Pod Insights Michael Covel's Trend Following Ep. 1319: Richard Weissman Interview with Michael Covel on Trend Following Radio About this episode My guest today is Richard Weissman, a foremost authority and thought leader in the fields of derivatives, risk management and technical analysis. Richard has nearly 40 years experience as a trader and risk manager and serves as CRO and head of systems development for The Tape Reader LLC. The topic is his book Trade Like a Casino: Find Your Edge, Manage Risk, and Win Like the House. In this episode of Trend Following Radio we discuss: Trading strategies Risk management Casino paradigm in trading Diversification Trend following nuances Volatility and liquidity Jump in! --- I’m MICHAEL COVEL, the host of TREND FOLLOWING RADIO, and I’m proud to have delivered 10+ million podcast listens since 2012. Investments, economics, psychology, politics, decision-making, human behavior, entrepreneurship and trend following are all passionately explored and debated on my show. To start? I’d like to give you a great piece of advice you can use in your life and trading journey… cut your losses! You will find much more about that philosophy here: https://www.trendfollowing.com/trend/ You can watch a free video here: https://www.trendfollowing.com/video/ Can’t get enough of this episode? You can choose from my thousand plus episodes here: https://www.trendfollowing.com/podcast My social media platforms: Twitter: @covel Facebook: @trendfollowing LinkedIn: @covel Instagram: @mikecovel Hope you enjoy my never-ending podcast conversation!
Transcript 0:00 Speaker 00 My guest today is Richard Weissman. Richard is a repeat guest from a long time ago, which is my mistake. Richard is an author. He is a trader. His book, Trade Like a Casino: Find Your Edge, Manage Risk, and Win Like the House. It's been out for a while, but it's a great read. You should check it out. And from a trading perspective, Richard has the trend following insights. So therefore, I want to talk to people like that. Without any further delay from me, let's jump right into my guest today, Richard Weissman. I hope you enjoy.
0:48 Speaker 00 I want to bring up something about trading in general. A lot of people want to get in debates about the technique, perhaps the entry-exit technique. But look, when it comes down to traders, regardless of strategy, and you and I have some common beliefs about strategy, but when it comes down to strategy, there are some basics that everyone has to start with, whether it comes to risk management, stop issues. And I know that's been near and dear to you over the years, the common characteristics that traders have to deal with, regardless of the technique they say they're going to employ. That is the inspiration behind the body of my second book, Trade Like a Casino, is the casino paradigm.
1:28 Speaker 00 There's all sorts of different ways of being successful in trading. And by the way, all of them are incredibly difficult and rarefied. And most people don't have the discipline to adhere to any of those ways. But in terms of commonalities regarding successful trading, everyone needs to develop a positive expectancy method. It's not a cutesy way of saying you make money. It basically means after the cost of doing business, commissions and the spread between the bid and the ask, liquidity risk, you still make money.
2:09 Speaker 00 Everyone needs have a very robust modality mechanism for adherence to risk management. Because even the most robust positive expectancy model,
2:24 Speaker 00 If you aren't managing the risk, it just takes one loss and you're out of business. That's not going to work. One very large loss. Small losses won't take you out. Yeah, you once posted that quote that if you can't take small losses, one day you will take the mother of all losses. We all kind of can look back in very recent memory to any number of scenarios where if I didn't have that stop loss in, I would have blown up the account at least one every year. And ironically, that one tends to be where trend followers make their year. This year was Coco. That is the other main aspect to how successful trading works.
3:09 Speaker 00 The third element, virtually no one talks about because if you look at it from a math standpoint, and all these guys are quants doing programming now, building models. If you look at from a pure math standpoint, that's what you need is positive expectancy and risk management, and you are good. But personally, as humans, we can develop these algos. And when the chips are down and the losses come, we start to second guess the models without that discipline to adhere to the model. It doesn't matter how robust the model is. It doesn't matter how robust the risk management criteria is.
