Member Profile: CityTrader

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Interview
Beginner
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CityTrader

17 Feb, 2016

in Interviews

My Background
Growing up in suburban NW London, by the time I was taking my ‘A’ Levels, I had absolutely no idea what career I wanted to pursue. Through lack of any inspiration, I was signed up to City University (a Polytechnic in those days) to do a foundation course in accountancy. With all due respect to the number crunchers of the world, I’m sure it’s a wonderful career, but it just wasn’t for me. My parents noticed an ad’ in a paper: ‘Domestic & International Metal Traders require a trainee’. Apart from being in Kentish Town, it sounded exotic and that was my intro’ into the world of trading.

After a couple of years there I moved onto the London Metal Exchange (LME) and, at 20 years old, found myself transferred to New York for a very interesting couple of years! The LME was an amazing place to learn about futures, albeit with their arcane rolling three month settlement system. After only a few months on the LME floor, an opening became available broking metals to U.S. clients from the New York office. This involved a horrific 5.00 AM start to catch the opening of the London market but, I was 20, and sleep didn’t really seem to matter back then!

After I returned to the U.K. from New York, I worked at N.M.Rothschild, Citibank & Marc Rich as a precious metals trader, finally moving over to the stock market in 1986, joining (UBS) Phillips & Drew as a marker maker. Subsequently, I have worked for Kleinwort Benson and Deutsche Bank as a market maker and left the latter in 2003 to trade for myself. Being a market maker for a major investment bank in a bear market is a pretty lousy job. In spite of being well paid, the pressure is constantly on to buy stock from clients, yet still be expected to make money in a falling market. Not easy when, most of the time, there is no exit for the size of positions that we had to take. So, in early 2003 when Deutsche were looking for voluntary redundancies, I opted out, as I truly believed I could do better for myself. Or, at the very least, enjoy my life more than sitting at a desk for ten hours a day for somebody else. I’d always read - and been inspired by - the major trading books (especially Jack Schwager’s ‘Market Wizards’ series) and, with the rollout of broadband where I lived, trading for myself became a viable alternative to employment.

I live in London/Hertfordshire borders and spend a lot of time in Palma where I have a city centre apartment. I am an accomplished (published) photographer, love food, cinema, technology and exercise. Oh, and my family!

Trading - the early years
In some ways, 2003 was a great time to start out on my own. The markets had just started to recover from their tech crash slump. Volumes were picking up and volatility was manageable. I quickly realised that day trading wasn’t for me - so I became a combination of a position trader and an investor.

I have developed my own trading rules for situations: e.g. placing, rights issues and consolidations etc. - which I have worked hard to hone over the years. (NB: a ‘placing’ is an open offer of new shares to selected clients [of stockbrokers]. It is quite different to a rights issue whereby shares are issued in strict pre-determined ration to existing shareholders.) I will look at a chart for confirmation, but would never trade an individual stock purely from a chart. So, basically, I trade on fundamentals. I avoid natural resource companies listed on the AIM market like the plague, truly believing there is a disconnect between reality and what they want the market to believe. I prefer companies that have either a niche product, intellectual capital or, at the very least, generate revenue. When I put on a trade, in the back of my mind I have a profit figure, and will generally run a position until I have either made (or lost!) what I feel is appropriate. This tends to be a moving target dependent upon how my other positions are doing. I believe this to be a fundamental risk management tool. For example, when a trade is ‘paid for’ by other positions, there’s a tendency to let the loss run - which I don’t do. Conversely, should I be losing small amounts in other positions, I will cut a losing trade even quicker. Ultimately, I bear in mind the old saying: ‘there are only two types of losses: big or small. Choose which yours will be.’ Placing rights issues (limited distribution of new stock normally at a discount to the prevailing share price) tends to look good initially, but can quickly turn bad if the shareholder register is predominantly ‘fast money’, i.e. hedge funds and prop’ desks, etc.

Trading Now
I trade mainly AIM listings and stocks with small capitalisations. My view is that large cap’ stocks are over researched, over brokered and over traded. Whilst there is liquidity obviously, the profit margins are smaller. They are perfect for day trading, but not ideal for me. In the smaller cap’ universe, the trade off is often more volatility, but at the expense of liquidity. (At the time of writing, a post placing stock - R4E - has traded less the £30,000 worth - this is horribly illiquid for a recently re-capitalised stock.)

I find myself with fewer positions, and I’m cutting wrong trades a lot quicker than I used to, as I’m finding good stocks trading at bad prices more and more. And, as John Maynard Keynes famously said: “The markets can stay irrational longer than you can stay solvent!” I still like theme based trading - trying to pick the right stock to play with the right timing, e.g. the Graphene story for example. Investing in Graphene now is a matter of timing. The product seems almost too good to be true, but, how many companies will make money out of Graphene this year or next? In some ways, it’s like buying ARM Holdings in 2001 - a great stock but without any catalyst you could have sold them anytime in the following 6 or 7 years and not made any money and, like Fuel Cell stocks, owning the right stock with the wrong timing, will not make you any money.

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Great article,thank you for sharing it.

May 10, 2016

Member (15 posts)

Re: Member Profile: CityTrader

Thank you for sharing your story.
Interesting to read someone's experience trading AIM.

Feb 24, 2016

Member (1676 posts)

Re: Member Profile: CityTrader

I enjoyed the read. Considering you no longer day trade how long do you normally hold your positions now?

Feb 19, 2016

Member (56 posts)

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