This is Trend Following Radio, where great thinking comes alive.

Nobel Prize winners, legendary traders, bestselling authors, and the pros that know what drive us irrational human beings.

I am your host, Michael Covel.

Not filtered, raw, honest.

That's my passion.

Back in the late 90s, the early 2000s, an author caught my eye, Michael Mobison.

He's gone on to write multiple books, great books, and always has this interesting perspective.

People say, outside the box, Michael goes outside the box all the

time. One of his white papers back in January of 2002, I'm looking at it now, so I can recall that,

caught my eye. It was called the Babe Ruth effect, frequency versus magnitude. And really

what it was getting at from my perspective, now Michael wasn't attempting to connect the dots

on trend following, but for me, a guy that was interested in trend following, I was like, wow,

this is fabulous. This white paper is outlining so much of what trend following is all about, which is that

the big wins, the rare few big wins, the magnitude of those big wins, the size will pay for

all your small losses.

And the predicate there is that in any kind of investing endeavor, you don't know what

the winners are going to be.

So you've got to place a lot of bets.

You're going to end up with big winners.

You're going to end up with small losses.

And what you're trying to capture is a positive expected value.

The Babe Ruth effect.

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