Do
you want sprouts with that? A former McDonald's boss would like to welcome
you to his new restaurant. No butter, cream, white flour, or additives. (Wired)
In addition, he has a popular interview series where he talks with great traders and about a wide range of topics. We are honored that he chose to interview our portfolio manager, David Stendahl. Here is a link to the Interview.
The interview is simple enough for a novice, but nuanced enough for advanced traders. Some of the topics include:
Stendahl's world is 100% systematic, and he has been involved in conceptualizing and thinking up systematic approaches to trading the market for decades. But what is a system? Stendahl's explanation may surprise you.
Stendahl's approach is that a system should have as few moving parts as possible; it should be simple enough to be explained on the back of a cocktail napkin.
Stendahl explains that your system doesn't have to be complex to work. Sometimes the best system can be only four lines of code.
Covel and Stendahl make an analogy to cars, and how you can easily fix a simpler car in your garage as opposed to a complex Lexus.
Stendahl explains that everyone is using a system in one way or another: every time you make a decision to buy or liquidate, whether it's based on a real system or based on advice from someone on the television, it's systematic in some regard.
If you can talk it, you should be able to quantify it. If you can't quantify it, it might not really be there.
Find out how Stendahl's dyslexia played a role in his technical trading, and how he turned this disadvantage into an advantage.
Covel and Stendahl discuss Ray Dalio of Bridgewater, who says that he is 100% systematic, but doesn't use any technical information.
Covel and Stendahl also discuss position sizing and money management, and how you can approach this systematically.
There is a lot of good stuff in the interview. Hope you enjoy it.
Frank Partnoy ex-Wall Street derivative trader and self-confessed procrastinator, reveals the science behind our decision-making disasters and successes, and argues that decisions of all kinds, whether 'snap' or long-term, benefit from being made at the last possible moment.
The art of knowing how long you can afford to delay before committing is at the heart of many a great decision.
The iPhone 5 is cutting edge … and Siri is getting smarter. Too bad it can't answer the tough questions. Here's a cartoon that imagines what would happen if asked "Can the economy be fixed in the current political climate?"
Here are some of the posts that caught my eye. Hope you find something interesting.
While talking with traders, one of the topics that keeps coming up is how much the markets and trading have changed recently.
One
of the primary catalysts to such change has been the amount and
frequency of government intervention and stimulus. Another big driver of
change has been the massive shift to algorithmic or program trading.
Recently, the piece of this getting the most press and attention
is high-frequency trading.
Below is an interesting video where Mark Cuban, Dallas Mavericks
owner and high-profile entrepreneur, shares some thoughts about why high-frequency trading
terrifies him.
Here is the video. The market related comments start about 30 seconds into the clip.
Some people may watch that video and assume that
high-frequency trading is a bad thing, or something to be regulated and minimized. However, there is another side to the argument.
Let me digress for a moment. If I talked to an entrepreneur, and asked them what the biggest constraint on their business was … some might say it's the Obama administration and their policies. This is absurd, because they don't have any control (or at least meaningful control) of that supposed constraint. Instead, that is simply a "reality" of the current competitive environment for them and others.
What that means is the thing they control is how they respond to that competitive environment. For some, what they perceive limits their options or thwarts their strategies. For others, it is a catalyst for new action, new strategies, and new ways to win.
So, why is Cuban afraid of high-frequency trading? First, he believes we are likely to see another "flash crash". Second, an increasing percentage of market action is a result of algorithms trying to outsmart algorithms (and he recognizes that the decisions they are making happen faster than humans can respond to our comprehend). As a result, human intervention isn't the answer because any actions would occur too late.
Some people recognize the advantage algorithmic traders are gaining and seek to weaken it (or at least slow it down), while others pull their money out of the market because of their disadvantage and the new risk. Contrast that with those that see the advantage and try to figure out how to extend it or get some of it for themselves.
It's like most things in life, it's not as much about what happens, it's about what you do.
Are you confused? At this point, we've been exposed to so many conflicting ideals and "facts" that it's hard to know anything.
For example, if I asked you "Who was the smallest spending president since Eisenhower?" – What was the first name that came to your mind? Did you guess Barack Obama? Well, according to this Forbes article, that may be the correct answer.
In a situation like this, many dispense with facts in favor of beliefs.
As a trader, I believe the market tips his hand by showing how it responds to news. When good news is met with selling, that tells you something. However, when bad news is met with price surges, that tells you something very different.
In this case, the US equity markets are at highs they haven't seen in a decade, despite facing more than a little geopolitical, economic, and political instability.
Doesn't your gut tell you we've seen the low for the year? Isn't there part of you (that wants to argue with your better judgment) saying "Don't fight the Fed" … ?
It is entirely possible that markets rally hard into the election.
I may not have facts, but sometimes it's easier to hold beliefs than Hope.
One year ago, on August 24, 2011, Apple announced the resignation of Steve Jobs as CEO and named Tim Cook his successor. Questions as to whether Apple would continue to thrive without its iconic CEO Jobs immediately surfaced.
One year later, it can be said that Tim Cook did a very good job, given the enormous footsteps he had to fill. During his first year as CEO, Apple’s stock price climbed 77 percent and Apple became the most valuable company in the world.
Interestingly, in the first 12 months after Steve Jobs had been named interim CEO of Apple in September 1997, Apple’s stock also soared more than 70 percent. The obvious difference being that Apple was on the verge of bankruptcy in 1997 and Jobs managed to turn the company around.
Tim Cook didn’t need to turn anything around but he managed to keep the company where it was when he took over: on top. That’s not too bad an accomplishment to start with.
Further, the big patent case win will shape the competitive landscape for years to come … onward.
In addition, he has been talking with great traders and thought leaders about a wide range of topics. I'm honored that he chose to talk with me last week. Here is a link to the Interview.
We talk about the business of systematically finding edges through all sorts of different approaches – not only trend following. I like to think of it as finding more ways to win.
And we talk about a broader range of topics as well. For example, we discuss the "E-gene", and how entrepreneurism is at the core of what we practice.
Other topics include:
how hunches can be dangerous;
turning your hobby into your business;
recognizing patterns;
thinking big;
the "three levels of mastery" – cognitive, emotional, and physical;
how minimum standards can define your life;
how systematic trading can define your minimum standards; and
controlling emotions through automation.
We also discuss the importance of the world outside America, and which area both of us agree is important to keep an eye on.
There is a lot of good stuff in the interview. Hope you enjoy it.
