to final He was only in 0:04:05.520 --> 0:04:07.920 the Navy for a little while and they started private practice. 0:04:08.000 --> 0:04:11.120 I grew up in Vienna, Virginia, right outside Quantico, about 0:04:11.120 --> 0:04:14.840 an hour and a half away. Uh, political science major. 0:04:15.440 --> 0:04:18.440 I mean that's not exactly a prelude to writing trend 0:04:18.440 --> 0:04:22.000 following right. Not the only political science major in the 0:04:22.000 --> 0:04:24.800 world of finance. I have plenty of others. So, you know, 0:04:24.839 --> 0:04:27.680 one thing let to another. I ended up in grad school, 0:04:27.760 --> 0:04:30.640 taking a last semester in my early to mid twenties 0:04:30.800 --> 0:04:35.039 in London, London School Economics or something unrelated. It was unrelated, 0:04:35.120 --> 0:04:38.280 but I was there and I knew, Okay, I'm going 0:04:38.320 --> 0:04:39.840 back to the States. I want to figure out a 0:04:39.880 --> 0:04:43.120 way to get rich. The classic I'm gonna get rich. 0:04:43.400 --> 0:04:45.359 And when I went back, I gone to grad school 0:04:45.360 --> 0:04:48.000 at Florida State, and the only alumni that I could 0:04:48.000 --> 0:04:50.760 find that had graduated from Florida State literally was the 0:04:50.839 --> 0:04:56.160 recently retired CEO of Solomon Brothers. Jim Massey, and he 0:04:56.279 --> 0:04:58.440 was he had just made like five six million bucks 0:04:58.480 --> 0:05:01.000 and you know, n two that was a good amount 0:05:01.000 --> 0:05:03.719 of money, you know, And so I bugged him. I 0:05:03.760 --> 0:05:05.839 took the train up to Greenwich. He was right there 0:05:05.839 --> 0:05:08.760 in those those two buildings alongside the tracks, right at 0:05:08.760 --> 0:05:12.000 the train station, right. So he took me out to lunch. 0:05:13.080 --> 0:05:15.560 And I didn't know anything, but I had, I had 0:05:15.600 --> 0:05:17.400 found my way. This is my very first guy I'm 0:05:17.400 --> 0:05:19.160 gonna talk to on Wall Street. Takes me to a 0:05:19.160 --> 0:05:23.160 little French diner. We start chatting. I start chatting. He's 0:05:23.160 --> 0:05:24.720 not saying a word. I'm just like, oh my god, 0:05:24.720 --> 0:05:26.640 this guy's gonna make or break me. He's not saying 0:05:26.680 --> 0:05:30.440 a word. So finally I said to him, I said, well, 0:05:30.440 --> 0:05:32.680 he's munching on his salad. I said, hey, did I 0:05:32.720 --> 0:05:36.159 say anything today where you thought I was full of blank? 0:05:37.120 --> 0:05:40.400 And he said yes, really, he said, you told me 0:05:40.440 --> 0:05:42.839 today that you wanted to be the best. You don't 0:05:42.880 --> 0:05:44.719 want to be the best, you just want to win. 0:05:44.880 --> 0:05:46.480 And let's go back to my office and let's talk. 0:05:47.040 --> 0:05:49.640 That was my doctrination to Wall Street. Really that's a 0:05:49.680 --> 0:05:54.720 fascinating conversation. So how did that lead you to trend 0:05:54.800 --> 0:05:56.960 following how did you get the exact same time I 0:05:57.000 --> 0:06:00.200 was having that conversation, I was in Borders Books job 0:06:00.240 --> 0:06:05.200 in Tyson's Corner, Virginia about one month later, and this 0:06:05.240 --> 0:06:08.880 is nineteen and I see a magazine and the magazine 0:06:08.920 --> 0:06:11.680 was Wall Street's top one hundred paid for the year 0:06:11.800 --> 0:06:16.040 nineteen ninety three, number thirty five, number thirty