3:54 Speaker 00 You stray from the model and you blow up. Having a podcast going back to 2012 means and not necessarily having everybody on a second time. This is your second appearance and we've not spoke since 2012. That's how crazy it is to do a podcast, right? You can have all these interesting people and you might not necessarily reconnect. I didn't know, we're going to get into it. I didn't know you were running a trading firm now, CTA. Let me keep you at your book from several years ago because it's one of those classic type reads. I mean, you made it to be timeless. Unfortunately, a lot of people out there, when they think about books, and maybe sometimes authors do this and they make a trading book as topical.
4:35 Speaker 00 But I think you and myself, people like Jack Schwager, we've generally written books that are meant to be timeless. That doesn't mean we're some kind of savant. If you are putting together something about good trading, it's gonna be timeless. If you're trying to make some topical nonsense, well, it's gonna be timeless. Tropical nonsense. So I guess where I'm leading with this is when we're talking about discipline and risk management to bring in the word casino. Cause most people would instantly hear the word casino and think, oh man, these guys are they're serious or whatever. I go to Vegas, I always lose money. Or some other guy thinks I'm a blackjack pro. I'm going to do everything wonderful. I'd beat the dealer. Why did you decide to bring in the word casino to teach the lessons of good trading?
5:19 Speaker 00 When I was looking for a model, and I think that you are a great teacher through your books about the importance of models, modeling mentors. What is the model for successful trading? In Schwager's book, one of the things that makes it timeless is that he interviews top traders from, I believe it was the seventies and eighties. Primarily at that time, right? Yeah, those are models, role models. If I want to be the best, I model my behavior after the best. I did the same thing with the industry in general. I don't have to reinvent the wheel. There's gotta be some industry that kind of looks like what successful trading looks like.
6:03 Speaker 00 And the gaming industry, the people that own and operate casinos is that model. And I know a lot of people say, oh, it's gambling. We don't want to be associated with gambling. But casinos don't go out of business unless they're poorly managed or natural disasters in the place where immediately I think of the casinos in Havana, right? So geopolitical risk, right? The Godfather Part Two. Yeah, they went out of business. In general, it's a money-making proposition. The reason is that they know probability is skewed in their favor. Just like in trading, we know if we have that positive expectancy model over the long haul, we're going to make money.
6:48 Speaker 00 They know that they have table limits, just like we know in trading. If we adhere to these stringent rules of risk management. I could go on, I don't want to get lost in the weeds, but I think correlation analysis is also really important. And volatility analysis in risk management as well. If we adhere to these rules, just like they adhere to table limits. Then they're not going to go out of business, we're not going to go out of business. They don't even discuss the third element, which is discipline. They have the first two rules so well ingrained and so many data points.
7:27 Speaker 00 Decades after decades, probably hundreds of years of data showing that if you adhere to these two rules. The casino remains a profitable operation. But they don't even worry about discipline, everyone has discipline. That's why they built the Sands or whatever hotel, because they know it works. To take it also as a comp to trading systems. For sure, they've coded everything for decades upon decades upon decades. Just like a quantitative trading system, you might code in whatever language. They've been doing this, I'm sure back to the seventies, maybe even earlier. Absolutely, there was a lot of secrecy in the old days.
8:07 Speaker 00 I think Richard Doncian developed these things, knew that they worked. Tried to keep everything under the hat as much. Just like traders with a positive edge, the casinos had everything coded as well. Go back on the Doncian point, there's probably going to be a parallel between trading all the way down to coding it out and automating it. Some people out there, in terms of players, because I've talked to them, there are some players, and I don't know if their edge stays permanent in that online world. But there are some people that have figured out ways to find an edge. Maybe not even in a legal way, but there are people that have found those edges. Whether they last or not, I'm not sure as online players. I know what you're talking about, basically an edge that's enough to compensate
8:49 Speaker 00 for the online facilitators take and still make money, even after they have their whatever percent.
