Ep. 1369: Trading Mindset with Michael Covel on Trend Following Radio

Please enjoy my monologue Trading Mindset with Michael Covel on Trend Following Radio. This episode may also include great outside guests from my archive. --- 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 https://twitter.com/covel Facebook: @trendfollowing https://www.facebook.com/trendfollowing/ LinkedIn: @covel https://linkedin.com/in/covel/ Instagram: @mikecovel https://www.instagram.com/mikecovel/ Hope you enjoy my never-ending podcast conversation!

• 0:00Speaker 00

  Reaching out to you from the parts unknown. Somewhere I happen to be in America this December 2025. And I want to reach back into the archives a little bit for a reminder, a reminder about great trading and in particular, a great trader. Look, everyone knows my specialty is trend following, but I do have respect for those traders who have consistently done very well with different strategies. My guest today is one of those traders, a legend. I hope you enjoy and next week, a full throated monologue is coming. See you soon.

• 0:59Speaker 01

  I first reached out to my guest today in 2005. It just struck me and we talk about it in our conversation, nine years ago. Damn, time flies. Toby Crable is my guest today, Crable Capital Management. Short-term systematic trader, quant. Very different than most of my world. Now a lot of commonalities. Price action driven, systems, models, risk management. But Toby is working on a whole different timeframe, turning his portfolio over typically

• 1:44Speaker 01

  in less than a day. But I still remember our first meeting. It was a great conversation and what struck me about Toby was his philosophical nature. The competitive sports side, a former pro tennis player, but that philosophical nature. And then executing it in the systematic trading world. I thought it was such a unique story then and today. I hope you enjoy this conversation.

• 2:23Speaker 01

  Toby, Mike Covel.

• 2:25Speaker 02

  I'm Mike, how are you?

• 2:27Speaker 01

  Man, it's been a long time. I was thinking, I think it could be nine years since we spoke.

• 2:32Speaker 02

  I think that's right. I think it was in the Virgin Islands, right?

• 2:36Speaker 01

  Yeah, I was like, wow, where's time go? That's really scary.

• 2:40Speaker 02

  It's frightening.

• 2:42Speaker 01

  I just hope they figure out this life extension soon before we leave.

• 2:50Speaker 02

  Yeah, yeah, yeah. Interview Ray Kurzweil, I think he's after it.

• 2:57Speaker 01

  So how's it going?

• 2:58Speaker 02

  It's okay. I keep working at it and improving a little bit incrementally, you know, and those little gains help. So the firm's going well, my family's good, and we've fully moved out from Wisconsin. And it's a good life, you know, playing a lot of tennis and there's a lot of good things happening here.

• 3:22Speaker 01

  Let me jump into the setup of tennis, but first I want to describe a few big picture points that I want to drive right into what you just mentioned. So the head of Crable Capital, over a billion asset center management, since 1992 your track record starts, but not an overnight success story. And I just checked on Amazon today to go to look at your book, "Day Trading with Short-Term Price Patterns," priced at $981 for a new copy.

• 3:50Speaker 02

  A little low.

• 3:53Speaker 01

  So, but here's where I want to go though. Before all this, pro tennis player. I think you've got as high as 280, or as low I should say, 280 in the world. Talk to me about though, that experience of being such a competitive tennis player, you know, the eight hours a day for years practicing.

• 4:18Speaker 01

  Is there a direct translation to the competitive drive that you have in the asset management field, the fund management field?

• 4:22Speaker 02

  I think a direct translation, actually. I mean, I refer to it all the time. It's an analogy for what I'm doing in my business and the way I approach things. So, you know, especially in those early years of the track record. But it's a good, it can be a good, a good training ground if you take, take away from it the idea that we can always get better and we can improve at what we're doing. And, you know, the one, the one thing that's, that's very clear, there's losing, there's losing days and there's losing, losing trades and there's losing tennis matches.

• 5:04Speaker 02

  And how that's handled and what you take away from it is the most important thing. So that's, that's, I think they, I think for me is the key to longevity and this, the solace that I, you know, I, I haven't always done that very well. I mean, in tennis, I think I stopped a little early. I had, I had, looking at the record, I had a lot more potential than I, than I gave myself credit for. So one of the things I, I take away from that first career is that I'm not going to quit. So that's, I mean, there's been some tough times in these markets and, and my own business and I just don't, first of all, I don't want to destroy anything that I have by having

• 5:48Speaker 02

  too big a drawdown. So we're very conservative with risk and I think that permeates the firm. And then secondly, you know, what you're, you're there to, to fight for another day, you know, you, you don't, you don't let yourself get overwhelmed by, by the tough times, the losses, you know, the, the day-to-day grind of it. You, you know, try to elevate a little bit and, and keep, keep my head about me when it comes to that.

• 6:17Speaker 01

  I'm guessing from a tennis analogy, if we're going to stay there for just a moment, you would probably prefer the consistency of a track record, if I pull up Wikipedia and I look at Federer versus a Nadal. Nadal is fantastic, but he doesn't have, best that I can tell, the consistency is just, it's, Federer's in a completely different league.