seven somewhere, 0:06:16.040 --> 0:06:18.480 and there was a guy named Jerry Parker and he 0:06:18.520 --> 0:06:20.760 had just made thirty five million dollars in one year, 0:06:20.800 --> 0:06:23.920 and he was a turtle. And that fascinated me because 0:06:23.960 --> 0:06:26.960 I was like, Oh, there's something going on here. This 0:06:27.000 --> 0:06:29.839 guy is not an economist. He doesn't know every piece 0:06:29.880 --> 0:06:32.719 of fundamental information in the world. I might be able 0:06:32.760 --> 0:06:35.760 to do this. Now. The entire next segment of our 0:06:35.760 --> 0:06:39.960 conversation is going to involve the turtles, So hold off 0:06:40.000 --> 0:06:43.760 discussing that specifically because I really want to dive into that. 0:06:44.279 --> 0:06:47.640 But from seeing this list of of top paid Wall 0:06:47.720 --> 0:06:51.039 Street people, how did you find your way from that 0:06:51.279 --> 0:06:54.440 into active trading? Well, I kept going on for about 0:06:54.440 --> 0:06:56.680 another year, and I kept bumping into other people. I 0:06:56.760 --> 0:06:59.120 was literally coming to conferences and just seeing who I 0:06:59.160 --> 0:07:00.720 can meet, who could I knock on the door. I 0:07:00.760 --> 0:07:03.600 went to see Bill Dunn and Stewart floorda a long 0:07:03.640 --> 0:07:07.000 time trader forty year track records. I found John Henry 0:07:07.040 --> 0:07:09.640 in an event and approached him. I still remember his advice. 0:07:10.080 --> 0:07:15.720 This would have been five. John Henry, very famous trader, 0:07:15.840 --> 0:07:19.080 ultimately ends up owner of the Boston Red Sox. He's 0:07:19.080 --> 0:07:21.640 done pretty well, yeah, done pretty well. Brought them to 0:07:21.800 --> 0:07:24.680 a World Series for the first time, a championship, done 0:07:24.720 --> 0:07:27.320 three the first time. And I don't know how many 0:07:27.400 --> 0:07:33.760 decades I think, and um, just just one of the 0:07:33.800 --> 0:07:37.800 greatest track records in the history of finance. So what 0:07:37.880 --> 0:07:40.720 sort of advice did he give to you? His advice 0:07:40.800 --> 0:07:43.720 was short and sweet, because I said, I was looking 0:07:43.760 --> 0:07:45.600 at him, like right after he was on the other 0:07:45.640 --> 0:07:48.160 side of the Barings bank trade within months of that, 0:07:48.240 --> 0:07:49.720 and he said he looked at me and he said, 0:07:49.760 --> 0:07:52.640 you know, it never gets easy losing money for people. 0:07:53.760 --> 0:07:56.000 Quite fascinating. He didn't want to talk much more than 0:07:56.040 --> 0:07:58.520 that pretty shy guy if anyone's ever met him, not 0:07:58.600 --> 0:08:00.720 a very big guy, but he was. That was all 0:08:00.760 --> 0:08:03.000 he wanted to tell me. And he looked beat up, 0:08:03.720 --> 0:08:05.520 even though he had probably just made a half billion 0:08:05.520 --> 0:08:08.360 dollars in the preceding ninety days. He looked beat up. 0:08:08.400 --> 0:08:11.480 But that's heavy lifting. That's a lot of work. It's exhausting, 0:08:11.520 --> 0:08:14.880 its training. It's especially the bills are stacked up on 0:08:14.920 --> 0:08:17.480 the ground and you have to pick them up. It's heavy, right, 0:08:17.560 --> 0:08:19.920 that pallets, what's the palaties? What is it like? Ten 0:08:19.960 --> 0:08:25.280 million dollars is a pallet of paliative cash. So uh so, 0:08:25.320 --> 0:08:28.280 now it's John Henry. So after all