Ep. 1409: Trend Following Re-education Michael Covel on Trend Following Radio

Please enjoy my monologue Trend Following Re-education 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

  As we zoom into October 2026, I thought it would be appropriate to give you a little bit of a blast from the past, a little trend following re-education. Because as we sit here now, and we watch the Fed do this, we watch Nike go woke and go broke. We hear this war might happen. This might happen to oil. The fundamentals never stop. The news never stops. What the hell kind of life is that? And my two guests today know full well, it's not such a great life to be glued to the fundamentals.

• 0:43Speaker 00

  Without any further delay, let's jump right into a little trend following re-education. I hope you enjoy.

• 1:04Speaker 00

  A trend following episode today, a trend following trader that I was not aware of, with a decently long track record, Bo Moore Capital. Today, Richard Lidle, the CEO, and Gareth Abbott, the primary trend following trader, as you will learn. I always have fun having these trend following conversations, especially with people that I don't know. I get a chance to get in there and dig a little, find out their origin story, their aha moments. What commonalities do we have? What common connections do we have? Always a fun time. I hope you enjoy this conversation with Richard Lidle and Gareth Abbott of Bo Moore Capital.

• 1:52Speaker 00

  Let me jump in with you guys. Someone start with how you started. What is the story? Because there's two of you on the horn here today, two of you on the phone, Richard and Gareth. How did this team come together, first and foremost?

• 2:08Speaker 01

  There's two parts to this, Michael. Thank you very much. And it's very much Bo Moore Capital, and then there's the strategy, which is Global Alpha. So I'll talk Bo Moore Capital. So Bo Moore Capital came about only mid 2022, when I was introduced to Gareth and Brendan Mulvaney, who is the head of execution on the trading desk. I was introduced to them, who'd been running Global Alpha, the trend following strategy for some time. I was introduced to them really to try and take it to a wider audience. They were running it on a small friends and family, small fund, which Gareth will talk about, I'll leave him to talk Global Alpha. But they were running it for themselves. Gareth had stepped away from a large career of trend following with many organizations.

• 2:53Speaker 01

  And I saw an opportunity. I had a mixed background. I was a fighter pilot in the military for 20 years. I stepped into building properties for veterans, which entailed raising a lot of money for real estate investment trusts. And it was that skill set, shall we say, coupled with meeting Brendan and Gareth, where I thought I could bring a lot of benefit to them, setting it up as a different structure, a company, and actually driving some funds and AUM into Global Alpha.

• 3:23Speaker 00

  So basically, you just saw it like, hey, these guys have got a strategy, they know what they're up to, but there's also a business side of running a trading fund, and I think I can help there. And if we make a marriage, then it's win-win.

• 3:35Speaker 01

  That's exactly it. That's summed up in a nutshell. Now, the strategy itself, which really we are based on, is Gareth's lifelong work. And I think it's probably only right, Gareth, that you give the history behind Global Alpha, where you started it, where it's-

• 3:50Speaker 00

  Well, I'm going to ask him plenty of questions.

• 3:52Speaker 01

  Yeah, yeah.

• 3:54Speaker 00

  Gareth, take me back in time. So mathematician by training. Give me some trend line. When did you first understand, appreciate, see the idea that your math background could be used in an empirical style of trading, unlike, hey, I've got this fundamental opinion, I've studied the fundamentals? When did you first understand this concept of trend following?

• 4:24Speaker 01

  As usual, you've just put that into words better than anyone else could. I'm a huge fan of your work, true believer, extremely grateful for your work, and you are without doubt the best resourcer and enabler in the business. Can't thank you enough. And I would share everything I've ever done with you, if given half a chance. Extremely pleased to be on the call.

• 4:46Speaker 00

  But let me keep you at the serious question. The serious question is, not that I'm a psycho trend following true believer, the serious question is, how did you become a psycho trend following true believer?

• 4:56Speaker 01

  Well, I'll try and put it in as exciting terms as you can. My background is pure mathematics. From an early age, I loved mathematics. I was brought up by my grandparents, and my granddad was a mathematician. So it was massive in our house. I grew up just essentially always doing mathematics. That was really my big thing, and that was the path I followed right through my childhood. I was doing fairly advanced math at my age, and went on to study pure mathematics and had absolutely no intention ever of coming into the financial world, until I got presented

• 5:38Speaker 01

  with an opportunity to set up a derivatives desk in my final year of study. I was approached by a fairly high-profile market maker in London, and he was looking for someone like me. He didn't want a finance grad, he wanted a pure mathematician that he could mold and set up a derivatives desk with. And quite honestly, I didn't even know what a derivatives desk was at that point in time. My final year of uni was completely abstract, pure mathematics with no real-world applications whatsoever.

