After much thought and preparations I am delighted to announce the launch of MARKETS, TRENDS and PROFITS channel on YouTube. The mission behind I-System Trend Following and this channel is to explore financial markets and the secrets of investing profitably -FOR THE LONG TERM. What we’ll cover here is not commonly taught in university courses – in fact, I’m not aware of any universities that prepare their students to truly understand markets and to invest successfully.
Mastering this pursuit is a GREAT CHALLENGE – it’s been the focus of my professional and intellectual interest for over 25 years now. During that time I’ve conducted deep and extensive research into this subject matter from every conceivable angle including market fundamentals, quantitative analysis, history and psychology.
However, our approach will not be scholarly – I’m neither an academic nor a journalist but a practitioner: I’ve spent the best part of the last two decades running a number of hedge funds, managing money and trading in over 50 different financial and commodities markets, conducting tens of thousands of transactions worth many billions of dollars. Ludwig Von Mises said that, “Many who are self-taught far excel the doctors, masters and bachelors of the most renowned universities.” Without false modesty, I can say that I am one of the individuals that Von Mises was referring to. On that basis, what I will share with you on this channel is absolutely authoritative.
I will also propose certain concrete solutions and decision support for your investing requirements, but please do not expect shortcuts or gimmicks. If I should categorize what I will share with you here, I’d label it as knowledge, experience and wisdom. The investing approach I propose is based on the foundation of four pillars: TRUTH … STRATEGY … DISCIPLINE … PATIENCE.
TRUTH: What I mean by truth is knowledge, but true knowledge – what is true and relevant – this is in itself a challenge since we are swamped with information daily and as you’ll see access to more information does not improve investment performance – to the contrary, it actually DIS-improves it, believe it or not.
STRATEGY: I am a strong proponent of systematic trend following, for a number of reasons, but just at a high level I can say categorically that
(A) over long stretches of market trends are far and away the most powerful drivers of investment performance, and
(B) systematic trend following is the only valid answer to the key problem facing all traders and investors, and that is UNCERTAINTY.
DISCIPLINE: this refers to two issues: your risk management discipline and sticking with a predetermined strategy – as opposed to drifting and letting yourself be tempted to trade on a whim…
Finally, PATIENCE: this is a part of that discipline – markets do not respond to our investments and they don’t work on our schedules. It is like in fishing… you throw your line and then you wait – you have to wait and have patience.
Why is this important?
We should take a moment to address an important question here, which is, why is investment management important? Why do we have to speculate at all and why should you pay attention? The reason is that under the current financial system, we have to actively manage our wealth. I believe that most everyone intuitively understands this: in our present monetary system, the currency’s purchasing power is being continually diluted through inflation. This predictably eats away at the value of your savings over time, so if you saved your money for the rainy day in your mattress, by the time that rainy day arrives, your money might not be worth very much. At the same time the “safe” investments are yielding close to zero returns. So, to avoid losing our wealth to inflation, we have to take risks and make investments that can generate positive returns.
Wealth: it’s a question of quality of life and your liberty!
This is not just a profane question of speculation for the sake of speculating; it’s not about gambling – it is about managing your savings and building your wealth – and this is extremely important because your wealth has a very strong impact on your quality of life and ultimately also on your own personal liberty.
Thomas Paine said that money had something sacred in it – something not to be sported with, or trusted to the airy bubble of paper currency.
Thomas Paine’s slightly younger contemporary, Alexander Hamilton linked the question of money to liberty:
So, the question of managing your investment portfolios isn’t about making a quick buck speculating – it is the matter of preserving and growing your wealth, it is the matter of your life’s quality and even of your personal liberty. This is why this challenge is well deserving of your close attention and your earnest endeavor to do a good job. As much as I can, I’d like to help you in that endeavor and this is precisely what this channel is about: it is for those among you who want to take a strategic approach to managing your portfolios and to grow your wealth steadily and gradually for the long haul. But for some investors this might require a change of mindset.
The requisite mindset change
What I know from some retail brokers is that most of their clients do what they call ‘message board trading,’ – short-term transactions in-and-out of the most popular securities for a quick gain. Also, many traders use their accounts with the idea of making X many dollars or euros per day to supplement their incomes. That is a sensible desire – but a desire is not a strategy. Still others use trading as a form of entertainment and some brokers have clearly exploited this inclination and modelled their services to look like trading games.
However, none of this is investing – it’s gambling, and as a rule, the results will prove disappointing. In fact, the brokers’ own statistics show that a large majority of their clients lose money. To avoid losing money and to grow your wealth for the long haul, you need a more disciplined, strategic approach.
Gimmicks vs. strategy
Some traders lack the patience and discipline to be truly successful. They want a shortcut to trading profits and they focus their attention on popular securities or they experiment with gimmicks that promise unrealistic results. Of course, they’ll find no shortage of people offering such gimmicks and promising miraculous profits. However as we know from the retail brokers themselves, the reality is that as many as 3 out of 4 individual investors lose money:
- ETX Capital: 75.6% lose money
- IG Group: 74% lose money
- Saxo Bank: 71% lose money
- Ava Trade: 71% lose money
- Plus 500: 76% lose money
This is in spite of the fact that over the last decade we’ve experienced the greatest bull market in history and every stock investor should have made huge profits.
A lifetime’s pursuit
Investing should properly be regarded as a long-term pursuit; in fact, it should be treated as a lifetime’s pursuit. Your success should be measured by how much you increase your wealth over time. Unlike gambling, which regularly ends in tears, investing should gradually grow your wealth, improve your life, expand your options and enhance your personal liberty. To be a successful investor, you should commit to a lifetime of learning: you should study markets and economics, but also your own psychology which will prove the ultimate deciding factor. It wasn’t for nothing that Benjamin Graham said that the “the investor’s chief problem – and even his worst enemy – is likely to be himself.”