• 6:36Speaker 02

  Yeah, I, I, yeah, I truly do admire, of course, both players, but Federer's...

• 6:44Speaker 02

  Oh, it's incredible talent, but the way he plays, there's a conservation there of energy, I think, that will allow him to play, I think, probably we'll see a lot, a lot longer than a lot of players. And there were others like that in the history of the game. I mean, Ken Roswell played into his 40s and did very, very well. It doesn't happen as much anymore, but, you know, there, I can think of, Patrick Gonzalez was in his 40s when he, I think he did very well at Wimbledon one year. You know, so, yeah, I mean, if you're, I don't know if it's pacing yourself, but you just, Nadal's passion is fantastic. You just, you have to love the intensity that he brings to the game, and there's really

• 7:28Speaker 02

  something really important about that when you see it. But yeah, I mean, when I think of my, my career is, especially this one, you know, I'm thinking, I'm thinking lifelong. This is something that I really enjoy, and I'm, I'm just fascinated by markets and price movement and how to, how to quantify that. You know, it's my science. It's what, it's what I do. And it's hardly, I mean, you can, you can train in other sciences and that'll help, but it's, it's, you gotta really get in there and work with the, work with the market data and use your imagination. So, yeah, it's a, this is a lifelong pursuit,

• 8:10Speaker 02

  Mike, and I think that, I don't think I'd have it any other way. I'm just, I'm not going anywhere.

• 8:16Speaker 01

  Let me drive into this. So, I want to break apart the, some trading aspects and details of how you approach the markets philosophically, et cetera. But I know when we talked years ago, you really thought that your space, and we were talking, we had a nice long conversation comparing your style of trading to trend following, some of the quant trend following, and there were some commonalities, but your timeframe was very different, and you painted a picture that you were in a pretty unique space, that you, you didn't, you weren't, you were very humble about it, but you, you were saying it was very difficult to compete with your strategies, whereas there might be, there definitely are, many more trend following traders out there, and still to this day. So I'm curious, do you still feel

• 9:00Speaker 01

  like you have this unique space, your firm and its multiple strategies?

• 9:06Speaker 02

  I think so in the money, uh, money management world, you know, handling client capital. I think it is unique because in most of the shops that in what I think our evolution is, we're moving shorter and our holding periods are tending to be shorter. So that lends itself to, you know, there's only so much in the way of assets that you can manage. Um, and there's a demand for it if you're, if you're good at it. Um, so you have to be, you have to be careful. Uh, and what happens is I think there's some very good proprietary firms that have evolved into relatively short-term trading like us or shorter. And the high-frequency firms are certainly an example of this.

• 9:51Speaker 02

  I think that they're, they're primary, they're primarily or almost exclusively high-frequency are, are prop firms. So they're using their own money and investing that and, and, uh, instead of trading client capital. That it's understandable because of the capacity constraints that exist in the short-term area. But yes, this is, it is unique because in the, and it's certainly in the money management field, uh, there aren't a lot of, there aren't a lot of us, uh, I mean, what we do is we're trading primarily liquid instruments or a liquid product for clients. We, we trade frequently, we're, we're less than one day and our holding period on average is a lot of turnover in the portfolio.

• 10:36Speaker 02

  It costs a lot. It costs a lot to run the business. There's huge challenges in the execution area. So we, we really, it's not an area that I think is, it just not that because of the, how it's prohibitive to, with the cost, there is just an expensive proposition. So there's not a lot of people that are, are going into this. So, but, you know, I came by it honestly. I did, I worked with a floor trader in the early eighties.

• 11:03Speaker 02

  And we had a joint account and his account, he paid no commission. So I was led by the nose to be trading and to take profits intraday. That just stuck with me over the years. That's just what appealed to me after doing that. You're just kinda, you're kinda hooked. So yeah, it's a unique, it is a unique area in the money management field for sure. There's plenty of prop firms though that do this. And those are true competitors, I think. When we think of where we're at on the planet, it's those prop firms that really stand out to us.

• 11:40Speaker 01

  You know, we spoke before, it was multiple diversified systems, applying them systematically across multiple different timeframes. Where are you in your total number of systems these days?

• 11:53Speaker 02

  Yeah, it's, you can talk about the systems individually and there's several thousand in the portfolio. Or you can talk about the ideas, which are broader conceptual frameworks that we work with. So, for instance, in my area of the portfolio that I oversee the strategies in particular, there's, I'd say there's probably 25 conceptual frameworks that I'm working with there. And I think the rest of the portfolio managers in the firm think in the same way. So they have a broad conceptual framework and then they apply it in particular with a strategy.

• 12:34Speaker 02

  And may even vary it slightly in the different markets, because markets are different. The universals apply throughout all markets, but there are particular aspects of each market that you, some you should probably take into account. So what I like to say is that, you know, the markets are the same in principle, but at the same time, they're different. So we're dealing with two sort of different formulations of what markets are. Are they, do you optimize for? Each market, um, um, well, not heavily, but yeah, you do make, you, there are variations for each market.