of this, I 0:08:28.360 --> 0:08:31.200 decided to put up a website and I ended up 0:08:31.240 --> 0:08:32.559 and I'm not gonna go into it. Yes, I know 0:08:32.600 --> 0:08:34.120 you want to come back to it. But putting up 0:08:34.120 --> 0:08:37.760 a website, my first blog in was really what got 0:08:37.760 --> 0:08:40.839 me started. That's amazing. And what was the name of 0:08:40.840 --> 0:08:44.040 the website way back when? Because back then the big 0:08:44.040 --> 0:08:47.800 picture was a Yahoo geo cities site. I always had 0:08:47.800 --> 0:08:51.200 a legitimate domain barrier. I was always looking forward a 0:08:51.200 --> 0:08:53.840 little bit. It was Turtle Trader dot com. You're listening 0:08:53.880 --> 0:08:57.400 to Masters and Business on Bloomberg Radio. My special guest 0:08:57.440 --> 0:09:01.960 today is author and trader Mike Covil. One of the 0:09:01.960 --> 0:09:05.680 books he wrote is The Complete Turtle Trader. Those of 0:09:05.720 --> 0:09:08.880 you who may have begun your career in finance by 0:09:08.920 --> 0:09:13.120 reading Jack Schwager's Market Wizards. Should be familiar with the 0:09:13.240 --> 0:09:18.040 chapter about Richard Dennis and the turtles. And I found 0:09:18.080 --> 0:09:21.040 that to be an absolutely fascinating part of that. And 0:09:21.080 --> 0:09:23.800 I want to discuss how you found your way to that. 0:09:24.240 --> 0:09:28.760 A little background. All the way back in Richard Dennis 0:09:28.800 --> 0:09:32.640 had made eighty million dollars for the year, and in 0:09:32.960 --> 0:09:35.880 modern terms, that's almost two million dollars. That's back when 0:09:35.920 --> 0:09:38.920 a million dollars was was real money. He was a 0:09:39.000 --> 0:09:43.920 legendary floor trader, a systems guru, and really an industry 0:09:44.040 --> 0:09:47.280 leading money manager. And I'll let you tell the story 0:09:47.440 --> 0:09:52.079 of how did the turtles come about? Fascinating story, and 0:09:52.120 --> 0:09:55.640 there's still to this day myth and legend and perhaps 0:09:56.080 --> 0:10:00.000 some superstition. People debate things, but here's the bottom law. 0:10:00.000 --> 0:10:03.040 And rich Dennis had made his first million by the 0:10:03.080 --> 0:10:06.800 age of nineteen seventy six, is a floor trader. And again, 0:10:06.880 --> 0:10:09.160 seventy six a million dollars, there's a lot of money. 0:10:09.200 --> 0:10:10.840 I think there was about he had made about two 0:10:10.920 --> 0:10:13.959 hundred million total by like eighty two, and he was 0:10:14.000 --> 0:10:16.840 about thirty seven years old. Uh, And what I'm about 0:10:16.880 --> 0:10:19.520 to say is absolutely true. Him and his partner Bill 0:10:19.559 --> 0:10:22.000 at cart they went to see a movie and the 0:10:22.040 --> 0:10:24.960 movie was Trading Places with Dan Ackroyd and Eddie Murphy. 0:10:25.000 --> 0:10:27.240 They went to see this movie. They walked out and 0:10:27.320 --> 0:10:31.360 his partner Bill at Cahart said, hey, Rich, you we 0:10:31.400 --> 0:10:34.760 can never do that. You're a savant. You're brilliant. They 0:10:34.760 --> 0:10:37.439 took a guy off the street. How what a silly story. 