• 6:12Speaker 00

  How were you planning on making money with that, being a professor, maybe?

• 6:15Speaker 01

  Yeah, basically, I didn't have a plan to do anything commercial at all.

• 6:20Speaker 00

  You just loved the math.

• 6:21Speaker 01

  I did. I suppose the only commercial agenda I had at that point in time was, believe it or not, rugby. I was playing semi-pro rugby back at uni, and I fancied my chances of getting a contract there and playing rugby. My other sort of great passion was mathematics, and given the opportunity to follow that, I did jump at it. More through the connection with the guy that hired me, who was a friend of the family, and the family steered that and said, you should take this. I know you don't understand what the opportunity is entirely, but you should take the opportunity to work with this guy. It will only mean good things, was kind of how I approached it.

• 6:59Speaker 00

  Can I pause you there? Before we get into the story of that first gig, so to speak, your first exposure to derivatives trading and explaining all that, I have a question that I would like to throw out there with both of you. Maybe it's like a big icebreaker, maybe there's some philosophy that you might share, given that you've explained some of your math background. And of course, Richard, being a fighter pilot, you've got to be an empirical guy, too. I'm not trying to ask a controversial question, but it seems like in modern life, except for strategies, like the type of strategy that you're employing, but there's other strategies that have no empirical foundation at all.

• 7:40Speaker 00

  I see much of modern life when it comes to politics or social issues, there's no empiricism at all. Can you share a perspective as to why you love this empirical stance on life? You obviously love it. I love it. I love to look at life through an empirical lens, because it just seems like it keeps us all honest, it keeps us going in a good direction, perhaps. It's like, hey, what's the truth? Well, the data's the truth, the math is the truth, that's the truth. Share with me if you've got any perspective about that.

• 8:11Speaker 01

  Well, from my point of view, it's what I am doing here. It's what I've always done. I've, from an early age, every step, every understanding I have of the world around me has been approached that way. I've approached everything in my life with mathematics. It's fundamentally how I start to approach any situation. Life really is from a position of pure mathematics. Even in the case of trend following, I was very thorough in how I would approach an application. I always start with pure mathematics and work as far as I can in that world before I try and approach any sort of a real-world application.

• 8:52Speaker 00

  You realize you're different to take this stance. We can think back to philosophers, the Locks, the Humes, and all these empiricists, these folks who are like, hey, what's the data? Let's go for that. That seems to be something that in modern life, we move farther and farther away from. Do you even pay attention that that world exists? Or are you so engrossed in your world of math and trading that you don't even pay attention to that, so to speak?

• 9:16Speaker 01

  You've probably summed me up right there. I'm very much head down. When I have worked in environments with a whole load of other traders and everything else going on around me, I don't know if that's the skill, but I can be completely oblivious to what's going on around me and be very, again, just very logical and just approach life the way I do, just that way, just with logic. And for me, it's all about that pursuit of understanding, just mathematics. Probably it's considered a skill I can ignore the fundamentals and all the noise around me.

• 9:49Speaker 00

  Let me take you back to the big question, though. So you get this first derivatives job, you're probably aged 22, 23, or something?

• 9:56Speaker 01

  21, yeah.

• 9:57Speaker 00

  There's going to be all kinds of experience you gain and whatnot, but how much time passes from that first, let's say, derivatives job, before you wrap your arms around the idea of, here's this quant systematic strategy that's become known as trend following? What was the gap there in terms of time? One month, 10 years? What was it?

• 10:21Speaker 01

  It was within the first year.

• 10:23Speaker 00

  Really? Wow.

• 10:25Speaker 01

  Yeah, pretty quick. I found the world of trend following, but it was really through quite a broad exposure of the guy that hired me. He was a very successful guy, super connected, certainly not system trader, not that type of discipline. You could describe him as having a set of expert rules. I don't think they were ever written down and probably often broken. Through that experience, I could see that it was possible to approach the market that way. And that was really the main reason I was hired, was to try and structure what this

• 11:04Speaker 01

  guy was doing, you know, build as much logic, as many rules around him as possible. And I realized that a lot of what he was doing was rule-based, started from that end.

• 11:16Speaker 00

  What year are we in, roughly? Just so I can have a feel. What year are we talking, roughly?