• 13:17Speaker 02

  And that may count as an individual strategy, you see. So that's, that's probably why the number is, is as high as it is.

• 13:24Speaker 01

  You would like your models working across all markets, though. If, if that model works, you, you want it working at all markets.

• 13:31Speaker 02

  And when you're doing the testing, you, you want to see the, uh, you want to see it apply universally, I think, across all markets without much variation. Actually, without any variation. So that, that's step one. Um, after that, you may, you may go in there and, and take a closer look at it. You know, because one, one example clearly is that there's a lunch hour in Asia, in, uh, Hang Seng, I think it's Hang Seng, yeah, Hang Seng takes off for like an hour and they go to lunch. You know, if you're going to trade that, you have to, you have to come for it. It's almost like a new opening, the second, the second round, uh, when they come back from lunch, it's, uh, starting fresh.

• 14:14Speaker 02

  You know, back in the day when I wrote opening range breakout, I don't know if I took that into account. It may be something to take into account. Have two openings a day in, in the Hang Seng market, well, that's a unique sort of construct. You got, you, you have to take those kinds of things into consideration. But the general principles apply. That's certainly what I've seen and tried to adhere to is that, because that's a more robust framework then when you're, when you're building these, these portfolios. There's, you know, there's not any clear cut statistics that tell you what it is you're supposed to be doing with a strategy. There's just not that much insight in this, in the stats, but what, but what you do know

• 14:55Speaker 02

  is that if you can find something, a widget that can be applied, uh, in sort of a universal general way, then, then you have something that's really, really powerful.

• 15:06Speaker 01

  The phraseology you'd used years ago with me was a kind of an assembly line thinking is what you were, that automation and being able to apply it religiously.

• 15:16Speaker 02

  Yeah, yeah, that's, it's an appealing way of looking at it. Sometimes, sometimes it really, I think what it does is it keeps you, it keeps you honest when you're applying these strategies. So, that's very important.

• 15:31Speaker 01

  So Toby, when you're talking with clients or you get the random elevator pitch, but you probably don't get too many of those, but, or you have to give the random elevator pitch, people want to know, where did the profits come from for Crable Capital Management? So, you know, you've got counter-train strategies, you have momentum style strategies, you probably have others that I don't know about, but where philosophically do you see those profits coming from? Why are you able to extricate those profits from these liquid markets, liquid futures markets, etc.?

• 16:03Speaker 02

  Well, I think when we're successful, what we're trying to do is find areas where it's very difficult for participants to, to act, places where there's market price action that aren't, aren't comfortable places for a human being to, to trade in the way that we're trading. And those seem to be the most profitable. And, you know, if you, if you're a discretionary trader and you're doing that, either you're rewiring your sort of innate psychological disposition in order to, to do that sort

• 16:44Speaker 02

  of thing, or the fast track to this is to quantify it and then just let the machine do, do the work. Because, but over time, a discretionary trader going against his, his, his nature, fear, you know, greed, will wear, wear down because it's, it's traumatic in a way.

• 17:09Speaker 02

  Um, and that's, that's, but that's where the automation is a real help. You need, you need, in order to get an edge, you need to do something that essentially nobody else can feel comfortable doing. I mean, there's gotta be some people, but you, you know, you're, you, you may be the first, or you're very early on. So the recognition of that requires a little, uh, getting ahead of it a little bit. You know, seeing, seeing the market work itself into a position where it's, it's, it's vulnerable to sort of weak thinking that can take place because we are, we are vulnerable as humans. That may be too philosophical, but the, the problem, you can't, you, you can't, you don't want, you don't want crowded trades.

• 17:54Speaker 02

  You, you wanna, you wanna be there when it's very difficult for other, other traders to, to operate. And that's the, that's sort of the wonder of systematic trading, I think. It's real benefit. But that said, we, we tend to try to find the times when it's right to go against price action. And then, you know, as my early work would suggest, I also was looking for times when the market is ready to move directionally at any given, you know, day and, and isolate those environments. Uh, that's a, that's an interesting area of work. Um, the markets are different at different points and that has to be taken into account.

• 18:38Speaker 02

  You have to, you have to, it's almost as if there's two separate, but there's more than that. There's, there's many different environments and, but, you know, traditionally our portfolios have been separated into at least two primary areas of mean reversion and momentum. It's our job to find out when it's right to do that.

• 18:59Speaker 01

  You've not strayed from, uh, price action. You are, your firm is price action at its foundation.

• 19:04Speaker 02

  Yeah, and everything else that kinda goes along with that. I mean, volatility and volume and, you know, there's, there's other, there's other factors I think that are, are primary in that, but price action is a starting point. Price is the starting point. It makes it easy too. I mean, you get a lot from just looking at price alone. There's a lot there.

• 19:23Speaker 01

  Talk about volatility since you bring it up, and I think everybody knows in the last, the last month or two, we've, we've, we've seen some significant volatility across the board. And volatility is something, and a little bit of chaos, a little bit of markets starting to have that enthusiasm. That's not something, that's not a negative for your firm.