0:10:37.480 --> 0:10:40.800 We can never do that, And Rich said, Uh, I'm 0:10:40.800 --> 0:10:44.000 not special. We can teach people to do what I 0:10:44.080 --> 0:10:46.760 do another words, come up with rules and come up 0:10:46.800 --> 0:10:51.840 with guidelines to quantify and systematize what I kind of 0:10:51.920 --> 0:10:55.640 learned intuitively. They put ads in barns in Wall Street Journal, 0:10:55.640 --> 0:10:58.719 They hired trainees. They got like two thousand applications. They 0:10:58.720 --> 0:11:01.800 gave a screening test to a true false questions asking 0:11:01.840 --> 0:11:04.880 what your favorite movie was, these types of things, and 0:11:04.920 --> 0:11:08.520 they selected about twenty people over two years. They gave 0:11:08.559 --> 0:11:12.720 them approximately two weeks training, staked them with varying amounts 0:11:12.720 --> 0:11:14.840 of cable from a couple hundred thousand to a couple 0:11:14.840 --> 0:11:17.400 of million. They basically turned them loose for three and 0:11:17.440 --> 0:11:19.920 a half years. At the end of that three and 0:11:19.920 --> 0:11:23.280 a half year period, that group of approximately twenty had 0:11:23.280 --> 0:11:26.080 made a hundred million dollars profit. I actually went to 0:11:26.120 --> 0:11:28.840 the n f A, the National Futures Association, and I 0:11:29.000 --> 0:11:32.560 pulled all of the original documents. When they left the 0:11:32.559 --> 0:11:36.760 program to go registers money managers, they literally it was 0:11:36.800 --> 0:11:40.720 like waiter kitchen help. I mean some I mean some 0:11:40.760 --> 0:11:42.800 of them are very brilliant. Nonetheless, they've gone to great 0:11:42.800 --> 0:11:46.240 schools and stuff. But it was a completely rag tag 0:11:46.640 --> 0:11:49.840 Desperit random, completely right now, it's awesome and so, in 0:11:49.880 --> 0:11:54.240 other words, the battle between nature and nurture, Dennis essentially 0:11:54.360 --> 0:11:58.200 proved you can create a great trader. You can build 0:11:58.240 --> 0:12:01.000 a great trader. It's not just something that you're either 0:12:01.080 --> 0:12:04.080 born with and have or don't. I never questioned it 0:12:04.120 --> 0:12:05.960 again myself. I think a lot of people still hear 0:12:06.000 --> 0:12:08.280 that story and question it. I saw that story and 0:12:08.320 --> 0:12:09.920 I was like, I saw the backgrounds, and I said, 0:12:10.040 --> 0:12:12.360 that's it. Even if I never want to do trading, 0:12:12.520 --> 0:12:15.760 I have to accept this as truth. It's it's an 0:12:15.800 --> 0:12:20.320 amazing tale that the movie Trading Places inspired a real 0:12:20.400 --> 0:12:24.199 life version of let's figure out if we can actually 0:12:24.760 --> 0:12:27.839 create a person and turn them into a trader. So 0:12:27.840 --> 0:12:30.760 so let's talk a little bit about the subsequent careers 0:12:30.800 --> 0:12:33.240 of the turtles. What did they do afterwards? How did 0:12:33.280 --> 0:12:37.040 they all work out? You know, one of them became well, 0:12:37.320 --> 0:12:40.160 all of them started money management firms, most all of them, 0:12:40.200 --> 0:12:42.480 and most all of them did extremely well. I mean, 0:12:42.480 --> 0:12:45.120 making millions of dollars, you know, the typical success mark. 0:12:45.200 --> 0:12:49.000 Everybody sees. One of them, in particular, Jerry Parker managed 0:12:49.200 --> 0:12:53.400 over several billion for probably twenty plus years and just 0:12:53.480 --> 0:12:57.880 made himself an incredible fortune. One of the most plane spoken, 0:12:58.000 --> 0:13:00.560 plane talking guys. And he was here right now, he'd 0:13:00.559 --> 0:13:04.000 be saying, Hey, it's all my success is all because 