The Compound and Friends - What Long-Term Investors Can Learn From Traders (with Josh and Scott Redler)

Starting point is 00:00:00 Hey, it's Downtown Josh Brown. I'm here at the New York Stock Exchange with my buddy, Scott Redler. You may know him as the Red Dog. What's up, Scott? How's it going? How's it going? So Scott has a new book out. And my favorite thing about the book is it's free. My second favorite thing about the book is Scott has been trading since 1998, veteran, more short-term oriented than I am. But I have always felt that there's a lot both camps could learn from each other. So that's what we're trying to do right now. First of all, what is the book about and why now?

Starting point is 00:00:31 It's an electronic book on moving averages. A lot of people out there, they fight the trend, they short strong stocks, they don't know how to hold things for- I used to do that. Everybody used to do that. Yeah. And we all evolved.

Starting point is 00:00:41 So basically, I always talk about the eight and 21-day moving average. Everyone's like, why do you talk about that? I'm like, that's because basically, I always talk about the 8 and 21-day moving average. Everyone's like, why do you talk about that? I'm like, that's because- The 8-day moving average and the 21-day moving average. Yeah. So one is a little bit more sloped, which means you're a lot more active. One is a little less, means you give things a bit more room.

Starting point is 00:00:56 But both of them together, I consider them the momentum trend. Are you looking for crossovers? Sometimes crossovers, or I just want to see it follow it. I want to see it stay above it. I want to see a trend. As a professional trader, we like to be in strong stocks, strong trends, and ride the market when it's healthy. And when you're above the 8 and 21 day on the S&P cash or in the Qs or tech or the small caps, that's a healthy market. So we try and ride that. Okay. So the market went up 30% last year, started this year off pretty good. We seem to be making a record high every other day.

Starting point is 00:01:27 Does that work really well for your strategy or not necessarily? It works fantastic because then it gives you a way to comfortably stick with the trend. Since October 11th, we've been above the 8 and 21 day. So what is it, November, December, January? The S&P has been above both the 8 and the 21. For the last three months? For four days, it was below. Four days, three and four months? Three months. About it. For four days, it was below.

Starting point is 00:01:46 Right. Four days. You could even got out there, which I did. I went from like 15 positions to five. And within four sessions, it was back above the 8 and 21 day and broke above 31.50. And now we're like, what, 3,300 on the S&P? So is that how you trade tactically? If the broader market breaks a trend, then you'll say, I'm too long. I own too many things.

Starting point is 00:02:06 I can say, I'll manage my position. So basically, in order to get to the 200-day moving average, which is like the institutional trend where longer-term money goes to work, what do you have to do first? You have to break the 8 and 21-day. So as an active trader- Way before. Way before. And since I'm at my desk with six screens, I'm on top of it, I can say, hey, I'm getting out here. The momentum is changing. And I can always revisit at the 50-day, the 100-day, and possibly the 200-day when more institutional-type money comes to work. So we have a tactical model in-house.

Starting point is 00:02:35 And we're looking at moving averages. But we're like way longer term because we're tax-sensitive and it's wealth management. It's not trading. Yes. But the same principle applies when you're breaking moving average. I think it's a function of the lens. How far back are you pulling it? So you're more short term oriented than I am, but that's what you do.

Starting point is 00:02:57 What I do say to guys long term, I say, hey, you know, if you're going to put flows in every month, which a lot of people do, that's the best way to save for the long term, whether it's college, whether it's retirement. Whenever you see the 200-day, which means we've probably had about a 7% correction, then maybe you double and triple up that month, and that's how you outpace or create alpha versus the S&P longer term. So use the breakdown to buy even more, whereas a trader might use that to say, okay, I want to lighten up. buy even more, whereas a trader might use that to say, okay, I want to lighten up. Well, if you lightened up at the 8 and 21 day, you could test the 200 day, which is usually a stronger, longer term trend. Okay. So tell me about the book. If people, they download it, it's electronic? Yeah. There's a link. You just click on the link,

Starting point is 00:03:37 you put your email in and boom, you get the electronic book. So what will people get out of that? They'll see the biggest, best names out there and how they followed the 8 and 21 day moving average the past three months and how you could have stayed with it. You could use chart patterns and a tier system to add for a cash flow to book some profits, stay with it. And you see how people are like, how could you do this? It's scary. No, it's not scary. If you have a process and you use your trend lines. What's scary? Like being a professional trader and just living by what the market gives you every day? Yeah. Well, you know what? It's scary to be a surgeon if you don't know what you're doing. It's scary to be a police officer. You just have to know what you're doing. You have to