• 11:22Speaker 01

  Two thousand to two thousand and one, that period was the first time on the desk. I remember reading Market Wizards. That was probably one of the best opportunities I had was and the guy who hired me was a great reader, loved all the classics and had thrown quite a lot of these books at me. Through Market Wizards, that led me to Ed Sikota and the Turtles. And from there, I just read around as much as possible around Ed Sikota and the Turtles. Found online the complete trading rules for the Turtle system, which absolutely tractor beam

• 12:03Speaker 01

  just drew me right. I coded that system and then realized I'd found something that could be based entirely on mathematics, a complete system, full set of rules. Here we go. We can trade entirely with mathematics. That really hooked me, you know, from there. It wasn't long until I found your good self and your first website coming online and immediately a whole load of mining, gold mine of resource. Perry Kaufman, his book, Unbelievable, just with the content and the way that he put out and shared some of those great, robust, simple rules.

• 12:48Speaker 01

  It didn't take me long to start building my own system, which would always be measured against the Turtles.

• 12:57Speaker 00

  Well, I'll make a point really quick, too. I'm personally quite lucky that Jack Schwager did not name that book Trend Following, because The Market Wizards featured Sikota, Dennis, Kovern, Hight, Michael Marcus, Bill Eckhart, and Tom Bosso, the traders in the book that were the ones that had this commonality and were connected and were the ones where people like me and people like you were like, oh, wow, that's really interesting. They were all trend followers, but I give props to Jack that he decided not to emphasize the point that they were all trend followers.

• 13:30Speaker 01

  Left that great title on the shelf for you, didn't he?

• 13:35Speaker 00

  I had a conversation with Jerry Parker the other day, one of the Turtles, for an upcoming podcast, and it is something he was talking about, the idea, well, how thankful he was that he answered that want ad. And I said to him, I said, well, how thankful I was that I picked up a magazine in 1994 and I read a little brief paragraph about him. So it was like, I think this is how it works. This particular strategy, you guys might both have some views on this, but this particular strategy is never going to be accepted by the broader Wall Street community because it's not built to make fees, it's built to make money, and that's a big difference.

• 14:12Speaker 01

  Yeah, it doesn't have that commercial appeal. It's all about beating the market, isn't it? Again, without striking a cliche, but the clear, repeatable source of alpha that's out there, but less desirable in the commercial world, like you say, doesn't tick those commercial boxes. And certainly, had I not, like you say, you find the breadcrumb for me, yeah, Market Wizards, those early Turtle rules, because that's not the direction that the work environment I was in was trying to steer me. That was certainly more about fundamental analysis, pricing stocks, specifically investment trusts. It was really, I guess,

• 14:54Speaker 01

  that curiosity that was pulling me that way. But fortunately, the guy who hired me was very entrepreneurial and he was absolutely interested in the idea that we could be prop trading 100%. He was looking for alpha as well. He wasn't solely focused on the commercials and generating fees and comps. He was absolutely looking to beat the market himself.

• 15:15Speaker 00

  As you're a guy in the UK at that time, how long was it before you realized there was something called AHL?

• 15:22Speaker 01

  I think pretty quickly as well, because at that point in time, I'd found websites like yours. There wasn't a great deal of information around. You were pulling most of it together. And there weren't many firms around you. It wasn't high profile. So, yeah, it absolutely didn't take long to strike on AHL as well. Dunn Capital, Abraham Trading. They were massive inspirations because all the theory stacked up for me. And then you find that are firms in the real world doing this, generating great returns. And I'd started

• 16:03Speaker 01

  looking for an opportunity to commit fully to trend following because I'd managed to steer the desk that way. We were applying a lot of trend following techniques. We didn't have a complete system. We were also running the canceling strategy, which we took from Market Wizards. We were running that on aim stocks, aim listed stocks in London, essentially stock picking, and then having some basic trend following rules. So we would identify the stocks and then look for some of those signals of when to get into those and where we would take a profit or a loss on them. And that was working very well, too. And my boss liked that. He was from a traditional background. He liked the canceling stuff

• 16:46Speaker 01

  and he liked the rules that we brought in. Well, stock picking is only, that's just the first step. You've got the stocks, great. How are we going to trade them? I suggest we trend follow those.

• 16:56Speaker 00

  I was gonna say, you made a pivot. You're going down the canceling path to some degree. You walked away from that. And today, as far as I can tell, you guys are right there as a pure trend following trader, a systematic trader. Is it a reversal strategy? So you're always in your markets?

• 17:14Speaker 01

  No.

• 17:14Speaker 00

  No? Okay.

