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.
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.
I’d like to think that after all my time in the markets that my experience more than compensates for not having the fast reactions of my youth! So, being the first trade on a piece of news is no longer my goal. Twitter is becoming more and more relevant for gauging the sentiment of the market; it’s worth spending a lot of time trying to find where the signal is (on Twitter) and cut through the static. There’s an ever increasing amount of ‘pump and dump’ players, ramping stocks on Twitter, especially AIM natural resource stocks. But, ignoring these, there really are some valuable resources on Twitter: from brokers’ morning research notes, through an IB’s views on economic data to some quality stock research from talented stock followers. (Feel free to contact me via PM on T2W for a list of people I respect on Twitter.)
After winning ETX Capital’s ‘Beat the Broker’ competition in 2014, I’m in the process of setting up a training company called Aarcas Partners that’s capitalising on our market experience, to help others gain a foothold in the trading and investing arena.
Tips to pass on
- There is no golden goose.
- Never follow tips, as the guy who tips them is invariably not to be found when things go wrong.
- If you really need to put a stop on, never, ever use round numbers (i.e. put a sell stop in at 399, not at 400).
- It’s always darkest before dawn.
- Never paper trade.
Finally . . .
The markets haven’t been easy for the last few months and I don’t expect them to get any easier in the short term. Liquidity in a lot of stocks is awful at the moment, with risk capital being reduced.
I’ve found T2W a valuable resource for well rounded discussion and information exchange. A lot of traders work alone, either from home during the day or after their normal working day, so the sense of community within T2W is important.
Wayne (aka CityTrader) can be contacted at Aarcas Partners