0:13:04.040 --> 0:13:06.960 of Rich Dennis. Rich Dennis was kind enough to say, 0:13:07.320 --> 0:13:09.679 here's how I made a fortune. Here are my rules, 0:13:09.960 --> 0:13:14.959 go do it. So here's a quick question. Under normal circumstances, 0:13:15.000 --> 0:13:20.200 when someone identifies an inefficiency and an inability for the 0:13:20.320 --> 0:13:26.120 market to recognize an issue, eventually that gets arbitraged away. 0:13:26.120 --> 0:13:30.480 Why haven't these rules been arbitraged away or copied by 0:13:30.600 --> 0:13:34.120 enough people that they no longer have uh an effect? 0:13:34.280 --> 0:13:35.760 And Well, the way I would answer that is the 0:13:35.800 --> 0:13:39.439 turtles were just trend following traders, and so they weren't 0:13:39.440 --> 0:13:42.320 the only trend following traders. Rich Dennis had Piers peers 0:13:42.400 --> 0:13:45.160 like Bill Donne and Ed Sakota and Keith Campbell and 0:13:45.240 --> 0:13:47.840 David Harding and Larry I and all of these guys 0:13:48.000 --> 0:13:52.160 on affiliated with Rich Dennis. We're running trend following firms. 0:13:52.200 --> 0:13:54.200 So if you just look at the history of this, 0:13:54.240 --> 0:13:56.160 you say, well, why does trend following keep working? Why 0:13:56.200 --> 0:13:58.800 is it not broken down? Well? When is human nature 0:13:58.840 --> 0:14:01.079 going to change? That's the key to all of this 0:14:01.200 --> 0:14:05.679 is that people are unchanging and even though we may 0:14:05.720 --> 0:14:09.000 have high frequency trading, we may have new entrants into 0:14:09.040 --> 0:14:12.520 the marketplace, at at the very bottom of it, it's 0:14:12.520 --> 0:14:15.040 it's human nature that drives these things. Yeah, I mean, 0:14:15.040 --> 0:14:17.560 we're just we want to get rich fast, and you know, 0:14:17.720 --> 0:14:20.200 we start losing money, we just think it's gonna come back, 0:14:20.200 --> 0:14:22.000 and then we lose all of our money. So let's 0:14:22.000 --> 0:14:25.520 talk a little bit about trend following. Next next segment, 0:14:25.560 --> 0:14:28.400 we'll talk a lot more about human nature and some 0:14:28.480 --> 0:14:33.160 of the behavioral issues. But what was it about um 0:14:33.760 --> 0:14:37.400 trend following that made it so successful? And and let's 0:14:37.480 --> 0:14:40.360 give this a little context. These aren't people buying stocks 0:14:40.360 --> 0:14:44.320 and bonds, They're buying futures. They're training pretty much anything 0:14:44.360 --> 0:14:48.000 from commodities, two currencies to what have you. And they're 0:14:48.040 --> 0:14:50.880 doing it with a lot of leverage. So how does 0:14:50.880 --> 0:14:53.840 that translate into the trends? As your friend? And that's 0:14:53.840 --> 0:14:56.640 how these folks made their money. I don't think instrument 0:14:56.800 --> 0:14:59.920 is critical, it's important. I mean, futures are the best 0:15:00.040 --> 0:15:02.160 st instrument you got, the leverage you get like liquidity, 0:15:02.200 --> 0:15:05.280 that's the best place to be. But you want diversification. 