Richard and Camilla

      Introduction

      When I started my career in a Sydney investment bank in my early twenties, I did not believe that I could outperform the markets. As a former economist and a chess player, investment and trading just seemed to be a form of gambling. I had no idea how the markets could offer any opportunities.

      Gradually, however, I came to believe that market prices are predictable, and within a few years I was running a trading desk dealing in hundreds of millions of dollars. Because I wanted a long and prosperous career, I developed a repeatable methodology which was based on observation and reasoning, not just on one-offs and luck.

      I had many beliefs which went against conventional wisdom, some of which included:

      Some things I simply tried to do better than other investors, these included being sure that I was chasing a genuine opportunity, managing my risks and coping with my losses.

      I also developed some trading systems, which were still being used years after I left the bank.

      As my trading results started to attract some attention, I was frequently asked to give presentations of my ideas to other professional traders. Question times often continued throughout dinner and in the bar. I learnt a lot from the feedback during these sessions. Like me, others were interested in an approach to investing which was based on first principles. I found that anecdotes were the best way to make a point, and that by presenting the ideas as a list of strategies I could show clearly how the methodology works and provide a useful summary.

      Years later, I am still using the same approach, and I have found that as well as the professionals, there are many amateurs who are keen to find out how markets work and how to improve their investment performance. These are the secrets that they want to discover.

      Structure of the book

      In this book I reveal those secrets and the thrills and pains I experienced in finding them. Many of these ideas and philosophies are now being adopted by successful hedge funds. They are presented as 100 different Strategies spread evenly over ten chapters.

      Chapter 1 – Markets

      My first trading experience resulted in a big loss. I was lucky! I quickly learnt how tough it can be. The most common mistake is to assume that investment success is easy. This is encouraged by so-called ‘expert’ views appearing in the media which imply that market prices are somehow flawed and that there are plenty of opportunities.

      The irony is that in thinking it’s too easy, investors make it more difficult! It leads them away from the truth. The starting point must be that market prices are normally about right, and that any opportunities can only be found by identifying their cause and understanding how they work. We need to be careful — experts are vastly overrated. Most professionals in the markets are not actually outguessing the price, but are making money from clients, transactions and commissions.

      The markets are increasingly challenging. Many opportunities that investors pursued years ago have simply disappeared. Speculation increasingly requires that the fundamentals are fully supportive. Even governments find it hard to push prices to the wrong levels.

      Fortunately I have found one shortcut in the investment world which works very well: the approach in these Strategies can be used for many different markets. I have used the same methods successfully over twenty years with currencies, bonds, property, stocks and private companies. It has enabled me to pursue investment opportunities wherever they may be found.

      Chapter 2 – Comparative Advantages

      An investor needs to spot genuine opportunities in order to make good consistent returns. A few market professionals can rely on the advantages of superior information, high quality analysis or client orders to help them predict future price moves, but for various reasons these advantages are dwindling, and anyway the ordinary