8:59 Speaker 00 You brought up Las Vegas Sands and I'm thinking back, pretty sure that was the 2008, nine time period. And I think Las Vegas Sands went down to a dollar per share. From a trend following perspective, okay, you're shorting it all the way down, whatever. But if you had the inside information of the edge and you would have had the books that perhaps Sheldon Adelson had at the time, you might have known that it was a good business, even at a dollar. Hypothetically guessing there, obviously they roared back and they've made a bloody fortune. I think there is something, as you make this parallel to casinos, if the casino is not dead, then their system is probably going to bring them back. I think as long as there's no terrible mismanagement or some kind of geopolitical
9:44 Speaker 00 event, that industry is solid. To your credit, you went into one of the two richest veins in terms of an edge that's exploitable, that's sustainable over time, which is trend following. It's proven over and over again that for whatever reason, there will be periods of supply-demand imbalance. And when those periods occur, you're going to have trends. You're going to have sustainable, pretty much one-way market action. And that is an exploitable edge that even after subtracting for commissions and liquidity risk, you're
10:26 Speaker 00 going to make money. You're going to agree with me, but it's an interesting point for us to talk back and forth about. One of the things that makes the edge sustainable and the way that we run our fund is diversified. In other words, we know there's going to be this supply-demand imbalance and that's going to create a sustainable trend, but we don't know what market it's going to happen in. And therefore, if we just trade the S and P... Over a very, very long period of time, we'll probably be okay. But no investor is going to be interested in that kind of volatility in the interim.
11:09 Speaker 00 Trend following for one market is probably not the way to go. But I think diversified trend following, which is what Richard Dennis and Bill Eckert taught the turtles, is very sustainable. You have that smoothing out because you're trading so many uncorrelated or low correlated markets that the odds of finding that supply, demand imbalance in any given calendar year are astronomically higher than just trading lean hogs every year. From a diversification standpoint, I can think of two ways commonly done in trend following. You could have one trader who says, I've got a fixed basket and I'm going to trade
11:53 Speaker 00 all of these markets, long or short, at any given point in time. I'm a reversal trader, so I'm always going to have a position, long or short, in this fixed basket of markets. I don't necessarily know if that's as common today, but I know there's people that do it. However, the other diversification direction is to say, I'm going to follow a very, very, very big basket of markets and not necessarily have a position in all of them, which I think then leads to an example like you already brought up with this year with cocoa, where a lot of traders that have not made any money on cocoa for who knows how long, all of a sudden cocoa is the lion's share of profits. And so that's an amazing situation with trend following where you can say, I don't have
12:37 Speaker 00 any idea what's going to happen this year, but I happen to be tracking cocoa and it takes off, I'm going to go with it. So it's kind of two forms of diversification. It's a little bit different than, let's say, a buy and hold diversification where somebody might say, well, I'm going to just pick 20 or 40 markets and just hold on to them and that's my diversification, or 20 or 40 mutual funds. So trend following diversification, I've always thought the word is a little bit different, it seems like, when you use it in a trend following context. I think equities are great. Nothing wrong with equities. And we do, we trade the S and P and Dow and NASDAQ and the Nikkei, the Russell. So we trade equity indices and that's part of our diversification solution.
13:21 Speaker 00 But personally, I feel like internally, there's a lot of positive correlation between the individual equities that compose these indices. Even the indices have a lot of positive correlation to each other. The Nikkei helps, but it too tends to go up and down with the rest of these equity indices. This other definition of diversification where you're looking at really uncorrelated asset classes, especially once you start bringing in physical commodities, helps tremendously. I was laughing when you mentioned cocoa because that is the little engine that could.