0:15:05.360 --> 0:15:07.960 You know, if you wake up in its early two 0:15:08.000 --> 0:15:11.400 thousand fourteen and every economist down there is saying, hey, 0:15:11.800 --> 0:15:14.520 you know, we don't see anything happening for oil, and 0:15:14.560 --> 0:15:17.840 you know there's no prediction of a drop in oil. 0:15:18.120 --> 0:15:20.600 But if you're a trend following trader, you don't have 0:15:21.120 --> 0:15:24.240 a a mindset or a prediction of where any particular 0:15:24.280 --> 0:15:26.360 market's going to go. So when it starts to move, 0:15:26.840 --> 0:15:30.800 you're just following along. You're following the crowd, your indicator, 0:15:30.880 --> 0:15:35.280 your your reason for moving is the price action. That's it. 0:15:35.760 --> 0:15:38.040 So if you think about trend following, think about with 0:15:38.120 --> 0:15:40.280 like five kinds of ways to think about trend find 0:15:40.320 --> 0:15:44.240 five rules. First, what's the portfolio you're going to trade? 0:15:44.360 --> 0:15:48.120 Trade everything? So generally trend following traders historically have chosen 0:15:48.160 --> 0:15:51.800 diversified portfolios and your goal, your oil, the equity indices, 0:15:51.840 --> 0:15:55.920 the interest rates, the currencies, the big liquid movers. Number 0:15:56.080 --> 0:15:58.320 number two, when are you going to get in? What's 0:15:58.320 --> 0:16:02.520 gonna force you to get into a position? Number three? 0:16:02.960 --> 0:16:05.960 How much you're gonna bet? You can't bet unlimited. You 0:16:06.000 --> 0:16:09.240 know you're gonna bet half percent, one percent, ten percent. 0:16:09.400 --> 0:16:11.120 I can't tell you. Many times I've given a presentation, 0:16:11.160 --> 0:16:12.640 I'll ask an audience, to be an audience of a 0:16:12.640 --> 0:16:15.600 thousand people, how much would you bet on each trade? 0:16:15.880 --> 0:16:18.480 People actually say tempercent. Look, come on, you know what's 0:16:18.480 --> 0:16:21.320 gonna happen at temper cent? The last four and five? 0:16:21.760 --> 0:16:24.280 When do you exit this trade with a winner? When 0:16:24.280 --> 0:16:26.320 do you exit this trade with the loser? What does 0:16:26.400 --> 0:16:28.600 this all look like when it's crunched through the system. 0:16:28.760 --> 0:16:32.400 You're basically a venture capitalist. You're basically a film financer. 0:16:32.680 --> 0:16:35.320 Jason Blum he finances films, right, How does he do it? 0:16:35.600 --> 0:16:38.360 He bets on a bunch of things that cost very 0:16:38.400 --> 0:16:41.600 little money, and he'll get one big paranormal behavior or 0:16:41.600 --> 0:16:43.480 whatever it's called, and that's the one that makes him. 0:16:43.840 --> 0:16:45.680 That's the one that makes the fortune and pays for 0:16:45.720 --> 0:16:47.960 the losers. For the other ones, none of this stuff 0:16:48.000 --> 0:16:51.560 can be predicted. I'm very ridults. You're listening to Masters 0:16:51.560 --> 0:16:55.560 in Business on Bloomberg Radio. My guest today is Michael Covel. 0:16:55.680 --> 0:16:58.440 He is a trader and author, probably best known for 0:16:58.600 --> 0:17:03.120 trend following and The Complete Total Trader. He also has 0:17:03.560 --> 0:17:09.359 an extensive podcast, over four hundred episodes. And I've really 0:17:09.480 --> 0:17:13.440 enjoyed both listening to other people's podcast and putting together 0:17:13.480 --> 0:17:18.280 my own little podcast. How did you find your way into? Uh? Podcasting? 0:17:18.680 --> 0:17:20.440 We get to beat in school? Huh? We never get 0:17:20.440 --> 0:17:24.000 out of school now, right? Absolutely, it's it's an on 0:17:24.480 --> 0:17:27.280 from my perspective. I get to bring in some really 0:17:27.320 --> 0:17:32.520 really smart people and say teach me. It calms me down? 0:17:31.520 --> 0:17:34.480 Yeah did when you listen to really smart people over 0:17:34.520 --> 0:17:36.880 and over it again, I really I find myself calmer. 