• 19:43Speaker 02

  Well, it depends. There's winning and losing volatility. We prefer the winning volatility. At this point, you know, what we have seen is this, and it's, it's changed a lot of things in our firm. But up till, up till a few months ago, the volatility was at record lows in most of the markets. Foreign exchange market, the interest trade markets, even the stock market as it was rallying was on relatively narrow trade day to day. And so the volatility, I mean, the VIX was at a very, very low level until just recently. But with the foreign exchange markets perking up in the last couple of months,

• 20:26Speaker 02

  it's, it's, I mean, literally, in most of the foreign exchange markets, euro currency, dollar yen, you, you had the lowest volatility region that you've, I've, I've seen since I've started trading. And those were relatively good markets for us to trade in the past. If the volatility gets too low, there's no movement, there's nothing to really take advantage of. You need, you need, you need price movement. What's happened, though, is all of the markets, starting with foreign exchange a couple of months ago, have, have changed. And the volatility has increased at least, at least, oh, God, at least doubled,

• 21:08Speaker 02

  which is a welcome to what we're, what we need and for profitability. We need price movement. Now, the other thing, of course, we need is volume. And of concern is what happened in the last week or so with a lot of the markets when you had these very large price moves.

• 21:28Speaker 02

  The volume dried up significantly. And we haven't really seen that. That's a new front. I mean, it's sort of this early in a cycle of volatility. It's sort of a unique circumstance, which leaves a question mark for me as we go forward and the thinking that we're doing about allocations and the kind of risk that we may have in the market. So that's another story, but volatility has increased. It took a long time. I don't think this is going away. As markets contract like they did for as long a period as they did, it's my opinion that the volatility cycle is on the rise rather than declining in most markets.

• 22:12Speaker 02

  So something's up, in my opinion. I mean economically, I can only, I don't know what that is. I do suspect that with the amount of intervention that's taken place in the markets over the years by some of the governments, the US in particular, it's created a circumstance that can be very, it can end up being very volatile, in my opinion.

• 22:38Speaker 01

  Let me interject real quick there, because I think this is something central to your firm, and we talked about this when we first spoke, is the idea of shocks. And, you know, when these volatile situations start, we can think back to the summer of '07, it was almost foreshadowed what came into '08. Now, of course, I'm not trying to make a prediction or anything, I'm just talking. But the idea of shocks, rubber bands snaps, this is something you think about all the time, you're prepared for it, and you knew as a young man, and you saw this happen to other people, you did not want your risk, you didn't want to risk your career on price shocks.

• 23:11Speaker 02

  Yeah, that's the truth. Well, we still have occasional bumps in the portfolio that certainly cause some sleepless nights. I mean, not... But look, I mean, the clients have a certain appetite for drawdowns. And if you're within the range that you propose, and if you can adhere to that, you're in good shape. You're doing what you say you're going to do. And that's very, very important when you're endearing trust in a program like ours.

• 23:52Speaker 02

  So, but yeah, price, I think we could say just in this last week, we've had something of a price shock. When you see, every time you see those, you understand where your weaknesses are thoroughly. So, that has, that's an area, it's a learning. It's a, if you're not, if you can continue trading through that and you're okay, you know, you haven't lost, had a huge drawdown, or, you know, hurt your clients very badly, you've learned something. And there are things that you can put into place that will protect you further from these kind of things and these kind of events.

• 24:35Speaker 02

  And then, of course, you try to, try to think ahead at what can create real problems for the portfolio. But it takes a really thorough knowledge of what's in there, and what, how the portfolios evolve. And there's a lot of production going on in our, in our company, a lot of strategy development. And you have to stay on top of that and really understand what it is that people are implementing in the portfolio, and so to truly understand your risk. But that is, look, if I'm building a 50-year track record, and I'm almost halfway there on this, which is, you know, a goal of mine, you have to, you have to be able to get through those price shocks.

• 25:20Speaker 02

  Those are the things that are lurking out there that can thoroughly put you out of business. And I say, yeah, you're right, I have seen it before. I, it's a... It could be terrifying.

• 25:30Speaker 01

  You started your career as a guy with higher drawdowns, much higher drawdowns. You've changed that, I mean, like a complete opposite side of the coin. I mean, you've gone from high drawdown to, I think, I was looking today, between a max of, let's say, fifteen to sixteen percent on your big portfolio?

• 25:47Speaker 02

  Yeah, and it's been a long time since we've seen that. That's a pretty big drawdown. I think we're right, that would be a big drawdown now. So, you know, hopefully our risk-adjusted return is improving. But, you know, when I was trading at the beginning, I wasn't thinking about portfolio management and I wasn't really tuned into what a client would want from a portfolio. So, risk-adjusted return has become the primary benchmark measurement for our firm. Certainly, we do want to have a consistent return, but we are a return, a decent return,

• 26:25Speaker 02

  but we also want to do it in a way that, you know, in a less chaotic way than, say, the S and P in its long-only position in the S and P. We would think that we would be far, far better than that. Our drawdown should be less and our return should be higher, relatively speaking, than a lot of our any instruments out there. So, we really want to be at the top of the risk-adjusted group in the hedge fund world.