14:06 Speaker 00 For decades cocoa was famous internally amongst commercials, people that are actually in production and consumption and marketing of physical cocoa beans. The joke was for decades, well, this thing never trends. Lots of people made lots of money by creating some kind of mean reversion model and just applying it to this one market. And sure, great, but better be ready because one of these days it's not going to work. And sure enough, starting last year, actually 2023, but especially this year, it just blew up and all these people that were complacent and thinking,
14:47 Speaker 00 oh, well, I know the physical marketing cocoa and I know it doesn't trend. It doesn't trend until something changes and then it does trend. I'm sure some people out there, maybe not ingrained with the trend following ethos, are thinking to themselves, why did cocoa go up this year? I was curious as well. I tried to do some reading about it and you get about five minutes into it and you're like, I've got no clue. And then you start to see yourself, well, there was some fundamental reason that it started to go up. I'm sure. Then you get a lot of big funds plowing in. Eventually it comes down at some point in time. But I couldn't make any kind of fundamental case. I'm sure there's some fantastic fundamental
15:31 Speaker 00 cocoa traders somewhere out there that got in early. But otherwise, how do you trade something like that that comes out of the blue unless you're a trend following trader who's just waiting for something to break out and jump on board? I didn't understand any of the fundamentals of cocoa. Exactly. And the irony is that in my other life, I teach courses and do consulting for big commercial trading houses like ADM and Cargill. And so when I was at one of those houses over winter, I was at one of them in January of 2024, and I'm teaching technical
16:14 Speaker 00 analysis. And one of the big stories that I was teaching was trend following in cocoa because it was this case study and they were all long cocoa and they had their fundamental reasons for it. But they also were just looking at the charts. At a certain point, it doesn't matter what the driver is. You just want to either jump on or to stay A or B stand aside. You bring up the term technical analysis. So people listening, I find this is a term that not everyone hears that term and thinks the same thing. So when I hear technical analysis, the kind that I know that works, which is trend following. But then there's other people
16:57 Speaker 00 out there that say, well, I used technical analysis to tell me that cocoa was going to take off. And that's almost as bad as fundamentals to me. There wasn't any technical analysis that told you that cocoa was going to take off for as big as it went, for the duration that it went. There was no technical whatever that was going to tell you the size and breadth of that thing. None. Now, there could have been something that told you just to get in and follow along like a trend follower. It's an interesting distinction. Sure, you've had this conversation and debate with people over the years. It's a tricky thing because a lot of times I'm training and dealing with traders.
17:41 Speaker 00 I just have great intuitive feel for how markets behave. And they'll look at charts, they're looking at them to give themselves the confidence to play at their intuition. And so they'll look at all sorts of crazy things that I really know. Because I've done lots of backtesting, I know that they don't work. But this guy's a successful trader. He's doing real well at a big company, a super major oil company, and he's using stuff that doesn't work. At first I would scratch my head thinking, how could this happen? But then I realized he's just using it as an excuse
18:25 Speaker 00 or something to give him that warm comfy feeling in order to play out his great intuitive feel for how markets behave. And he has rock solid risk management and stop losses. Yeah, now the beautiful thing when you're trading at a big trading house like, let's say, Argyle or at a super major oil company is that it's a whole other department. There's a mid-office, the chief risk officer, and they do all that for you. You just plug and play, and if your order is too big, they just kick it out and say, no, no, you've gone beyond your risk limits. As high as you can go for today is 570 contracts.
19:07 Speaker 00 For you, a guy who's running a CTA, a commodity trading advisor in the managed futures world, regulatory terms that basically, in my humble opinion, often mean trend following. But what you just described in a very large, commercial-type place, that is not what you and I would know as some of the classic trend following. Following firm names over the years would not be as loosey goosey as that perhaps. There would be a lot tighter, a lot more stringent controls and it's all part of the system. There's not a trend following trader out there, for example, that's just kind of intuitively feeling his entries. And somebody else in the corner of the office is saying, well, let me manage the risk for you. That might be a situation outside of, let's say, the hedge fund world. Yeah, it's a totally different world.
19:52 Speaker 00 The great thing about the commodity end of futures trading is that they are complementary. So a lot of times the shells, BPs, cargills, ADMs are making markets for us. When we need to move size as trend followers, they're providing the liquidity. Well, it's the zero sum game, right? The beauty is they're laying off their risk with us onto the physical markets. So they're not losing money. They're just making a spread between the physical and the financial. The big commercials do lose money at times and trend followers make money. They're not necessarily unhappy, meaning their system has it to some kind of an insurance policy for them.
