Day 0 - Invest with a cause

Day 0 - Invest with a cause

Hi,

I will be writing a series of 21 blog posts starting tomorrow to raise funds for The/Nudge Foundation run by my friend and batchmate from ISB, Atul Satija.

These blog posts will focus on investing habits or information which I wish that I knew when I was in my 20s or early 30s.

I hope to raise about Rs. 50,000 from this effort and I will be adding another Rs. 50,000 from my end to the Nudge Foundation.

Please support this initiative at https://thenudge.ketto.org/anishpteli

Regards
Anish

Policy makers have no end game or Dont fight the Fed - Whatever it is, this time its not different !!!!!

Policymakers have no endgame, markets do. -  Stan Druckenmiller

Don’t fight the Fed – Old saying on Wall Street

So how do we reconcile the two. Like debates between efficient markets and mispricing, like Eugene Fama and Bob Shiller, both these are right at some time or the other. Most of the times, markets are efficient, hence it is very difficult to find and edge in investing or trading but there periods of huge dis-locations when Mr. Market goes like the whole world is going to end and nothing will survive. From 2008 until now, “Not fighting the Fed” has worked remarkably well. Central Banks did an excellent job of getting things back in line when they were about to fall off and bought politicians time. But what did politicians do? They did what they do, politicise, debate, procrastinate, appease to short term agendas and passed the baton back to central banks, who seem to have finally run out of ammunition and tools. And when finally a political decision had to be made, the politicians ran for the hills and it was handed over to the people and when all were focused on Grexit, Italeave etc., Brexit happened. Of what use is political leadership when decisions like these are forced upon the people? Did US Fed and Treasury undertake a referendum when they came to the rescue of the US financial system and the 1%. Maybe they should have, they might have got a different answer. But coming back to political leadership do we have any at all? So now that almost a decade is about to pass since the subprime crisis began (in 2007), what have central banks achieved after steadying the economy. Is there growth, employment, capital expenditure, consumer confidence and I can go on. But the point is that once monetary policy (fancy word for cutting and raising interest rates) and cheap money steadied the markets, what steps did the political leadership take to put the economy back on track. Zilch.

So is Brexit the canary in the mine which is telling us that the end of the very abnormal period and never seen before in our lifetime situation of negative interest rates (not in India yet) is about to end or will it get worse before it ends? Sorry, don’t know the answer to that one. It will evolve and will evolve fast. Remember the most recent crisis in 2008, well a mini crisis had already started in 2007 but equity markets didn’t take notice until 2008 but credit markets had started to take notice. So we will see an end game when enough market participants believe that this is the end game.

In a recently released transcript ,of an interview of Warren Buffett, conducted by the Financial Crisis Inquiry Committee, "The basic cause, you know, embedded in psychology, was a pervasive belief that house prices couldn't go down and everyone, virtually everybody, succumbed to that. But that's the only way you get a bubble is when basically a very high percentage of the population buys into some originally sound premise. It's quite interesting how that develops. The originally sound premise that becomes distorted as time passes and people forget the original sound premise and start focusing solely on the price action. So the media investors, the mortgage bankers, the American public, me, my neighbor, rating agencies, Congress, you name it — people overwhelmingly came to believe that house prices could not fall significantly. And since it was biggest asset class in the country and it was the easiest class to borrow against, it created probably the biggest bubble in our history."

For those who want to read the above in Soros’ words can read the following paragraph and those who like Buffett’s folksy explanations can skip it.

