Ep. 1374: Excitement is Expensive with Michael Covel on Trend Following Radio

Please enjoy my monologue Excitement is Expensive 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

  I like making people uncomfortable because in my conversation doesn't make people uncomfortable. Good chance I'm not telling the truth. Due diligence, one of the most abused phrases in modern finance. It sounds serious, sounds responsible, sounds professional, gives people psychological cover. Most of the time, that's all it is, cover. Due diligence is spoken with confidence. It's written into investment memos. It's referenced after the fact. When something implodes, it's used as a shield. We did our due diligence. That sentence is almost always said after the damage is done. Here's the problem. Most of the time, due diligence is not a process.

• 0:42Speaker 00

  It's a story people tell themselves to feel safe while moving fast, while moving recklessly. No collapse in recent history exposes that lie more than FTX. Sam Bankman-Fried did not fool naive investors. That detail matters. He didn't fool unsophisticated retail traders clicking buttons on an app. He fooled the so-called smartest rooms in finance. Venture capital, elite institutions, regulators, media, academics, people whose reputations are supposed to be built on skepticism. No accident, that's the signal.

• 1:23Speaker 00

  If this were just a story about stupidity, though, it'd be irrelevant. Markets are full of stupid people. If this was just about crypto, it would be narrow. FTX matters because it shows something structural. Narratives overpower evidence and price tells the truth long before permission exists to hear it. Look, from the outside, FTX looked like competence incarnate, and that is important. It didn't look sloppy. It didn't look chaotic. It didn't look reckless. It looked engineered to inspire confidence. Well, if you would have looked at the fat, slovenly, boorish CEO, founder of the

• 2:06Speaker 00

  whole thing, maybe you would not have thought that, but let's just play along. A young founder, not in a reckless way. Yeah, yeah, whatever. Young in a new generation of leadership way. MIT background, quantum mindset, math over emotion, numbers over noise. Here's where it really gets good. The effective altruism. That phrase alone should make you pause. That phrase alone should make you reach for your wallet, because your wallet is already fucking gone. Because when profit is reframed as morality, morality shuts down skepticism. Wham-bam, thank you, ma'am. A bigger mission than money. A promise that wealth was just a tool for doing good. That framing matters more than people think

• 2:48Speaker 00

  about, because once something is framed as ethical, questioning it feels unethical. Every part of the FTX story was perfectly designed to disarm doubt, and it worked. The first critical error? People confused presentation with signal. They confused polish with substance. They confused confidence with verification. They trusted the fucking suit. They ignored the price. FTX was not opaque. That's an important point. This wasn't a hidden operation in the shadows. This wasn't some obscure offshore scheme that no one

• 3:28Speaker 00

  could see. It was loudly visible, publicly celebrated, featured everywhere. That's what should have made it dangerous. Because you know, that danger rarely looks dangerous when it's forming. It looks impressive. I mean, I didn't think this fat blowhard was impressive, but hey, let's play along. Because when it came to due diligence, no forensic accounting, no independently verifying a balance sheet, no stress testing the damn thing, no understanding intercompany risk. What people went on were founder meetings, deck reviews, reputation triangulation, and social proof. Basically, social media. Basically, pretty pictures.

• 4:12Speaker 00

  In other words, trust, but faster. Look, most venture capital firms are not investigators. That's not an insult. That's just reality. They're pattern recognizers. They look for familiar archetypes. They ask, have we seen this movie before? Does this founder resemble prior winners? Does this story rhyme with past success? They look for the brilliant founder, the unconventional genius, the moral mission, the velocity. Sam Bankman-Fried fit the pattern perfectly. That short circuited all of their skepticism. Not because they're stupid, but because their incentives rewards speed, not doubt. You wait too long, you lose the deal. If you ask too many questions, someone else wires the money. If you hesitate, you're labeled slow.

• 4:58Speaker 00

  So diligence becomes confirmation, not investigation. But at some stage of the game, FTX peaked. Then it rolled over into the downtrend. Not a crash, not a headline grabbing collapse just yet, but price going lower. Lower highs, lower lows, failed rallies, heavy volume, rallies that couldn't hold. This was not noise. This was price action doing what it does. It whispers. It tells you the truth. But hey, narratives were strong and narratives mean gravity. They pull attention away from that inconvenient data of price. They give people reasons to ignore what they're seeing. I've seen it for decades.

• 5:43Speaker 00

  The smarter the room, the easier it is to fool. Sounds counterintuitive, but it's not. Intelligence amplifies confidence. Confidence suppresses doubt and doubt is uncomfortable. In markets, doubt is not weakness. Doubt is risk management. Now you can feel that trend following coming, right? You hear the word risk management and you know trend following is alive. Because price creates doubt if it's not going your way. Stories eliminate doubt. That's what Bankman-Fried did. And that's where due diligence always collapses. They don't trust the price. They're outsourcing the responsibility. Who else invested? Who vouched? Who endorsed? Who put their name on it?