20:36 Speaker 00 They don't want the volatility. They like the idea that they can kind of see their expectations into the future without the volatility. And trend followers are willing to take it. That's a big part of it, too. Pure commercial hedge positions are built to lose the volatility and give up some of the gains to us. And then the other thing is a lot of times they're facilitating for their customers, for farmers or ranchers. And they're just making a nice spread for themselves and they don't care what happens. So what caused you to shift to being an author that people respect, a consultant that people respect? What caused you to shift?
21:19 Speaker 00 And say, I want to go out there into the world of having clients get mad at me when I lose for them. I have to say that it was one of my mentees. One of the things that I do as a consultant is I do mentorship programs where I take, generally speaking, successful traders, because unsuccessful traders don't have the money to pay me. And one of them, this Swiss gentleman based in near Geneva, we were working together. And he said, I've got this CTA and we should do something together. In that world, I'm just another attractive looking guy in a sea of attractive looking guys.
22:03 Speaker 00 Whereas in my world, training and consulting, I really have something that's extraordinary that very, very few people have. And I'm adding a lot of value and helping a lot of big companies to become more successful. It's much more satisfying with much less headache. And his answer to that was, I will take on all the headache. You do the fun part. You just do the trading and the risk management. Let me handle all the stuff that you don't like. And I said, that sounds like it could work. You're almost two years into it now, right? Yeah. Yes, we started at the beginning of the calendar year. So we are just approaching our second anniversary.
22:48 Speaker 00 Year one was decent, like 16%, I think, after fees. The way trend following was, there's a lot of two steps forward, one and a half step back. And we caught this one really good trend in 2023 in sugar. And that pretty much made 2023 for us. And 2024, I mean, it's not over yet, but I think it's a lot of the same two steps forward, one and a half step back. The exception of cocoa. Cocoa was a bigger trend. We did better. It's probably going to be years not over, but at this point, I think we're up 30%. The drawdowns are like nothing. It's been good in that way, like a return vis a vis risk. It's just one of those hit the cover off the ball type years.
23:32 Speaker 00 And not just for us. Mulvaney, he has like a triple digit year. Let me keep you at that. Sugar for 2023. Now that I'm more engaged on X and I'm quite enjoying it, getting in there and having sword fights, so to speak. I haven't had too many sword fights yet, really, though, so it doesn't seem like anybody wants to fight yet. So I guess I'll have to get a little more volatile. But it is reminding me that when I go into social media, and perhaps, you know, like post COVID and everybody's woken up and they're kind of out there again, so to speak. But I'm noticing that even though I've been in this trend following mindset for a very long time, you have to always pinch yourself and say, well, that doesn't mean everybody
24:13 Speaker 00 else has been there with you. Right? And so I'm noticing that trend following gets misunderstood or misinterpreted, or people just don't get it yet. And I realize I can't just be the guy that sits back and says, well, go read the 20,000 word trend following book. People are like, come on, get out of here. I lay all that out there because you just kind of gave a little bit of a quick and dirty, where you said, well, quick and dirty explanation where you said, well, you know, we caught sugar and it paid for everything. Now I'm thinking, if I'm brand new to trend following, I'm thinking, what does he mean? The whole idea of trend following, let's say you start the year flat, you don't know what's going to happen. You didn't know in 2023 you were going to catch sugar, or you didn't know what sugar was going to do. You didn't know it was going to make a big move
24:58 Speaker 00 and you were going to make big money from it. You had no idea. And that's one of the cool things about trend following is you just have no idea where the money is going to come from. The funny thing was, there was this one potential investor, some big institution, and they said, well, we looked at your trades, trade by trade, they asked for trade by trade, since we've been live. And we took out sugar in 2023 and we took out cocoa in 2024. And really, it wasn't that impressive. Guess what? I built this model specifically for those outliers. They said it wasn't impressive if they took out the two big trades. Yeah, if you take out the two big winners, it's not so impressive. Like, of course not. The model was built specifically to capitalize
25:40 Speaker 00 on statistical outliers. And they just didn't like it. They didn't get trend following?