Let us revisit Soros’ two core principles. One is that in situations that have thinking participants, the participants’ view of the world is always partial and distorted. That is the principle of fallibility. The other is that these distorted views can influence the situation to which they relate because false views lead to inappropriate actions. That is the principle of reflexivity. Now let us distinguish between the objective and subjective aspects of reality. Thinking constitutes the subjective aspect, events the objective aspect. In other words, the subjective aspect covers what takes place in the minds of the participants, the objective aspect denotes what takes place in external reality. There is only one external reality but many different subjective views. Reflexivity can then connect any two or more aspects of reality, setting up two-way feedback loops between them. Feedback loops can be either negative or positive. Negative feedback brings the participants’ views and the actual situation closer together; positive feedback drives them further apart. In other words, a negative feedback process is self-correcting. It can go on forever and if there are no significant changes in external reality, it may eventually lead to an equilibrium where the participants’ views come to correspond to the actual state of affairs. That is what is supposed to happen in financial markets. So equilibrium, which is the central case in economics, turns out to be an extreme case of negative feedback, a limiting case in my conceptual framework.

By contrast, a positive feedback process is self-reinforcing. It cannot go on forever because eventually the participants’ views would become so far removed from objective reality that the participants would have to recognize them as unrealistic. Nor can the iterative process occur without any change in the actual state of affairs, because it is in the nature of positive feedback that it reinforces whatever tendency prevails in the real world. Instead of equilibrium, we are faced with a dynamic disequilibrium or what may be described as far-from-equilibrium conditions. Usually in far-from-equilibrium situations the divergence between perceptions and reality leads to a climax which sets in motion a positive feedback process in the opposite direction. Such initially self-reinforcing but eventually self-defeating boom-bust processes or bubbles are characteristic of financial markets, but they can also be found in other spheres. There, I call them fertile fallacies—interpretations of reality that are distorted, yet produce results which reinforce the distortion.

Both masters are saying essentially the same thing. People’s perceptions cause external events and then feedback loops take over until markets self-correct. Central Banks can suspend laws of economics but only until the feedback loop breaks or the bubble bursts. Until then dance away.

So after all the heavy lecture above let us take a step back and look at some data points 12 months prior to Brexit, at the beginning of the calendar year and post Brexit.   

	24-06-2015	01-01-2016	24-06-2016	TTM	YTD
Nifty	8350	7982	8086	-3%	1%
S&P	2108	2013	2037	-3%	1%
FTSE	6844	6093	6139	-10%	1%
Repo Rate (India) %	7.25	6.75	6.50	-10%	-4%
US 10 Yr Treasury Yields %	2.37	2.29	1.56	-34%	-32%
Gold (USD) per ounce	1172	1075	1320	13%	23%
Gold (INR) per 10 gms	26418	24943	31131	18%	25%
USDINR	63.45	66.16	67.87	7%	3%
USDGBP	0.63	0.68	0.75	18%	11%
Crude (USD)	60	37	48	-20%	30%

The table is self-explanatory. Risk assets have been under pressure the last twelve months. And treasury yields are falling and gold in every currency would be up. “Risk off” has been on for a year now. And this may be just the beginning. We cannot foresee any event or even in what sequences will events occur which lead to the inevitable correction in global interest rates. Will we as a global economy have few lost decades like Japan or will the laws of economics catch up soon and markets take control back from central banks in terms of pricing interest rates to take things back to their logical end game. We have no way of knowing so we just focus on managing risk and leave returns to the markets.

The Nudge Foundation - 21 Day Challenge - Day 11

So I am on day 11 now. For those of you who are reading this blog for the first time, the background to this challenge is here and here is where you can contribute.

Over the past 11 days I have had interesting perspectives from some close friends. Some curious, some skeptical, some interesting queries and debates. Now as I said, I decided to do this at very short notice, so it wasn't clear to me what it would be included or excluded in my Rs. 100 per day budget. Two young techies did something similar in 2011. So in hindsight I should have added another Rs. 20-30 for inflation. But I didn’t, so Rs. 100 it is.

As per me and Big Boss its going well so far (NK don’t smirk). Food consumption, entertainment, eating out, electricity, hot water consumption, drinking water consumption etc. are all within control. However I had also said I would make some exceptions for practical reasons. Travel in the city being one of them. Mostly if I have to travel far, I make sure that it is not alone. Technically I should use public transport and given the cost of public transport also in Mumbai, I can't spend more than Rs. 10-15 on travel beyond 3-4 km. I didn’t strictly follow the odd-even rule of walking to office on alternate days but have started doing so from today.