• 6:28Speaker 00

  Yeah, look, I'm proud to have some endorsements. I'm proud for people to have vouched for me. But what am I saying? I'm saying, trust the price. Trust the fucking price. I'm not Mike Covel telling you that tomorrow Bitcoin will do this, or tomorrow silver will do that. So guess what? The trend following legends, as long as I stick to my guns, they like that I am saying the truth. It's easy to endorse the truth. But let's be honest, most of the world's not like that. Markets don't care how smart you are. They don't care how moral your mission sounds. They don't care how impressive your resume looks. They care about one thing.

• 7:13Speaker 00

  Is capital leaving or staying? Market up or down? That's it. FTX told you the capital was leaving, quietly, persistently, without explanation. But to listen required heresy. Oh shit, something's wrong. The story's incomplete. Maybe the market knows something we don't know. But most people, if they don't have a system, they don't act. Because at that moment, when price contradicts belief, human psychology does something predictable. It chooses belief, until it can't anymore. Let's go a little deeper. The most interesting part of FTX and Sam Bankman-Fried is not necessarily the fraud. Fraud is everywhere.

• 7:57Speaker 00

  I mean, look at this Somali stuff in Minnesota. Look at the idea of these professionals, including a Supreme Court Justice, who thinks men can have babies. That's fraud. I mean, if you're a grown adult and you're walking around in a position of power, like a Supreme Court Justice, and you actually think a man can give birth, that is fraud. That is untruth. That is sinister. That's fucking evil. And that kind of shit is normal. But you know, smart people don't always get fooled just by a lack of information. They get fooled because the information conflicts with their identity, their incentives, and their timing. FTX exposed all three in a shit ton of people.

• 8:42Speaker 00

  A shit ton of investors. I mean, look at Bankman. He sold identity, effective altruism, long-termism, the idea that making money was not the goal. Saving the world was. Some fat dopey kid with man boobs is going to save the world. Who the fuck believed that? A lot of people believed that. Now, we should have just believed the price, but no, a lot of smart people actually believed that the gross-looking, unshowered, disheveled, man-boobed fucker in the corner was somehow or another a god. Should have been a hint, right? Man-boob fucker in the corner? That's a hint. That framing was brilliant. Not clever, brilliant. It frames skepticism as moral

• 9:25Speaker 00

  failure. So if I saw a man-boob fucker in the corner, disheveled, as Bankman-Fried looked like to me, if I would have said that out loud, that would be my moral failure. Now, if I just really wanted to judge the whole situation, I would have looked at price, right? So if you questioned FTX, you were questioning the mission, the intent, the ethics. That shut probably a lot of smart people up. They did not want to be perceived as an opponent to effective altruism, even if they lost all their fucking money. Now, that right there should keep you motivated as a trend-following trader, because if you know you're up against people who are willing to lose their fortune, everything, just to

• 10:09Speaker 00

  save face, my god, it's a good thing to have a trend-following system. Because, look, let's be honest. No one wants to say, or at least the people that are afraid of looking bad, they don't want to say, "Let's slow down." They don't want to look prudent. They don't want to look out of touch. You see, that speed, it kills skepticism. Now, contrast that with price. That's where things really get uncomfortable. Price does not move at the speed of narrative. Price can move fast or it can move slow. It can move reluctantly or not reluctantly, without explanation. But it offers no validation, no moral framing, no personality, no charisma. Price just sits there, leaking. FTX's price downtrend did

• 10:54Speaker 00

  not fit the story. It was dismissed by the so-called smart people. Not debated, dismissed. These people have just got unlimited coping mechanisms. Here's a pattern. You can apply it everywhere. When price contradicts belief, belief wins until it doesn't. Then price wins violently. FTX did not collapse because of a tweet? That's fairy tale shit. It collapsed because its internal reality could not withstand external pressure. I mean, that's the fancy college way of saying it. Or you could just say, people sold it. The price went down and that was it. The market withdrew confidence. The market's the boss. That withdrawal was visible.

• 11:38Speaker 00

  You see, that's why people don't get price. They think price necessarily only reacts, but it can preact. Price often moves before reasons are available. Not mysticism, people. That's distributed information. Someone, somewhere knows something or feels something or sees stress or reduces exposure. Price aggregates those actions without explanation. This pattern, not unique to FTX. But that's why FTX matters. Go back and study Enron. They made films about this shit. Same structure, confidence at the top, complex explanations, dismissal of skeptics, gradual price deterioration. Look at Lehman Brothers, Bear Stearns, countless others. No one looks at the damn price except the trend-following traders.

• 12:23Speaker 00

  Here's something deeply counterintuitive. The last people to leave collapsing stories are often the most sophisticated. Not the least, the most. Why? Why would the so-called smartest people be the last to leave? They've got the reputational skin in the game. That's right. They really don't give a shit if they lose their fortune. They don't care if they lose all of their money. What they care about is saving face. They care about their reputation. They rationalize, they explain, they wait. The retail exits first. Institutions maybe take a little longer. Price keeps marching on. Media might amplify the problem. Profiles replace scrutiny. Characters replace analysis.