0:17:37.080 --> 0:17:40.359 I started it in January of two thousand twelve. I 0:17:40.680 --> 0:17:43.240 my last book came out before that, about six months 0:17:43.240 --> 0:17:45.639 before that, And I don't know, I had done short 0:17:45.760 --> 0:17:50.800 brief podcast several years before, like five minute little speech segments, 0:17:51.040 --> 0:17:53.359 and I just decided, well, okay, I want to do 0:17:53.400 --> 0:17:55.560 a podcast. It was completely on a lark. It was 0:17:55.640 --> 0:17:58.680 just let's do it. And this was before what iTunes 0:17:58.680 --> 0:18:01.920 looks like today, so that was it was just really 0:18:01.960 --> 0:18:04.640 and one thing led to another. Remember Jack Schweger, who 0:18:04.680 --> 0:18:07.520 wrote the book The Market Wizards that you mentioned. When 0:18:07.520 --> 0:18:09.720 he came on, that was when I saw my first 0:18:09.840 --> 0:18:12.280 pop because it had been two or three months of okay, 0:18:12.320 --> 0:18:14.680 listens are going up, and then when Jack came on 0:18:14.800 --> 0:18:17.280 and he was promoting a new book, Uh, that was 0:18:17.320 --> 0:18:20.400 like boom, and it's exciting what that stuff happens. Right, 0:18:20.400 --> 0:18:24.000 Schweger is legendary. I mean, how many people do you 0:18:24.040 --> 0:18:26.560 think the first book they read when they started in 0:18:26.600 --> 0:18:30.359 finance was Market Wizards. So I had quick, funny digression. 0:18:30.400 --> 0:18:33.680 I had Schwegger on the show, and when I invited him, 0:18:33.960 --> 0:18:39.280 he said, oh for the guy who gave me that review. Absolutely, Jack, 0:18:39.400 --> 0:18:41.399 what are you talking about? I want you on the show, 0:18:41.680 --> 0:18:43.840 but I have no idea what you're talking about. He's like, 0:18:43.840 --> 0:18:47.159 you wrote a review of Market Wizards on Amazon a 0:18:47.200 --> 0:18:49.760 decade ago and it's the top. You know, it's the 0:18:49.920 --> 0:18:52.280 it's the most influential review. It's that So I had 0:18:52.280 --> 0:18:54.200 to go on Amazon. I'm like, oh my god, he's right, 0:18:54.240 --> 0:18:56.320 I forgot about it? Was it? So we had really 0:18:56.359 --> 0:19:01.000 interesting conversation. I think he's a fascinating, fascinating guy. What 0:19:01.040 --> 0:19:04.879 was it that made you gravitate to long form podcasting? 0:19:04.920 --> 0:19:07.639 If it was it, was it just that, hey, I 0:19:07.720 --> 0:19:12.040 have some time to kill or what motivated that. I 0:19:12.080 --> 0:19:14.879 was working on a new book and I knew it 0:19:14.920 --> 0:19:18.240 was gonna be coming out immediately, and I just I 0:19:18.280 --> 0:19:20.040 don't know. It was just it was just something where 0:19:20.080 --> 0:19:22.399 it was in my in my soul. I want to 0:19:22.400 --> 0:19:23.960 do this, I want to talk to people. Look, I 0:19:23.960 --> 0:19:25.840 had done a film. I had made a film. I 0:19:25.960 --> 0:19:28.399 traveled the world for several years. I had had a 0:19:28.480 --> 0:19:31.280 chance to sit down and do long form interviews already. 