Now getting back to my friends, I group them into 3 categories - Flexible, Questioning and Orthodox. Lets call them DA, AK, and NK. 

DA wanted to know about what I would do if I was invited to a social function and I knew that per plate cost there exceeded my budget, what would I do. This one was simple. I would attend the function but not eat there, and inform the host about my cause and give him/her the link to my site. Now if it was a work situation and I needed to be with some people out for a meal. This one is trickier, because no one else is allowed to pay for me, and if I pay I exceed the budget. I haven't faced this situation so far and so I don’t know what I would do, truth be told. And he was ok with my explanations. But then he is a friend who doesn't judge me and I know him for like 35 years.

AK, not so accepting and mildly judgemental too. AK also knows me too well, and knew my weak areas. And questioned me on all of them. Eating less or drinking less is not hard for you says AK. If you are taking up a challenge, then you should be doing something that pushes your boundaries. I explained to AK, how this was not just about eating less or drinking less water or skipping a few baths ( only 2 so far :-) ), but that I am also sleeping down on the floor and using a blanket that costs less than Rs. 100, walking to office, using less water, and other spending is completely zero. AK says that is doing “Tamasha”. And I say that Tamasha for a good cause is good. Tamasha is not used in a derogatory sense here but more in the context of doing Tamasha to draw attention to something with a rationale. And I have to clarify this because my next friend, NK, is going to be reading and looking at this with a judgmental lens. (And I loved the movie btw. Ranbir, DP and Imitiaz did a fab job. This Indian Express review is one of the best I have read so far of the movie). But I digress. So I said to AK that doing Tamasha is not usually my style, and if I am doing Tamasha and putting myself out there even to 10 people, that is a lot for me as I am a very closed, introverted and private person. And so even this blogging and sharing and talking about myself and asking people to contribute is pushing my boundaries. The old me would have simply written a cheque and moved on. AK got a bit "odd" then "even" about it and still is. On alternate days AK, is "ok" and next day "not ok" - somewhere in the middle. Doing this is also pushing my boundaries and challenging for me. DA knows that. So do AK and NK. 

NK is the most orthodox of them all. NK expected me to suddenly transform myself into something else the next day and almost be living in rags, sleeping out, travelling by public transport everywhere (not even hitch a ride with my family). In other words - be on the streets and sing - "Chhat hai woh aasman, dharti hai baap-ma" - The sky is my roof and the earth is my parent who will take care of me - literally. And I have got a lot of FRIENDLY grief and ribbing from this friend. NK thinks I should be going through a lot more hardship than what I am already going through. And more about the travel. NK has no other area of criticism. There isn’t. And perhaps NK is partly right because travel is a pain in Mumbai. So that would be a challenge. And this is one area of improvement for me as I have already said above. So walking to office it is. And NK’s intent is good so no issues there. And I am sure NK will contribute money to the cause and continue to give me grief and I will continue to silently listen. Anything for the cause. NK - this ends on the 21st. Until then I control :-)

Now the old me would have got worked up and said what right do these three (imaginary and fictional) friends have to judge me. I am doing something for a good cause. Little big of transgression is allowed. But the new improved and upgraded me - who practices mindfulness courtesy Jon Kabat-Zinn - decided to take a pause. I didn't react. I decided to introspect, do some research and then respond. Next time it will be more specific. But its good to have all three honest view because they all teach me one thing - truth is reflection of facts through your own lens. The same me is viewed differently by three people. So beyond a point do your own thing. And be true to yourself. 

Now all this also got me thinking about how to set rules for such a challenge - What exactly does "Living on Rs. 100 per day" mean and what all should it include. It should be practical as well be a challenge. I went to Amazon and looked for some kindle books and downloaded a few samples. I can't buy books remember. So some kind of template on such challenges is what I will post next time.

