Podcast Summary: The Compound and Friends – Episode "Statement Risk"

Release Date: June 27, 2025
Title: Statement Risk
Host: The Compound (Downtown Josh Brown, Michael Batnick, and guests)
Guest: Cole Wilcox, Founder, CEO, and CIO of Longboard Asset Management

1. Introduction and Trending Topics

The episode kicks off with Josh Brown and Michael Batnick engaging in a light-hearted discussion about unusual business ventures, specifically a footwear startup collaborating with space companies to design a shoe in orbit. This segment underscores the hosts' penchant for exploring innovative and sometimes quirky business ideas.

Notable Quote:

• Josh Brown [00:24]: "A footwear startup is teaming up with two space companies to design a shoe in orbit as part of a mission to make artificial intelligence and blockchain less expensive and more eco-friendly than it is on Earth."

2. Deep Dive into Trend Following

The conversation swiftly transitions to the core topic: trend following in investing. Cole Wilcox introduces himself and his expertise, leading the trio into a comprehensive discussion on the mechanics and benefits of trend following strategies.

Key Discussions:

• Trend Following on Stocks vs. Multi-Asset:

  • Cole Wilcox [10:36]: Emphasizes the importance of systematic strategies to mitigate personal biases in investing.
  • Josh Brown [05:35]: Highlights that trend following works best as part of a diversified portfolio, complementing strategic asset allocation.

• Historical Context and Behavior:

  • Cole Wilcox [11:08]: Reflects on the impact of past market cycles on current investment strategies, noting how early experiences shape risk perception.
  • Michael Batnick [12:50]: Shares personal insights on how formative market experiences influence investment decisions and the tendency to seek analogies in current market conditions.

Notable Quotes:

• Cole Wilcox [13:19]: "A systematic approach doesn't have that memory [bias], you know, after you do the math."
• Josh Brown [06:15]: "Warren Buffett said it. Most turnarounds don't turn around."

3. Methodology of Trend Following

Cole delves into the specifics of his trend following strategy, elucidating how it helps in capital preservation and managing emotional responses during market volatility.

Key Topics:

• Capital Preservation:

  • Cole Wilcox [24:48]: Explains that trend following helps avoid permanent loss of capital by rotating into low-correlated assets like treasury bills during downturns.

• Technical Indicators:

  • Michael Batnick [40:48]: Inquires about the use of indicators beyond moving averages.
  • Cole Wilcox [40:48]: Mentions the use of new highs, new lows, and Average True Range (ATR) to assess volatility and set stop-loss parameters.

• Position Sizing and Risk Management:

  • Cole Wilcox [41:07]: Discusses risk weighting based on ATR to ensure equal risk exposure across positions.
  • Josh Brown [31:09]: Praises the simplicity of using moving averages to determine trend direction.

Notable Quotes:

• Cole Wilcox [24:51]: "We are rotating more into low correlated treasury bills and preserving capital."
• Josh Brown [40:41]: "I love that answer."

4. Performance and Comparisons

The discussion moves to the performance of Cole’s trend following strategies compared to traditional multi-asset trend funds and the broader market.

Key Insights:

• Robustness and Correlation:

  • Cole Wilcox [48:47]: Highlights that his strategy is highly uncorrelated to multi-asset trend following funds, making it an excellent diversifier.
  • Michael Batnick [56:16]: Points out that Cole’s approach differs fundamentally from other trend following strategies, which typically involve long-short positions across various asset classes.

• Long-Term Results:

  • Cole Wilcox [48:47]: Notes that his trend following on stocks has achieved three times the return of the SG Trend Index over the past decade, with lower drawdowns.

Notable Quotes:

• Cole Wilcox [48:55]: "We have lower drawdowns than this diversification."
• Michael Batnick [55:04]: "We're comparing against a multi-asset trend following basket, and Cole’s strategy stands apart."

5. Behavioral Finance and Investor Psychology

A substantial portion of the episode explores how trend following addresses behavioral biases and emotional decision-making among investors.

Key Discussions:

• Managing Emotional Responses:

  • Cole Wilcox [25:00]: Emphasizes that by reducing drawdowns, investors are less likely to deviate from their investment plans during downturns.
  • Michael Batnick [32:42]: Discusses how price reflects the collective sentiments of all market participants, making trend following a pragmatic approach.