• 26:53Speaker 01

  I think you told me years ago, it was, it might be less today, but two one-hundredths of a percent risk per trade?

• 27:01Speaker 02

  Yeah, I think it is less, actually. Because of the more strategies you have, the less you allocate to each one. But that's part of the risk reduction in itself. There's diversification and low correlation between strategies and the more you can bring on that are truly not correlated.

• 27:22Speaker 02

  It seems like the better.

• 27:24Speaker 01

  I'd love to pick your brain just for a second and pretend this is like an audience question. So the trader out there, the would be investor, and they love their one market, perhaps. They only fixate on one market, perhaps a currency, or perhaps just one equity index. And then when they start to trade, they put these huge amounts of risk on. Maybe they could get 5, 10, 15%, perhaps more, into this one market of their net worth. Why do you talk about, you've been testing systems and looking at these things for decades. Just give the big picture, out of the gate, why that's such a bad thing to do, to be fixated on the one market and to be extending yourself risk-wise. I mean, everyone should know instinctively, if you start risking that amount, you can

• 28:08Speaker 01

  blow yourself out, a couple losing trades and you're gone. I mean, capital's not unlimited.

• 28:12Speaker 02

  Well, there's the allure of the profit, too, on the other side of that. So it could be quite appealing, visions of change of life and quality of life, if you can hit it on that trade. That's a problem. It's again, there's a gambling element, gambling mentality that's leading that. But I think this is part of the evolution of any trader. When I started out, I traded, you know, you trade one market with one strategy. It's that. You have a partial strategy, undeveloped. So, but as you, as I moved along, what I've done is I've broadened out that and tried

• 28:57Speaker 02

  to diversify through different markets and strategies. And we're still doing it. I think we're trading 300 markets now, which is much more than I think when we last talked. That's 300 futures markets and foreign exchange. So, you know, equities presents a whole area of diversification if you do it right for us. For the beginning trader, though, I mean, if you can imagine, say, a discretionary new trader, he doesn't have the knowledge base.

• 29:29Speaker 02

  Doesn't understand a lot of different strategies. He starts with one strategy. And I heard a quote from Richard Dennis. He, I think it was, he, it was in one of the Market Wizard books. That at the beginning of your career, you should be trading the smallest or the least amount of capital on the line. Because that's when your knowledge is, knowledge level is the lowest. And as you, as you increase your knowledge base, you can increase your allocation. I think that that pretty much says it all. So to a new trader, this should, what it should be, it should be a learning experiment

• 30:14Speaker 02

  at the, at the outset. And if you're experimenting, you, you don't do it with a, a, a, a large amount of your capital. You do it with a very small amount, just maybe represented, or you, you don't do it with any capital. You just pay for trade. But, um, you evolve into a more complex, uh, trader by, if you can stay, if, you know, caveat on this, if you can stay in the game to learn. So you don't want to damage yourself. You know, there's a lot of people who just drop by the wayside because they just cannot handle the loss if it's too big. Those traumatizing losses can take you out of, out of the game. And you, if you're not in the game, you can't learn.

• 30:56Speaker 02

  So you, you, you want to, you want to stay here. You want to stay in the game. You do not want to risk so much that it just totally traumatizes you.

• 31:05Speaker 01

  Was there a moment in your trading career where you felt like, wow, I'm at the point where I'm at the cliff and this could go drastically wrong? Or did you shift gears completely at some point in time and say, I'm just walking away from, we talked about having steeper drawdowns when you were younger. Is, is there any kind of moment that you could think back to that kind of a revelation where you just said, wow, okay, I now know the direction. I, I see the space where I should be?

• 31:31Speaker 02

  I think that the, when I, when I went and worked Victor Niederhauser's shop, it was very, very clear to me. It was a sort of an integrating moment for me because I, I could see. The research platform that was the best I'd ever seen, bar none, and it was, it was a great team that was working there and he had, he had hired very, very well. And I was just happier than could be to, to have, to be working there with, with someone like Victor. Now Victor has different risk parameters on his trade. That's, that's another story, but, but as far as a researcher and a, a, a market philosopher,

• 32:16Speaker 02

  I've never seen anything like Victor Nierhoff. He's, he's an amazing man. And, um, and the fellows that worked there, a lot of them I work with now, in fact, in my firm, I, uh, we have six or seven, uh, gentlemen that I had met back in the early nineties when I worked there. But whatever the 10 or 12 years, when I started in 1980 around the trade, uh, the floors, uh, the exchange, when I got to Victor's 12 years later, I had a pool of market knowledge that I'd kind of developed the hard way. And when I brought it into Victor's, it just, it just, it sort of came together for me.

• 33:00Speaker 02

  That's, I felt, I felt confident that I could do, I could make something happen in the, in the field. Uh, it, it wasn't that I wasn't profitable, uh, previously in the, in the eighties, but it wasn't, it wasn't as consistent as I would have liked.