Until then here is the link: I am 42% there and 10 more days to do am sure will get to 100% with all your support.

http://thenudge.ketto.org/anishteli

With a Nudge

Anish

PS: Thank you DA, AK and NK for giving me material for this post.

The Nudge - 21 Day Challenge - Pause for a Cause

So far this blog has been about Investing, Trading but now for the next few days I will also be taking liberty under the Et Al in the title and write about my 21 Day challenge to live under Rs. 100 per day for 21 days, to raise Rs. 1 lac for the Nudge Foundation which is run by my ISB batchmate Atul Satija. For every day that I am successful, I will be contributing Rs. 5000 ( have upped it from Rs. 3000 earlier). So now I will be contributing Rs. 1.05 L and My target is raise Rs. 1.05 L in 21 days. I have raised Rs. 28,000 till now and I want to give a special thanks to all those who have contributed even before I started the challenge. Thanks for the pressure. 

Here is the link incase you want to contribute and have ADHD and I may lose you later. 

http://thenudge.ketto.org/anishteli

On 1st of January 2016, The Nudge foundation (T/NF )launched “The Nudge ‘21 day’ challenge and is on a mission to sustainably bring a million people out of poverty. I had been reading about Nudge ever since it was launched and was proud that a batchmate of mine (Halo effect) was doing something meaningful with his life once he had reached a point in life where he had made ENOUGH for his family and decided to do something, I can only dream of doing someday. So more power to you, Atul. 

While most of us do guilt trip once in a while and do what I call - cheque book charity - I had decided about two months ago that it was time to actually do something. I have started small and will write about what I am doing later. But this post is about The/Nudge.

Back to the 21 Day Challenge. The night before signing up, on the 27/28 of Dec 2015, I was reading about Sujit Mathew and his pledge to live under Rs. 100 a day and raise money for Nudge. And once I saw the videos etc of the Gurukul and went though the Nudge website, I decided to join the cause. For once in my life I decided on an impulse, but one that had been probably been building up for a while. And before I could change my mind I went and made my decision public by signing up on Ketto and it was done. Now there was no turning back. And I was yet to tell my wife. I was sure she would be supportive. And she was - except there was a naughty smile on her face when I told her about the pledge. She was like - are you sure you can do this ? Have you thought this through? And I proudly said "Yes and No respectively". Par ek baar maine commitment kar di..... (aur publicly  kardi to ab to karna padega).

Now it helps that we finance types and accountants are good at goal seek. So I will balance the books alright .... without cooking them. So first was to make a not to do list. Then make a food, commute and other misc consumption budget. I will write more about that in the next few posts. But first big bang reforms (agli baar meri sarkaar)

Big ticket items off the list:

 - Eating out for the next 21 days (unless its under my budget of Rs. 15 per meal)

 - Electricity in the room when I am alone (I use a solar powered reading lamp)

 - Lights/fan/ac in office. My office is lit well by sunlight and its winter. ;-)

 - Most dairy products (it helps to be lactose intolerant. I have one spoon milk in my tea)

 - Hot water shower (no cold water shower either). Slowly wean myself off hot water to luke warm to room temperature to cold water. This is one of my weak points. But I have reserves in other departments. And in extreme times I may forget to have a bath. Call it the Axe effect. Pun intended. ;-) 

 - Clean drinking water (Atul warned me about this. But hey, I don't need more than 1/2 lt a day. Ya seriously)

 - Kejri formula of odd-even. I need to be in office by 8.59 am. Walk on odd days and drive on even. Don't cry for me fellow Indians. My office is only a couple of kms away and I still drive (shame shame) to work.

 - No buying books on Amazon when I am getting bored and need to read. I have a lot of stuff I can read otherwise also. So Amazon.in You are blocked.