• 17:16Speaker 01

  Overall, we have four trend following strategies, and those four strategies are applied on four frequencies. That gives us 16 individual trading strategies across four very different styles and four very different timeframes. Those four styles are nothing unusual there at all. So we've got a donkey in channel breakout strategy, which is applied on the four timeframes. Touching just briefly back on something I mentioned earlier, that for me, everything comes, first of all, I approach everything from the pure side. That feeds

• 17:58Speaker 01

  into these frequencies. We've approached the frequencies that we trade with Dow theory. So starting off with this donkey in channel strategy, we apply it consistently with Dow theory. There's no optimized parameters in the system, because everything was done as far as possibly based on algebra, functional analysis, geometry, before locking down on applications. So there's no iteration, there's no optimization. We don't have any look back periods that don't make sense. Why have you gone for 27 days? There's nothing like that. The frequencies that we have mapped against are consistent with Dow theory. So we are

• 18:42Speaker 01

  looking at the primary trend, we look at two secondary trends and a minor trend, specifically what those periods are. The minor trend we're looking at is a month look back. The secondary periods, we look at a quarter and a semi annual, so a three and a six month. And then the primary, we look at at least a year. I say at least because some of the strategies, it's not just as simple as a time based look back. But with donkey as we're looking at the one year channel, the six month channel, the three month channel, and the one month channel with that donkey in strategy.

• 19:24Speaker 00

  Only 21 markets?

• 19:27Speaker 01

  Only, but we cover everything.

• 19:28Speaker 00

  I didn't say that in a negative way. That was my empirical use of the word only. I just want to establish, there was no pejorative there, there was no negative there, but only 21 markets. I can look across the industry and some practitioners will say, well, we're tracking 100 markets or 300 markets. And I know there are some other prominent traders that are at a smaller number like you as well. So you're not out of the ordinary. But why don't you share the how and why that tracking those 21 markets gives you what you need? And I should say, if I'm looking at returns here, you guys have done a hell of a job on returns in the last, what, 11 years or so. You've got something going in the right

• 20:11Speaker 00

  direction. Speak to this idea, though, and you can come back to if you want to go more into some of the strategy details, but I'm really curious about the only 21.

• 20:22Speaker 02

  Reason I laugh at that, Michael, is that is a question that I, being the front end and even distribution side of it, when I'm in with clients, is one of the common questions is, why only 21 and why those 21? So that's why I smile, because it's always a question that I feel on a daily basis. And obviously, I've got my answer very much from spending time with Garrett. So I'll let him fill you in on the big why, shall we say now.

• 20:46Speaker 01

  It's not one of these hitchhiker guide to the galaxy thing where the answer to the universe is number 42. It's half of that. That's not how it worked out. The 21 markets that we've chosen, the concept could be described as MECE. I don't want to throw in a term that comes from the compliance world, but this idea of having a MECE portfolio where it's mutually exclusive, so the markets we trade are diverse and collectively exhaustive. We cover everything. What we've got there is minimum correlation between markets and maximum diversification at the same time. The 21 markets covers all eight sectors, cross financial commodity markets,

• 21:29Speaker 01

  and we go global as well. So we cover all eight sectors around the globe with those 21. For example, in the stock markets, we've gone Euro stocks in Europe, we've gone down in the US and Nikkei in Asia. And that's the sort of pattern that we've gone as far as possible with each sector. We've also gone major market the whole way, just trading at the quality end, not looking for any obscure marketplaces and potentially running into liquidity issues. The starting point for me with the system development side of that was that that has

• 22:10Speaker 01

  been a necessary condition during the whole system development. The system must be robust enough, it must work, given a reasonable basket of markets. It shouldn't rely on us trading hundreds of markets. And I don't deny there are great trends in the obscure markets. Cryptos are great trends. The more you look at the major markets, the more overcrowded they are, the more noise they are, the more noise you find there. However, for me, that was a necessary condition of the system. The system had to have that internal diversification we've built. We have the 16 strategies, all very different. So we start from a very strong position

• 22:54Speaker 01

  of having internal diversification before we even approach the markets. Now, the logic then becomes, okay, well, let's give the system now a really solid basket of markets. Let's give it the diversification across all eight sectors, round the globe. Let's not take a hit on liquidity. Let's go major market. Because another necessary condition for me is, to quote it's quota, one big trend pays for them all. It's important to me that one good trade will impact our portfolio. I'm not going to panic and look for 300 markets to find trends and find myself in a

• 23:34Speaker 01

  position where we need at least a dozen trades on side all the time. One good trade can give us our entire profit through what we describe as our profit profile, that cycle that we look for, which again touches back on the Dow theory, that the source of alpha is an economic cycle, is an economic trend. Now, what we've shown is that we will double capital every three to five years. And that's because we're aligned with Dow theory, trading the economic trend. And every three to five years, we will see a reasonable economic cycle through which we can

• 24:15Speaker 01

  double our capital. And that's because, again, we have preserved the value of each market. With 21 markets, one trade can provide all the return that we need through that cycle.