• 33:16Speaker 01

  Might be a good time to interject, just as a kind of a side note, and I know this a little bit about, uh, Victor's background too, enjoying the philosophy of, of objectivism. And I believe you do as well. Would you mind commenting on how that has affected your business life, your life in general, your entrepreneurial life?

• 33:34Speaker 02

  Well, in the eighties, I think I was, I just, I, when I started trading, I, I just got off the tennis circuit. I played in Europe for a few years, played team tennis there.

• 33:48Speaker 02

  And my philosophy, my view of life was a little bit different and I didn't really, objectivism, I, I came across in, uh, I came across what Atlas Shrugged in nineteen eighty six and read that, loved it. What it did, what it did for me was, and this is the marvelous thing about Rand's work, is it provides a very clear-cut moral code. In fact, the only one that I've, I've really ever seen that, that supports what we do, you know, capitalist behavior, the capitalist system. And so for an entrepreneur, uh, like myself, I, I had

• 34:30Speaker 02

  to, I, I really felt it was essential to, looking back on it, it was essential to have incorporated that in my, in my life. It changed, it changed my thinking. It justified my actions. You know, markets are very, you know, when you're around the exchanges, you kinda, you kinda look at your, your fellow trader, that would say, some of the guys that came off the floor. These are some rough-and-tumble fellows that were around the Chicago exchanges and, and, you know, I, I almost, there were times when I wondered whether this was really what my calling should be. In fact, a couple of times in the eighties, I went and interviewed for jobs as a tennis pro. And thank God, I, they didn't hire me.

• 35:14Speaker 02

  (laughing) Because I may have, I may have been doing that. Of course, I would have found out quickly enough that that probably wasn't what I wanted to do after all. You know, when I, when I ran across Ayn Rand's work, it was an integrating moment for me also. And it, it led me to Victor. Now Victor has variations on his own position philosophically and, you know, that's, we all have a, our, our different views of things. Essentially, he was a free-market thinker and he, uh,

• 35:48Speaker 02

  We met because of that and plus he was a racket guy and he liked tennis players. So that I went out and played tennis with him quite a bit at the beginning. It was an entry, along with my book, it was an entry into Victor Niederhauser's world. But those were huge, I think, very, very important moments for me. Yeah, I can't say enough about it. It's still an important... You cannot, you really can't justify, I don't think. It's very hard to. There's a lot of confusion, I think, philosophically. You know, look at the regulatory groups out there and the people clamoring the newest

• 36:32Speaker 02

  book on flash boys and the beatings that traders are taking at just about any level. And, you know, how do you combat that in any way without some sort of sound philosophical underpinning? And I think Rand's philosophy provides that. It's an excellent moral code, in my opinion. It's a sane moral code.

• 36:58Speaker 01

  Let me add back just one little bit on Victor. And I think it's interesting that, you know, everyone can read the press accounts from the last 15 years and whatnot, and many of those ended up being negative. And of course, he runs a very popular site and a lot of people contribute there. But I think what's interesting is how many notable traders cut their teeth there. I mean, his brother, for one, you, many others that you could name off. So it's really interesting how many people really gained a toehold and a foundation. You could argue that you guys, in some ways, were another version of turtles, perhaps, just a completely different setup. But, I mean, there's a lot of people that came from being around him to have great success.

• 37:42Speaker 02

  Well, Richard Dennis, I think, when he had his experiment on whether he could train traders out of, you know, create traders out of nothing, he brought in...

• 37:56Speaker 02

  The original turtles and I think that was fascinating. The one commonality is that they're quantitative. Victor was running a business. This, this, he was just, he needed to hire people and what happened is that he was a quantitative shop primarily. You know, you just, you learn the ropes when you went in there. You were at the, you know, you work with the master. He, he, uh, he was a powerful intellect, uh, when you worked with him. He, he was a professorial. He, he was tough. He was, but he, he was a real teacher. Now, Rich, the, the turtles are, I don't know. It's a, it was, I don't know

• 38:36Speaker 02

  much, as much about that. But as far as the, the fanfare around and the, some of, I think some of those guys have done very, very well. They have a lot of volatility in their portfolios. I, but they are generally all quantitative and that's the, that's the real similarity. I mean, you can teach quantitative work. It's, it's something that is transferable, I think. Uh, developing a portfolio is a little tougher. I don't, Victor never really taught portfolio development. I think Richard Dennis may have more with, he, I mean, they diversified through many, many markets, uh, right at, right at the outset. And I think that that

• 39:14Speaker 02

  was, some of the, some of the portfolio work that, that I do started with his allocation concepts that I, you know, I drew from the readings and some of the, some of the turtles that did talk about it. So they, you know, this basic, basic allocation methods. It's a good starting point when you're allocating to a lot of different markets. But, you know, they, a lot, I, I'm lucky because I met a lot of these fellows. Um, they, Monroe Trout was also a, uh, came out of Niederhofer, which is probably of any of, any of the graduates. He's the most successful. And, uh, we don't hear about him much anymore. He's theoretically

• 39:57Speaker 02

  retired, but he, he was, he was brilliant and did a fantastic job of building a business.

