The Credit Crisis Financial Stocks Short Journal

[austrijec]

i want macro on my list of systems. Feel that complements other systems and is the only one that can make real big money (if and when i get to this kind of size).

Technical system work well for extended periods and suddenly work bad again for extended periods. Not idea about macro.

It is important to have considerable menu of systems so one can adjust in a flip.

 

[Trend Following]

Quote from makloda:

This actually would be my one and only criticism of Covel. He makes it sound like ANYBODY can successfully create and follow a mechanical system and make money like clockwork. IMO most people are not cut out for it. Most people can't live with the idea of being in a constant drawdown for 50% of the calendar months. They will fail following their system and skip signals/miss entries and exits/exit the system at the trough of drawdowns etc. The amount of discipline required is zen-like.

I know we share many common beliefs here, but putting aside 'trend following', and just considering any worthwhile endeavor, people CAN & DO make anything happen in life. The Talent Code and Talent is Overrated both make a strong case against your position. Plus, I am not so sure there is any investment these days that doesn't go through the scenario you describe! Trend following at least wears its drawdowns like a Scarlet Letter, while the rest of the investment world (and all other forms of trading) avoids the subject like the plague.

 

[Trend Following]

Quote from jack hershey:

Obviously trend following as suggested by Covel, is not something for the financial industry to consider.

Since what you are talking about doesn't make much logical sense, can you at least point to a book, a paper, a disclosure document -- anything that explains or outlines whatever this strategy is that you refer to? Is this belief of yours practiced by anyone in the hedge fund community?

 

[Daal]

Quote from makloda:


Just because you feel more comfortable with global macro doesn't mean trendfollowing is not viable or the it will be "arbed away".

The chances of TF being arbed away is certainly not zero, it goes up every year in all likelyhood. And this assumes it haven't already which a simple study with the net TF funds $ return would show
If the momentum edge goes away, one wont be able to be in the top 5% because there would be no edge. Only systems that will get people fooled by randomness

With GM if you are good and keep improving, you are set for life and dont have to worry about that stuff. 98/99 was a year where people made silly bets, you just dont short bubbles through the underlying, its a bad trade, you do it through derivatives with large R/R ratios where you lose a little or make a lot

 

[Trend Following]

Quote from Daal:

The chances of TF being arbed away is certainly not zero, it goes up every year in all likelyhood.

Is there research behind these statements? Or just made up? Specifically, the "goes up" part. Where is that from?

 

[makloda]

Quote from Daal:With GM if you are good and keep improving, you are set for life and dont have to worry about that stuff.

Then why was Global Macro declared dead after Soros mishaps with the Russia default in 1998 and Tiger blowing up in 1999/2000? You can't argue that away just with "silly bets". Certainly, a similar period will occur again sooner or later:

Soros made no money 1995-2000. Did he lose his edge? The markets didn't agree with his analysis? Certainly, if some of the best (connected) global macro managers with hordes of PHD economists in their research team run into dry spells that last several years it is hard to argue that anybody trading a global macro approach who works hard can belong to the top 5% and make money consistently like clockwork.

IMO, Global Macro per se is not safer, better or worse than trend following. It may suit certain traders' personality better, but that's a different question altogether.

 

[Daal]

Quote from Trend Following:

Is there research behind these statements? Or just made up? Specifically, the "goes up" part. Where is that from?

Yes, its based on the historical fact that edges consistently tend to be closed and markets change(small cap outperformance, january effects, easy option/futures arbs in the 70's, dogs of the dow, etc). I'm not making any bold statement, its you who are when you seem to imply that the momentum edge(if it still exits) wont go away forever

 

[Daal]

Quote from makloda:

Then why was Global Macro declared dead after Soros mishaps with the Russia default in 1998 and Tiger blowing up in 1999/2000? You can't argue that away just with "silly bets". Certainly, a similar period will occur again sooner or later:

Soros made no money 1995-2000. Did he lose his edge? The markets didn't agree with his analysis? Certainly, if some of the best (connected) global macro managers with hordes of PHD economists in their research team run into dry spells that last several years it is hard to argue that anybody trading a global macro approach who works hard can belong to the top 5% and make money consistently like clockwork.

IMO, Global Macro per se is not safer, better or worse than trend following. It may suit certain traders' personality better, but that's a different question altogether.

