Taming the Lion. Richard Farleigh
Читать онлайн книгу.
as a trader and investor, I have been involved with many different types of markets. Since the early 1980s I have been a derivatives trader, a bond trader, a currency trader, a business angel and a stock investor. I have worked for an investment bank, a private hedge fund and for myself, managing my own funds. I have been very lucky because I have enjoyed all of it immensely, and I have produced good returns for others and myself along the way.
The most striking and satisfying thing that I have learnt from this experience is that the different markets have many similarities. This is contrary to what many people expect. I believe that in all markets:
Any genuine opportunity needs to be based on a sound observation.
Big ideas offer big opportunities.
Prices take time to absorb information.
Prices go further than generally expected.
Prices move in trends.
Crisis situations and panic buying or selling occur from time to time.
Investing requires a sensible approach to risk management.
Analysis requires recognition of both the bullish and the bearish arguments. A checklist is very useful.
‘Experts’ are often wrong, and the media oversell how easy it is to make money.
Because of these similarities, the various investing and trading opportunities offer the same types of challenges and opportunities, and they can be approached in much the same manner. I have even found that, for example, investing in an unlisted biotech company involves some similar skills to trading euros versus the dollar.
The ability for an investor to change focus can be very useful as investment opportunities shift from one market to another. In the late 80s and early 90s there were fantastic investments offered by the big falls in interest rates in the western economies. For nearly a decade after that opportunity waned, it was the stock market which had a brilliant run. More recently, commodities have been surging.
Investors and traders who only look at one type of market can be trapped without these big opportunities. They are trying to grow flowers in the desert. Sometimes, it can be useful to move elsewhere.
Consequently the 100 Strategies are applicable to a very broad range of investments. The idea is to find the right ideas and not waste time and money trying to eke out a return from barren areas.
Trading and investment are increasingly similar
It is probably best to clarify at this early stage that I believe trading and investment are increasingly similar. Traditionally, there is a distinct difference between the two. Investment is putting wealth into different markets with a long term view. Adjustments to the portfolio are made infrequently and at a slow pace. Trading, on the other hand, is holding positions for shorter periods of time, looking to make a faster profit, and then exiting. Investment tends to be buy and hold, whereas trading tends to be based on temporary reasons with an exit when those temporary reasons have dissipated.
However, successful investment increasingly recognises that the buy and hold strategy may not work. It may require a more timely response to what’s happening in the markets, since they can move a long way in a fairly short period of time.
Equally, as we will see, many short term trading opportunities in the markets no longer exist, and now the best opportunities may have a time horizon that extends into months and even years.
So, in these Strategies, I will not try to distinguish between trading and investing, and I will use the terms interchangeably.
Fundamentals
I will also use the term market ‘fundamentals’. These are all the factors affecting a market. Anything that influences, or potentially influences, demand and supply is a fundamental, whether it’s social, economic, political or the natural environment.
1.1 Fear the market
My first ever trading experience was a disaster. In 1984, fresh out of university, I started trading futures in my spare time. Futures can be very risky because of the leverage – whereby a small deposit can give you a large exposure to price moves.
I can’t remember why I was ever tempted into trading, but I do remember the result: over a few months I lost four thousand dollars. It was a lot of money to me, which I couldn’t really afford since, as a trainee, I was earning less than twenty thousand a year.
My mistakes
I had no experience and I did all the wrong things:
I started with positions which were way too big.
I stopped and started a new strategy every few days.
I had no long term view.
I didn’t really understand what was driving the market.
I grabbed profits as soon as I could and stayed with losing positions.
I listened to the views of other people who probably had no idea either, including brokers and people with fancy charts.
The result was to scare the life out of me. I had thought you could make money by trading, but I became convinced that it was impossible. I squared all of my positions and decided never to trade again.
Although it did not take long for me to break that vow, I have never forgotten that first unpleasant experience. Even now, when I make investments, I have a fear of the markets, and perhaps an underlying scepticism of my ability to outwit them. However, I am convinced that over the years, the fear I first experienced at that time has saved me a lot of money, and allowed me to stay in the business of trading.
I want you to have that same level of respect. I want to convince you that the market can be a horrible place where your money can just disappear very quickly. You’re throwing dice, tossing coins, whatever. There are no certainties and you don’t know what you’re up against.
“A hard way to make an easy living”
Cleanse yourself of any idea that it’s easy. You’re in for a difficult time. Like me, most traders and investors have had to learn this the hard way, at one time or another, by losing money and agonising over bad positions. By giving you this warning I’m trying to save you from that nightmare.
The market is much more difficult than you think. It acts like a huge super- computer as it effectively absorbs an unbelievable amount of information — more than any human being could fathom.
When you buy or sell in the market you are hoping that the current market price is wrong, that the super-computer is wrong. Now stop for a moment and think how incredible that would be. If you believe that the dollar will fall, what you actually believe is that the current price is flawed, even though it is the result of a huge amount of people dealing in a huge amount of money.
For that reason, when I am asked for my view on a currency or another market, I’m very reluctant to disagree with the price as it stands. I personally give the markets that level of respect — and I’ve been battling them with some success for a long time. Yet many people who lack any experience will happily put forward their view with an astonishing degree of unfounded confidence.
Don’t forget that these days there is intense analysis by funds and banks and that they still regularly get it wrong — often spectacularly wrong. So start with a degree of caution. Be like a lion tamer. The lion can be tamed, but only by maintaining a healthy fear of the lion.
1.2 Markets are more efficient than generally acknowledged
I often think of the market as an opponent, a living being to outwit and defeat. To ‘beat