25:47 Speaker 00 Just wanted to give you a hassle. You never really know what's underneath the hood, but I think that they just have a bias against it. And I think that they have a bias towards sharp, which, as you know, is a flawed ratio. You just basically laid out to them that you're a venture capitalist trader. The VCs don't know what's going to take off. They don't know what's going to be the next Nvidia or Google. They have no clue. If they did, they wouldn't be taking all these positions and all these names that we never hear again after they blow up, they're gone. I just think it's such a clever, interesting way, this whole trend following mindset strategy,
26:26 Speaker 00 to extricate profits in the market, to manage your risk, to not go out of business, to keep enough money there, or when the unexpected happens. That's so clever, so cool. It's just interesting that somebody could have a bias against it. A good argument why you don't want to do it is you don't want that kind of volatility. You want real low volatility where you're not going to have big wins, you're not going to have big losses. You're just looking for a steady seven, eight percent, you know, kind of like a fixed income with a little extra juice to it. Okay, so then an absolute return strategy like trend following is not going to be for you because
27:08 Speaker 00 you're going to have to have drawdowns, you're going to have to have negative periods in order to get that big triple digit return or big high double digit return. You're going to have to take that kind of volatility. So that's a good argument, I think. Trend followers actually have a way of addressing that you really start damping down on the position size. And that's a good solution where you're still able to do trend following, but you get away from the big drawdown. You and I know most people, most allocators, individuals would probably prefer
27:46 Speaker 00 to have the long-term capital management archetype or the Bernie Madoff archetype. They'd be more comfortable with those. Yeah, right. That's the funny thing. And not to pick on them. I know everyone picks on them. Well, not everyone, but everyone in our business picks on them, but Niederhafer, right? It works like a charm. It looks so beautiful and elegant and it's so steady. The returns are so steady until it blows out. As seen, Talib said, it's like the turkey farmer, right? And the turkeys were all happy and every day looks exactly the same and they're always getting fed. But then Thanksgiving comes and that one outlier ends up where there's no more turkeys on the farm.
28:30 Speaker 00 I don't know his exact strategy. I would assume it's short term in nature. But Roy Niederhauser has had a very long career. His brother has had a very long career. So they don't necessarily have to tell the world about everything that went down. I think Victor's story is pretty well known, but Roy has been in the game for a very long time. I don't really know what Roy's doing, but I think that he is not doing the same thing. It's not this short fall model, or if it is, he's smart enough to be long the wings. You can sell at the money calls, sell at the money puts, bring in premium. But then you buy deep out of the money calls, deep out of the money puts in order to manage the risk in case you have some kind of crazy outlier event like Coco in 2024.
29:15 Speaker 00 The funny thing is, Michael, and I think you know this as well as anyone, is that these crazy outlier events, they happen every year. They just happen in different markets. So in 2020, it was the financial markets and commodities. And in 2022, it was grains and energy. So every year you have it, you just don't know which market you're going to have it in. But if you're fighting that and saying, let me get that steady return with a high sharp ratio and I'm just going to be short volatility and it's going to work. Eventually something's going to hit you in the face and you're not prepared for it.
29:58 Speaker 00 I just had a conversation the other day with Marty Bergen, who runs Dunn Capital. And Dunn is celebrating their 50th year, a 50 year. Your track record. And I'm sure as we're talking right now, you and I both know that if we went back and we analyzed every year, most likely did not make money the same way every year. A fascinating mindset, strategy, way of living. Here you are, you're two years into yours. Maybe we'll have a conversation 20 years from now, you'll be 22 years into it. It is so fascinating that this strategy, this mindset, which to me is still under the radar.