• 24:28Speaker 00

  That style of thinking is not the style of thinking we all typically grow up. You brought up Socota, and I'm going to paraphrase a little here because I don't remember the exact details, but I think it was David Drews telling me a story about Socota, because he went to learn with Socota. They were talking about, I don't know, trading two different interest rates or something like that. Socota was like, well, this one over here doesn't have as much volume or not as much volatility, but the big one has got all the volume, all the volatility. I think David was saying, well, what about the diversification? And Socota was basically saying what you just said was, well, hold on, let's just get in the big one and put it all in there. I mean, it was that mentality of

• 25:07Speaker 00

  don't run from the big one, don't try to diversify away from the big one. If you get the big one, roll with it.

• 25:16Speaker 01

  Absolutely. That's one of the many rules or certainly inspiration that I've taken from Ed Socota. That for me was always something that came over as very important from Ed Socota, and something that, again, became a necessary, a necessary condition for the system, that one good trend can can pay for them all.

• 25:38Speaker 00

  Does it crack you up at all? Does it make you smile that you can go to YouTube? And Ed has a music video that I'm sure most people that have even read about him and Market Wizards, or maybe my book or whatever, that I'm sure a significant number of people, perhaps even competent people, qualified people, and even if they know he's an MIT trained mathematician, they will see that video and they don't get it.

• 26:06Speaker 01

  It's hilarious when you think that, not unlike the turtle story, because this idea that you could print the rules of a successful system in the newspaper, and people won't follow them. You can put the entire system out there. Ed did that with his song. We can certainly relate to that in Scotland, because a lot of our history is told in songs. And I think that's a really smart idea. And it's something that's very traditional in Scotland. Stories are passed down the years in songs. I can relate to that. And I think it's absolutely marvelous that he did it. You know, he's literally put out the entire idea of how you can trade with a system

• 26:46Speaker 01

  in a song, and probably it just flies way over most, who is this absolute nutcase with the banjo? Well, probably the greatest trader that's ever lived. And the irony here is, he's telling you how to do it.

• 27:01Speaker 00

  I still remember meeting him for the first time. It was in St. Thomas. We were sitting in a little beachside cafe, and we were both in shorts and a t-shirt. And it's one of those moments where it's like, okay, here I am, potentially meeting one of the greatest traders ever. And I'm not in Manhattan, I'm not in London, I'm not in Tokyo, I'm not in a sushi bar having $600 sushi lunch. I'm not in a suit. I'm not in anything. And at that moment, you realize that all the circumstance doesn't mean anything. The only thing that means something is, do we understand? Do you understand? Do I understand? Do we all understand? All the other stuff is just dog and pony show.

• 27:44Speaker 01

  To have met the great man himself, and like you described, that's not surprising from what I've read about him. And he's absolutely outside of that world. You're not going to find him on Wall Street, are you? Yeah, that must have been incredible experience for you. The closest I've come to the great man himself was a number of years ago, I was lucky enough to contribute some research to the Trading System Project that Ed ran. I think it's still open. It's on his website, and another unbelievable piece of research that's been put out there.

• 28:17Speaker 00

  I'm sure you've met them in the mathematics world, though, but I can say that the two that I've met in person, that you just realize, and I don't have the mathematics chops you have, but meeting Ed and meeting Bill Dunn, you just have this sense of like, okay, maybe their strategies are understandable by everybody, but the foundation, their mental capacity, what they bring to the plate, it's those kinds of people you walk in the room and you realize, something's different here, something's in the air. These people are slightly more developed upstairs. Just one of those interesting feelings. I've not had it many times in my

• 28:58Speaker 00

  life where you walk in the room and you can just feel it. But with Ed and Bill Dunn, I felt it.

• 29:04Speaker 01

  Yeah, you do get that feeling. There's people come to mind, as you say that, people from Owen background as well, that you think are wired differently. And it's a quota from the very brief experience I've had with him, which was all online and was through the Trading System Project. Yeah, it doesn't take long, even just with basic correspondence, to realize that he's different.

• 29:29Speaker 00

  It'll go over the head of many people, and they will think, oh, he's this mercurial guy, he's unusual, he's odd. And of course, that's all done on purpose, because in my opinion, that's his way to filter out the whatever that he doesn't want to deal with. Or he's just developed all kinds of filters and challenges to see if people figure it out. He's a puzzle guy. He loves puzzles. So it doesn't surprise me.