-  Mobile data off. Data usage only in wifi zones. Whatsapp may not be the most reliable way to reach me over the next few days. Text me. And my friends - if i give you missed calls - please call back. It for a cause :-)

So above are the list of don'ts. Will keep adding to it. Later will be the list and allowed items on my budget. There are some exceptions. And Big Boss (my wife) is watching over me. And I keep reminding her its for a cause and not for the Guiness book of records, so please go easy on me. But heck she won't. As ex-FM Pranabda would say in his bengali accent - It is time to follow the "boojet" (budget for my non-bong readers). So I have paused (partly) on my spending and I hope that it helps The/Nudge - the cause.

And if you have made it up till here, then here is the link again. 

http://thenudge.ketto.org/anishteli

More later

Mazel Tov

Anish

"My Name is Raghuram Rajan and I do what I do"

I am data driven, predictable, don't succumb to political pressure and I take baby steps when it comes to cutting rates. And sometimes I do what Mr. Modi and Mr. Jaitley ask me to do. 

Hence today I decided to cut the repo rate by 50 bps, when everybody had factored in 25 bps and was getting used to my predictable ways of being a nosy inflation hawk, I now free myself from that situation and have suddenly mutated and grown wings to become an accommodative dove.

He said “investment is likely to respond more strongly if there is more certainty about the extent of monetary stimulus in the pipeline, even if transmission is slow. Therefore, the Reserve Bank has front-loaded policy action by a reduction in the policy rate by 50 basis points. Given our year-ahead projections of inflation, this ensures one year expected Treasury bill real interest rates of about 1.5-2.0 per cent, which are appropriate for this stage of the recovery.”

"Some may call it an early diwali bone .. no no .. cant say that ... ummm ... diwali gift and some have called me Santa Claus. But I am Raghuram Rajan and I do what I do." 

Cool sounding central banker in the house and some of the journalists went weak in their knees. Thank God, Shobha De wasn't around.

So earlier his view was that inflation trajectory was his domain and giving clarity on that aspect was key to growing investment and capex. Today he switched sides and joined the government side and said that investment would be more likely to respond to certainty about monetary stimulus. 

Even the poor economists who anyways are pilloried for their forecasting skills along with weathermen were caught scrambling for answers. By tomorrow they would have come to terms with this cut and with enough time to rationalize and apply hindsight bias, justify how they saw it coming. But today some of their ilk were more candid. “The tone and the action of the policy is surprising. There is a clear shift of focus (from inflation) to growth,” said Shubhada Rao, chief economist from Yes Bank, who expected a 25 basis point cut.

"A further monetary policy accommodation will be conditioned by the abating of recent inflationary pressures, the full monsoon outturn, possible Federal Reserve actions and greater transmission of its front-loaded past actions," the RBI press release said. Sandwiched in between these various reasons, is the real cause what I think gave the RBI Gov, the heebie-jeebies. And that is Lady Yellen, not lifting off. 

My hindsight rationalization is that  besides political pressure to cut rates more aggressively, the mother ship standing pat on rates, owning to "global concerns" (which they had dismissed earlier), may have been the game changer. And that's perhaps from where Rajan has taken his cue to cut rates aggressively by an additional 25 bps (over the 25 bps already factored in), surprise the market, please the government and markets and put the ball, with a down the line back hand smash, right into the the government's court. 

Many birds, one stone.  

Well played Sir, well played. I just hope its not a case of too little, too late and the one day euphoria in the markets is not what this decision is judged by. Because at the end of the day, Mr. Market, by whatever name you call him, does what he does. And my sense is that he has already decided to go down in the medium to longer term, shorter term pullbacks notwithstanding.

Perhaps next time Raghuram Rajan (RR) should quote Akshay Kumar from the movie Rowdy Rathore (RR) and say, "Jo main bolta hoon woh main karta hoon.. aur jo main nahi bolta hoon woh main definitely karta hoon".

Positional Trader, Investor, Phil Fisher, Buffett, Simons !!!!!