30:36 Speaker 00 After all these years, even though there's multiple billion dollar funds, multi-billion dollar funds, it's still under the radar to some degree. Yeah, yeah, I know some institutional allocators, yeah, they're throwing money around and this and that, but it's still relatively unknown. It is one of the great Wall Street stories. But hey, look, you know, most funds in the mutual fund world, et cetera, they're just buying and holding. They have no desire, no need to give any headlines to the trend following world. It's a story that is undersung, let's put it that way. We know it works, we know why it works. And I think a lot of people just don't like the volatility.
31:18 Speaker 00 Of course, there's volatility in buying home, a lot more volatility. I still remember the NASDAQ bottoming out in the fall of 2002. I think it went down 77%. Now, how many people alive today could imagine their NASDAQ going down 77%? But it's got to be part of your menu that you're looking at saying, is this an option? Well, of course it's an option. It happened 20 years ago, it could happen again. The other thing I think that makes it palatable to people in theory is, well, yeah, I'm losing all this money, but everyone else that I know is losing all this money, so we're all losing together. The relative. Performance, right?
32:01 Speaker 00 If my neighbor's going down and I'm going down, we can go down together. And people don't like being out on a limb. And that's, I think, what trend following represents is being out there, making money when nobody else is making money. And even worse, losing money when everyone in the equity world is making money. And having to like somehow explain that to yourself and feel good about yourself in those months. When you're losing money and the S and P's at new highs. You'd have a really interesting research project. I don't think it's been done, but to go back and find out if possible, you know, not everyone's alive still.
32:44 Speaker 00 But to really dig into people in the trend following world, was there something about their internal psychology? That immediately said, I'm going this direction. Whereas somebody else would say, whoa, whoa, whoa, look at that drawdown. Whoa, whoa, whoa, look at that volatility. Whereas some of the people that have gone into trend following had a different feeling. Was there something inherent in all of us? That made us see life through a different lens to where we'd be like, oh, I'm more comfortable with this. I like this idea of, yeah, everything's not going to always be incrementally up. I might have some down periods. The psychology part of it about who's attracted to try and following is an interesting thought.
33:25 Speaker 00 I think for me, didn't like the volatility of it in the beginning. And so I tried other kinder, gentler ways. That volatility is a source of your profits, though. Exactly. And when you show someone, hey, you're 8%, they're like, hey, I'll just buy the S and P. I don't need 8%. It's just not competitive. It kind of forces you to go to an absolute return solution. Define absolute return. I mean, I've defined it on this podcast over the years, but I'm curious your perspective. Absolute return, what does it mean to you? It means that I don't really care about, well, I care about volatility. But as long as I don't blow up, I am going to go for the big return.
34:10 Speaker 00 I'm willing to accept a significant level of downside volatility in order to get an outsized return. That outsized return, you're not necessarily saying to yourself, well,
34:25 Speaker 00 I want to be at 10% a year or 20% a year, but I don't want to be at 100% a year. Exactly right. Are you saying to yourself, though, as I say, you don't want to be at 100% a year? You don't have a restriction like that. If you're grouping of markets that you're tracking and trading, if everything went off in the right way, you made over 100%, you're not complaining, are you? No, no, that's a really good point. I've had people say to me, I'm up over 100% this year and it's September. I'm thinking about just shutting down so that I can have a triple digit year. And I said to them, do you still believe that you have an edge in the markets?
35:08 Speaker 00 Do you still believe that you know how to manage risk? If these things are true, what difference does it make what the date on a calendar says? Well, you know, the answer to that, that's Wall Street, right? Wall Street, looking at people on the annual, the quarters and all that nonsense. I kind of can relate a little bit to it in the sense that I can understand why a manager might be thinking that, because it could affect things. Your point is well taken, but hold on. You sit out the last quarter, that could be the best quarter. That could be the difference between ending the year with 108 and 278, right? Why would you possibly shoot yourself in the foot? Especially because here's the other side of the coin. Michael, you end up with 278 this year and then next year you're down 20.