0:19:31.680 --> 0:19:35.399 And the film was Broke, an American uh story, so 0:19:35.480 --> 0:19:39.199 to speak, something like that. Right there was like you 0:19:39.200 --> 0:19:41.480 were in there, you were in there doing something. It 0:19:41.560 --> 0:19:44.160 was called it was broke, Broke, Broke the new American jury, 0:19:44.320 --> 0:19:47.440 new American right, My My my premise being is it 0:19:47.520 --> 0:19:49.960 broke is the new American jury. People want to be 0:19:50.000 --> 0:19:53.440 broke because their actions are so irrational that that makes 0:19:53.440 --> 0:19:56.160 some interesting sense. So so let's we're gonna talk more 0:19:56.160 --> 0:19:59.359 about broke in in a ladder segment. Let's let's keep 0:19:59.400 --> 0:20:02.720 coming back to the to the podcast. So any of 0:20:02.760 --> 0:20:06.600 your guests really surprised you with things they said, Yeah, 0:20:06.720 --> 0:20:10.679 and I should. There's a timeline of like guests that 0:20:10.800 --> 0:20:13.639 broke the podcast. First was Jack Schwegger, and then my 0:20:13.760 --> 0:20:18.159 first guest to my first non trading guest was Dan Airily, 0:20:18.760 --> 0:20:21.119 and then once I got Dan Eireley, I had a 0:20:21.160 --> 0:20:23.280 guy on who had been in my film named Vernon 0:20:23.280 --> 0:20:25.439 Smith who won the most won the Nobel Prize, and 0:20:26.200 --> 0:20:31.399 Brian brilliant guy George Mason now somewhere in Chapman in California. 0:20:31.640 --> 0:20:34.480 But once I had those guys on, I went for 0:20:34.640 --> 0:20:37.600 the home run. The home run guest, the one guy 0:20:37.680 --> 0:20:40.800 that I knew if I could get, was gonna really 0:20:40.880 --> 0:20:43.159 help my podcast, and that was Daniel Kneman, who won 0:20:43.160 --> 0:20:46.119 the Nobel Prize shared it with Vernon Smith, and so 0:20:46.200 --> 0:20:49.720 I had asked him six months prior in no response, 0:20:50.119 --> 0:20:53.040 then I sent him an email knowing that he had 0:20:53.040 --> 0:20:54.879 won the prize the same year as Vernon Smith. They 0:20:54.880 --> 0:20:57.440 shared it and I sent a link to Vernon Smith 0:20:57.520 --> 0:20:58.800 and he rubbed me back and he said, I listen 0:20:58.880 --> 0:21:01.159 to that podcast with Vernon Smith, it's very good, and 0:21:01.200 --> 0:21:03.240 I'm sure I'll come on your show. And the thing 0:21:03.320 --> 0:21:06.640 that he said that was so amazing to me. It's 0:21:06.680 --> 0:21:10.080 not related to making money or investing. But he was 0:21:10.560 --> 0:21:15.399 in Nazi occupied Paris and there was a curfew and 0:21:15.440 --> 0:21:17.879 he was not supposed to be out, and he was 0:21:17.920 --> 0:21:24.159 six seven eight years old and alone walking the streets 0:21:24.760 --> 0:21:28.360 and a Nazi soldier spots him, and the Nazi soldier says, 0:21:28.400 --> 0:21:32.080 come here, come here now. Sure Conment is thinking at 0:21:32.080 --> 0:21:35.400 that time, I'm done. I'm done. The Nazi soldier sits 0:21:35.440 --> 0:21:38.480 him down on his knee, pulls out his wallet and 0:21:38.520 --> 0:21:40.280 opens up his wallet and shows him a picture of 0:21:40.320 --> 0:21:43.080 his son. They both spoke different languages and they shared 0:21:43.119 --> 0:21:47.320 that experience and condom and said that was what That 0:21:47.359 --> 0:21:51.760 was what triggered me into psychology. That that fascinating moment. 0:21:51.920 --> 0:21:54.240 I want to study people for the rest of my life. 0:21:54.920 --> 0:21:59.560 Konomen just realizes, Wow, what we think we know about people, 0:21:59.600 --> 0:22:02.960 it is all wrong. Those quick judgments. There's the Nazi soldier, 0:22:03.000 --> 0:22:04.919