• 29:52Speaker 01

  It felt a little like that when I was contributing research. It felt a little like he would almost be trying to put you off. You can contribute something if you want to. I was just keen as mustard to be involved and to share. Just looking back, probably 2013, just wanted to share the best of my work.

• 30:11Speaker 00

  Richard, let me take it back to you really quick. I would like to hear your explanation, or perhaps client, I don't know if it's hesitancy or client curiosity, you're talking with potential clients and they read that you guys are trading 21 markets. So you're in the boardroom with XYZ folks. Is it curiosity, or is it hesitancy, or is it fear, is it concern? What is it when they bring up the 21?

• 30:36Speaker 02

  Maybe it's about why the 21. So it is why there was specific 21, which I think is very easily explained when you look at the nine major sectors they're in. So then it's relatively easy to explain. The difference comes when they try and compare. So that classic comparison frame when they're looking at the likes of Done Capital or others who are in many of the markets and they're saying, well, why are XYZ in that many markets and you are concentrated in only 21? I think it's not hesitancy, far from it. It's just curiosity. They're curious to why we picked that. And one of the things that Gareth highlights there, which is something that I've explored with clients in the ways, the 21 are markets that have been selected

• 31:18Speaker 02

  for global alpha and what we're running now, but they're not sacrosanct, i.e. if somebody wanted to replace, or if a client wanted it a different weighting in a different area, or wanted it running something else, the strategy, the quant global alpha could run on that. We can adapt to that.

• 31:36Speaker 00

  Your team has put this together. So you believe that with your best research, your best time and energy, that what you have done with this 21 is the optimal place to be?

• 31:48Speaker 02

  Gareth's work has determined that to be the optimal, absolutely, rather than myself. What I've seen, I've seen Gareth, the strategy, and him and Brendan, who are a team on the trading desk, and I've seen them operating something fantastic, astronomical. And I've come from a sector raising, or what I deem astronomical, and then obviously spending time with Gareth, you realize the depth behind the strategy. And then the background I had come from following my military time, I saw an opportunity in the financial services world to really take the clients that I was previously speaking to and offer them something else other than what at that time I was offering them. Now, as it happens, the majority of clients

• 32:29Speaker 02

  are only interested in real estate, but there is a number of pension trust and funds who I previously been speaking to, who I haven't.

• 32:37Speaker 00

  Let me shift it back to you, Gareth, though, on this issue of 21, just to really keep digging here. I'm sure you can share with the audience that while you've selected and you've done all of your work and you've come up with this optimal portfolio, you've clearly looked at the portfolio at much higher numbers, I'm sure. You've done testing, going in all kinds of directions. So I think that's something you might want to expand on, is that this is not just a number chosen out of a hat. There's a tremendous amount of research behind how that number came to be.

• 33:11Speaker 01

  I have traded in the past a number of different ways with the system. We've had some other really interesting portfolio in the past, going back probably, geez, remind you how old you are, I guess, when you think this way, but going back probably over 15 years now. I remember we did a metal, oil and gas portfolio, which worked very well. As the name suggests, we were just looking there at the metals and energies. There's some big trends there. We did a global equity portfolio where we were looking at all the indices. So we've done a lot of experimentation, not just testing, live trading with all different

• 33:53Speaker 01

  types of portfolio. But what I find with broader portfolio, when we go to, say, 100 markets, is yes, we can improve the sharp if that's important. It's not to me. I'm all about return, really. Yes, the volatility has to be acceptable. But for me, they are important aspects of performance to look at separately. I really don't value the sharp ratio much at all.

• 34:21Speaker 00

  Your pure absolute return?

• 34:23Speaker 01

  Yeah, pretty much. I'm not saying volatility is not important, but for me, the return, that clear return profile, what's important to me is that we can double money every three to five years, and then I'll look at volatility. Returns paramount. The volatility, yes, has to be considered, has to have a reasonable consideration, has to be valued, but return first and foremost, I absolutely look at those aspects separately. Combining them into a sharp ratio where you then arrive at a number which doesn't really relate to either performance measure. The sharp doesn't relate to return or risk anymore. You've got this new number.

• 35:08Speaker 00

  Let me take it back in time a little bit. In my looking at performance histories, going back as far as I could find them, especially in the 70s and 80s, a lot of the trend following names, so to speak, many of which we've talked about today, would produce very large returns. I think their portfolios were generally tracking far less markets. And then we reached a point in time, I would guess, probably maybe a little before, or just after the great financial crisis, so to speak, where it seemed like the allocators were saying, okay, we like what we think trend following is delivering, but we want you to either delever it, or do it the way we want, or whatnot. Then we'll give you lots of money.

