Ep. 1385: The Value Scam with Michael Covel on Trend Following Radio

Please enjoy my monologue The Value Scam 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 got a question, and maybe this makes for a very short monologue. For the people that believe in buy and hold, can you look at me with a straight face and say that you believe in buy and hold when you look at the chart of Nike or Oracle or Microsoft? Companies that have gone straight up in the last handful of years and straight down in the last year. I don't understand, if you're into making money, if you're into investing, where the fuck is the value? How does that work? I mean, if you look at those three charts, you say to yourself, what?

• 0:44Speaker 00

  There's a point on the chart where there was value? And then there was a point on the chart where it was overvalued? So there's an entry and an exit? And how the hell are those discerned? I saw something the other day. Somebody said he had 50 signals that condensed into one. I started laughing. This is price. So back to value. How does it work? How do you know when something is cheap? And how do you know when something is expensive? And if you look at these three damn charts, how can you not have the feeling that most of society, from a standpoint of college, government, economics, finance, media, et

• 1:28Speaker 00

  cetera, et cetera, et cetera, are put together to lie to you and rip you off, to bend you over and take your money? How can you not come to that conclusion? Now, again, we're just staying on these three particular companies, Nike, Oracle, and Microsoft. Three good examples. There are many more. I just don't get how the value thing works. I get how Warren Buffett works. He's got more money than God. He's been doing this for a long time. He's a tremendous success. He has, essentially, over his career, a handful of big winners,

• 2:11Speaker 00

  which in a way is very trend-following-esque. But if you put aside Warren Buffett, the average Joe is smashed into indexes that include Nike, that include Oracle, and include Microsoft. And everyone had a narrative for the last 10 or 15 years for why these companies went up so much. Narratives straight from what in hindsight looks like coordinated AI. All these rosy stories, these grand visions about why you should hold these stocks forever. Now, don't get me wrong. They could turn around and go back up. For sure. That's typically how things happen.

• 2:55Speaker 00

  If you look at the three charts of these companies, do you expect them to go back up tomorrow? And even if they didn't, that's real money. Those drops are real money. And if you are at the point in time where you need money and the markets have just taken 50% from you because you didn't have a strategy, you didn't have an exit strategy, you just trusted the system, you trusted the system to tuck you in at night, to put you under the covers and give you a kiss on the lips. This is the beauty of trend-following. The beauty of all these traders that everyone first heard about in the market wizards. Ed Cacota, Larry Height, Bruce Covner,

• 3:39Speaker 00

  Michael Marcus, Richard Dennis, Bill Eckhart, Tom Bosso. They figured all this shit out. They knew it was all embedded in the price. The price of right now is the only truth. Everything else is what we affectionately call either a lie or bullshit. This was a much easier case to make during the 90s and the first 10 years of the 2000s because we saw what happened during the dot-com bubble. We saw what happened during the Great Recession. And then through magical sleight of hand, interest rates at essentially negative, the Fed created bubbles.

• 4:23Speaker 00

  The Fed created movement. And things went up and up and up and up. And that's great if you're a trend following trader. Ride it as long as it goes. But if it goes against you, get out. Why get out? Well, if you don't get out, there's a very good chance you're sitting there looking at Nike, Oracle, and Microsoft, wondering, why did I not get out? I mean, this is the logic of all the men that I just mentioned, the guys from the market wizards. The other ones that I write about in my books, the Jerry Parkers, the Salem Abrahams, the Bill Duns, the John Henrys, the David Hardings, the Martin Luks. These men all figured it out. And if you don't know what I'm talking about,

• 5:07Speaker 00

  if you don't know what I mean by they figured it out, well, they figured out trend following. And if you don't yet get trend following, that's quite okay. It takes some time to wrap your mind around it. The idea that value is not a thing, that cheap is not a thing, expensive is not a thing. What's a thing is the trend, the direction, the movement, the volatility, the position sizing, the exit strategy, the portfolio diversification, the ability to go long or short at any moment for any reason. And the any reason is price action. Momentum. There's no value involved. Again, back to the three charts.

• 5:51Speaker 00

  Explain to me value. If I look at a chart of Nike or Oracle or Microsoft, explain to me value. You cannot. You're lying to yourself. You're making up shit. And you know what's really fucked up? The stuff that you're making up to tell me about value, to sell me on value. That's the stuff that they teach in all of the colleges, all of the universities, that you can figure out the value. You can figure out the entry and the exit. Hold on, what are we talking about? Are we talking about buy and hold? Are we talking about value? Are we talking about trend following? Exactly. There were no value players. After the Great Recession, up until now, it was all momentum.