• 13:08Speaker 00

  Stories replace verification. You see, once somebody becomes symbolic, criticism amongst these face savers, that's inappropriate.

• 13:18Speaker 00

  Sam Bankman-Fried wasn't just a CEO, he was a character and characters are protected. Look, man, price doesn't care about the fat man boob kid in the corner. Price just cares about price. It doesn't care about me or you, we're all gonna be dead at some point in time. So while we're alive, why don't we learn some damn lessons and just trust the price? But price is distant, it's cold, it's unaffected. That distance, that's the edge. Look, at this point, the conclusion doesn't need to be forced. You probably already get it, it doesn't need emphasis, it doesn't need persuasion, because once you've seen this pattern enough times, it stops feeling like an opinion. It starts feeling mechanical. Price is not omniscient, it does not know intent, it does not understand morality,

• 14:03Speaker 00

  it does not judge character. Price does not tell you why something is wrong, it tells you that something is wrong. I mean, it can also tell you that something is right, and that, ladies and gentlemen, is sufficient. But it's also where people get stuck, because they want reasons before action. Well, I was looking at that chart, and the chart told me that gold was gonna go from 2,000 to 4,500. No, motherfucker, the chart did not tell you that gold was gonna do that. It didn't tell anybody it was gonna do that. And if you believe that, seriously, what is wrong with you? What is wrong with you that you actually think somebody could do that? Markets don't grant permission, they move.

• 14:47Speaker 00

  Trend following exists for that exact reason, not to predict fraud, not to uncover secrets, not to expose villains, but to respond to persistent imbalance. Look, an imbalance does not announce itself, it does not arrive with a press release, it does not come with certainty, it shows up as? Weakness that doesn't resolve, rallies that fail, support that breaks quietly, volume that behaves differently, strength that disappears when it should be there. Now, look, some of those things, I don't necessarily even agree with, really, because I would reduce it all to price. And price, it's not a narrative, it's behavior. A price trend down is not an accusation, it's not a verdict, it's a warning.

• 15:30Speaker 00

  You see, a trend follower doesn't need inside information, it doesn't need whistleblowers, it doesn't need leaked balance sheets, it doesn't need to understand corporate structure, it doesn't need to know whether or not Sam Bankman-Fried had artificial man boobs or not. It doesn't fucking matter. Price only needs to know, are we going up or are we going down? That's it. And look, if that price is going down after a massive move up, that's difficult for humans. But don't be dramatic, don't be a hero, just get out, exit, reduce exposure, avoid adding, avoid rationalizing, avoid storytelling, no drama, no tweets, no explanation, just distance. This is not anti-research, it's an important distinction.

• 16:14Speaker 00

  Trend following is not a rejection of knowledge, it is a hierarchy of evidence. Fundamentals matter if price confirms, narratives matter if capital agrees, character matters if behavior aligns. Price sits at the damn top, not because it's moral, but because it is consequential. Here's the brutal truth, all these face savers that believed in FTX believed they were diligent. They had the meetings, the documents, the assurances, the references, the confidence, they had whatever bullshit they could add up on a stack of paper on their desk. What they didn't have respect for was price. Diligence without price is storytelling without spreadsheets. The price doesn't care about the intentions or the mission statements or that freaking effective altruism or the press coverage.

• 16:59Speaker 00

  It's about supply and demand, pressure and release, entry and exits. This is why trend following doesn't claim superiority, it claims structural humility. It assumes people lie, it assumes systems fail, it assumes incentives are to distort behavior and narratives are to deceive, and it assumes one more thing, that price reflects stress before humans are willing to admit it. And that assumption will keep you alive. Trust the price, not the suit, is not cynicism, it's not bitterness, it's not anti-institutional, it's survival logic. Markets do not enforce justice. They do not punish bad actors unscheduled. They do not reward virtue consistently. Markets reallocate capital.

• 17:44Speaker 00

  That's all they do. They reallocate it based on pressure, and pressure shows up in price first. Period. But look, belief is not finite. Pressure is not. Price knew which one would win. This is not a crypto lesson. Crypto just made it louder. This is a systems lesson that applies to corporations, governments, funds, institutions, technologies, and ideologies. Wherever belief replaces verification, price becomes the only lie detector on the table that scales. The only one. Trend following endures, not because it is clever, but because it is aligned with how information actually surfaces in complex systems. Not as explanations, but as behavior. And once you see that clearly, something shifts.

• 18:29Speaker 00

  You stop demanding certainty. You stop waiting for validation. You stop needing stories to act. You start responding to what is. And that response does not feel exciting. It can feel boring, procedural, emotionally unsatisfying, which is exactly why trend following works. Excitement is expensive. Boredom is affordable. The markets don't give a shit which one you prefer. It only cares which one you survive. See you again next week.

• 19:06Speaker 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.