Michael Covel - "We Can't Make a Prediction Worth a Damn" | #21

Episode Summary

Executive Summary: Meb Faber and Michael Covell discuss the origins and mechanics of trend following, the Turtle Traders, and why managed futures remains underallocated despite long histories of success. They also explore Covell’s podcasting journey, the craft of interviewing, information curation challenges, and several practical lifestyle tools and travel hacks that enable his nomadic life in Asia.

Main Topics: Trend following as a durable investment approach (Priority: 5/5): Covell explains trend following as a systematic, rules-based way to ride market moves and exit when trends reverse, emphasizing its long history and commonalities across successful traders. The Turtle Traders origin story (Priority: 5/5): They revisit Richard Dennis and Bill Eckhardt’s experiment to train novices into trend followers, highlighting it as a proof that process and rules can outperform innate talent in trading. Why institutions underallocate to managed futures (Priority: 5/5): The conversation examines behavioral biases, discomfort with drawdowns, and the asymmetry of how long-only losses are tolerated versus trend-following losses being stigmatized. Podcasting craft and audience curation (Priority: 4/5): Covell shares how his podcast evolved from niche trading interviews to a broad behavioral-economics and ideas platform, and he discusses the difficulty of helping listeners navigate huge content libraries. Speculation, risk, and investor psychology (Priority: 4/5): The speakers argue that all investing is speculation and that many investors misunderstand risk, expectation, and the emotional process of following a disciplined strategy. Practical tools and lifestyle design (Priority: 3/5): Covell offers a set of apps, travel programs, and habits that support his life in Asia, illustrating how he structures mobility, communication, and daily routines.

Key Arguments: Trend following works by systematically entering markets after a trend begins and exiting only when the trend breaks; its success comes from process, not prediction. The Turtle experiment showed that novices could be taught a profitable trading system, suggesting trading skill can be learned through rules and repetition. Managed futures is underrepresented because investors tolerate long-only drawdowns more readily than expected drawdowns in strategies that explicitly admit they will have them. Drawdowns are not a bug but a feature of trend following; investors should judge strategies by lifetime suitability, not by short-term discomfort. All investment is speculation; the difference is whether investors acknowledge the uncertainty and probabilistic nature of their decisions. Podcasting success comes from practice, preparation, curiosity, and being oneself rather than imitating established hosts. Content overload is a real problem, and human curation remains superior to algorithmic feeds for finding meaningful podcasts and research.

Data Points: Podcast episodes: Nearly 500 - Covell says he is approaching his 500th podcast episode. Podcast listens: Well over 4 million - Covell describes the reach of his podcast since launching in 2012. Podcast launch date: January 2012 - He launched the podcast on a lark in early 2012. Turtle trainees: Approximately 20 - Dennis and Eckhardt recruited around 20 novices for the Turtle experiment. Training period: Two weeks - Turtles received about two weeks of trend-following instruction before trading. Turtle aggregate profit: Around $100 million - By roughly 1988, the Turtle group had made about $100 million collectively. Richard Dennis early fortune: $200 million - By the early 1980s Dennis had assembled about $200 million in trading capital. Dennis first million: 1976 - Dennis reportedly made his first million on the floor at age 25 or 26. Timing reference: 1988 - Referenced as the period when Turtle results had compounded and Market Wizards was emerging. Drawdown examples: 30% to 50% - Covell references Bill Dunn’s recurring drawdowns over the years as part of trend following. NASDAQ drawdown: 77% - Used to illustrate how severe buy-and-hold drawdowns can be. Trend-following podcast list size: 10 most liked/retweeted tweets - Meb reviewed Covell’s top-performing tweets to find notable quotes and ideas. Magic Jack annual cost: $12/year - Covell cites the app as an inexpensive way to maintain a U.S. phone number abroad. Outstanding in the Field dinner cost: Over $100 - Meb describes the farm-to-table event as a premium dining experience.

Pivotal Quotes: "All investment is speculation. The only difference is that some people admit it and some don't." — Michael Covell (quoting the Zurich Axioms): Used to frame investing as probabilistic decision-making rather than certainty. "Win or lose, everyone gets what they want out of the market. Some people seem to like to lose. So they win by losing money." — Ed Sakota: Discussed as a sharp comment on investor psychology and self-sabotage. "The market starts to move, whatever that market might be. We get on board, and we don't get out until it goes against us, and we have an exit signal." — Meb Faber: Summarizes the core logic of trend following during the strategy discussion.

Implications: The episode reinforces disciplined process over prediction, suggests investors should normalize strategy-specific drawdowns, and shows that curation and curiosity matter as much in media as in markets. For listeners, it argues for humility, systems, and long-term fit.