• 40:01Speaker 01

  Hold on, hold on, hold on. Theoretically retired.

• 40:04Speaker 02

  I don't know. I can't tell.

• 40:08Speaker 01

  We'll leave it at that.

• 40:10Speaker 02

  So anyway, he's a great example. But we have, like I said, we have four or five portfolio managers in our firm that all came out of Victor's and some of the best, I think, other than Monroe or Roy. So it's rewarding. It's a great, great group to work with. It's a wonderful sort of intellectual environment that we have that I'm really, I'm really much, I'm very comfortable with. When I first started, I was a little lonely. I miss the guys at Victor's because there was a camaraderie and a very interesting, it

• 40:50Speaker 02

  was an interesting group of guys and luckily I've been able to bring them on as time has gone by.

• 40:57Speaker 01

  Hey Toby, you mentioned 300 futures contracts today and I think since we've been talking, some of the quant style at the longer timeframe trend following models and some of the shorter time, shorter term models, for example, some of the guys that you mentioned that you got to know from Victor Niederhauser shop, the, talk about the, I think there's another commonality there, which is the liquid futures markets. So many, so many of the traders that everyone reads about and all the books, the market wizards books, futures trading, that was the, there was a tangible liquid, I mean, why don't you talk about futures trading for a second?

• 41:36Speaker 02

  Well, I think it's the most, it's the most liquid markets that we can, that we can trade and I think that it's, there's central clearing, there's objectivity, I think it's, things are extremely visible, we can liquidate our positions very quickly if we need to. That's comforting, I think, to the clients. I think a lot of the best traders started there or they gravitated towards these are very, very liquid instruments and their strategies were worked around very liquid trading instruments.

• 42:21Speaker 02

  And I, I think, I think it's no, no mistake, I mean, I think you look at

• 42:27Speaker 02

  You look at some of the most successful traders out there, Paul Jones, Lewis Bacon, Monroe, Monroe Trout.

• 42:34Speaker 01

  The list goes on. Paul Jones, Bruce Covner.

• 42:37Speaker 02

  Jim Simons.

• 42:40Speaker 01

  David Harding, everybody, yeah.

• 42:41Speaker 02

  They trade a lot of equities, but they, but that's, that's an evolution. I think they started with the, they started with the futures markets in a lot of, a lot of cases. So, um, it's a great place to learn. It looks like there's opportunity there to a trader, I think, when they first enter the trading world.

• 43:01Speaker 01

  You know, you're a pretty, you're a pretty ambitious guy, Toby. Uh, we, we talked about that years back. Give some inspiration to people out there. I think sometimes people think that there's this tried and true method. There's this system that you can follow for life. You, you know, if you just work for this guy, everything will happen. Uh, but as you've talked about in this conversation, it's, it's not that. There's no straight line. There's no do this and you will win. But I think a lot of it, if anyone's listening to you, it's persistence. It's just drive. It's find that passion, find that calling and stick to it and know you're going to take body punches. You're going to take gut shots and it's how you pick yourself up.

• 43:39Speaker 02

  Well, yeah, and try, try not to get hit too hard. You know, stay in, stay in the game so you can learn. Um, and the learning process. Look, we're all, we're all going to make mistakes. One of the most important things for me is that I was very, I was very clear. I, I needed to learn. I needed to feel that I could develop and get better. So my market IQ could, could expand and improve and my understanding of the business could ex, could expand and, and I could, I can get, I could get better at it. It wasn't a static place for me. I think that.

• 44:23Speaker 02

  You know, and that is, that's, that's what, that's what has happened. I learned, and I think that we all do that. We have to know that at the beginning, we don't have as much, we may be very, very, very, very bright people that come to the markets. You know, I can't tell you how many PhDs in the sciences are being hired now by these firms to come in and do research. We do it ourselves. We really look for scientists and people that have great quantitative skills. But without market knowledge, there's, you know, they don't, they don't really have anything. So that, that has to be developed. And you have to be able, mastery

• 45:07Speaker 02

  doesn't come in, in, in a year or two. It's, it's a relatively long process. It seems like maybe a 10-year minimum, anyway. If you're gonna get to a point, you know, by the way, I, I mentioned that, I mastered, I don't think I've mastered this quite yet. I still have more work to do.

• 45:26Speaker 01

  Hold on, that 25-year track record says something. I'm not sure what, but it says something.

• 45:32Speaker 02

  Yeah, it's not bad. But I think we're, we're, we're really just, that idea of trying to improve, in order to do that, you have to be passionate about what you're doing. You really, you really have to love your work. You, it's, it, it is your passion. So without that, without this sort of constant fascination with what the market is, for me, in my, in this, in this area, I think it's, it's true in any profession, you find what you love, be thorough about that, and then you, you master it over time. And I can't, I really don't, you know, we, there are certain limitations that we have on the

• 46:16Speaker 02

  planet. It's wonderful what we can do as human beings. I mean, we can, we can, we can actually get smarter.