• 35:52Speaker 00

  We'll give you lots of money to trade. Did we find this situation with the central banks keeping rates at zero and dampening things for a decade? It's got the feel, especially the last three years, and looking at assorted names that I know, it looks like trend following in the last three years, especially is reminding me of some of those 70s and 80s style performance numbers, where things are a little less controlled by the central bank, and things are a little more wild in terms of movements. Fair assessment?

• 36:27Speaker 01

  Yeah, bang on for me. That's the big picture, isn't it? I've never followed that commercial direction. I've always tried to keep trading as retro classic as it should be, especially around the strategy side of the system, the market strategy, those signals when we're looking at the entry, stop, exit. Classic trend following will always work. The simpler, the better.

• 36:55Speaker 00

  That's a big statement, though. Will always work. There's people on this podcast that have said similar things, from the Jerry Parkers, to the Paul Moveney's and whatnot, but trend following will always work. Okay, you've got across your desk, your files, your folders, all of your research is embedded in the statement that trend following will always work. But you've got some skeptic out there, some skeptics that's thinking, oh, man, that sounds a little cocky. That sounds a little like, this guy's a little full of himself. It's always going to work. But you started off this conversation reminding everybody that you're a math guy. Integrally, there are concepts in math that are so connected

• 37:38Speaker 00

  into what you've just said. Can you try to pull this apart a little bit for the skeptic out there, that trend following will always work?

• 37:48Speaker 01

  My interpretation is that the world will always change. As long as we have access to free markets, macro markets, then we will always have the opportunity to follow those changes, which manifest themselves as trends in the markets, provided that we are, I guess, aligned then to the profile of change. And the way we approach it is the economic cycle. That reflects the cycle of society, how we live our lives, goes back to the logic calendar and the look back periods which we follow. They all relate to how we live our life, or

• 38:29Speaker 01

  our lives revolve around these periods. We live in monthly, quarterly, semi-annual, annual.

• 38:37Speaker 00

  But your trading strategy doesn't live in a quarterly timeframe. You don't wake up and say that your strategy is beholden to a quarterly measure, does it? No?

• 38:47Speaker 01

  Not in that sense, no. I guess, overall, in combination, really, we're driven by that primary trend and following that life cycle. The benefit of looking at those other periods of the calendar is essentially like a smart pyramid for us. That's how we adjust the weight of our position. So really, that's more about timing and pyramid-ing. The overall direction, the overall trend that we follow is the primary trend. And that goes back to, I guess, how I try to describe it, that there'll always be change. That's the constant, isn't

• 39:27Speaker 01

  it? The world and life will always change. Therefore, trend following will always have that source of alpha.

• 39:34Speaker 00

  I think also, too, you might want to clarify for either the uninitiated or the skeptic, that as the world, as markets always change,

• 39:46Speaker 00

  And you can't predict when the change is going to happen and you can't predict which market is going to give you the alpha. We're right back to square one on the 21 markets and just being ready for perhaps the one big trend that pays for them all. It's a quite complicated world that I'm in that you're in, in the sense that it takes a little bit of something, something to wrap your arms around it and get it. But it's also back to the Sakota personality of the whimsical part. Trend following is here. You can see it on a piece of paper. You can understand it. Most people, it can be explained to them. But to fully believe it, that that trend following represents life, the world, the

• 40:31Speaker 00

  markets, I think it's unusual for a lot of people to truly get that.

• 40:34Speaker 01

  I guess the philosophy is probably difficult for the majority of people. It's the idea that you're going to follow, you're going to react, and you're going to accept. Most people, they want to forecast, they want to predict and have expectations. And I think that part is enormous, really. That's how trend followers align. We can accept the world. I try not to have expectations about anything. Good stuff happens, I'm really grateful. I don't expect anything from anyone.

• 41:06Speaker 00

  I'll share with you, so I've just been in a situation in the last handful of months, a very nice building of a relationship scenario. And then all of a sudden, with no conflict and no disagreement, there was just a stoppage. And then there's no autopsy to dig through, there's nothing. And in many ways, that's like trend following. As human beings, we want to fall in love and all that kind of stuff, and we want to be in love. But with trend following, you can't allow that human emotion to fall into the trading approach, or you're cooked. It doesn't work that way.

• 41:45Speaker 01

  I think that's strength or a weakness, whether people have that human emotion that you described as well. And I think I find it easier to live in the world of pure mathematics and it's a perfect world, isn't it? Everything's right or wrong.