What you seem to be missing is that GM funds are different from one another because every manager has a certain view of the world. Sometimes they agree on trades, sometimes they dont. If a manager is better than the competition he will bring the money in the long-run even if he goes through bad periods. With TF all it takes is for momentum to go away(if thats not the case already)and ALL funds get killed. If there is a new tech bubble you wont see every GM fund going under(not that it happened in the past, julian and soros are not representative of the entire industry, the sample is too small) because plenty might step aside after the lessons learned from 98

Right now is a good example, even though markets are decoupling from fundamentals, GM was flat YTD. That is because I'm sure there are funds who buy the V shaped recovery story, some of them might think equities are a buy for the next 10y regardless of 2010 SPX EPS, some might be focusing on tech, materials,etc

My point is that if you are better at GM than the competition, you are not a SSRN one trick pony who might lose money forever if the markets close out their trick. You find new tricks daily and is always staying ahead of the curve

 

[jack hershey]

Quote from Trend Following:

Since what you are talking about doesn't make much logical sense, can you at least point to a book, a paper, a disclosure document -- anything that explains or outlines whatever this strategy is that you refer to?

I was talking about the The Covel System. My comments are found in a document produced in Phoenix, AZ. The doument is brief and has little research information in it. I found it on a web site. The title is: Does Trend Following Work on Stocks? It is dated November 2005 and says it was updated 11JAN 09. The authors, Managing Director and Research Director of Blackstar Fund, LLC, subcontracted the software and programming to RDB Computing, Inc.

Is this belief of yours practiced by anyone in the hedge fund community?

The researchers (above cited) formally searched for trend following systems for years. They were left empty handed with respect to stocks. This result contradicts your results and my results which do not overlap. I guess the authority cited above has found that what I do is still operating under the radar.

I have only had direct contact with the financial industry from 1957 onward. In this brief period what I do has been known to and used by the following categories of financial units (in the order of introduction):inviduals; stock brokers; institutional investment corporations who advise pool operators; investment bankers; CPA corporations; not-for-profits; invitation only IB boutiques; IB's; commercial platform providers. My assumption is that all kinds of people in the financial industry have looked at the public information that has been available since 1957. The government certainly has. The IRS and SEC has made formal responses and apologies for their formal responses.

There seems to be a lot of misunderstandings about how information may be utilized to greatest advantage. So far, I have benefitted by being able to get the right stuff to the right people. Occasionally I test the existing filtering capability of the overall system; it is still in tact and works quite nicely. On the other hand, we have been able to determine when these filters will breakdown. As it works out, we will have a good human resource base always available for our needs whether or not we remain under the radar.

Two nice past events point out the merits of having a good system and approach. S&P first provided complete brokerage services as a courtesy as early as 1969. Secondly, the IBD institutional service package (44K/Y) was made available soon after its inception (for Beta testing free of charge). This is kind of a commentary on stuff by those whose service those who are involved in the financial industry.

All in all the spectrum has been covered from one end to the other. The SEC saw me as an "insider trader" for years and WOM got free support services from leading information suppliers. Keeping continuing relations with platform packagers staffs is conventional. We provide innovations through these relationships.

It was nice watching your responses to the gift you were given. I'm sure you have seen many others accept the opportunity it represents to anyone. Today after synch, it was nice to see the BO on bar 4 yet once again. Getting to pt 2 of a B2B carryover did take a little while this am. Going to pt 3 was an accelerating experince as well. The cash cow signals peeled off on bars 11, 12 and 14 after being overbought from bar 1. All of this did shift a few points on the slower fractals, though. (points refers to annotation P, V points and not price points)

For me trend following is as they say "crystal clear" and it has ben for 53 years so far.

I am finishing up a suite of five "give away " books since the IRS will not let me gift them and their potential income to a 501 c 3. Like Santa Claus I and my helpers are making lists. You are pretty far down the gibberish list; would you like bituminous or anthracite?

Can you imaginea research crew spending years looking for trend following in stocks and not finding one reference or example? So they did an original research project and found out how the Covel System doesn't work for institutional trading and investing using trend following.

Vegas is coming up and we won't be talking about you.

 

[makloda]

Any trading approach depends on the benevolence of its underlying markets. There will always be times where it's much harder or next to impossible to make money with a certain trading approach, for an extended period of time. Regardless of how smart you are or if you belong to the top 1% of the class.

With regards to momentum going away: If you read the market wizards books, there are several managers saying they think "the computerized trend following models are dead". This was in the late 80s/early 90s. The trend models thrived since then.

VH declared trend following dead in 2004 and 2005. He blew up (again) in 2007 and trend followers had a spectacular year in 2008.

Sooner or later we'll see headlines again on how trend following is dead, markets are too efficient to be exploited by simple algorithms etc. etc.

You opine "Maybe it is already gone". Why is it dead now? Why wasn't it dead 1994, 2004? Why 2009?

IMO, momentum won't go away as long as humans make investment decisions and managed futures funds only represent a fraction of all assets under management in the global financial markets. I read there are around $300 bln allocated to trend following funds. That equals approx. the market cap of XOM. Hardly "too big".