Starting point is 00:04:09 have a process and follow it. Do you agree that you also have to have a certain temperament to do this professionally? And a lot of people that attempt it, they don't find out till later that they don't have that temperament? Well, a lot of people think that you need to be a gambler to be a trader. And it's the furthest thing from that. I need to be prepared. I need to be at my desk at 6.30 in the morning. You'll die if you're a gambler as a trader. Oh, yeah. For the most part. You know, you put hope and you're looking for the big win

Starting point is 00:04:32 where really trading is a blue-collar job. I don't want to say it like that, but it's every day. It's a grind. And you have to be prepared with the process. Otherwise, if you're looking for the quick fix and you're looking for the home run, you're going to strike out many times versus being like Jeter who just got in the Hall of Hall of Fame, who his on-base percentage was fantastic.

Starting point is 00:04:50 Right. So I think people that don't know trading, they see it from the outside. Their exposure to it is like Hollywood movies or like a book, like The Greatest Trade Ever. And so their assumption is like people that work down here are trying to hit a grand slam every day. No, it's not that sexy. You'll be done. Yeah. It's a long, I've been doing this since 1998. I've seen two or three different crashes. I've seen many bull markets and my process using the 8 and 21 day has kept me long or it's kept me tactical and out of the way and say, Hey, this is an unhealthy market. You know, back in 2008, I think I, by my best year, because,

Starting point is 00:05:24 you know, we were below the 200 day and we and there was volatility and we're just in and out. And we didn't, you know, hold our breath and go underwater because we were in a bad market. So your trades become shorter term when the market's in a downtrend. Yes. Your longs are less. They're rentals and you're doing less of that. Rentals. Okay.

Starting point is 00:05:42 Do you do anything outside of stocks? Do the same principles apply to futures? Yeah, I think you could use technicals for futures, for cryptocurrency. But you're a stock guy? Yeah. A lot of people are like, hey, Red Dog, why don't you trade futures? I'm like, you know what? Because I'm up before 45, then I'll be up all night, and I'll be a fragment of myself

Starting point is 00:05:59 with no sleep. And I say, you know what? Yeah, why don't you have trades on at 1 a.m.? What's wrong with you? I know. I should be up checking, and then get up three hours later and then be clear minded. Where'd you get the name Red Dog from? People, I know you for 10 years.

Starting point is 00:06:11 People have been calling you that the whole time. So how old is it? It's old from college. I used to bartend. So I paid my way through school by bartending and actually I'm seeing bar mitzvahs on the microphone. All right. So what else do you want to tell me? I just want to say that, you know, you can be a proprietary trader and you can make a living doing it. It just takes a lot of time.

Starting point is 00:06:28 I evolve every day. I'm still growing. I actually, not to toot my own horn, I had my best quarter last year for the first time in a while. And it's frustrating, you know, in any career, if you're not fulfilling your potential, the only way to fulfill your potential is to work hard at it and keep evolving and, you know, stop doing things that, you know, doing things that put you in harm's way. Right. I do say keep a journal. Talk to yourself. Create that little inner voice.

Starting point is 00:06:50 So this way when you're doing something wrong or you break a rule, it tells you, hey, Red Dog, you shouldn't be doing that again. Your inner voice calls you Red Dog too? It depends. Red Dog. It depends on the time of day. All right. Listen, I love you.

Starting point is 00:07:01 Tell us what the name of the book is called. Hey, Mike, what's my book called? Ultimate Guide to Moving Averages. Ultimate Guide to Moving Averages. And it's, you know, it's the Clifton version. It's not a thick book like people put out there. It's a quick read, you know, in high school or college when you didn't really want to do your homework and you wanted it done for you. That's what I did with the Ultimate Guide to Moving Averages. I did it for you. Are you going to do an audio version? It's a good idea. Just read it. Yeah. That's what I'll do. There you go. You're the man. Good to see you. Yeah, great to see you. Trade it well. All right. This has been Scott Radler. I'm downtown Josh Brown. Let us know

Starting point is 00:07:32 what your thoughts are. Let us know what your trading strategy is. If you're a trader, we'd love to hear about it. Make sure you go ahead and check out Scott's book. It's not going to cost you very much and it might turn you on to some new strategies that you haven't thought about. And we'll be back with you soon.

The Compound and Friends - What Long-Term Investors Can Learn From Traders (with Josh and Scott Redler)

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