• 6:35Speaker 00

  It was momentum with no stop-loss. It was momentum trusting the system, trusting to take care of you. And maybe they will take care of you again. They'll take care of you so good that when you go to buy a fucking McDonald's hamburger, it costs thirty fucking dollars. You can only hide the scams so long. At some point in time, people wake up. Or they die, one or the other. Or they go broke. My perspective, what I help clients with, is understanding exactly how this game is played, the kinds of rules that you need to use across environments like right now,

• 7:19Speaker 00

  where it's clear the last fifteen years have been a ruse, a lie, a scam. Ah, fuck you. It's a tough wake-up call to look around and realize, since we don't have life extension yet, to look around and realize that the supposed leaders were actively taking your tax money and then trying to destroy what was left after they took the taxes. Now, we can get into all the reasons for why this is going on. I mean, clearly, the West has a big problem. If you develop massive welfare states where people don't have to work because they're either incapable or dumb or whatever,

• 8:03Speaker 00

  and you give all these people free money, tell them that they're smart, give them make-work jobs, and do it either on the backs of the people that actually do produce or on the backs of debt, making up money. Well, eventually, that system just says sayonara, and that system goes away. Now, the cool thing is, even if you don't believe that, trend following will still be your truth. Trend filing will still take you to the promised land because you don't have to figure out the narrative. You don't have to know the economics. All you have to do is be disciplined to stick to the rules of when do you enter, when do you exit, how much do you bet on each

• 8:47Speaker 00

  trade? That's all you have to do. Now, I must say, and I've mentioned this on the podcast before, my Turtle Trader book apparently will not die. It did not come out yesterday, and it still sells exceptionally well. I don't think there is a book that you can find on TikTok that has so many random people, and by book, I mean like a financial trading economics, investment type book, which Turtle Trader is. I don't think there's any other book like that that has dozens and dozens of people doing video reviews of the book. And I think it's because average people have figured out there's something here that makes sense

• 9:28Speaker 00

  to me. This truth, that in this case of the Turtle Trader book that Richard Dennis figured out, this truth, which happens to be the same truth as all the other guys that I mentioned a few minutes ago, this truth is exciting to people. And it's twofold. It's the truth of how the markets work and how you can trade those markets. And then it's the truth of, I can do this too. That's the beauty of the Turtle Trader book. It's the market truth and the truth of you. And people love that. Because in a world where you turn on any form of media and you're being gaslit, bullshitted, fucked over, kind of hard to say that about

• 10:12Speaker 00

  me, right? I mean, I'm just giving factual information. You could either take it or leave it. But in my world, people like that. They want the real. I can't tell you that the time that we're living in right now will continue to be as up and down as it has been for the last six or seven months. Maybe it will, maybe it won't. Maybe they'll jack rates to zero and put that McDonald's hamburger at a hundred bucks. And then when equities are at all time highs again, and your hamburger costs a hundred dollars, all the lemmings will be clapping their hands like seals at how great the market is.

• 10:50Speaker 00

  Don't get me wrong, markets at all time highs. At least for equities, hey, that's a great thing for trend following too. But we got to be able to walk and chew gum at the same time. Even if we're all trend following traders, and which we won't be, we still need a valid system. And if they destroy the system, we're all screwed. But up until the point where they finally take out the system. And back to my Nike, Oracle and Microsoft, there's no other way to do it. I mean, if you look at the Nike chart, now at its lows of the last 15 years. Why is Nike at 15 year lows? Nike is a brand that's been around forever. Everyone wears Nikes.

• 11:33Speaker 00

  I mean, I did forever too. I don't now. The quality dropped. But even if the quality dropped for me, the stock price could have kept going up. And if you're a buy and a holder or a value guy, you would have said, oh my God, I've got the value figured out. Nike is so much value, I just buy and hold it. Can't say that anymore. Now the Nike chart, like the Oracle chart, like the Microsoft chart, what do they look like? They look like trend following charts. Up and down, boom, bust. And there's nothing wrong with that. If you've got the trading mindset, who gives a shit about the up and down? You've got your rules. You already knew that the up and down was possible.

• 12:13Speaker 00

  You've already known since the tulip bulbs in Holland centuries ago. And so many other damn bubbles that we've seen. We already know, and Daniel Kahneman wrote about this in his book, Thinking Fast and Slow. People are batshit crazy. They make bubbles. Markets go up too far. They come down too far. But too far is not a word in the trend following lexicon. Because we really don't care. We're not trying to pick a bottom. We're not trying to pick a top. This is not candlesticks. This is not support and resistance. This is trend following with stops.

• 12:54Speaker 00

  And if you can get that into your thinking, if you can accept this, you're going to have a nice life. I mean, the world's a crazy, messy place. And everybody wants a little bit of a sense of control. Can you control your own destiny to some degree? Trend following offers that opportunity. And if you want to know more, reach out to me. I'm easy to find. [email protected]. I will send you some more information. And even if you don't want to email me, there are a zillion podcast episodes on this very podcast filled with legendary trend following traders. There are eight books from me about trend following. At least read one.

• 13:39Speaker 00

  If you've not yet, at least read one. Wrap your arms around why. Why this is superior. See you again next week.

• 13:55Speaker 00

  I see a time when those awake will understand how to make money in up, down, and surprise markets. Whether a 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.