Ep. 1392: Good People with Michael Covel on Trend Following Radio
Salem Abraham, a legendary trend follower and father of eight, reveals that his success stems not from complex models, but from a lifelong commitment to ethical behavior, relentless work ethic, and the ability to think 'crazy big'—a lesson learned from mentor Boone Pickens. He recounts how a childhood math epiphany at a Texas county fair taught him that odds can be manipulated, a mindset that later helped him identify trend following as a 'surefire way to win' by being on the winning side of the game. Abraham argues that modern financial institutions, despite hiring 'the smartest people,' are failing at true diversification by overexposing portfolios to correlated risks, especially stocks. He champions the CTA (Commodity Trading Advisor) space as the 'third pillar' of investing—non-correlated, risk-smoothing, and crucial during crises. His own mutual fund, the Abraham Fortress Fund, is built on this principle, aiming to deliver steady returns through diversification, not just market timing. He warns that the world is underestimating extreme risks like nuclear conflict and pandemics, urging investors to 'build a stormproof house' by studying worst-case scenarios and assigning them real odds, not just hoping for the best.
Treat people fairly and ethically—your reputation is your most valuable asset in small communities and long-term investing.
The key to success isn't just trading skill, but the ability to think 'crazy big'—multiply your biggest idea by 10 to break through self-imposed limits.
True diversification requires a 'third pillar' like CTAs—non-correlated, low-beta strategies that shine during market meltdowns when stocks fail.
Most endowments and pension funds are dangerously overexposed to stocks; a 79% stock market drop could require a 200% recovery, making proper diversification essential.
Build a 'stormproof house' by studying extreme risks—nuclear war, pandemics, currency collapse—not to panic, but to assign real odds and prepare.
…and 3 more takeaways available in PodZeus
The Birth of a Mentorship
Michael Covel reflects on his first book and how his early research led him to Salem Abraham, whose integrity and success in trend-following inspired Covel to seek a deeper connection.
Salem’s Life Principles: Fairness and Hustle
“You deal crap, you get crap. And in a small community, the circle is pretty tight. It helps you learn fast and quickly that you treat people fairly.”
From Fairground Math to Market Mastery
“There's a surefire way to win in Vegas. Everybody goes to Las Vegas or go gambling, and I'm like, look, go buy a casino. That's how you win.”
The Jerry Parker Moment: A Turning Point
“He had his chart book. I forget the ones. You get them every week. And then he would mark the charts. And then the next Monday, you'd get the new chart. It's like a newspaper chart book.”
The Power of Proof Over Theory
Abraham emphasizes that while he didn’t understand the 'why' of trend following at first, the 'proof of the pudding is in the eating'—consistent profits were enough to justify the strategy.
“If you have 80% exposure to stocks and you lose 80%, you're down almost two thirds. And if you're down two thirds, you got to make 200% back.”
“So to figure out the odds from that, and I tell people, I'm like, there's a surefire way to win in Vegas. Everybody goes to Las Vegas or go gambling, and I'm like, look, go buy a casino. That's how you win.”
“And you're like, well, that's crazy. And you're like, yeah, it's crazy only until you know it's possible, but we can get there.”
Host
Guest
Salem Abraham
person
Michael Covel
person
Jerry Parker
person
Boone Pickens
person
Abraham Fortress Fund
organization
Richard Dennis
person
Notre Dame
organization
Ukraine
place
Argentina
place
Stanford
organization
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