35:54 Speaker 00 And down 20, it's not such a big deal, but it's especially not a big deal if you're up 278, right? It's like down 20, give it to me. Let's do that every two years. But if you're going to stop, hey, I'm up 40% for the year and just stop trading. And now you've got this new year and that next year you're down 20. You are really shooting yourself in the foot and an absolute return says, I'm not going to do that. When I post examples and stuff and people always look for what they think is the worst case scenario. Perhaps they have no experience. In analyzing trend following, perhaps they have zero experience with trend following at all.
36:34 Speaker 00 But for example, if I post something like a Mulvaney track record or a Dunn track record, just to illustrate, just to teach invariably, the people that don't know about trend following will look at the downside immediately, like their eyes go right to that. They don't even think about debating or arguing or talking about the upside. It's literally, they only see the downside. This is why Condom and got the Nobel Prize, right? It is fascinating where people will exclude all of the absolute returns and fixate on anything that looks like a loss.
37:12 Speaker 00 It's that basic math of finance, which is high risk, high returns, low risk, low returns. At a certain level, if the returns are so low, the risk is so low. The question becomes, why bother? All the heroes that we read about in Jack Schwager's First Market Wizards, those guys weren't sitting around shooting for 10%. All of the heroes that everyone is ingrained in their mind from that first book, and I'm glad Jack did that first book. And a lot of those guys, as I've said on this podcast, are trend following traders, but they were shooting for the moon. John Henry did not buy the Boston Red Sox because he was trying to make 8% a year.
37:58 Speaker 00 You want that big upside? It goes back to your friend Ed, right? Who said, one good trend pays for them all. If you shut the door on part of that good trend, you don't have the money to pay for the losses. That's a great place to put a pin in it. We will have to make sure we catch up more often. I admitted this on the episode with you, and I've probably said on other new episodes too, but I just think that for me, I need to go back to what brought me doing the podcast is interesting. And if I get outside trading guests that really are open and honest and share their story. Sure, I'll have a conversation, but there's nothing like talking to people involved in the markets and trading,
38:42 Speaker 00 because this is just a fascinating topic for me. And it's how I'm even here. So I just find that going forward, I think I want to have a lot more trading conversations. I always enjoy talking to you, Michael. It's why I got into this business. It's a lot of fun. That's another great point, too, right? Fun. We want life to be fun. If you're sitting at home right now, you're not happy with whatever the job is, or this or that. I'm not saying that you necessarily need to become a trend following trader, or a trader, or anything to do with the markets. But damn it, try to have some fun in life, right? Joseph Campbell, follow your bliss. There should be that core of joy, I believe, in what you do for eight hours a day, or however many hours it is.
39:25 Speaker 00 Richard, people can check you out on Amazon, easily, easily found. Trade like a casino, find your edge, manage risk and win like the house. But also, the new firm, the Tape Reader LLC. I'm sure you want to tell people where to come check you out on that. The easiest way is the website. It's tape reader.co. And they can reach you there if they want to, if they want to get in early. I mean, look, you and I can't make any promises, but hey, who knows? Maybe 10 years from now, Richard's gonna be on that massive new 787 private jet, stopping in here by the Ho Chi Minh
40:06 Speaker 00 City, right? Great stuff, Richard. Let's stay in touch for sure. And again, tape reader.co. Thanks so much, Michael.
40:20 Speaker 00 I see a time when those awake will understand how to make money in up, down, and surprise markets. Whether new trader or experienced, college student or financial advisor, protecting against a crash or just trying to make a lot of money, trend following offers everyone an answer in uncertain times. To get started immediately, send me an email, [email protected] . I will send you the right trend following steps to take, along with my free video. But if you want to buy and hold, trust the government and trust Wall Street, this is absolutely not for you.
Previous Ep. 1318: A Christmas Education with Michael Covel on Trend Following Radio Next Ep. 1320: Happy New Year with Michael Covel on Trend Following Radio Page updated November 7, 2026 · transcript and summary are machine-generated