• 42:00Speaker 00

  That was my opening question to you and Richard, which was the idea of the empiricist mindset, which is the empirical, the data. We live in a world where, in many ways, if you tell somebody you're an empiricist, if you believe in the data, they might say, okay, that sounds okay. But then if they start to understand what it really means, well, hold on, there's not a trap door for me to escape from. I can't just pick and choose. I can't just have some of it and not all of it. Then they just fall apart.

• 42:31Speaker 01

  I guess there's some of us, and I'm certainly one of those people who likes routine.

• 42:37Speaker 00

  You apply a systematic routine to a structure, the markets, that don't behave systematically necessarily. They behave unpredictably, they behave wildly. Here you are, you clearly give the vibe as a systematic routine math guy, like order. But the markets don't provide order, but you've found a way to apply a routine of order on top of wild markets. Fair assessment?

• 43:03Speaker 01

  That's what it's predicated on, isn't it? That's what the system's based on. The system is there to deal with that chaos, to trade those markets, is looking to filter the noise and extract the trends. That's the challenge. That's how we beat the market, isn't it? We know that they're there. The system has that predetermined set of rules. Part of those rules is adaptation as well. So the rules adapt. It's the loose fitting pants approach that I've often heard people describe it as. They're with you through thick and thin. It's the same set of pants, but they're with you through thick and thin.

• 43:47Speaker 01

  So the system has to adapt, but the way you describe it's right. You know, that's what the system does. And I suppose there is that difference you could compare there between having essentially a set of rules with all that order, which you then apply in that environment. Also has order, but yeah, there's a lot of noise, there's a lot of chaos, but absolutely we know the trends are there, that we're not just dealing with random, normal distributions. There's a whole lot of research, much more than I could produce in my lifetime to show that we're not dealing with normal distribution of prices. We know that we've got greater curtosis there, we've got the fat tails, we know the moves are there.

• 44:29Speaker 01

  So yeah, if the rules align to that and they're robust, you've done that research through testing, then absolutely the alpha's there, we know that.

• 44:40Speaker 02

  I think that was one of the things that did attract me when I first introduced to Gareth and I started doing my own research on it. It was that rigorous application of the rules and that they couldn't be swayed by potentially short-term fundamental decisions. It was the use of those rules and sticking to that. And having come from a background, where I've come from, where a military background and certain flying, a lot of the aircraft that I've done, where it's based on checklists, routine, and everything has to be adhered to. There is areas and times when the loose fitting pants, they can stay with you and you have to adapt the rules to certain situations. But generally, they are sacrosanct and you must do that. I had 20 years of living in that environment.

• 45:22Speaker 02

  So then to see almost that same mindset in Gareth applied to this strategy for me was really reassuring. And actually was one of the things that, when I was making that decision, actually there is something here. It was one of those things that said, this isn't a flash in the pan strategy, which I'd seen a hundred times before, this is completely different.

• 45:42Speaker 00

  If you were thinking that trend following is a flash in the pan, you were just not exposed to it as of yet.

• 45:47Speaker 02

  Gareth was the convert to get me fully immersed into trend following. At that point, I hadn't been introduced to your work. I reached out to Gareth and both Brendan gave me the books. I think it was on meeting number one and said, read some of these to immerse yourself in it. My knowledge up until that point had been, shall we say, surface level. And then once I dealt deeper, understood Gareth's philosophy.

• 46:08Speaker 00

  Guys, I'm going to put a pin in you. We'll have to have future conversations. I enjoy it. I enjoy the perspective. In my position, it's a matter of just throwing things at people in the space and getting a different take on a subject that we all know well. And I think you both bring that to the table. Guys, where can we send people? Bowmore Capital is where they can find people. What's the website?

• 46:31Speaker 02

  It's bowmoorcapital.com. It's Bowmore, so it's B-O-W-M-O-O-R, where a lot of people think it's the whiskey, Bowmore. Gareth's from Scotland.

• 46:40Speaker 01

  Go and drink whiskey, though.

• 46:43Speaker 02

  But it's Bowmore, so B-O-W-M-O-O-R capital.com. So please visit there. I'm on [email protected] and Gareth as well, gareth.habits, who can send people.

• 46:54Speaker 00

  Well, guys, thanks for coming on. Thanks for giving me insights. Thanks for taking whatever I throw at you. And I throw all kinds of things at people, but I appreciate it.

• 47:03Speaker 02

  Thank you, Michael.

• 47:04Speaker 01

  Thank you so much.

• 47:05Speaker 03

  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.

• 47:47Speaker 03

  But if you want to buy and hold, trust the government and trust Wall Street, this is absolutely not for you.