The importance of learning
It should be obvious that in tackling any complex challenge, we must devote some effort to studying the subject matter. The best hunters read books about hunting; best chess players studiously read chess texts; top race car drivers read books about cars, about engines, about driving, and so on. Almost without exception, the most successful money managers spend a great deal of time studying everything that’s relevant to their work. Ultimately, the knowledge you acquire and build up over time should protect you from the many pitfalls and errors in investment trading.
The story of the Desert Fox
I’ll give you just one concrete example of the way this studious approach to a challenge can be decisive between success and failure. This story is centered in the military clash between German troops and allied forces in North Africa during World War II. At that time, the control of key Mediterranean ports on the coast of Africa and of the Suez Canal was hugely important to the British empire and to the allied war effort. When Mussolini attempted to seize control of Egypt, the British deployed their army and quickly pushed the Italian troops back far across the desert into Libya.
To counter the British and help his ally, in 1941 Hitler deployed an expeditionary force, the Afrika Korps under the command of General Erwin Rommel. Rommel had built up a reputation of phenomenal personal courage. His soldiers idolized him and completely trusted him. During the battles, it seemed that his spirit permeated all his troops and they invariably fought with extraordinary courage and determination. This all earned him great respect even among his enemies.
For two years, Rommel’s troops struck terror with the Allied forces. Against the odds and even with his troops outnumbered 3 to 1, Rommel ran circles around his enemies, winning battle after battle. For example in June 1942 his forces took control of Tobruk which was a strategic port of huge importance for the British. The Germans captured a large contingent of the British troops with less than half as many soldiers. This was a huge defeat and a massive humiliation for the British.
Such exploits built up a fearsome aura of invincibility for Rommel’s troops; they troops enjoyed high morale while at the same time allied troops spoke of Rommel with fear and respect. Even in battles when his forces were depleted, at one point with only some 30 tanks remaining, his enemies still widely expected him to win. Exasperated, Winston Churchill cried out in the House of Commons, “What else matters but beating him?”
To defeat Rommel, in August 1942 Churchill sent a very large reinforcement and a new command for the British troops. The Americans also sent a large contingent armed with an arsenal of American made weaponry including the new Sherman tanks. The American troops were motivated and highly confident but their first engagement with Rommel’s troops quickly crushed their morale: in November 1942, the Americans launched an attack on German positions but suffered a disastrous defeat. In the second attack, Rommel’s troops destroyed all of the Americans’ tanks – as many as 60 of them – and they did so without taking a single casualty.
Quickly, the American army learned to fear “the Desert Fox,” as they called General Rommel, repeatedly retreating in battles in order to cut their losses.
How knowledge (study and strategy) changed everything
Here is why this story is relevant for our purpose today. In early March 1943 General George Patton took over the command of the US forces which had grown weary of sustaining heavy losses against Rommel’s troops. Patton had done his homework and read General Rommel’s book on infantry tactics. Patton not only studied Rommel’s thinking and military tactics … he also understood Rommel as a man. In the second battle of Kasserine pass on 23 March 1943, the American troops – now emboldened by General Patton’s confident leadership – stood their ground and refused to retreat. In spite of huge losses on both sides, the Americans eventually prevailed and finally destroyed the myth of invincibility of the German Afrika Corps.
In turning the tide against Rommel’s forces, General Patton famously exclaimed, “Rommel, you magnificent bastard, I read your book!” Thus, Patton’s homework his effort to study and understand his enemy may have been the decisive factor that changed the outcome in an important World War II battleground.
Take the strategic, long-term approach!
As in warfare, so in investment trading, the work of acquiring and building up knowledge and wisdom should enable you to be successful so that you may grow your wealth steadily over your lifetime with less stress and greater quality of life. In launching the MARKETS, TRENDS AND PROFITS channel, I hope that I’ll be able to inspire you to bring discipline and strategy to your investing by sharing what I had learned as a market analyst and investment manager over the last 25 years.
In future videos and articles we’ll discuss financial and commodities markets, trend following, market psychology, risk management, and many other subjects relevant to our challenge. In the meantime, I have condensed much of that curriculum in two books I wrote. Mastering Uncertainty in Commodities Trading rated #1 book on FinancialExpert.co.uk list of “The 5 Best Commodities Books for Investors and Traders.” In March 2021 I published “Alex Krainer’s Trend Following Bible.”
There’s about 40% overlap between the two so if you’ll choose one, I’d recommend the Trend Following Bible because it’s more up to date and it contains some practical tips on trend following. I look forward to keeping in touch, so please be sure to subscribe to the channel, give this video a thumbs up and hit the notification bell so you’ll be alerted when I post the next video. I think you’ll find the discussions absolutely fascinating and very instructive. If you have questions you’d like me to address, please leave a comment.
In the meantime, keep well, stay free and I’ll see you soon!
Alex Krainer – @NakedHedgie is the creator of I-System Trend Following and publisher of TrendCompass reports, based in Monaco and contributing editor at ZeroHedge. He worked as a market analyst, researcher, trader and hedge fund manager for over 25 years. His second book “Grand Deception: The Browder Hoax” was twice banned on Amazon by orders of swamp creatures from the U.S. Department of State. He writes at ISystem-TF.com and occasionally also on his blog, TheNakedHedgie.com. His views and opinions are not always for polite society but they are always expressed in sincere pursuit of true knowledge and clear understanding of ideas that matter.