Sitting on an expiry Thursday a random question popped in my head : What is this term "position trader" (in India sometimes we say "Positional Trader"?

I googled it and found that as per Investopedia which defines a position trader as "A type of stock trader who holds a position for the long term (from months to years)". And how is that different from a long investor. Maybe the methodology may be different. The assumption that gets tagged along with trader (whether positional, swing, short term, intra-day) is that they use technical analysis and price and volume data where as an Investor uses fundamental information to make a similar decision i.e. to buy and hold for a long time frame.

Buffet says the three people who have had the most impact on him as an investor are Benjamin Graham, Phil Fisher and Charlie Munger. Now currently I am re-reading this iconic book endorsed by Warren Buffett - our congenial next door grandfatherly value investor.

The book in question is "Common stocks and Uncommon Profits" by Philip A. Fisher. Now Buffett says this about the book, “I sought out Phil Fisher after reading his Common stocks and Uncommon Profits.....When I met him, I was as impressed by the man as by his ideas. A thorough understanding of the business, obtained by Phil's techniques...enables one to make intelligent investment commitments".

Yesterday at noon as I was waiting for European markets to give cues for second half of trading day, I reached Chapter Five in Part One of the book. Now a confession - at noon when I am sitting and reading an impressively titled book, my eyes are usually closed, so the other guy in my office thinks "Sir" is in deep contemplation about what we will do next. But yesterday my eyes didn't shut. I tried to shut them but they kept opening.

Perhaps that part of my brain which deals with conflicts was not letting my eyes shut. So I decided to read Chapter Five and see what the fuss was all about. And at the end of para two it finally dawned on my dull self, why my eyes were not closing: There was a line in there which said "if, having done the hardest part of the job in selecting his companies properly, an investor had made the small extra effort needed to understand a few simple principles about the timing of growth stocks." And by now my eyes were wide open. As I went on to read rest of the chapter it dawned on me that while Fisher had a taken the example of a manufacturing company and he linked the fundamental performance of the company to how the market participants would view the STOCK and how the STOCK would behave and when should an INVESTOR step in to buy.

Later on in the Chapter after Fisher has finished giving the thought process of his "timing methodology", he writes," At this point the stock might well prove to be a sensational buy. ...... The investor has acquired at the right time an investment which can grow for him for many years."

 And so if a position trader were to do this and use price and volume to buy with the same intent - he would in Buffett's lingo be called a "technician". And as he has famously said - "I have never met a rich technician". He should probably touch base with Jim Simons, Ed Seykota, Stan Druckenmiller, Bill O'Neil etc. some of whom are on the Forbes list. But perhaps he knows them already.

And now in today's day and age an Investor can do the same thing that a technician does but under the garb of Behavioral Biases. He just should not just admit that he also peeps at charts sometimes, which are nothing but the graphical representation of the market participants’ behavior over the respective time frames. In the very short term - it would be very close to random and over the very long term it would be pretty much in line with the fundamentals of the company.

"People that think they can predict the short-term movement of the stock market — or listen to other people who talk about (timing the market) — they are making a big mistake," says Buffet. And to be fair to Buffett perhaps the media takes his word out of context and just highlights the "timing" part and forgets the short term part. But then this is Warren Buffett we are talking about. He has direct access to his followers (and I am one of them) and his yearly letters are greeted with the same enthusiasm by "value investors" as Apple products as greeted by Steve Jobs’ fanboys. So perhaps over the last 45 years or so, he has had occasions to rectify this distortion but he has chosen not to.

Towards the end of the chapter Fisher takes off again. He writes," All types of investors might well keep one basic thought in mind. This thought is that the current phase of the business cycle is but one of the at least five powerful forces. All of these forces, either by influencing mass psychology or by direct economic operation, can have an extremely powerful influence on the general level of stock prices.