• 46:23Speaker 02

  By building our pool of knowledge, make better decisions through practice. I mean, it's, trading isn't much different than hitting a combination of underspin and topspin backhand. You have to hit thousands of them and you get better and better at it. That's what we do. And I, and I think that, it's sort of the human condition and finding your passion and then mastering it, I think is one of the, the highest levels of, of what we do, what we humans do on the planet. So, it, uh, I hope that conveys.

• 47:02Speaker 01

  No, it does. Listen, I appreciate you taking the time today. I could keep you all day and just keep chit-chatting about all kinds of stuff. I, I do have one kind of last, uh, we could keep talking, but I have one last thing I really kind of would love to touch on. And you've talked a little bit about, um, who you admire and some of, uh, mentors and we've talked a little bit about that. I'm curious though, for people out there, um, trading, business, philosophy, clearly you have a very strong philosophical perspective. What books do you really admire? What, what have you loved to read over the decades?

• 47:36Speaker 02

  Well, if it's, if it's about markets, I, I think you, you have to look at, uh, Jack Schwager's Market Wizard books, I think. Gives you a great view of some, some really great traders. I think that that's really, that's inspiring stuff. Uh, reading about the, the really, the highest levels of the profession. Uh, I think it's really, really important since the inspiration, that's the food you need for, to go forward. I have to say, uh, Anne Rand's work, I think. The introduction to a, uh, the, uh, what is it? A Opar, I think they call it, or...

• 48:18Speaker 02

  Actually, they have a general text on, uh, objectivist philosophy that Leonard Peikoff edited and wrote, uh, and it's a, it's a wonderful book, and I think it, it gives, it gives a very clear exposition of, sort of, the laissez-faire approach and the philosophy of, of objectism, which I think is so helpful to, to anybody out there. What other books? Of course, Ava Shrugged, I thought was wonderful.

• 48:45Speaker 01

  I'll, I'll interject one here as we're along this line of thinking. I'm calling you from Saigon today. So, uh, Vietnamese girlfriend, I, I bought her the other day. She speaks and reads English, but I bought her the Vietnamese version of, uh, The Fountainhead, and she went through it faster than lightning. She seemed to really enjoy it.

• 49:03Speaker 02

  We have a winner there.

• 49:05Speaker 01

  Yeah.

• 49:06Speaker 02

  That's great. That's a great book.

• 49:10Speaker 01

  If you, if you get through The Fountainhead fast and you love it, I agree, right? Yeah?

• 49:14Speaker 02

  Yeah, yeah. I would also recommend Victor Hugo's work. It's just, it's some of the most beautifully written stuff and inspiring things that I've ever read. So, but at any rate, that's all part of our mastery, is reading, reading as much as we possibly can. It's something that, that's, it may be a lost art, you know, these days, but, uh, with all the electronic stuff.

• 49:39Speaker 01

  I'll still take a physical book over a Kindle any day of the week. I, I don't mind searching for something on the Kindle, that's great, but I'd rather have the, I can read faster with a physical book. Everyone can, I would think.

• 49:49Speaker 02

  You must be over forty.

• 49:51Speaker 01

  Yes. Hey, uh, Toby, listen, it was great chatting. Uh, hopefully we can talk again in the future sometime. I'd love to have you back on. We could, you know, just, I think people are just gonna enjoy this conversation.

• 50:05Speaker 02

  Sure. Let's do, we'll do ten-year checkups if you want. I'll, I'll...

• 50:09Speaker 01

  Well, I'm not to bring it lower to, lower than ten. We can't do, that's too long. I, you know.

• 50:16Speaker 02

  I'll be here.

• 50:17Speaker 01

  I know you love giving some good philosophical bents though, so hey, people can go to check out your firm at crable.com, correct?

• 50:25Speaker 02

  I believe that's right. Crable, Crable, something. Crable.

• 50:29Speaker 01

  They'll figure it out. They'll figure it out. Yeah, yeah, they'll figure it out.

• 50:32Speaker 02

  It's not a solicitation.

• 50:34Speaker 01

  No, no, no, no. I'm just, just informational purposes, uh, so, uh, don't send any crazy things to Toby and all that kind of fun stuff, so.

• 50:42Speaker 02

  Buy my next book.

• 50:44Speaker 01

  Is one coming?

• 50:45Speaker 02

  Yeah, I think I'm, I'm working on it. I've got a few years into it now, so it should, uh, the, the former book will, will be an appendix in the new book. So, because, uh, and then it will be updated. But there's, there's a whole storyline on that too. Yeah, but, uh, yeah, yeah, I think, uh, I think I will publish something down, down the road here. I'm working on it.

• 51:07Speaker 01

  Cool. Awesome. Hey Toby, it was good chatting with you again and I appreciate you taking the time today.

• 51:12Speaker 02

  Thanks, Mike.

• 51:13Speaker 01

  Hey, take care.

• 51:14Speaker 02

  Good talking to you.

• 51:15Speaker 01

  See ya.

• 51:20Speaker 01

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