Trend Following. Ritholtz Barry

business, so plan accordingly.

      ● There is an edge to be gained in every aspect of your trading system.

      ● Everyone is fallible, even you, so your system must take this into account.

      ● Trading means losing as well as winning, something you must live with for success.

      To adequately explain the genesis of this new edition, I need time travel. You see, my public trend following persona started in October 1996 with the launch of a simple four-page website. Armed with a political science degree from George Mason University, no connection to Wall Street or any fund and with zero academic respect or PhD credentials, it seemed perfectly appropriate to create the first trend following website.

      And I did.

      Loaded with original content, that rudimentary-looking site, turtletrader.com, generated millions of views, millions of dollars, and – unbeknownst to me at the time – respect among legions of beginner and professional traders alike.

      Six years into that website, I decided it was time for a book – or maybe the book decided it was time for me. Larry Harris, the finance chair at the University of Southern California, randomly e-mailed me. He wanted me to review his new book because I was driving more interest in his whitepaper, The Winners and Losers of the Zero-Sum Game, than anyone else.

      Without skipping a beat I said sure to a review of his book, but asked for an introduction to his publisher, since I was writing a book, too. He obliged and connected me even though my book at that moment was conceptual.

      After two years of starts and stops, Trend Following was finally ready. And when the first edition hit the streets in April 2004, I had no idea whether it would sell 10 or 10,000 copies. But immediately the book made an under-the-radar splash, landing in Amazon’s top 100 – of all books. In fact, that first edition was so expected to fail by my first publisher you could only get it online – initially no bookstore.

      It went on to sell over 100,000 copies with translations into German, Korean, Japanese, Chinese, Arabic, French, Portuguese, Russian, Thai, and Turkish. Its success led to four more books and the opportunity to direct a documentary film over the course of 2007 to 2009.

      I never expected an obscure trading book first written 13 years ago would lead me to conversations with five Nobel Prize winners or face-to-face learning from trading legends Boone Pickens, David Harding, Ed Seykota, and literally hundreds more. This journey also led me to the world’s top behavioral economists and psychologists from Daniel Kahneman and Robert Cialdini to Steven Pinker. And it opened the door to my podcast, which has run since 2012 and now has over five millions listens. My podcast has further featured guests ranging from Tim Ferriss to paleontologist Jack Horner of Jurassic Park fame – all connected philosophically to trend following thinking (at least in my mind).

      Yet this wild ride has been far more than one-on-one conversations. The serendipity of Trend Following has led me around the world before live audiences in Chicago, New York City, Beijing, Hong Kong, Kuala Lumpur, Macau, Shanghai, Singapore, Tokyo, Paris, Vienna, and São Paulo. A speaking gig in front of 1,500 native German speakers at the Hofburg Palace, the former imperial palace in Vienna, Austria – that happened.

      And it kept going. Audiences with China Asset Management to Singapore’s Sovereign Wealth Fund GIC to regular investor audiences with well over a thousand people – everyone from new investor to pro who wanted to learn more about trend following, all allowed me to come into their world.

      But I recall my first public presentation in support of Trend Following– fall 2004 at Legg Mason’s headquarters in Baltimore, where their chief market strategist had invited me to lunch. Afterward, I was escorted up a flight of stairs to a nondescript door. Upon entering the room, I found it filled with young bankers listening to a speaker. Michael Mauboussin, then Legg Mason’s chief investment strategist, motioned for me to sit. I instantly recognized the speaker as Bill Miller, then the fund manager of Legg Mason Value Trust. At the time Miller had beaten the S&P 500 index for 14 straight years – and was easily one of Wall Street’s most successful and famed players.

      Miller then introduced me to the audience. Until that moment I had no idea I was up next. For the next hour, Miller from one side of the room, and Mauboussin from the other side, alternately peppered me with questions about trend following, risk management, and the TurtleTraders.

      After the presentation I thanked Miller for the opportunity to make my case, but wanted to know how he learned about Trend Following. He said, “I surf Amazon for all types of books. I came across yours, bought it, liked it, and told all my people at Legg Mason they should read it.”

      At that moment I knew Trend Following might be catching on a little – at least in some very rarified circles. Forget sales – which were very good – I knew that if Trend Following’s message had struck a chord with Miller, who was not trading as a trend follower, I might be on to something life changing.

      However, now it is time to bring this living work forward to 2017 and a whole new audience and generation for I have barely dented the broad consciousness of global investors. Roughly $80 trillion of investable assets sit squarely at the mercy of EMT inside buy and hold and/or passive index funds with only a quarter of 1 percent of assets in trend following strategies. Almost everyone’s savings and retirement monies are literally a slave to wobbly economic theory that leaves the masses unprepared for the next smack down.

      That slavery is why I have yet again opened up the chest cavity on Trend Following. Not outpatient surgery to correct typos, but open-heart surgery to add thousands of details – big picture to minutia that bulk up the original to a new and improved Schwarzenegger-on-steroids edition. For starters, Trend Following is now divided into three sections:

      1. Trend Following’s original chapters and principles, updated and extended.

      2. Trend following interviews (new): Seven interviews from pros illuminate trend following’s big picture with the requisite finer details.

      3. Trend following research (new): Research contributions that add to the trend following conversation for average investors, professionals and scholars.

      This is my most radical and extended volume. Content changes and additions are everywhere. It’s now three books in one. I have added material in a way where you can take small steps or go for the deep dive – starting on almost any page. The tone is different, too. Toned down in some areas, toned up in others. Some of my younger blank and vinegar was expunged and reformulated to a new mature version, while staying true to the heart and soul of my origins. Last, some might complain there is too much information, too much content, and I am throwing the kitchen sink at the subject. If so, I will be happy with that criticism. Guilty as charged.

      Now, if you’re looking for guru secrets or easy money riches – please head on back to that OxyContin bender. There is no such thing. If you’re in the mood for outlandish predictions, stories about the ultimate gut trader, or what it’s like to work inside a Wall Street bank, or if you want to complain life is unfair and beg for the government to save you with a bailout – no one can help you on your path to irrelevance. Or, worse yet, if you maintain faith in EMT, steadfastly refusing to consider overwhelming contradictory evidence, maybe you can burn me in effigy along with Bouchaud and Harding. If you fit any of these problematic profiles, there is a good chance my words, and my politically incorrect perspective, will give you an aneurysm. Turn me off now.

      In the alternative, if you want outside-of-the-box different, the truth of how out-sized returns are made without any fundamental predictions or forecasts, this is it. And if you want the honest data-driven proof, I expect my digging will give everyone the necessary confidence to break their comfort addiction to the box they already know and go take a swing at making a fortune in bull, bear, and black swan markets. – Michael W. Covel

Author note: The following quotations appear in the hardcover side margins

      Nearly every time I strayed from the herd, I’ve made a lot of money. Wandering away from the action is the way to find the new