• Investor Behavior in Different Generations:

  • Cole Wilcox [19:10]: Observes that younger investors are more informed and disciplined, often avoiding panic selling, unlike previous generations.
  • Michael Batnick [21:22]: Notes that Generation Z investors, who entered the market during COVID-19, exhibit higher retention rates and less reactive behavior during market fluctuations.

Notable Quotes:

• Josh Brown [30:08]: "Trend following is the least bullshitty way of deciding whether or not I'm buying and staying long or I'm getting out."
• Cole Wilcox [26:52]: "You're getting invested and you're able to stay invested and stay disciplined because you don't lose so much money."

6. Fund Structure and Future Prospects

Cole discusses the evolution of investment products, specifically the transition from mutual funds to ETFs, and how this impacts trend following strategies.

Key Topics:

• Mutual Funds vs. ETFs:

  • Cole Wilcox [50:14]: Expresses a preference for ETFs over mutual funds due to lower costs and greater accessibility for modern investors.
  • Michael Batnick [50:55]: Highlights the absence of trend following ETFs on individual securities as a market gap.

• Regulatory and Operational Considerations:

  • Cole Wilcox [51:15]: Anticipates that mutual funds will increasingly adopt ETF share classes, reducing operational costs and increasing market reach.
  • Discussion on Potential Products: Michael and Cole consider the feasibility and benefits of trend following sector-specific funds.

Notable Quotes:

• Cole Wilcox [50:51]: "If I was doing it today, I would do an ETF."
• Michael Batnick [55:13]: "We've always thought that when somebody makes a statement, price is truth."

7. Challenges and Misconceptions

The hosts address common misconceptions about trend following and the challenges in implementing such strategies effectively.

Key Insights:

• Cost Considerations:

  • Cole Wilcox [27:57]: Distinguishes between mathematical costs and emotional costs, stressing the importance of evaluating the value proposition.

• Operational Difficulty:

  • Michael Batnick [52:43]: Points out the complexity involved in creating trend following strategies across different sectors and asset classes.

• Behavioral Deviations:

  • Josh Brown [59:26]: Discusses the temptation to sell winning stocks to lock in profits and how trend following mitigates this behavior.

Notable Quotes:

• Michael Batnick [54:44]: "We’re not showing ourselves against the core long stock ETF."
• Cole Wilcox [43:31]: "It doesn't matter if you do too short term, it's not robust and you're just trading in and out."

8. Closing Thoughts and Future Outlook

As the episode wraps up, the hosts and Cole share their final thoughts on the future of trend following and investment strategies.

Key Discussions:

• Innovation in Investment Products:

  • Cole Wilcox [69:00]: Anticipates a surge in ETF share classes, facilitating broader access and reduced costs for investors.

• Personal Insights:

  • Michael Batnick [71:09]: Mentions upcoming projects and encourages listeners to explore related content on their Unlock channel.

Notable Quotes:

• Cole Wilcox [68:19]: "If you like the strategy."
• Josh Brown [68:42]: "This is the kiss of death."

Conclusion

In this episode of The Compound and Friends, the hosts and Cole Wilcox provide an in-depth exploration of trend following as an investment strategy. They examine its historical performance, methodological rigor, and the psychological benefits it offers to investors seeking to mitigate risk and maintain discipline during volatile markets. Cole’s insights into the uncorrelated nature of his stock-centric trend following strategy highlight its potential as a valuable diversifier in a well-rounded investment portfolio. Additionally, discussions on the evolution of investment products emphasize the growing relevance of ETFs and the future opportunities they present for trend following strategies. Overall, the episode serves as a comprehensive guide for investors interested in understanding and potentially integrating trend following into their investment approach.

Timestamps for Notable Quotes:

• Josh Brown [00:24]
• Cole Wilcox [13:19]
• Cole Wilcox [24:51]
• Josh Brown [40:41]
• Cole Wilcox [48:55]
• Josh Brown [30:08]
• Cole Wilcox [27:57]
• Cole Wilcox [50:14]
• Michael Batnick [54:44]
• Cole Wilcox [69:00]

This summary is intended for informational purposes and reflects the discussions and perspectives shared by the speakers during the podcast episode "Statement Risk." It is structured to provide a coherent and comprehensive overview for those who have not listened to the full episode.