The other four influences are the trend of interest rates, the over-all governmental attitude toward investment and private enterprise, the long range trend to more and more inflation, and - possibly most powerful of all - new inventions and techniques as they affect old industries." Gasp!! Did Fisher just say that macros are important? But doesn’t Buffett say,” If you spend 5 mins thinking about macros, you have already wasted five minutes of your life.”

And now my tiny brain is trying reconcile Buffett’s various statements, it is starting to shut down and my eyes are droopy. And then the next question is who am I? Investor, Value Investor, Growth Investor, Technician, Techno-fundamentalist, Quant (that is for another day). Well I don't think I can neatly label myself.

Rollover (my positions) and sleep. Too much for one blog.

And then Jim Simons comes into my dream in a Ted talk and he says “Trend-following would have been great in the ’60s, and it was sort of OK in the ’70s. By the ’80s, it wasn’t.”. But someone has already blogged about it so just the links to those blogs below.

For the view

Against the view.

I am against the view. But then what do I know, I am half asleep.  

Go watch a movie called “Argo”. It’s a movie where the Americans rescued a bunch of diplomats from Iran but credit had to be given to the Canadians as it was a classified operation. It was only in 1987 or 97 that it was de-classified and the truth was discovered.  

We know what Buffett tells us he does, and we have no clue what Simons does. Rollover and sleep. 

Book Review of Stocks on the Move by Andreas Clenow

Andreas' previous book Following the Trend is one of my favorite books on trend following as it not only breaks certain myths about the concept of trend following but also demonstrates it with data.

During the course of my journey of trend following and backtesting strategies on Stocks I pretty much came to the same conclusions that Andreas came to in this article provocatively titled Trend Following does not work on Stocks so it resonated deeply with me. An aha moment. Key point is that standard trend following strategies do not work on stocks. First change that has to be made is DO NOT SHORT STOCKS. (Unless you are Bill Ackman) and definitely not using STANDARD trend following strategies. Second is that stocks are a homogenous group and there is massive internal correlation. Owning stocks beyond a certain number is not diversification , it dumb-versification. For more on that read Warren Buffett portfolio by Robert Hagstrom.

And now Stocks on the Move. I will try and give as little as away so that you discover it for yourself when you read the book. Andreas talks about Mutual Funds and how most of them under perform the index itself. He also explains how the new and specific ETFs are not really well understood by people who trade them. He then uses this foundation to talk about why equities are such a difficult asset class to trade and more so on the short side. And most of the observations are spot on. And because of these issues, why Trend Following (TF), as a strategy which was specifically designed to trade a diversified basket of low correlated futures markets cannot be blindly applied to trading stocks on the long and short side.

Andreas then goes on to explain the difference between trend following and momentum and through the next chapters he very transparently explains his strategy. He clarifies that is not the only strategy that works, but this is one of them that works well. Also he encourages readers to focus on trading or investing based on concepts and not get too fixated on parameters.

He then very simply explains the building blocks and the rationale behind those building blocks in very simple terms. A purist Quant might cringe but a practitioner will be elated to read a momentum strategy in English language without much greek and latin notations thrown in.

Then like the previous book he takes us through a fascinating year by year review from 1999-2014 of how the strategy would have worked through those years. And there is a lot of learning here. Of course there is nothing like going through it yourself but hearing it from someone who has been there done that is the next best.

And no he is not going to give you the source code for the strategy simulation. And you know what, it doesn't matter. Because he has given you the core engine. Now go make your car.

Now just one spoiler. The strategy does employ a couple of trend filters which are important elements of the strategy so I would not call this a pure momentum strategy, but practitioners shouldn't care about this because in my view of what I have read about momentum and trend following strategies they are close cousins and so its all in the family.

The charts are hard to read but Andreas has put the images on his website here.

Other than that I enjoyed reading the book and learnt a few new things and the book is going to stay close to me for a while.

Disclamer: Please note the links are provided only for convenience and am not an affiliate of Amazon or the author in any way.